The importance of compliance programmes
Having an effective competition compliance culture within an organisation can be the best way to ensure that competition law is effectively followed. The approach taken may vary between jurisdictions, but there is general acceptance that having a competition compliance programme is best practice. Given the increase in fines for breaches of competition law as well as the rise in private actions for damages due to anticompetitive conduct, it has become more important than ever for companies to have an effective and well-tailored compliance programme. Moreover, several directors and officer’s liability insurers require a compliance programme to be in place in order to obtain coverage, and potential investors in a company often enquire about the existence of such programmes.
It is paramount that businesses identify, evaluate, monitor, and mitigate risks resulting from anticompetitive activity. For any compliance programme to be effective, there must be clear behavioural parameters, along with organisational measures, for its development. Competition compliance must be ingrained into the ethos of the business and must form an integral part of the daily decision-making process. Competition authorities have recommended the adoption of a code for employees and employee-focused compliance training, together with periodic audits. It is also advisable to encourage employees to log all contact with competitors and facilitate confidential reporting of breaches to a compliance officer. For further information on the importance of competition compliance, see our previous alert, The effectiveness of fostering a competition compliance culture – a practical perspective, dated 31 July 2020.
However, there is jurisdictional divergence on the issue of whether companies should receive a discount from competition fines for having a robust compliance programme in place. Some jurisdictions offer discounts while others do not. Furthermore, even where discounts are offered, the fact that a company has a compliance programme in place does not automatically guarantee a discount; there needs to be evidence that the programme is appropriate. In rare cases, for example where the compliance programme is considered a cover for anticompetitive behaviour, a compliance programme could even amount to an aggravating circumstance. See the table below analysing the rules and guidance of key jurisdictions in which discounts are offered.
Competition law and compliance programmes
Competition law is designed to protect the economy, consumers, and businesses from anticompetitive behaviour and to promote healthy competition, innovation, and choices available to consumers. According to the Organisation for Economic Co-operation and Development (OECD), effective competition institutions have a positive effect on the level of GDP per capita, productivity, and economic growth (OECD Competition Trends 2020). Moreover, empirical studies highlighted by the OECD have found that competition law improves the productive efficiency within firms, as firms facing competition seem to be better managed and streamlined (OECD Factsheet on How Competition Policy Affects Macro-Economic Outcomes).
Businesses that have a greater understanding of competition law through compliance programmes and training are more likely to recognise commercial activities that may lead to anticompetitive outcomes. The consequences of a breach of competition law, whether by engaging in cartel activity or abuse of dominance, can be severe. This can range from large fines for the business (up to 10 per cent of worldwide turnover in some jurisdictions), void agreements, unlimited fines and imprisonment for individuals, director disqualification (up to 15 years), as well as reputational damage to the brand of a business.
A tailored and comprehensive compliance programme is particularly important for multinationals operating under a myriad of different jurisdictions and legal systems. In today’s global market and in the absence of any worldwide competition rules, a comprehensive competition compliance analysis requires review of many laws and jurisdictions. In 1970, only 12 jurisdictions had established competition law regimes; now, more than 125 jurisdictions have competition laws in place (OECD Competition Trends 2020). This highlights the growing significance of competition law and demonstrates the complex analysis that companies now have to undertake so as not to fall foul of its rules and regulations.
It is, therefore, imperative to identify competition law risks, and have compliance programmes in place to ensure that competition rules are successfully followed. Not only should the programme follow international best practices, but it should also be tailored to the characteristics of the company and the industry in which it operates. Companies should continue to monitor and update these programmes on a regular basis to maintain efficacy and follow regulatory trends. Such programmes have a multitude of benefits, which include:
- Ensuring full compliance with competition rules;
- Maximising the potential of a company to operate within the law;
- Detecting conduct contrary to competition laws on an early basis, allowing the adoption of measures to address the identified risks;
- Mitigating the company’s risk exposure in order to avoid regulatory enforcement action and penalties; and
- Reducing the fine for the anticompetitive behaviour (only possible in certain jurisdictions), since having a compliance programme in place may be viewed as a mitigating factor by the regulatory authorities.
In the event of a dawn raid, having a compliance programme may allow the company to avoid procedural infringements that may otherwise occur during this process. A compliance programme outlines the legal rights of the company and the cooperative steps that must be taken by employees during a raid. In the past, large fines have been imposed for procedural infringements during dawn raids. For instance, the European Commission fined E.ON €38 million for undermining the integrity of a dawn raid investigation after the company was found to have tampered with Commission seals. A compliance programme, which includes dawn raid training, may prevent such infringements from occurring, as employees at all levels would be able to understand and prepare for dawn raids. It is possible that an employee may still break protocol, but evidence of a robust compliance programme might mitigate the impact on the company resulting from the conduct of a rogue employee in certain jurisdictions that give credit for compliance programmes.
Compliance programme discounts in different jurisdictions
The following table outlines the approaches of key jurisdictions that offer discounts for businesses that have breached competition rules but have a compliance programme in place. These discounts may be specified in legislation or utilised in practice as a mitigating circumstance. In general, there is a trend towards more jurisdictions considering reductions on fines as a means by which to encourage more widespread compliance efforts.
It is our view that prevention is better than cure. For this reason, we favour the approach taken by many jurisdictions to offer discounts from fines as a means to provide an additional incentive for implementing a competition compliance programme. We would be interested to hear your views and experiences on the value of compliance, and invite you to contact the authors with your thoughts and comments.
To view the table, please download the PDF below.
Client Alert 2020-514
