To enforce and comply – UK Experience

Andrea Appella

Director of International

ACLE, 5th March 2009

Overview • The OFT’s focus is on delivering high-impact

outcomes, not outputs.

• Compliance via deterrence (not case volume) and education.

• Criminal sanctions are strongest deterrent, but other factors also play an important role.

• Prioritisation strategy is key to achieving good outcomes.

• Evaluation: ex post, ex-ante and wider impact.

OFT Framework

Education, Guidance & Advice

Dialogue

Warnings

Undertakings

Penalties

Civil

action

Self Regulation

Crim

Action

Established Means

Achieving deterrence - theory• Cartel gain vs probability of detection X penalty value

• Gain from Cartel– 10 to 30 per cent above the competitive prices

– Natural life of ‘typical’ cartel thought to be around 6 years

• Likelihood of detection– Mainly public enforcement & Prioritisation of high impact

cases

• Example of why fines may not deter– E.g., prices 5 per cent higher for 6 years & detection rate of 25

per cent

– 120% relevant turnover to deter: exceeds the statutory maximum

Achieving deterrence - evidence

• Deloitte survey (2007) shows deterrent effect for OFT enforcement: cartels

– Legal survey 5:1 Company survey 16:1

• International experience– Criminal sanctions taken more seriously by companies and

individuals

• Other factors relevant to deterrence– Sanctions for individuals – criminal/ director disqualification– Adverse publicity (N.B. link to penalties)– Private damages actions

Importance of current sanctions: focus on individual criminal penalties

Source: 2007 Deloitte Survey (pre-dates recent cases)

1

2

3

4

5

Criminal penalties

Fines

Director disqualification

Bad publicity

Private damages

Criminal penalties

Director disqualification

Bad publicity

Fines

Private damages

Lawyers Companies

OFT cartel enforcement in practice• First fruits of criminal cartel regime

• Entry into force in June 2003 – not retrospective• First successful prosecutions in Marine hose

• Significant prison sentences of between 2½ and 3 years (reduced on appeal)

• Director disqualification of between 5 and 7 years• Confiscation orders

• Charges brought against four current and former BA executives in Passenger fuel surcharge case

• Use of criminal investigation powers

• First search of domestic premises in Marine hose

Significance of criminal penalties

• Strong deterrence message

• Concrete demonstration of personal risks for individuals of engaging in cartel conduct

• Marine Hose: example of international cooperation in action

• Additional impetus for compliance

• Increase importance of competition compliance

• Encourage a more proactive approach to compliance

• Further destabilise cartels

• Impetus for leniency

• Virtuous circle of enforcement

Virtuous Circle of Enforcement

OFT Enforcement

Action

IncreasedDeterrence

Cartel Instability

Impetus for Immunity

How to improve deterrence: legal advisor vs company views

Source: 2007 Deloitte Survey (pre-dates recent cases)

1

2

3

4

5

Private damages

Criminal prosecutions

Publicity and education

Faster decision making

More activity

Publicity and education

More activity

Larger fines

Faster decision making

Legal clarity

Lawyers Companies

Prioritisation is key for good outcomes

Objectives of Prioritisation:• Making the best use of resources to maximise

impact• Ensuring decisions about what work to undertake

are taken consistently across the office• Identifying ex ante what we expect to achieve • Portfolio management• Clarity/creation of external expectation• Improving quality of complaints

Prioritisation principles (October 2008)

Balance of four factors:

Impact: Direct and indirect impact (including deterrence) on consumer welfare and the economy

Impact Significance Risk Resources

Risk: Expected risk at outset of project.

Risk if we do not act

Resources: People and monetary resources needed

Significance: Strategic impact, innovation, precedent setting, capacity building, whether OFT best placed to act

The Principles are a tool for understanding and explaining what factors we take into account – they do not make decisions for

us.

Conclusions on the UK experience• A range of tools to achieve compliance

– Enforcement is only one part of the framework

– Education and guidance play equally important roles

• Criminal sanctions are strongest deterrent– High financial penalties may not be sufficient to deter

– Criminal cartel law is expensive!

• OFT’s high-impact work recognised in NAO’s Report published today. Evaluation is leading to reflection and improvement.

• International networks and organisations are important for sharing knowledge and best practices.