Antitrust Compliance Programs in the US and the European Union

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Author: Luis Blanquez

Luis Blanquez is a European Competition Attorney that works with Bona Law.

WHAT IS AN ANTITRUST COMPLIANCE PROGRAM?

An antitrust compliance program is an internal business policy designed by a company to educate directors and employees to avoid risks of anticompetitive conduct.

Companies that conspire with their competitors to fix prices, share markets, allocate customers, production or output limitation; have historically faced severe fines from antitrust enforcement all over the world.

Companies articulating such programs are in the best position to detect and report the existence of unlawful anticompetitive activities, and if necessary, be the first ones to secure corporate leniency from antitrust authorities.  This allows them to avoid substantial fines, and in some jurisdictions, such as the US and the UK, even criminal charges.

But not every program ensures compliance.  A successful compliance program must alert and educate sales force; issue-spot risks; encourage reporting of anticompetitive issues, and deter risky conduct.

Over the years, antitrust authorities all over the world have published some general guidance creating and managing compliance programs.  Even though there are differences between jurisdictions, all of them seem to have the following anchor points in common:

  1. No “one size fits all” model: You must tailor your compliance program.

Effective compliance programs require companies to tailor their internal policies according to their particular situation.

A generic out-of-the-box compliance program is not likely to be effective.  It is more important that the company conducts an assessment of the particular risk areas involved in its day-to-day business activities, with a specific focus on the structure and previous history of the industry.

Interaction of sales people with other competitors, with close attention to trade association meetings, is also an important point to consider.  To illustrate, employees with access to pricing information and business plans are more likely to meet their counterparts from other companies in trade association reunions or industry events.

  1. Development of training programs to educate directors and employees.

A company should ensure antitrust compliance training for all executives, managers and employees, especially those with sales and pricing responsibilities.

Genuinely effective compliance requires that companies apply the antitrust policy and training program to their entire organizational structure, preferably in writing.  It may take the form of a manual and must be plainly worded in all the working languages of the company, so everyone understands it.  The antitrust policy must contain a general description of antitrust law and its purpose, explaining the way the company enforces it, along with highlights of the potential costs of non-compliance.

An effective way to implement an antitrust policy is through a list of “Don’ts”, including illegal conduct such as price-fixing agreements, the exchange of future pricing information, or allocation of production quotas, among other conduct.

You might complement the forbidden conduct with a list of “Red Flags” to identify situations in which antitrust risks may arise (i.e. sales people attending trade associations or industry events).

You might also add a list of “Do’s” because employees are often more receptive to what they can do, rather than what they cannot do.

Finally, companies and their employees should document their antitrust compliance training in writing. This assures that employees take compliance efforts seriously and that antitrust enforcers understand that the company does so too.

  1. Compliance must start at the top; Get your executives involved.

Antitrust authorities have highlighted that senior-executive endorsement of antitrust compliance policies send a message to the entire company that these policies are important.

This means that directors and officers must participate in the implementation of the policy.  They should be the first ones to follow the compliance rules; to attend the trainings, and at the same time, they must provide employees with the necessary tools and resources to implement the program successfully. This shows commitment from the management team to the rest of the employees,

  1. Deterrence and retaliation: internal disciplinary measures for violations.

Deterrence

One of the primary goals of an effective antitrust compliance program is to deter employees from engaging in conduct that violates antitrust laws

For example, if during a trade association meeting a competitor suggests that the attendees should fix prices or allocate customers, the training could provide ways to react to such a suggestion: (1) immediate verbal rejection of the proposal, and/or (2) walk out of the room making sure that such action is included in the minutes of the meeting.  Providing this type of concrete guidance allows sales employees to react quickly and safely, minimizing the risk of an antitrust infringement.

Retaliation

A company must discipline employees who violate the antitrust laws and/or fail to supervise and follow the compliance program in place.  Antitrust authorities have made clear that the retention of culpable employees may raise serious concerns about the company’s commitment to effective antitrust compliance.

  1. Regular monitoring and auditing to ensure ongoing compliance.

Monitoring

There must be on-going compliance monitoring by someone within the company with an independent senior role: usually a chief compliance officer.

This officer, ideally a member of senior management, must first have a direct connection with the company’s management or Board of Directors to keep them regularly and adequately updated.

Second, the officer should have enforcement power within the company to make sure that everyone complies with the antitrust policy.

We also recommend that you establish a reporting mechanism or “hot line” that allows employees to raise issues for possible internal investigation. This approach ensures a clear path for employees to bring issues to the forefront, hopefully before they put the company in jeopardy.

Auditing

Auditing usually discovers anticompetitive behavior only after it has already occurred.

This is the main reason why you must periodically review corporate compliance programs. A company needs to constantly audit its risk activities. In case of an antitrust violation, this enables the company to take immediate appropriate measures, putting any potential violations to an end, while minimizing the company’s exposure.

HOW DO ANTITRUST COMPLIANCE PROGRAMS WORK IN THE US?

Historically in the US, the Department of Justice’s Antitrust Division (“The Antitrust Division”) has given very little credit to compliance programs that fail to detect antitrust violations.  But the Antitrust Division seems to be moving toward some positive changes for companies with antitrust compliance programs..

First, the U.S. Attorneys’ Manual states that prosecutors should consider corporations’ pre-indictment conduct, such as voluntary disclosure, cooperation, remediation or restitution, in determining whether to seek an indictment.

But the manual expressly states that this would not necessarily be appropriate in an antitrust investigation.  The reason for this is that antitrust violations, by definition, go to the heart of the corporation’s business.  With this in mind, the Antitrust Division has established a firm policy, understood in the business community, that credit should not be given at the charging stage for a compliance program, and that amnesty is available only to the first corporation to make full disclosure to the government through a leniency application.

Second, under the current U.S. Sentencing Guidelines, companies are, in theory, entitled to a sentence reduction if they can show that their compliance efforts meet the criteria for an “effective” program.  It is now possible for a company to obtain up to a three point reduction in its culpability score as credit for an effective compliance and ethics program, even when a high-level person is involved.

By the way, this was one of the main changes from the previous version of the Guidelines, where a compliance program was not considered effective if an employee with substantial authority participated in the offense.  In 2010, the Antitrust Division transformed the above into a rebuttable presumption. But let’s get back to our discussion.

Although a positive improvement for companies with antitrust compliance programs, this new version is not however “as good as it looks”.  Under section 8C2.5(f)(3)(C) of the current Guidelines, there are four conditions to receive this benefit: One of them is that the compliance and ethics program must detect the offense before discovery outside the organization. This means that unless a company knocks on the Antitrust Division’s door first, asking for leniency, it is impossible for a company to meet this requirement.

Thus, in practical reality, the current “improved” version of the Guidelines does not change the existing view of the Antitrust Division on compliance programs that fail to detect antitrust violations before an antitrust investigation starts. This is consistent with previous speeches by the Antitrust Division, stating that leniency should be the only benefit (the so called “carrot”) for companies with unsuccessful compliance programs, to avoid an antitrust fine.

So with this picture in place, you are probably asking yourself: Why should I care about spending my time and money to implement a compliance program in my company?  Well, there are several reasons, and they are all important.

First, a compliance program will help you discover an antitrust violation or risk of violation in your company, so you can put an end to it, and if appropriate, file a leniency application.

Second, there have been some recent positive developments from the Antitrust Division, showing that its perception on compliance programs is evolving in a new direction.  Let’s briefly analyze this new line of thinking.

In September 2014, Antitrust Division high officials Bill Baer and Brent Snyder gave public speeches explaining that despite the lack of new public policies, the Antitrust Division was actively considering ways in which to credit companies that proactively adopt or strengthen compliance programs after coming under investigation if a company could demonstrate that its program or improvements are more than just a façade.

More recently, Mr. Baer provided even more clarity on when the Antitrust Division might consider reducing a criminal fine in the context of a compliance program at the Sixth Annual Chicago Forum on International Antitrust, where he said:

“It is important here to distinguish between ‘backward looking’ and ‘forward looking’ compliance efforts.  I do not mean that we are now willing to credit ‘backward looking’ compliance efforts—preexisting compliance programs that failed to deter or detect the illegal cartel conduct.  (…) A compliance program that fails to deter or detect cartel behavior cannot qualify for that credit.  (…)  I also do not mean that we are going to credit companies that, after coming under investigation, put into place or nominally improve an antitrust compliance program.  (…) Only compliance efforts that go further, that reflect in some way genuine efforts to change a company’s culture, will receive consideration in calculating a company’s fine.”

So here is the new development: A company and its management team already involved in an antitrust investigation must demonstrate to the Antitrust Division a real and strong commitment to make antitrust compliance an institutional priority.  In such a scenario, when the Antitrust Division sees real remediation and changes in a company’s compliance culture, it may take that change into consideration when making sentencing recommendations during its investigation.

Now you can see the benefits of having a robust compliance program.  It is true that the standard established by the Antitrust Division is high, but we have already seen some important positive results.

In May 2015, five international banks plead guilty of conspiracy to manipulate the price of U.S. dollars and Euros exchanged in the foreign currency exchange spot market.  But Barclays, one of the banks involved, was able to get a reduction in its criminal fine by demonstrating to the Antitrust Division the implementation of significant and demonstrable changes to its compliance program and corporate culture.

In addition, in September 2015, KYB, a Japanese company, agreed to plead guilty for its role in a conspiracy to fix the prices of shock absorbers installed in cars and motorcycles sold in the United States.  In this case, the DOJ Antitrust Division stated in its sentencing memorandum that: (i) KYB implemented a new compliance policy to educate its employees ensuring that the company does not violate antitrust rules in the future; (ii) these compliance improvements were established from the moment KYB was aware of the government’s investigation; and (iii) the company’s new compliance policy to change the culture of the company was to prevent recurrence of the offense (See here).

HOW DO ANTITRUST COMPLIANCE PROGRAMS WORK IN EUROPE?

In the European Union (“EU”), the situation on compliance programs is more straight forward, although not necessarily better for the interests of the companies active in this jurisdiction.

EU antitrust rules concern everyone who does business in the EU. They are directly enforceable by the European Commission, national antitrust authorities and courts.

At the national level, anticompetitive behavior purely affecting a Member State is similarly prohibited by the appropriate national antitrust authority.  National courts may also declare an agreement contrary to EU antitrust rules, hear claims for damages, and award compensation to plaintiffs.

Antitrust authorities all over the EU support antitrust compliance programs.  In fact, since the 2004 modernization of EU antitrust rules, the European Commission has been promoting the adoption of competition compliance programs as a means to curb illegal activity.  For example, the EU published the report Compliance Matters: What Companies Can Do Better to Respect EU Competition Rules, which provides a useful toolkit for company advisors and executives seeking assistance with these issues.

The European Commission, however, has clarified that it is not its task to formally advise on or approve individual compliance programs, and thus, the mere existence of a compliance program is not enough to counter the finding of an infringement of antitrust rules in the European Union.

This means two things: First, that similar to the Antitrust Department in the US, the mere existence of a compliance program is not considered by the European Commission as an attenuating circumstance, nor does it have any impact on the level of antitrust fines it imposes.

Second, compliance programs are also not considered by the European Commission to reduce an antitrust fine after having initiated an investigation, even if the company involved shows extraordinary and demonstrable changes in its corporate compliance culture.  This is important because it varies from the US DOJ, and the recent developments announced by the Antitrust Division.

At the national level, the situation is even more complicated, and differs depending on the country involved.

For instance, the Competition and Markets Authority (“CMA”) in the UK has published a guide to support ethical and legal corporate behavior.  This guide details the methods by which the CMA determines penalties for breach of antitrust rules, which takes into account evidence of compliance activities by a company to assess whether a discount of up to 10% is allowed.  But such evidence must be substantial, with a clear and unambiguous commitment to antitrust rules, while providing at the same time specific steps on how to manage antitrust risks and necessary changes to review its existing compliance policy.

France also considers as a mitigating circumstance the existence of a compliance program.

In Italy, the Autorità Garante della Concorrenza e del Mercato (“AGCM”) may give credit to certain compliance programs set up after an antitrust investigation has been initiated, with a possible reduction of the fine of up to 15%.

By contrast, competition authorities in other jurisdictions such as Germany, or Spain, among others, do not take into account at all the existence of compliance programs in determining the final level of antitrust fines.

CONCLUSION

Any robust compliance program must: (i) be tailor-made, (ii) include training to directors and employees, (iii) involve the management team of the company for its implementation, (iv) include internal deterrence and disciplinary measures in case of violations, and (v) monitor and audit the internal policy in place periodically.

The main pillars of a compliance program are very similar all over the world, although it is important to consider the different nuances of each jurisdiction.  The treatment of issues such as labor laws, data protection, or legal privilege for in house attorneys differ between the US and Europe, and may significantly affect how you structure your compliance program.

A good example of this is whether to establish a confidential hotline to senior corporate management to report the existence of antitrust violations within a company.  In the US, this seems to be a standard best practice, but under EU law this might be more problematic.

Under the new approach in the US for compliance programs implemented after the initiation of an antitrust investigation, in order to be considered as an attenuating circumstance by the Antitrust Division, it must be: (i) a total change in the corporate culture that allowed the cartel offense to occur in the first place, (ii) extraordinary, (iii) and demonstrable, as well as produce results before the Antitrust Division makes its sentencing recommendation.

As far as the effectiveness of compliance programs, depending on the jurisdiction you are doing business, you might not qualify for a reduction of a fine imposed by an antitrust authority. But, at the very least you will be able to detect any antitrust violation in your company early enough to put an immediate end to it, and if applicable, apply for a leniency application.

More specifically, a leniency application allows a company and individuals involved in an antitrust infringement to self-report and avoid significant fines, and in some jurisdictions such as the US, even incarceration.  The first corporate or individual conspirator knocking on the antitrust authorities’ door to confess participation in an antitrust infringement, such as a cartel to fix prices, may receive full immunity.

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