One of the OFT's key strategies over the last year has been its drive to assist businesses in achieving competition law compliance. Following a detailed consultation launched in October last year, the OFT has now published the final version of its competition compliance guidance (How your business can achieve compliance with competition law, OFT1341) and its guidance for company directors on competition law (Company directors and competition law, OFT1340). In addition the OFT has published a Quick Guide to Competition Law Compliance which provides a basic overview of the law and steps to take to comply, and a short film on competition law compliance.
The OFT has always made clear that it is not in a position to endorse individual compliance programmes, but the new guidance is intended to support businesses and company directors by providing practical guidance and will assist businesses when designing appropriate compliance measures.
How your business can achieve compliance
The OFT recognises that many businesses are keen to comply with competition rules and its compliance guidance is aimed at assisting businesses to achieve a compliance culture. The OFT also insists that there is no 'one size fits all' approach and that its suggested approach is of course not mandatory. Appropriate actions to achieve a compliance culture will vary depending on the size of the business and the nature of the risks identified, and the examples provided in the guidance for each step of the recommended four-step process are only there to give ideas as opposed to being compulsory.
The OFT guidance places commitment to compliance at the core of an effective compliance culture. There is a clear emphasis that any such commitment needs to be unambiguous and should first of all exist at senior management level as the board and senior management are ultimately accountable for ensuring the business' commitment to compliance. Commitment to compliance also needs to exist at all levels of the management chain. Without this unambiguous commitment the key steps to a compliance programme are unlikely to be effective. The guidance provides a series of examples as to the means by which this commitment can be communicated and demonstrated (e.g. chief executives and/or senior management should regularly communicate the importance of competition law compliance and should demonstrate their commitment by attending compliance training, one of the board members could have a dedicated role for driving compliance, establishing a confidential system for reporting compliance and introducing disciplinary sanctions).
The rest of the guidance suggests of a four-step, risk-based approach.
Step one: risk identification
The first step is for the company to identify the key competition law risks that are specific to its business. The risk will depend on the nature and size of the business. For some companies the key risks will relate to the risk of cartel activities, while others are more likely to need to address vertical issues or issues relating to dominance.
Step two: risk assessment
The second step is to assess each of the risks identified as high, medium or low risk, based on the likelihood of the risks occurring. The OFT suggests businesses may also find it helpful to identify a staff-based risk assessment, identifying employees' degree of exposure to the identified risks, which should help with tailoring appropriate risk mitigation activities.
Step three: risk mitigation
The third step is to identify appropriate risk mitigation activities. These will depend on the nature of the risks identified and on the assessment of those risks, but would generally include suitable training and appropriate policies and procedures, such as internal disciplinary procedures. The guidance provides a list of examples of appropriate procedural measures but makes clear that there is no 'one size fits all' approach and that appropriate actions will vary depending on the size and activities of the business concerned.
Step four: review
Finally, companies should undertake a regular review of their compliance systems in order to ensure that there is indeed unambiguous commitment from the top down, that the risks identified have not changed and that the risk mitigation activities are appropriate and effective. Again, there is no standard review period and much will depend on the nature of the business and particular activities it has been involved in; for example acquisition of another business or entering a different business area.
Compliance activities and the amount of a penalty
The OFT's starting point when setting the amount of a financial penalty for breach of a competition law infringement by a company that has undertaken compliance activities is neutral: there are no automatic discounts or increases in the level of penalty because of the existence of the compliance programme.
However, where the OFT considers that adequate steps have been taken by the company to ensure compliance with the competition rules, this could qualify as a mitigating factor and may result in the fine being reduced by up to 10 %. Each case will be assessed on its merits and the steps taken must be appropriate to the size of the business concerned and its exposure to competition law risk.
The OFT will not treat the existence of a compliance programme as an aggravating factor (unless the purported compliance has for example been used to facilitate the infringement or to mislead the OFT), as it recognises that such an approach could be a disincentive for businesses to engage in competition law compliance activities.
Company Directors and Competition Law
The second document is specifically aimed at directors and provides further guidance on their duties under competition law, in particular, in light of the OFT's revised guidance on director disqualification orders.
In its revised guidance on competition disqualification orders (CDOs) the OFT sets out its intention to apply for CDOs not only in cases where a director was directly involved in a breach of the competition rules, but also in cases where a director 'ought to have known' about a competition law breach. In light of this higher standard, the OFT agreed it would be helpful to issue additional compliance guidance aimed specifically at directors in order to minimise the risk of CDOs being made against them. The guidance provides information on the principles, types of behaviour and extent of knowledge that will be relevant to directors when considering their responsibility under competition law.
The director's role
For the purposes of the application of CDOs, the OFT will first of all take into account the director's role in the company, as this will determine the level of understanding of competition law it is reasonable to expect of the director and the steps the director can be expected to take to prevent or detect infringements.
- Executive and non-executive directors
The OFT expects executive directors to have a more detailed understanding of and familiarity with the way in which the company operates on a day to day basis. Non-executive directors on the other hand are not expected to have an intimate knowledge of the company's day to day transactions, but are expected to challenge the decisions and actions of the executive directors. The OFT expects non-executive directors to ask appropriate questions of the company's executives in order to ensure that appropriate compliance methods are in place to prevent and detect competition law breaches.
- Executive directors’ responsibilities within the company
It is also necessary to consider the director's specific role within the company. Certain areas of business, such as sales departments, are more likely to be exposed to the risk of competition law infringements than others, and the OFT expects directors in charge of those areas to take greater steps to prevent and detect breaches of competition law.
- Size of the company
The roles of company directors will also differ depending on the size of the company. Directors in smaller organisations may have a more intimate knowledge of day to day activities and transactions and may therefore be more likely to be aware of actual or potential breaches. Directors in larger organisations are not expected to have an intimate knowledge of all day to day activities, but will be expected to take steps to ensure that appropriate systems are in place to prevent and detect breaches of competition law.
Knowledge of competition law
Although the OFT does not expect all directors to have specific competition law expertise, it does expect all directors to understand the most serious forms of infringement (price fixing, bid rigging, market sharing, limiting production, sharing commercially sensitive information between competitors, resale price maintenance). In addition, the OFT believes that directors should have sufficient understanding of the principles of competition law to be able to recognise risks and to realise when to make further enquiries or seek legal advice. Any extra knowledge assumed will depend on the director's responsibility. For example, a director with responsibility for commercial contracts is expected to understand which types of commercial contract are most likely to contain anti-competitive provisions.
A director with responsibility for competition law compliance will be expected to have a sufficient grasp of the principles of competition law in order to identify and assess the types of risk to which the company is exposed, and to take reasonable steps to address those risks. Provided he has done so, a compliance director is not expected to have a greater awareness of specific infringements by the company than any other director.
Detecting and preventing infringements
The guidance sets out how the OFT will decide whether a director had reasonable grounds to suspect a breach of competition law by the company but took no steps to prevent it, and whether a director did not know but ought to have known that the company was infringing the competition rules. As an overriding principle, failure to keep himself informed cannot absolve a director from his responsibility for infringement.
The steps a director will be expected to take in order to detect and prevent infringements will again depend on the director's role in the company and its size. Where a director has immediate management responsibility, the OFT considers that he ought to have greater awareness of any anti-competitive behaviour within the business area for which he is responsible.
The role of compliance directors is to introduce and maintain appropriate measures to identify, assess and mitigate the company's exposure to competition law infringements, but the fact that a company has appointed a compliance director does not absolve the other directors of their responsibilities under competition law.
Non-executive directors are expected to make reasonable enquiries of the company's executive directors to satisfy themselves that executive directors have demonstrated a commitment to competition law compliance, taken appropriate steps to identify and assess the company's exposure to competition law risks and to mitigate those risks, and are keeping the company's exposure to risk and its compliance measures under regular review.
The final section of the draft guidance sets out some practical case scenarios demonstrating under which circumstances the OFT is (or is not) likely to apply for a CDO.