Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Compliance

with 2 comments

Is the Office of Fair Trading racing for the prize of the most business-friendly competition authority in Europe?

I know this reads a bit controversial, but many have had the impression that, in recent years, the OFT was on a soft enforcement course, preferring to focus on high-level policy work, than on running – and terminating – cases.

A few days ago, the OFT issued a document entitled “OFT’s guidance as to the appropriate amount of a penalty“.

In this document, the OFT announces – with many caveats though – that firms that have compliance programme can benefit from mitigating circumstances.

Concretely, the OFT may offer a 10% haircut on the anticipated fine.

Here’s the text of the Guidelines:

§2.15 “Mitigating factors include: […] adequate steps having been taken with a view to ensuring compliance with Articles 101 and 102 and the Chapter I and Chapter II prohibitions

And footnote 26: “The starting position with regard to competition law compliance activities will be neutral but the OFT will consider carefully whether evidence presented of an undertaking’s compliance activities in a particular case merits a discount from the penalty of up to 10 per cent. Thus, the mere existence of compliance activities will not be treated as a mitigating factor. However, in an individual case, evidence of adequate steps having been taken to achieve a clear and unambiguous commitment to competition law compliance throughout the organisation (from the top down) – together with appropriate steps relating to competition law risk identification, risk assessment, risk mitigation and review activities – will likely be treated as a mitigating factor. The business will need to demonstrate that the steps taken were appropriate to the size of the business concerned and its overall level of competition risk. It will also need to present evidence on the steps it took to review its compliance activities, and change them as appropriate, in light of the events that led to the investigation at hand

I have expressed elsewhere my intuitive concerns about the sophistic argument that agencies should reward compliance programmes with discounts on fines, so as to induce firms to set up such programmes. Here’s what springs to mind:

First, it is somewhat odd to provide financial incentives to promote compliance with the law, or to be more accurate to reward the initiative of trying to comply with the law (in reality, the caught firm did not comply). If we push this logic to its end, agencies should then reward infringing companies if they can prove that they have hired lawyers to obtain regular competition advice.

Second, rewards on compliance programmes could have perverse effects, with firms adopting compliance programmes as a damage limitation mechanism, which limits the cost of punishment if they ever get caught. In other words, the reward on the existence of a compliance programme acts like an insurance policy, which in turns reduces firms risk aversion to antitrust infringements.

Third, a well-designed compliance programme can adversely promote the risk of antitrust infringement, if clever managers understand better how to exploit the loopholes and deficiencies of the antitrust enforcement system. Why reward this?

Finally, compliance programmes have benefits at any rate, and there’s no need for an additional fining stimulus to encourage their adoption. Compliance programmes promote awareness to what constitutes an antitrust infringement within firms, and to how much it costs to commit one. They  thus decrease the probability of antitrust infringement in the first place, and with it the risk of antitrust penalties.  Moreover, with better trained in-house lawyers and business executives, the legal costs of outsourcing of competitive assessments to external lawyers may decrease.

My bottom-line: rather than tinkering with the fining system to foster compliance, let’s just turn to individual sanctions (director disqualification and prison sentences).

Written by Nicolas Petit

12 September 2012 at 4:21 pm

Posted in Uncategorized

2 Responses

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  1. I’m afraid I cannot agree. Corporate liability is/should be based on its “culpa in vigilando”. If the company demonstrates that it has used all reasonable means to avoid competition infringements by any of its employees, this should certainly be taken into account by competition authorities. Please see new article 31.bis. 4 os Spanish Penal Code which considers it as a mitigating factor (although more on the French style…).
    http://www.cms-asl.com/Hubbard.FileSystem/files/Publication/a90955c3-bda5-4216-a0bc-2683ef3651ef/Presentation/PublicationAttachment/0555876b-3983-4928-94c0-27e3b1f885eb/Alerta_Competencia_Junio_2012.pdf

    CMS Spain

    13 September 2012 at 2:03 pm

  2. Considering the amount of the fines involved, I don’t think firms with a compliance program would become less risk averse in view of a reduction of only 10%. Also, the wording of the OFT guidance leaves ample room not to reward hypocritical programs. And as far as the clever managers that exploit the loopholes are concerned, I fully agree that they should receive handsome individual sanctions. But I find it quite right that their employers should get some slack if these managers clearly acted in breach of the company policy of compliance.

    Gerrit Oosterhuis

    17 September 2012 at 11:56 pm


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