OCDE - Competition Compliance Programmes

Competition Compliance Programmes 2 

Please cite this paper as: OECD (2021), Competition Compliance Programmes, OECD Competition Committee Discussion Paper, http://oe.cd/ccp This discussion paper should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author. This paper describes the results of research by the author and is published to stimulate discussions during OECD Competition Committee meetings.

This document and any map included herein are without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city, or area.

© OECD 2021

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

 3 Foreword This paper focuses on developments in competition agency policies relating to corporate compliance programmes targeting in particular cartels. Competition agencies have continued and intensified their efforts to promote competition compliance programmes, and competition compliance in the wider sense. Policy changes with regard to rewarding compliance have taken place, and agency approaches differ. Compliance programmes have also become part of the obligations that agencies impose in cartel cases. Some agencies will engage in the evaluation of compliance programmes outside the narrow enforcement context. Agencies that engage in advocacy or assessment of compliance programmes inevitably take a position on the elements they consider essential for an effective competition compliance programme, even when they are trying not to be prescriptive. Based on observed agencies’ approaches, a number of enforcement indicators, the academic debate, and insights from anti-corruption and public procurement policies, some elements can be identified, which could help to improve the effectiveness of competition compliance programmes. These elements address company-internal detection and subsequent reporting of misconduct, the relevance and consequences of management level involvement in infringements, the alignment of compliance incentives with performance incentives, the pro-active monitoring of business processes, and compliance efforts going beyond the company itself to include business partners. While these are not the only required elements, and are certainly not sufficient, agencies may want to pay

special attention to them when evaluating or designing their compliance policies to ensure that they fit their cartel enforcement frameworks, and remain relevant and fit for purpose. This paper was prepared by Sabine Zigelski, with the support of Lynn Robertson and Carlotta Moiso (all OECD Competition Division). Competition data were provided by Menna Mahmoud (Consultant to the OECD) and Wouter Meester (OECD Competition Division). The document benefitted from comments from Antonio Capobianco, Gaetano Lapenta, Matteo Giangaspero, Paulo Burnier da Silveira and Renato Ferrandi (all OECD Competition Division). It was prepared as background material for the virtual meeting of the Competition Committee’s Working Party 3 on 8 June 2021, www.oecd.org/daf/competition/competition-compliance-programmes.htm.

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

4 

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

 5 Table of contents Foreword ............................................................................................................................... 3

1. Introduction ...................................................................................................................... 7

2. Compliance policy developments ................................................................................... 9 2.1. Advocacy ................................................................................................................... 10 2.2. Enforcement practice ................................................................................................. 12 2.3. Resource implications ................................................................................................ 17

3. Effectiveness of compliance efforts ............................................................................. 19 3.1. Competition law awareness and compliance programmes ......................................... 22 3.2. Cartel enforcement statistics ...................................................................................... 23

4. Insights from other policy areas – public procurement and anti-corruption ............. 27 4.1. Public procurement .................................................................................................... 27 4.2. Anti-corruption ............................................................................................................ 30

5. Effective compliance programmes ............................................................................... 32 5.1. Detection and prompt reporting .................................................................................. 32 5.2. Management involvement .......................................................................................... 34 5.3. Compliance incentives ............................................................................................... 38 5.4. Auditing and monitoring of business processes .......................................................... 39 5.5. Third-party compliance ............................................................................................... 41

6. Conclusions .................................................................................................................... 43

Annex A. Agency guidance ............................................................................................... 45 Endnotes ............................................................................................................................. 47 References .......................................................................................................................... 57 Tables Table 2.1. Credit for compliance 12 Figures Figure 3.1. Total number of cartel decisions, 2015-2019 24 Figure 3.2. Total of cartel fines imposed, by year, 2015-2019 24 Figure 3.3. Total number of dawn raids, 2015-2019 25 Figure 3.4. Total number of leniency applications, 2015-2019 25 Figure 3.5. Leniency applications, dawn raids and ex-officio investigations in cartel cases, 2015-2019 26

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

6  Boxes Box 1.1. Characteristics of effective compliance programmes 7 Box 2.1. Peru – 2020 guidelines for competition compliance programmes 10 Box 2.2. France – compliance guidance for professional bodies 11 Box 2.3. Policy change in the United States 14 Box 2.4. Chile – role of courts in defining the approach to compliance programmes 15 Box 2.5. Apple vs US – external compliance monitoring 18 Box 3.1. Corporate compliance areas 20 Box 3.2. OECD work on corporate compliance 21 Box 3.3. Corporate Anti-Corruption Compliance Drivers 23 Box 4.1. Compliance Programmes – conditional release from debarment 28 Box 4.2. Self-cleaning under European procurement law 29 Box 5.1. Reporting – the business perspective 33 Box 5.2. Cartels with top level management involvement 35 Box 5.3. What makes cartels attractive for senior employees? 36 Box 5.4. Improving gender balance to improve compliance 37 Box 5.5. Algorithms as a compliance risk 39

Box 5.6. AB InBEV’s use of AI to fight corruption and fraud 40 Box 5.7. OECD guidance on third-party compliance 41

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

 7 1. Introduction Competition agencies are interested in competition compliance by business. An effective compliance policy will help prevent violations of competition laws and the resulting harm to competition and consumers. A discussion held at the OECD in 2011 (OECD, 2011 ) addressed various factors which promote compliance, [1] primarily through deterrence, such as corporate fines, sanctions against individuals (including imprisonment), leniency programmes, private damages actions, debarment and director disqualification orders, and whistleblowing (or bounty) systems. Only a shorter part of the discussion was dedicated to prevention and in particular to corporate compliance programmes. In light of the increasing engagement of competition agencies with preventive compliance efforts, through advocacy and specific compliance guidance, this paper focuses on competition compliance programmes and related advocacy efforts as such, and will look at these programmes from an agency perspective. This perspective asks if compliance programmes and related agency efforts have a proven effectiveness: do they increase compliance and which elements can make a programme truly effective? When an agency engages in providing guidance or acknowledging compliance programmes, it expects pay-offs, such as an increase in prevention, detection and deterrence of competition infringements. Approaches used in other policy areas such as procurement or anti-corruption can provide interesting additional insights and inspiration. The main elements of a corporate compliance programme and policy (Box 1.1) are well known, and any programme needs to be adjusted to the specificities of the firm, its main compliance risks, and over time. There is no one-size-fits-all definition. However, identification of the essential elements rendering a programme effective from an agency perspective may also inform business efforts in improving their compliance policies, without suggesting they may be sufficient for prevention purposes or to protect from sanctions. Box 1.1. Characteristics of effective compliance programmes

A compliance programme reflects the specificity of the firm, the environment in which it operates and the risks that it faces in its day-to-day operations. However, it is possible to identify common elements that characterise a well-designed programme.  Risk assessment, prioritisation, and abatement – A firm should regularly identify and assess its compliance risks, in particular when entering new markets or hiring for key staff. Companies should identify operations, units and personnel most at risk.  Strong leadership and management commitment – Compliance programmes must have the full, visible support of the firm’s leadership – President, Board, CEO. The resources committed to the programme, including (in larger firms) a dedicated and empowered compliance officer, demonstrate the commitment of senior management to compliance.  Transparency, communications and documentation – including from the company leadership in the form of, for example, guidelines, and public statements, to increase accountability and contribute to awareness raising and education. Coherent and regular messages from management should make clear that competition violations will not be tolerated, COMPETITION COMPLIANCE PROGRAMMES © OECD 2021 8  i.e. that the company will not defend or support violators and that they will face negative consequences. Implementation of a compliance programme should be well documented to assist with continuous improvement and attest to compliance efforts.  Auditing, monitoring, evaluation – The compliance programme should be characterised by a drive for continuous improvement. Therefore, it should be subject to regular monitoring to ensure it remains up to date, effective and continues to deliver the core objectives which should also be continuously assessed. Effectiveness can be tested, for example, through surveys, training evaluations, interviews with key individuals to verify knowledge of and attitudes towards compliance and illegal conducts.  Training – A compliance programme should include mandatory compliance training for all staff in positions with identified risks as well as part of new employee induction. Training should be adapted to the company’s risks and profile.  Reporting – A system that ensures that staff can report contraventions of the compliance programme or competition infringements confidentially and without the threat of retaliation.

 Ex-post review to verify whether infringements have occurred, why they occurred, whether management has dealt with them appropriately, and identifying measures that can be taken to strengthen the compliance programme.

Sources: (OECD, 2011[1]); (Competition Bureau Canada, 2015[2]); (U.S. Department of Justice, 2019[3]); (European Commission, 2013[4]); (International Chamber of Commerce, 2013[5]).

As most of the debate centres around cartels, the most severe and, from a legal and economic perspective, most clear-cut competition infringement, this is the focal point of the compliance discussions in this paper. They are also risks common to any firm, regardless of firm size and market position, which is different from risks related to unilateral conduct or vertical agreements. Such risks, including merger compliance, should nevertheless be included in company compliance efforts and agency advocacy, as appropriate. The paper is structured as follows:  Section 2. provides an overview of developments in agency approaches to compliance programmes over the last 10 years and motivations for changes.  Section 3. analyses indicators for the effectiveness of public and private compliance efforts. It provides some enforcement statistics to inform the policy debate.  Section 4. compares approaches to compliance programmes in anti-corruption and competition enforcement.  Section 5. asks what makes compliance programmes effective, and outlines a few key elements that could help improving the effectiveness, and how they can be addressed by competition agencies.  Section 6 summarises and concludes.

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

 9 2. Compliance policy developments When the OECD discussed competition compliance programmes last in 2011 (OECD, 2011 ), the [6] discussion focused mostly on the question if compliance programmes should be rewarded and incentivised through fine reductions. The participating jurisdictions were divided in their approaches. While there was widespread agreement that compliance programmes can help prevent anti-competitive behaviour, facilitate

detection and/or reduce the duration of such behaviour, there was no consensus if such programmes should be incentivised by means of fines reductions or other benefits. Some agencies contended that a fine reduction to reward existing or future compliance programmes was not justified, as leniency and settlement bonuses already reward the implementation of successful compliance programmes indirectly. Offering extra reductions could also incentivise “sham” programmes and would impose a serious burden on competition agencies, which would have to check the validity and efficiency of the programmes. Other agencies believed that genuine compliance programmes could prevent new cartels from forming, and that misconduct by a few should not discredit an otherwise effective programme. The administrative burden of looking into such programmes would not be overly high as the burden of proof for the effectiveness would be on the companies (OECD, 2011, pp. 14-15 ). [1] These arguments are reflected in the academic debate on competition compliance programmes, which often also centres around the question if competition authorities should incentivise and reward business compliance efforts. In his seminal paper, (Wils, 2013 ) argues that, while individual liability for competition [7] law infringements should be strengthened (see also (Wils, 2006 )), there is no good reason for reducing [8] corporate liability at the same time by offering rewards for (failed) compliance efforts or for prospective compliance measures. The appropriate incentive and main reward are leniency reductions for reporting wrongdoing to competition authorities. Many authors take a different view, in particular based on the observation that no compliance programme can prevent violations completely, and that there should be some advantage to those who invested in genuine compliance compared to those who did not.1 They also argue in favour of a pro-active agency role in the form of compliance requirements in leniency or settlement proceedings, and reconsideration of parental liability for subsidiary wrongdoing for genuine compliance programmes.2 The following parts provide a short overview of agency policy developments vis-à-vis compliance programmes. They cover advocacy and enforcement policy approaches, and will point out changes over the

last decade. The overview of agency policies to date shows that agencies have continued and intensified their efforts to promote competition compliance programmes, and competition compliance in the wider sense. Policy changes with regard to rewarding compliance have taken place, and compliance programmes now play an important role in enforcing the law, as part of negotiated procedures or direct obligations. However, there are still significant differences in particular in the enforcement approaches, and the agency and academic debate is far from over.

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

10  2.1. Advocacy Compliance guidance Many competition authorities have, next to their ongoing enforcement efforts, invested significantly in guidance on competition compliance. While in 2011 only few agencies had issued official guidance on compliance programmes,3 since then many jurisdictions have added to or updated the existing guidance (see Agency guidance). This underlines the importance competition agencies attach to firms’ preventive efforts.4 It is interesting to note that of the 26 jurisdictions that have issued guidance, the majority (20) has done so in the last five years.5 Box 2.1. Peru – 2020 guidelines for competition compliance programmes Indecopi, the Peruvian competition enforcer, issued guidelines on competition compliance programmes in 2020. These guidelines comprise approaches by other jurisdictions, and include practical examples and resources to support businesses. The guidelines identify costs of non-compliance and benefits of compliance, and identify the following essential components:  Real commitment to comply from the senior management  Identification and management of current and potential risks  Internal procedures and protocols  Training for employees  Constant update and monitoring of the compliance programme  Audits on compliance programme  Procedures for consultations and complaints  Designation of a compliance officer or committee In addition, they detail complementary or optional components, which may increase the effectiveness of compliance programmes:  A competition manual  Incentives for employees  Disciplinary measures Further sections outline the relevance of early detection and reporting to the agency and implications for

the calculation of the fine, compliance injunctions imposed by Indecopi, and how to contact the agency. Annexes include a model competition manual, and compliance checklists for different-sized companies.

Source: (Indecopi, 2020[9]).

Guidance varies in scale and scope, but is often very detailed, with practical examples and case references from the same or other jurisdictions, and provides explanations on substance next to guidance on the compliance process and requirements.

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

 11 Guidance targeting specific groups Trade associations receive specific attention in agencies’ advocacy and enforcement efforts. A number of competition agencies has issued specific guidance on legitimate and illegal or risky trade association activities, often in considerable detail and with illustrative case examples, for example Japan (Ministry of Economy, Trade and Industry, 2010 ), France (Autorité de la Concurrence, 2021 ), Romania (Romanian [10] [11] Competition Council, 2019 ), Ireland (Irish Competition Authority, 2009 ) or Australia6. [12] [13] Box 2.2. France – compliance guidance for professional bodies The French Autorité de la Concurrence issued guidance to professional bodies in 2021, which helps identify competition risks in their activities, explains the applicable sanctions framework, and also takes due note of their pro-competitive functions – including the implementation of competition rules and increasing member compliance. In terms of risks, it identifies the following broad categories and provides detailed explanations and case examples:  Cartels  Dissemination of pricing instructions  Dissemination of commercially sensitive strategic information  Exclusionary strategies, such as boycotts, membership conditions or technical standards  Anti-competitive practices disguised as misinterpretation of regulations  Anti-competitive practices in the course of lobbying  Collective bargaining In terms of the pro-compliance functions of professional bodies, the guidance identifies  A role in the enforcement of competition law, which may consist in

o Advisory referrals, allowing the Autorité to provide an opinion on any competition issues o Complaints about suspected anti-competitive practices o Participation in investigations by providing information  A role in raising their members’ awareness about compliance with competition law.

Source: Autorité de la Concurrence, Study on Professional Bodies (Autorité de la Concurrence, 2021 [11]).

Another target group often addressed with specific guidance are small and medium-sized undertakings (SME), taking into account their more limited capacity to implement comprehensive compliance programmes. Examples are France (Autorité de la Concurrence, 2020 ), Belgium (Belgian Competition Authority, [14] 2016 ), Hong Kong; China (Hong Kong Competition Commission, 2015 ), or the ACCC, with its [15] [16] compliance templates differentiated according to business size.7 The International Chamber of Commerce has, next to its Antitrust Compliance Toolkit (International Chamber of Commerce, 2013 ), also issued a [5] specific SME Compliance Toolkit (International Chamber of Commerce, 2015 ). [17] Other initiatives Further agency initiatives to promote compliance with competition law are widespread and innovative. A recent award initiative offers interesting insights into various approaches.8 Examples are a short video made COMPETITION COMPLIANCE PROGRAMMES © OECD 2021 12  by Sweden to promote leniency, the provision of compliance programme templates by Australia, and Hong Kong; China’s trainings for non-specialist lawyers, videos as part of a cartel criminalisation awareness campaign by New Zealand, a bid rigging campaign by Ireland, a series of competition podcasts by Canada, videos on bid rigging and compliance programmes by Peru, a public procurement toolkit by India, mangas and videos by Singapore, or an educational cartel game by Latvia. More targeted initiatives include the UK’s CMA blog,9 where officials report on recent cases and competition law developments. In addition, the CMA publishes “open letters” targeting specific parts of the business community to explain general lessons from recently concluded cases,10 often with case studies, that explain

the competition problem in an accessible way. France has recently started a similar initiative, and includes a message for compliance in any press communication about a decision.11 Such initiatives demonstrate that agencies are not sitting back and waiting for violations to happen, and that they invest considerable effort in prevention. 2.2. Enforcement practice Approaches and developments in enforcement practice show that, next to advocacy, many agencies take active steps to incentivise compliance programmes, or to include them as mandatory conditions in infringement decisions or different types of negotiated procedures. Reward policies Agencies show significant differences in their approaches to rewards for compliance programmes, and many agencies have changed their approach over the last decade. Some agencies don’t grant credit, and others that do have different conditions attached to it, or pursue different policies with regard to pre-existing programmes or programmes introduced following an offence. Credit for compliance programmes The number of jurisdictions which will grant credit for compliance programmes has increased considerably since 2011 (Table 2.1). Table 2.1. Credit for compliance 2011 2021 Jurisdictions that grant Australia, Denmark, Korea, Australia, Brazil, Canada, Chile, Germany, Hong credit Mexico, New Zealand, Norway, Kong; China, Hungary, India, Italy, Japan, Malaysia, United Kingdom, United States Netherlands, Peru, Romania , Singapore, Spain, Switzerland, United Kingdom, United States Jurisdictions that do not Canada, France, Germany, Bulgaria, European Commission, Finland, France, grant credit European Union, Bulgaria, Greece, Korea, Mexico, Netherlands, Sweden, Romania, Russia Turkey Note: The 2011 assessment is based on the country contributions to the 2011 Roundtable (OECD, 2011[1]), and includes declarations of a general willingness/legal obligation to consider fine reductions or other benefits for a proven effective compliance programme. When no clear indication was given, the jurisdiction was not included in the table. The 2021 assessment is based on Lexology, 10 September 2020, Should compliance programmes offer discounts from fines for anticompetitive activity? A global viewpoint; (Lexology, 2020[24]); and additional OECD Secretariat

research of agency sources and materials. The table does not represent a complete survey of all jurisdictions worldwide.

In bold: Jurisdictions known to have changed their policy approach. United States has changed from 2011 to 2021, as it will consider charging credit in addition to sentencing credit in 2021.

COMPETITION COMPLIANCE PROGRAMMES © OECD 2021

 13 There is no discernible regional differentiation in the trend to grant credit for a compliance programme or not. Many jurisdictions in Asia are willing to grant fine reductions,12 and ASEAN guidance suggests that a mitigation of fines might set an incentive for the introduction or improvement of such programmes (ASEAN Secretariat, 2018 ). A number of Latin American jurisdictions have developed compliance policies, and [18] Brazil,13 Chile,14 and Peru15 will all grant fine reductions if the criteria set out in their guidance documents are met. Similarly, some European jurisdictions are prepared to reduce fines.16 For North America, the landscape appears to have changed fundamentally since 2011, with Canada and the US now communicating clearly that they are willing to take compliance programmes into consideration.17 At the same time, it is not possible to find a dividing line in the approaches to compliance rewards between jurisdictions that have criminal or administrative cartel enforcement regimes.18 When agencies grant credit for compliance, agency approaches show considerable variance in their treatment of pre-existing or newly introduced or amended compliance programmes. In the UK, a company’s compliance activities can lead to a discount of up to 10% of the fine if it can show that adequate steps were taken with a view to ensuring compliance (UK CMA, 2018 ). The CMA focuses on forward looking changes [19] rather than on existing programmes.19 Brazil adopts a similar approach (CADE, 2016, p. 41 ). [20] Other agencies are willing to consider granting discounts for compliance programmes that existed at the time of the infringement. Korea’s KFTC has an evaluation programme in place, which allowed reductions for programmes previously rated “A” or higher.20 Canada’s policy change explicitly addressed fine mitigation for

pre-existing programmes,21 and Chile,22 Peru,23 and Romania (Romanian Competition Council, 2017 ) also [21] target existing programmes. Russia intends to introduce rules that would allow credit or even full exoneration from fines for existing programmes.24 Others will consider both, existing and newly created or significantly improved compliance programmes. Examples are Germany25 and Italy,26 Spain, though the latter with an emphasis on existing programmes (CNMC, 2020, p. 12 ), and the US, where recognition of existing programmes is the new policy element, in [22] addition to crediting forward looking compliance measures (Box 2.3). COMPETITION COMPLIANCE PROGRAMMES © OECD 2021 14  Box 2.3. Policy change in the United States Coming from an “all-or-nothing” policy designed to emphasise the value of the DoJ’s leniency programme as the most important investigation tool, the United States Department of Justice (US DoJ) has undertaken a policy change with guidance published in 2019 on the evaluation of corporate compliance programmes in criminal antitrust investigations (U.S. Department of Justice, 2019 ). This primarily internal guidance [3] sets out the considerations which prosecutors should apply at the charging and the sentencing stage. At the charging stage, DoJ prosecutors can since 2019 consider a set of factors to determine whether the company can resolve charges through a plea or through a deferred prosecution agreement in which a company is charged criminally and agrees to co-operate for a period of time, after which the charges against the company are dismissed. Compliance programmes existing at the time of the offense can now be taken into consideration at the time of the charging decision, and if charged, at sentencing. DoJ internal guidance defines the basic characteristics of an effective compliance programme, and asks three preliminary questions, namely if the compliance programme addressed and prohibited criminal antitrust violations; if it detected and facilitated prompt reporting of the violation; and to what extent a company’s

senior management was involved in the violation. The main factors prosecutors consider when evaluating compliance programmes are “(1) the design and comprehensiveness of the program;