Over the last two decades, lawmakers and competition agencies around the world have gone to great lengths to rein in anti-competitive conduct. Fines imposed for antitrust offences have been raised to almost crippling levels. The United States and Canada have moved to hold employees, directors and senior officers criminally accountable. Even consumers have done their bit by getting behind several antitrust class actions.
In this environment, it’s crucial that corporate counsel set up credible and workable antitrust compliance programs in order to stay out of trouble.
“Antitrust compliance should be a significant component of your overall training program,” says Logan Breed, a partner at Hogan Lovells LLP in Washington, D.C., who spoke at the CBA 2013 Competition Law Conference in October. “The reasons are quite simple. Prevention helps keep companies out of trouble. Through detection, companies will know when they’re about to get into trouble. And finally, mitigation will help them reduce any penalties when they do get into trouble.”
The stakes are clearly too high for complacency to be an option.
For example, after an investigation by the Competition Bureau, the Ontario Superior Court of Justice earlier this year fined Yazaki Corporation, a Japanese supplier of motor vehicle parts, $30-million on a three-count indictment for its participation in a bid-rigging conspiracy. It’s the largest fine ever ordered by a Canadian court for that kind of offence. In the U.S., monetary fines can easily reach “up to $100-million per offence or up to twice the gain or loss associated with the illegal conduct,” says Breed. In 2012, AU Optronics, a Taiwanese tech manufacturer fought charges that it had been involved in a price-fixing conspiracy and was fined $500-million (U.S.)
Under new conspiracy provisions of Canada’s Competition Act, the maximum term of imprisonment is now 14 years per count charged. What’s more, the Criminal Code prevents judges from granting conditional or absolute discharges for breaches that carry that heavy a sentence. Those include bid-rigging or criminal misleading advertising cases.
Finally, there is the risk of class actions, which in Canada can be launched within two years of the end of the criminal conduct. A company then faces compensatory damages — not to mention the reputational hit it will sustain which is much harder to quantify. Complicating matters further for businesses, the Supreme Court of Canada recently confirmed, in a trilogy of decisions the right of “indirect purchasers” — i.e. the end consumers who come after the wholesalers, distributors and other direct purchasers — to sue businesses for alleged breaches of the Competition Act. The three cases, Sun-Rype Products Ltd. v. Archer Daniels Midland Co. and Pro-Sys Consultants Ltd. v. Microsoft Corp. and Samsung Electronics v. Option consommateurs all dealt with price-fixing charges.
The Competition Bureau has several enforcement tools at its disposal to investigate anti-competitive activity, from orchestrating dawn raids to referring criminal matters to the Attorney-General. However, the Bureau is inclined to recommend leniency for those companies that step forward and confess to anti-competitive behaviour, including by employees gone rogue.
A panel of lawyers drawn from various backgrounds shared their tips on how to design and implement an effective competition law compliance regime. Here is their advice:
1. Set the tone at the top — and the middle
Corporate counsel like to debate who should lead the compliance function: the chief legal officer or an independent chief compliance officer? In fact, all of senior management ought to be involved in both the approval and enforcement of its policies, starting with the CEO. “Senior management needs to have responsibility for the oversight and assurance of the implementation of the program,” says Breed.
For ethics and compliance to become part of a company’s DNA, it helps to set the tone at the very top. For a culture of compliance to truly take hold, however, middle managers must also be committed to the company’s values, a point raised by Janet Bolton, senior counsel, AML, compliance and regulatory affairs at TD Bank Financial Group.
“In an organization as big as a bank — we have something in the order of 80,000 employees — it’s actually tone in the middle that starts to become the focus. Because at the top, there’s a very small number of people and they’re all pretty sophisticated, learned people. And then at the lower end we have people who are part-time workers, who are going through school and are really new to the job force. But in the middle is where we have to make sure we’ve got an adequate governance and communications structure to make sure nothing gets lost.”
2. Encourage internal whistleblowing
In May 2013, John Pecman, now Commissioner of Competition, announced the launch of the Competition Bureau’s whistleblowing initiative. It aims to encourage the general public and business community to report suspected incidences of anti-competitive pricing activity.
Organizations, however, would prefer that employees raise concerns internally to minimize exposure to damages. “We would never say to someone ‘no, no, you can’t go to an external regulator,’” says Bolton. She argues that the company is ultimately better positioned to understand the products, the business and to see whether there’s a genuine concern worth raising with the Bureau. “The goal, internally, is to make the internal whistleblowing process as comfortable and accessible as we can, so that in a market for whistleblowers people will choose us first as opposed to the regulator.”
3. Take a risk-based approach to training
How does one run an effective compliance program when a company has thousands — make that tens of thousands of employees — carrying out its business? Bolton advocates taking a risk-based approach. “You can’t train everybody in the organization to the same level,” she says. “You need to sensitize everybody and train the people who present true risks to the organization.” Keep the training simple, she adds. “Give people simple do’s and don’ts that correspond to real life situations they will face.” It isn’t enough to tell people not to abuse the company’s dominant position. Help them define dominance for every product, using real figures. Help them understand what to worry about. And explain that they should call the legal department when in doubt.
4. Consider the cultural context
What’s ethical and what’s acceptable business practice varies around the world. “We have sophisticated markets like the U.S. and Canada,” says Lyudmila Napoé, senior counsel at Wm. Wrigley Jr. Company in Chicago. “And then you go to China and Russia […] where they care about driving numbers and selling the product […] I mean ethics is a hard term even in the United States or Canada to grasp, right? What is ethics compliance? But taking it to Russia is much harder.”
It’s why it’s important to contextualize a company’s compliance program and take the time to explain the consequences of certain breaches. Napoé, who previously led her company’s legal group in Russia, warns against using a fact pattern in a training program that relies on baseball analogies for example. “In Russia they don’t play baseball so we needed to change that.”
5. Don’t forget your due diligence
It isn’t internal compliance per se, but companies are realizing the importance of adding antitrust liabilities to their checklist when conducting due diligence on targets in M&A deals. “When you’re the buyer, you’re not only buying the target company, you're buying all their liabilities,” says Breed. “And if they are on the hook for a potential massive class action, antitrust judgment or a massive criminal cartel fine, you really want to know that before you negotiate over the purchase price.” The degree of caution depends on the industry, he says. At a minimum, lawyers ought to look at potential for litigation. In an industry that is prone to cartelization, a greater attention to price-fixing risks is warranted.
6. Audit, audit, audit
A key element of any effective compliance program is auditing and monitoring. “Again if you are in a risky industry or risky geography, an audit [ought to be] more robust and maybe you do it more often than just regularly on an annual basis.”
Napoé recommends doing a field trip to “understand how you want to scope the audit.” There are a number of ways to collect information. Interviews with individuals who may be involved in potential compliance issues are one way. And subject to privacy concerns, there is a time and a place for checking emails. “Email checking is a very objective way to see what’s happening out there,” says Napoé. “Sales guys are pretty creative. I mean they’re smart, you know. They know how to sell stuff. So when you’re interviewing them they’re also trying to figure out how much they are going to tell you. But when it comes to emails they can’t change it. It’s there. It’s in writing.”
Who do you interview first? The VP of sales might seem like the logical person, but other senior officers — the general manager or the president — can be just as, if not more, influential in setting prices. At the panel discussion, the answer to the question came from the Commissioner of Competition himself: “Start at the top.”