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Cash Cows called EU Competition Law, BA and FCPA

Fines from oversight authorities have skyrocketed in recent years: From 1995 to 1999, cartel fines totaled 271 million euro ($366 million); in the next five years, to 2004, they jumped to 3.2 billion euro ($4.3 billion), in the next five years ending in 2009, they tripled over those previous five years to 9.8 billion euro ($13.3 billion) and continues to double or triple each year now.

The European Parliament recommends greater emphasis on the strength of the target company's ethics and compliance program. The lack of these programs is a decisive factor to help determine the size and possible fines against the company.

The ideas iin the EU have close parallels the U.S. Sentencing Guidelines' with emphasis on the quality of the compliance program as a way to encourage good corporate behavior in the companies.

Other weapons by the European Commission and Parliament to supplement large fines include:
- Increased insistence on transparency
- Efforts to streamline enforcement procedures
- Increased emphasis on the right of defense and due process;
- Mechanisms to improve the effective operation of leniency applications
- The first cartel member to report anti-competitive practices voluntarily is afforded more lenient treatment
- Fines are proportionate to the breach being punished
- Define the specific criteria under which parent companies can be made liable for cartel-like behavior by their subsidiaries.

These measures could indicate a shift away from ever-increasing fines, and perhaps come as the result of increased economic pressures on all companies straining to recover from economic bad times.

Previously the focus was on focus on extracting larger and larger fines. The European Commission like its US counterpart however now strives for a balanced approach to hughe fines and penalties.

On the other hand for repeat offenders they wish to serve the high fines as an effective deterrent, and encourage the implementation of adequate Good Governance, risk Management and Compliance.

A senior business leader recently gave me high praise—for the compliance business, at least. "You've done a great job brainwashing us about the Foreign Corrupt Practices Act," he said. "Now you have to do the same with EU Competition Law."

That executive, a European, knew what he was talking about. Working across the Atlantic, he had a front-row seat to watch a parade of massive fines imposed in recent years by the European Commission under the leadership of competition Commissioner Neelie Kroes.

And yet, we've lately seen signs of a somewhat more moderate approach to enforcement of European competition law (more commonly called antitrust law in the United States). The European Parliament, concerned about high unemployment and eager not to inhibit economic expansion, has urged the European Commission to pursue an approach more about incentive than about punishment. And the flamboyant Kroes was succeeded several months ago by a Spanish economist, Joaquin Alumnia, who seems to be pursuing a more low-key approach than his predecessor, who was viewed as headline-hungry by some observers.

The European Commission enforces EU competition law under two provisions. Article 101 of the EU Treaty bans collusion among companies to fix prices or allocate markets, and its enforcement has resulted in the massive anti-cartel fines referenced above. Article 102, which bans abuse of a dominant market position, formed the basis for the huge fines levied against Microsoft and Intel.

Both Alumnia and the European Parliament have voiced strong support for unabated robust enforcement. In January, Alumnia told the European Parliament that punishing cartels was of "fundamental importance" and that if companies wanted to avoid big fines, they should simply avoid engaging in anti-competitive behavior.

If you find issues and correct them—even those that create merely the appearance of anticompetitive behavior—you will be in much better shape should the Commission actually come knocking at your door.

And as recently as March 9, the European Parliament adopted a resolution concerning the European Commission’s 2008 Report on Competition Policy, where it reaffirmed the Commission’s rigorous competition law enforcement. The resolution "highlights the fact that cartels are among the most serious violations of competition law, disrupt the value chain, are detrimental to consumers, and have a very negative impact on the economy." Further, the resolution "encourages the Commission to maintain its strong enforcement to prevent and act against cartels." But the same resolution also expressed concern that "the use of ever higher fines as the sole instrument may be too blunt, not least with a view to potential job losses." Accordingly, the European Parliament urged the Commission to develop "more sophisticated instruments" to ensure compliance with competition law.

One of the suggested tools is an increased reliance on personal liability for corporate leaders who engage in anti-competitive behavior. Such a policy, if implemented by Alumnia, would closely parallel the increased focus in the United States on personal liability of corporate leaders in FPCA prosecutions and enforcement.

Meanwhile, what can companies do to stay out of the crosshairs? As always, one of the best ways to root out anti-competitive behavior is through a robust compliance program that includes rigorous training. Yes, most people understand that sitting around a table with competitors setting prices, carving up markets, or allocating tenders is illegal. But many fail to appreciate the full scope of Article 101. For instance, did you know:
- that the passive receipt of unsolicited sensitive commercial information from a competitor at just one industry meeting can be enough to trigger potentially significant liability?
- that a supplier endeavoring to resolve disputes among its dealers can be liable for facilitating collusion at the dealer level?
- that fines can be imposed for the most egregious infringements (price fixing, market sharing, bid-rigging) without any obligation on the authorities to prove that the agreements were actually implemented or had any effect in the market?
- that a parent company is presumed liable for the infringing acts of just one individual in one subsidiary—even if management had no knowledge or involvement—resulting in the ability of the Commission to fine up to a maximum of 10 percent of group-wide total annual revenue?

In designing a compliance policy, companies must have a sense of the "compliance awareness" within the organization. One approach is to conduct a series of mock "unannounced visits" conducted by counsel at your key business locations in Europe—not to mimic the actual "dawn raids" employed by the competition authorities, but to get a snapshot of what they would find if they conducted an inspection. The visits can include review of documents and e-mails as well as interviews with personnel in key departments such as sales and marketing.

The goal is to spot potential issues and take prompt remedial action. If you find issues and correct them—even those that create merely the appearance of anticompetitive behavior—you will be in much better shape should the Commission actually come knocking at your door. Emphasis should be placed on communications with competitors, distributors, and dealers, as well as meetings of trade association and industry groups, to ensure that no communications which could in any way be interpreted as signaling anti-competitive behavior are taking place.

Even if the European Commission shifts to a somewhat kinder, gentler approach—which might be the case, but we don't yet know that for sure—there is no doubt that competition law enforcement in Europe will remain vigorous. So if your company does business in Europe, or does business that affects competition in Europe, your compliance efforts need to be aggressive and thorough. Perhaps even some brainwashing will be in order.


Mardi 15 Mai 2012

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