This is the third in a series of articles on competition law developments in England and Wales. In this report, we focus on competition compliance issues.
UK Directors Face Further Compliance Challenges
On June 29, 2010, the UK Office of Fair Trading (OFT) published revised guidance on director disqualification orders in competition law cases, signaling its intent to use these sanctions to deter anticompetitive activity. In a statement, the OFT said, “[the] guidance should be taken as a clear message that we will actively seek disqualification of directors found to have engaged in anti-competitive behavior or who ought have known it was going on” (emphasis added). The intention is to increase the incentives on UK directors to take responsibility for competition law compliance by their companies.
The guidance sets out how and when the OFT and certain UK sectoral regulators will take action to disqualify directors where they uncover evidence a director was responsible for, or ought to have known of, competition law breaches at a company. The nature of the breach is relevant and action is “more likely . . . in cases involving more serious breaches” (which principally means cartels).
Under the UK Company Directors Disqualification Act, a director can be disqualified from acting as a director for up to 15 years, if his or her company is involved in a breach of competition law, and the court considers that he or she is unfit to be concerned in the management of a company as a result.
It can be noted that the OFT’s specific powers to seek a disqualification order for infringements of competition law have never been used. The three individuals convicted in June 2008 of the UK cartel offence for their involvement in the marine hose cartel were disqualified from acting as directors under the general powers available to UK courts in relation to directors who have committed a criminal offence.
Although concerning anticorruption, it is further interesting to note that the new UK Bribery Act 2010 has also increased the compliance difficulties faced by directors of UK companies. That act (which has a wide extraterritorial scope) includes a strict liability offence with unlimited fines for commercial organizations of failing to prevent bribery being committed. It is a defense for the company to show that it has put in place “adequate procedures” (which is undefined but will no doubt include competition law-type compliance programs) designed to prevent persons associated with the company from undertaking corrupt activities.
These developments provide further illustrations, as if they were needed, of the ever-increasing importance of compliance programs and training covering competition law and corruption issues in the UK.
OFT Publishes Report on Competition Compliance
The OFT chairman described an OFT report published on May 19, 2010, on drivers of compliance and non-compliance with competition law as “groundbreaking and very important.” The detailed report was the result principally of qualitative research with individual “larger” businesses having existing competition law compliance activities, including a number of detailed interviews.
The OFT’s report finds that the key driver of competition law compliance within an organisation is the ongoing, clear and unambiguous support of senior management. The OFT recognises that one size does not fit all in competition compliance, and sets out a description of current best practice in the area, which might be used by businesses “designing or refreshing” their strategies. A “return on investment” in training could be demonstrated, according to some of the companies interviewed, by comparing the per capita cost of training with the maximum (EU/UK) financial penalty of 10% of worldwide turnover that might in theory be imposed for an infringement (which would no doubt show a very impressive return).
The OFT clarifies its current policy on the relevance of a compliance programme when levying fines. Its starting position is that a programme is neutral, but in some cases its existence can be used as a mitigating factor leading to a reduction of up to 10% in any fine. Importantly, the OFT also states that it considers that the existence of a programme should not generally be regarded as an aggravating factor, where despite it, a breach occurs.
Only in “exceptional circumstances” (such as deliberate use of a programme to conceal or facilitate an infringement) would a preexisting programme be an aggravating factor. This is a welcome statement. In 2002 the OFT decided to increase a fine by 10% when a division of a group (called Truck and Trailer Components) acted in breach of a specific group compliance policy. The policy required all divisions and subsidiaries of the group in question to inform the group counsel of any arrangements which were potentially in conflict with the competition laws of the UK or EU, and this policy had been breached by TTC.
Overall, the OFT proposes a four-step approach to compliance: (1) risk identification; (2) risk assessment; (3) risk mitigation; and (4) review. It proposes to produce updated guidance on competition law compliance and guidance for directors in this area. It will also consider the relevance of the report to smaller businesses. Issues of course also arise in smaller businesses (which after all most businesses in the UK are), and this broadening of the compliance message would therefore be welcome.
Finally, it is notable that the OFT, while recognising that lack of international standards of compliance might make it more difficult for large businesses to comply with the law, indicates that it does not intend to engage internationally on this issue. This doubtless reflects budgetary constraints and its need to prioritise its work particularly in the current climate.