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Why comply: The value of an effective compliance programme

Competition law infringements attract significant financial penalties, both in terms of fines and private damages claims. Logically, many companies seek to establish effective antitrust compliance programmes designed to help employees follow the competition rules and avoid costly breaches. In more and more jurisdictions competition authorities encourage companies to instil a robust compliance culture by dangling the “carrot” of a potential fine reduction in the event of a subsequent breach. Over the summer, the U.S. authorities joined the ranks of those enforcers that give credit for effective antitrust compliance programmes.

The question is, how best to design a robust compliance programme that will cut the mustard globally?

Major reversal in U.S. approach to compliance “carrots”

In July, the DOJ announced that it will offer companies credit for having in place “robust” corporate antitrust compliance programmes, reversing its longstanding policy on this issue. Going forward, the DOJ will consider compliance programmes in deciding whether to file criminal charges and in calculating fines for antitrust infringements. Also, when a company faces charges, it will now be eligible for a Deferred Prosecution Agreement, rather than having to plead guilty (see our Insights).

This about-turn by the DOJ has shone a light on the debate over the merits of crediting compliance efforts. The argument in favour is that giving credit for pre-existing programmes provides an incentive for companies to invest properly in antitrust compliance, thereby preventing violations, rather than waiting until a violation occurs.

“Given that this year the U.S. government has released guidance on its expectations for anticorruption, sanctions, False Claims Act, and antitrust compliance, it is an opportune time for companies to re-examine their programs to make sure they measure up.”

- Douglas Tween

Other jurisdictions that offer discounts

The new U.S. policy brings the DOJ into line with a significant number of competition authorities - including Australia, Brazil, Canada, Israel, Italy, Malaysia, Singapore, South Africa, Spain, Switzerland and the UK. These authorities will, in principle, consider a compliance programme as a mitigating factor in the calculation of fines.

Some authorities have also provided express guidance as to what may be considered sufficient to merit a reduction in any fine – and the potential amount of such a reduction. For instance, the CMA's penalties guidance notes that an existing compliance programme may be taken into account in granting a fine reduction of up to 10% and in deciding whether to impose a director disqualification order, and that the CMA will consider carefully whether evidence of any compliance activities in a particular case merits a discount. The mere existence of compliance activities will not be enough. The CMA has published separate guidance to assist businesses to achieve competition law compliance.

Meanwhile, the Italian authority has had formal guidelines in place since 2018 which set out in detail the required content of any effective compliance programme and the criteria that it will apply to determine whether, and to what extent, it will award a fine reduction.

Most recently, Russia’s Federal Antimonopoly Service introduced a draft bill to Parliament, which seeks to foster a culture of compliance by defining the requirements for compliance programmes in the Competition Law. This is a small step following previous attempts to make compliance programmes mandatory – if not for all companies active in Russia, then at least for those which are controlled by the Russian state – and, at the same time, to remove or reduce liability for competition law breaches by companies that have taken all reasonable steps to implement a robust compliance policy and acted in accordance with it. But including a legislative definition should facilitate adoption of further reforms in this area in the future.

The DOJ issued detailed guidance on what it will look for when evaluating corporate compliance programmes. The key principles highlighted by the DOJ are to: (i) ensure the programme is well designed; (ii) assess whether the programme is being implemented effectively; and (iii) ask whether the programme works in practice.

This is largely in line with best practice developed in other jurisdictions. We have condensed the most important and common elements of guidance provided by competition authorities globally to comprise a list of top tips for building effective compliance:

Proper design and comprehensiveness

Whilst it is generally recognised that there is no “one size fits all” model, authorities will consider a programme’s design, format and comprehensiveness, as well as its accessibility for employees and who takes operational responsibility for the programme within the company

Risk Identification

Effective compliance programmes should be tailored to a company’s business. The key competition law risks will vary depending on the nature and size of that business

 

Risk assessment

This involves considering in turn each of the risks identified above and assessing them as high, medium or low, for instance by reference to employees’ degree of exposure to antitrust law risk

Risk mitigation

This typically involves implementing suitable training activities, policies and procedures

Periodic risk monitoring and review

An effective compliance programme should feature review procedures and include proactive auditing - such as the collection of metrics and information - specifically aimed at uncovering any antitrust violations

Culture of compliance

Management (from the top down) must demonstrate a clear and unambiguous commitment to competition law compliance throughout the organisation

Reporting, incentives and remedial action

Compliance programmes should include mechanisms that allow employees to anonymously and confidentially report antitrust violations, provide incentives to ensure a programme is enforced and a process for handling remedial action taken by companies to prevent recurring violations

“It is as important as ever for companies to invest in developing and implementing a robust compliance policy from the top down – not only to reduce the risk of wilful or unintended breaches of competition law by employees, but also to potentially benefit from any available reduction in fines ultimately imposed by authorities down the line.”

- Jonas Koponen

The opposing view: no reward for ineffective compliance measures

Meanwhile, the EC continues to refuse to treat compliance programmes as a mitigating factor when setting cartel fines, its reasoning being encapsulated in former Commissioner Almunia's question "why would I reward a compliance programme that has failed?". Similarly, Belgium, Japan and South Korea do not provide for any mitigation of fines, whilst both France and India have reversed their earlier, more generous, approach and now rule out discounts for any compliance programmes that are implemented after the anti-competitive conduct occurred.

For other jurisdictions, the position is unclear, or the law is silent. This is the case, for instance, in Germany and China.

Does greater compliance = less enforcement?

In recent years, a debate has raged over the causes behind a reduction in enforcement by authorities in the cartel space. This may in part be due to companies being less inclined to apply for leniency to avoid having to deal with burdensome and inconsistent approaches between jurisdictions and the risk of follow-on damages. However, an additional important likely factor is that efforts over many years to instil a culture of antitrust compliance within organisations have indeed led to companies being better able to detect, and therefore prevent, any potential anti-competitive conduct at an earlier stage.

The ultimate goal: no infringement at all

The increasing use of compliance "carrots" reinforces the importance for clients of maintaining an effective compliance programme. Roughly half of the top global economies in the G10 and G20 have implemented or are implementing some mechanism for reducing or mitigating fines based on compliance efforts either prior to or after discovery of an infringement. For most multinational companies, these jurisdictions will represent a significant percentage of their fine exposure based on volume of commerce.

The potential reduction in any fine or other regulatory sanction should be seen as an important incentive for businesses to develop and implement effective antitrust compliance programmes or to review their existing ones.

But ultimately the driving force behind any compliance programme should be to avoid an infringement – and any ensuing investigation – in the first place. Regulatory sanctions are by no means the only consequence of an antitrust infringement. The reputational damage and the risk of private follow-on claims for damages can often dwarf any administrative fines in terms of financial liability.