hassan qaqaya, strategic advisor adam smith international, london competititon development...

Hassan Qaqaya, Strategic Advisor

Adam Smith International, London

Competititon Development FoundationCompetititon Development FoundationRoundtableRoundtable

Prevention and Compliance: what a competititon Prevention and Compliance: what a competititon agency and an undertaking can do?agency and an undertaking can do?

Global experienceGlobal experience

9th September, 2015 ,Kiev9th September, 2015 ,Kiev

ContentContent

1.1. IntroductionIntroduction2.2. Common features of a compliance programCommon features of a compliance program3.3. Trends in selected jurisdictionsTrends in selected jurisdictions4.4. Sanctions and remediesSanctions and remedies5.5. Challenges and opportunitiesChallenges and opportunities6.6. Concluding remarksConcluding remarks

IntroductionIntroduction Competition rules and their application in practice by Competition rules and their application in practice by

competition authorities are often difficult to understand and competition authorities are often difficult to understand and predict. This leaves companies with many unclear aspects predict. This leaves companies with many unclear aspects when running their daily business. Competition rules should when running their daily business. Competition rules should be designed to ensure not only that authorities and judges be designed to ensure not only that authorities and judges are able to apply them correctly and consistently, but also are able to apply them correctly and consistently, but also that companies are able to self assess where they stand and that companies are able to self assess where they stand and take the necessary measures to ensure compliance.take the necessary measures to ensure compliance.

Preventing anti-competitive practices is far more efficient Preventing anti-competitive practices is far more efficient than investigating and sanctioning violations after they than investigating and sanctioning violations after they occur; however, breaches still happen and agencies would occur; however, breaches still happen and agencies would need to deter further violations. need to deter further violations.

CAs are in the ideal position to encourage and facilitate the CAs are in the ideal position to encourage and facilitate the exchange of best practices on compliance among businesses. exchange of best practices on compliance among businesses. They should also make additional efforts to give directions to They should also make additional efforts to give directions to companies willing to implement compliance programs.companies willing to implement compliance programs.

Common features of a compliance Common features of a compliance programprogram

1. 1. Endorsement by and commitment of senior Endorsement by and commitment of senior managementmanagement::

There must be a strong and clear policy There must be a strong and clear policy statement by top management that competition statement by top management that competition compliance is a core part of the corporate compliance is a core part of the corporate culture and that the company’s management culture and that the company’s management expects employees to comply with competition expects employees to comply with competition rules. Corporate commitment is a fundamental rules. Corporate commitment is a fundamental precondition for effectively instilling a culture precondition for effectively instilling a culture of compliance within a business. This will in of compliance within a business. This will in most cases be reflected in the company’s most cases be reflected in the company’s standards of business conduct, or any similar standards of business conduct, or any similar internal code in an SME, and must send a clear internal code in an SME, and must send a clear and unambiguous message from the and unambiguous message from the management to the employeesmanagement to the employees


2. Proper policy and procedures:2. Proper policy and procedures:

EEvery company, big or small, to different very company, big or small, to different degrees has policies and procedures that degrees has policies and procedures that govern its internal functioning, including key govern its internal functioning, including key control checklists to ensure that risks of any control checklists to ensure that risks of any nature are readily identified, prevented, nature are readily identified, prevented, remedied or mitigated. These procedures and remedied or mitigated. These procedures and key controls should be tailored to accommodate key controls should be tailored to accommodate the demands of a robust anti-trust compliance the demands of a robust anti-trust compliance program. In an SME context, this could, for program. In an SME context, this could, for example, mean introducing the employees’ duty example, mean introducing the employees’ duty to seek preliminary legal advice in case of any to seek preliminary legal advice in case of any doubt of non-compliance. Everyone concerned doubt of non-compliance. Everyone concerned should know whom to contact. should know whom to contact.


3. Identification of responsibilities:3. Identification of responsibilities:

Senior management is responsible for Senior management is responsible for instilling a culture of compliance and instilling a culture of compliance and integrity. A member of the staff should be integrity. A member of the staff should be appointed as responsible for the compliance appointed as responsible for the compliance program. This is likely in most cases to be a program. This is likely in most cases to be a senior member of the legal team and will senior member of the legal team and will report to the board. An SME could either report to the board. An SME could either assign this role to its in-house counsel or assign this role to its in-house counsel or outsource this function to its external legal outsource this function to its external legal adviser. adviser.


4. Adequate resources:4. Adequate resources:

A robust compliance program needs to be A robust compliance program needs to be adequately resourced. Compliance efforts adequately resourced. Compliance efforts should focus first and foremost on those should focus first and foremost on those aspects of competition law where the company aspects of competition law where the company is most exposed. Whether a group of companies is most exposed. Whether a group of companies is decentralised or strictly governed from the is decentralised or strictly governed from the centre, there will be a need for some structure centre, there will be a need for some structure capable of ensuring that risks are identified and capable of ensuring that risks are identified and dealt with, and that training and advice are dealt with, and that training and advice are provided. An SME is likely to need a much less provided. An SME is likely to need a much less complex program than a large corporation, and complex program than a large corporation, and the resources should of course be proportionate the resources should of course be proportionate to that specific programto that specific program


5. Specific training: 5. Specific training: Ideally all employees ought to be exposed to Ideally all employees ought to be exposed to

a general training session, notably as part of a general training session, notably as part of their introduction when joining the their introduction when joining the organisation. Targeted sessions will also be organisation. Targeted sessions will also be needed on the issues that certain categories needed on the issues that certain categories of employees are most likely to be of employees are most likely to be confronted with. The legal team should confronted with. The legal team should undergo specific training enabling it to undergo specific training enabling it to counsel colleagues on the details of counsel colleagues on the details of competition law. In case of SMEs, it will be competition law. In case of SMEs, it will be sufficient to ensure that employees regularly sufficient to ensure that employees regularly receive simple, clear and up-to-date receive simple, clear and up-to-date information on the major and most common information on the major and most common antitrust issues they might be confronted antitrust issues they might be confronted with in their daily activity and an obligation with in their daily activity and an obligation to consult the in-house counsel in case of to consult the in-house counsel in case of doubt.doubt.


6. Effective control:6. Effective control: any compliance action will need to be any compliance action will need to be

followed-up by an effective control from the followed-up by an effective control from the management. However, ideally the management. However, ideally the compliance action should instill in each compliance action should instill in each employee the consciousness that respecting employee the consciousness that respecting the rules is in the interest of all the staff in the rules is in the interest of all the staff in the first place. Therefore, a certain degree the first place. Therefore, a certain degree of self-control is desirable to achieve really of self-control is desirable to achieve really effective compliance. effective compliance.


7. Sanctions and rewards:7. Sanctions and rewards:

The code of conduct of the company must The code of conduct of the company must make it absolutely clear that violation of any make it absolutely clear that violation of any law, including competition law, will not be law, including competition law, will not be tolerated and will lead to disciplinary action, tolerated and will lead to disciplinary action, including termination of employment as including termination of employment as appropriate. At the same time, initiatives appropriate. At the same time, initiatives and proposals by the staff that improve and proposals by the staff that improve compliance should be visibly rewarded, as compliance should be visibly rewarded, as they contribute to the compliance culture they contribute to the compliance culture and promote discipline. and promote discipline.


8. Regular evaluation and evolution:8. Regular evaluation and evolution:

It is important to monitor and improve the It is important to monitor and improve the functioning of program, notably by regularly functioning of program, notably by regularly testing the level of competition law testing the level of competition law knowledge of employees, or by collecting knowledge of employees, or by collecting the experience of the various business units the experience of the various business units throughout a region and encouraging throughout a region and encouraging comments and reports on the workings of comments and reports on the workings of the programthe program

Trends in selected jurisdictionsTrends in selected jurisdictions

Authorities in a number of key antitrust Authorities in a number of key antitrust jurisdictions provide guidance - often very jurisdictions provide guidance - often very detailed - on how companies can drive antitrust detailed - on how companies can drive antitrust compliance. Several authorities go evencompliance. Several authorities go even

further, providing a 'template' or framework for further, providing a 'template' or framework for antitrust compliance program - see for example antitrust compliance program - see for example Australia Australia (which provides four differentiated (which provides four differentiated templates), templates), CanadaCanada, , Japan Japan as well as efforts as well as efforts undertaken in the undertaken in the NetherlandsNetherlands).).


The genuine commitment of certain authorities The genuine commitment of certain authorities to compliance efforts is reflected by a to compliance efforts is reflected by a willingness to 'endorse' or 'certify' a particular willingness to 'endorse' or 'certify' a particular program meeting (stringent) criteria (program meeting (stringent) criteria (BrazilBrazil, , KoreaKorea).).

Many countries specifically recognize that Many countries specifically recognize that compliance guidance will differ according to compliance guidance will differ according to size/sophistication/risk profile of the company. size/sophistication/risk profile of the company. In particular, In particular, Canada Canada provides guidance provides guidance tailored to SMEs (and the detailed tailored to SMEs (and the detailed UK UK guidance guidance acknowledges that SMEs face different issues).acknowledges that SMEs face different issues).


Some antitrust authorities spend significant effort Some antitrust authorities spend significant effort and resources in engaging in advocacy and and resources in engaging in advocacy and outreach to change societal and business norms to outreach to change societal and business norms to accept and expect a culture of compliance (accept and expect a culture of compliance (BrazilBrazil).).

The significant role of an effective compliance The significant role of an effective compliance program is reflected by the fact that, in a number program is reflected by the fact that, in a number of jurisdictions, companies may be required to give of jurisdictions, companies may be required to give an undertaking (at the enforcement stage) to an undertaking (at the enforcement stage) to implement a compliance program (implement a compliance program (CanadaCanada, , South South AfricaAfrica).).


Certain antitrust authorities have devoted Certain antitrust authorities have devoted significant resources to understanding which significant resources to understanding which factors drive compliance (and non-compliance) with factors drive compliance (and non-compliance) with antitrust law: the ACCC in antitrust law: the ACCC in Australia Australia refers to a refers to a three phase evolution it has observed over time -and three phase evolution it has observed over time -and the fact that a company rarely reverts to non-the fact that a company rarely reverts to non-compliance once it has progressed to the third compliance once it has progressed to the third phase.phase.

Detailed Detailed UK UK guidance (for both companies and guidance (for both companies and individuals) follows a major review of compliance individuals) follows a major review of compliance literature and company/adviser attitudes - reflecting literature and company/adviser attitudes - reflecting a philosophical commitment to driving compliance a philosophical commitment to driving compliance through avoidance as well through high fines etcthrough avoidance as well through high fines etc


In In JapanJapan, the Fair Trade Institute (an , the Fair Trade Institute (an affiliate of the JFTC) helps companies affiliate of the JFTC) helps companies establish and implement compliance establish and implement compliance programs and has also established a sample programs and has also established a sample compliance program;compliance program;

in in Australia, Australia, compliance is regarded as an compliance is regarded as an "important component of the ACCC's "important component of the ACCC's integrated suite of compliance tools“integrated suite of compliance tools“

In In France, France, the “Autorite” describes the “Autorite” describes compliance as an "asset" for antitrust compliance as an "asset" for antitrust authorities.authorities.

Sanctions and remediesSanctions and remedies Competition law and policy only produce the Competition law and policy only produce the

desired effects if they are effectively implemented. desired effects if they are effectively implemented. A law that only exists on paper has no great value. A law that only exists on paper has no great value. Effective enforcement entails significant Effective enforcement entails significant challenges for young competition authorities, due challenges for young competition authorities, due to insufficient resources, a yet-to-be-improved level to insufficient resources, a yet-to-be-improved level of expertise of their staff, lack of political support of expertise of their staff, lack of political support from other government bodies, and a general from other government bodies, and a general unawareness competition law and policy in the unawareness competition law and policy in the business community.business community.

Safeguarding competition, the primary objective of Safeguarding competition, the primary objective of most competition laws, requires companies to most competition laws, requires companies to comply with compulsory provisions of procedural comply with compulsory provisions of procedural or substantive nature. Hence appropriate sanctions or substantive nature. Hence appropriate sanctions and remedies are of particular importance.and remedies are of particular importance.

Given that the restriction of rights and freedoms by Given that the restriction of rights and freedoms by

decisions in competition cases, such as the decisions in competition cases, such as the prohibition of a proposed merger or the imposition prohibition of a proposed merger or the imposition of a fine, the rule of law requires that the of a fine, the rule of law requires that the undertakings concerned have access to judicial undertakings concerned have access to judicial review.review.

Sanctions are meant to deter unlawful conduct in Sanctions are meant to deter unlawful conduct in the future, to force violators to disgorge their illegal the future, to force violators to disgorge their illegal gains and compensate victims. They serve the gains and compensate victims. They serve the purposes of punishing past and present illegal purposes of punishing past and present illegal behaviour and deterring from infringing the law. behaviour and deterring from infringing the law. Deterrence aims at preventing recidivism of Deterrence aims at preventing recidivism of individual offenders, as well as at setting an individual offenders, as well as at setting an example to other potential offenders.example to other potential offenders.

Sanctions and remediesSanctions and remedies

In contrast, remedies that aim at maintaining or In contrast, remedies that aim at maintaining or

restoring competition in the future are not punitive restoring competition in the future are not punitive in nature. Typically, remedies are offered by the in nature. Typically, remedies are offered by the parties for example to a proposed merger in order parties for example to a proposed merger in order to eliminate competition concerns and to obtain to eliminate competition concerns and to obtain clearance by the competition authority . As opposed clearance by the competition authority . As opposed to sanctions which are unilaterally imposed upon a to sanctions which are unilaterally imposed upon a competition law offender, remedies are usually competition law offender, remedies are usually negotiated between the concerned party and the negotiated between the concerned party and the competition authority.competition authority.

Note that private enforcement has started to play a Note that private enforcement has started to play a

role in the field of competition law in a number of role in the field of competition law in a number of jurisdictions.jurisdictions.

Sanctions and Sanctions and remediesremedies

How to determine the appropriate How to determine the appropriate sanction?sanction?

When answering the question of how to When answering the question of how to determine the appropriate sanction, one needs determine the appropriate sanction, one needs to distinguish between the legislative level, i.e. to distinguish between the legislative level, i.e. the the legislative choice legislative choice to adopt ato adopt a

certain system of sanctions (administrative vs. certain system of sanctions (administrative vs. criminal, means of private enforcement), and criminal, means of private enforcement), and the enforcement levelthe enforcement level, i.e. the adoption of a , i.e. the adoption of a sanction in a concrete competition casesanction in a concrete competition case

The legislative choiceThe legislative choice

Although most competition legislation provides Although most competition legislation provides for administrative or civil sanctions in case of for administrative or civil sanctions in case of anti-competitive behaviour, there is a certain anti-competitive behaviour, there is a certain trend towards criminalization. Today, USA and trend towards criminalization. Today, USA and other countries – including Australia, Canada, other countries – including Australia, Canada, Israel, Japan and the United Kingdom – impose Israel, Japan and the United Kingdom – impose criminal sanctions on individuals.criminal sanctions on individuals.

It should, however, be pointed out that any It should, however, be pointed out that any sanction, regardless of its nature, will only sanction, regardless of its nature, will only produce the desired deterrent effect if the produce the desired deterrent effect if the probability that unlawful conduct will be probability that unlawful conduct will be detected and prosecuted is sufficiently high, detected and prosecuted is sufficiently high, and if the level of fines imposed upon the and if the level of fines imposed upon the wrongdoers is significant.wrongdoers is significant.

The legislative choiceThe legislative choice It should, however, be pointed out that any sanction, It should, however, be pointed out that any sanction,

regardless of its nature, will only produce the desired regardless of its nature, will only produce the desired deterrent effect if the probability that unlawful conduct will deterrent effect if the probability that unlawful conduct will be detected and prosecuted is sufficiently high, and if the be detected and prosecuted is sufficiently high, and if the level of fines imposed upon the wrongdoers is significant.level of fines imposed upon the wrongdoers is significant.

Apart from the trend of criminalization, private Apart from the trend of criminalization, private enforcement has recently also started to play a role in a enforcement has recently also started to play a role in a number of competition law systems. Proponents of private number of competition law systems. Proponents of private enforcement put forward that the principle of fairness enforcement put forward that the principle of fairness requires that antitrust infringers bear the costs of their requires that antitrust infringers bear the costs of their wrongdoing, and not their victims and law-abiding wrongdoing, and not their victims and law-abiding usinesses. Effective compensation mechanisms for private usinesses. Effective compensation mechanisms for private parties are also considered to increase the likelihood that parties are also considered to increase the likelihood that anticompetitive behaviour is detected and prosecutedanticompetitive behaviour is detected and prosecuted

Determination of the appropriate Determination of the appropriate sanction in a given casesanction in a given case

Determining the adequate level of fines as a demanding Determining the adequate level of fines as a demanding exercise. A number of competition authorities have exercise. A number of competition authorities have adopted guidelines setting out the method of setting adopted guidelines setting out the method of setting fines to be followed by the authorities. Such guidelines fines to be followed by the authorities. Such guidelines serve the purpose of transparency and equal treatment.serve the purpose of transparency and equal treatment.

Aggravating factors, such as a continuation or Aggravating factors, such as a continuation or repetition of the infringement or an important role in its repetition of the infringement or an important role in its realization may lead to an increase in the fine. In turn, realization may lead to an increase in the fine. In turn, mitigating circumstances result in a reduction of the mitigating circumstances result in a reduction of the fine. Most importantly, the cooperation by a fine. Most importantly, the cooperation by a competition law violator within the framework of a competition law violator within the framework of a leniency programme justifies a reduction of the leniency programme justifies a reduction of the respective fine. In addition, competition authorities may respective fine. In addition, competition authorities may reward a company’s willingness to agree on a reward a company’s willingness to agree on a settlement of a cartel case with a reduction of the finesettlement of a cartel case with a reduction of the fine..

Determination of the appropriate Determination of the appropriate sanction in a given casesanction in a given case

Young competition authorities report that they Young competition authorities report that they encounter difficulties gathering sufficient encounter difficulties gathering sufficient evidence to prove all relevant aspects for this evidence to prove all relevant aspects for this exercise, including e.g. the duration of an anti-exercise, including e.g. the duration of an anti-competitive agreement. In the case of a group competitive agreement. In the case of a group of companies, it may be difficult to determine of companies, it may be difficult to determine the legal entity ultimately responsible for the the legal entity ultimately responsible for the anti-competitive conductanti-competitive conduct

How to enforce sanctions How to enforce sanctions effectively?effectively?

Competition authorities may rely upon the Competition authorities may rely upon the intervention of the courts if a company does not intervention of the courts if a company does not pay an imposed fine. In such situation, the pay an imposed fine. In such situation, the functioning of a country’s judicial system also functioning of a country’s judicial system also affects the enforcement prospects of the respective affects the enforcement prospects of the respective competition authority.competition authority.

May face additional difficulties resulting from May face additional difficulties resulting from uncertainties as to their jurisdictional uncertainties as to their jurisdictional competencies and the applicable law.competencies and the applicable law.

The threat by a large company to exit the market The threat by a large company to exit the market or its announcement to lay off personnel mayor its announcement to lay off personnel may

have sufficient political weight to prevent the have sufficient political weight to prevent the enforcement of sanctions.enforcement of sanctions.

RemediesRemedies Competition law remedies are adopted with the aim to Competition law remedies are adopted with the aim to

maintain/restore competition in the market. This includes maintain/restore competition in the market. This includes (a) the “micro” goals of putting the infringement to an end, (a) the “micro” goals of putting the infringement to an end, compensating the victims, and curing the particular compensating the victims, and curing the particular Problem to competition; but also (b) the “macro goal” of Problem to competition; but also (b) the “macro goal” of putting incentives in place so as to minimize the recurrence putting incentives in place so as to minimize the recurrence of just such anti-competitive conduct.of just such anti-competitive conduct.

The design of optimal remedies requires a clear The design of optimal remedies requires a clear Identification of the competition law problem that the Identification of the competition law problem that the antitrust remedy is attempting to address. it is helpful to antitrust remedy is attempting to address. it is helpful to spend time early in the investigative process defining the spend time early in the investigative process defining the remedial objectives and developing a plan for attaining remedial objectives and developing a plan for attaining them.them.

Agencies should bear in mind that remedies are not tools of Agencies should bear in mind that remedies are not tools of industrial planning and are generally ill-suited to achieve industrial planning and are generally ill-suited to achieve aims wider then addressing the competitive detrimentsaims wider then addressing the competitive detriments..

Judicial review of competition Judicial review of competition casescases

Flawed decisions in competition cases may Flawed decisions in competition cases may infringe the rights of their addressees and third infringe the rights of their addressees and third parties. More generally, they may also parties. More generally, they may also negatively affect economic activity in anegatively affect economic activity in a

given country. Hence, state-of-the-art given country. Hence, state-of-the-art competition law enforcement requires the competition law enforcement requires the existence of mechanisms to ensure that existence of mechanisms to ensure that decisions taken by competition agencies are fair decisions taken by competition agencies are fair and lawful.and lawful.

The addressees of a competition decision and The addressees of a competition decision and possibly third parties need to be given the possibly third parties need to be given the possibility to appeal against the decision, if they possibility to appeal against the decision, if they feel that their rights have been violated. Such feel that their rights have been violated. Such mechanisms are referred to as judicial review.mechanisms are referred to as judicial review.

Judicial review of competition Judicial review of competition casescases

Judicial review itself is subject to the Judicial review itself is subject to the requirements of due process, which implies requirements of due process, which implies that all administrative and judicial decisions that all administrative and judicial decisions must be taken in a fair way, respecting the must be taken in a fair way, respecting the procedural rights of the parties concerned. procedural rights of the parties concerned. This means that the court that reviews the This means that the court that reviews the decision under appeal must hear both parties decision under appeal must hear both parties to the appeal. Also, the court’s decision needsto the appeal. Also, the court’s decision needs

to be in writing and set out the reasoning that to be in writing and set out the reasoning that led to the court’s ruling to allow the partiesled to the court’s ruling to allow the parties

and understanding of the court’s thinking.and understanding of the court’s thinking.

Concluding remarksConcluding remarks Enforcement and compliance Enforcement and compliance

programmes are part of a portfolio of programmes are part of a portfolio of tools which competition agencies can tools which competition agencies can use flexibly;use flexibly;

Enforcement and compliance are a Enforcement and compliance are a process and require permanent process and require permanent attention and resources.attention and resources.

CA therefore need to set priorities and CA therefore need to set priorities and use resources sparingly to meet use resources sparingly to meet objectives effectively and limit the cost objectives effectively and limit the cost of complaince to business.of complaince to business.

Both enforcement and compliance Both enforcement and compliance require indepenedence, accountability, require indepenedence, accountability, fairness and transparence in the fairness and transparence in the application of the competition lawapplication of the competition law..

hassan qaqaya, strategic advisor adam smith international, london competititon development...

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