Transcript Slide 1

Personal views of author. Does not represent opinion or position of any institutions to which he is affiliated.
Compliance in the UK
David Stallibrass
Shanghai | December 2012
Three pillars of compliance
Enforcement
Knowledge
Compliance
• Predictable
• Transparency
• Core commitment
• Effective
• Media
• Risk assessment
• High sanctions
• Training
• Non-infringement
OFT 1391: The impact of competition interventions on compliance and deterrence
Deterrence is key to effective compliance
Stopped through enforcement
Never started because of fear of enforcement
Deterrence is key to effective compliance
OFT 1391: The impact of competition interventions on compliance and deterrence
Deterrence is key to effective compliance
Often not even
considered!
Less clarity and
enforcement
OFT 1391: The impact of competition interventions on compliance and deterrence
The agencies’ responsibility
If enforcement is
unpredictable
Sanctions are just a
“random business
tax”
If enforcement is
ineffective
Firms have no fear
of being caught
If sanctions are
too low
Firms won’t mind
getting caught
If agency isn’t
transparent
Then firms don’t
know how to
comply
A note on “private enforcement of public law”
 Private enforcement can support the role of
competition agencies
 Limited private enforcement in UK and EU
 Strong private enforcement in US
 Judges rule on whether a
contract or action is legal based
on whether it is compatible
with the objectives of the law
 Not on the extent to which it harmed the
plaintiff
Compliance in the UK: lack of knowledge
Firms think
knowledge of
competition law is
important, but don’t
really know what the
law is!
OFT 1391: The impact of competition interventions on compliance and deterrence
Compliance in the UK: all sanctions relevant
OFT 1391: The impact of competition interventions on compliance and deterrence
Compliance in the UK: all sanctions relevant
Though damage is
often done by the
investigation, not the
finding of guilt
OFT 1391: The impact of competition interventions on compliance and deterrence
Compliance in the UK: all sanctions relevant
Though much lower
than likely benefits of
collusion
OFT 1391: The impact of competition interventions on compliance and deterrence
Compliance in the UK: all sanctions relevant
Probably considered
more important by
small businesses than
large ones
OFT 1391: The impact of competition interventions on compliance and deterrence
A note on penalties
Substantial
increase in
likely fines
(though still
capped at
maximum 10%
of global firm
turnover)
Though still less
than likely
overcharge!
And chance of capture is
<100% so if fines are the only
sanction, it’s profitable to
break the law!
Connor (2006). Connor and Lande (2007). OFT 423 guidance on appropriate penalty (2012).
Compliance in the UK: Individuals comply for
different reasons
 In a behavioral experiment,
different people reacted to
different incentives
 Some people care about expected returns
 Deter through high fines, effective enforcement
 Some people care about personal risk
 Highlight risks, create individual sanctions
 Some people want to do the right thing
 Educate industry, and the public
OFT 1391: The impact of competition interventions on compliance and deterrence
Compliance in the UK: Policy response
 Continued high-profile enforcement
 Detailed decisions, strong media presence, high fines
 Focus on individual incentives
 Director Disqualification and Criminal Sanctions
 Guidance to company Directors
 Increase transparency and guidance
 New competition law guidance
 New guidance on compliance
OFT 1330: Quick guide to competition law. OFT 1340: Company
directors. OFT 1341: Achieving Compliance OFT 510 : Director
Disqualification.
Four step guidance to firm compliance
OFT 1341: Achieving compliance
Four step guidance to firm compliance
 What competition compliance
issues might your firm face?
 Dominant?
 Involved in bidding?
 Regular contact with competitors?
 Joint ventures and partnerships?
 Complex vertical contracts?
OFT 1341: Achieving compliance
Four step guidance to firm compliance
 Where is your risk highest?
 Which staff?
 Which events?
 Which contracts?
 Which business practices?
 Which relationships?
OFT 1341: Achieving compliance
Four step guidance to firm compliance
 Mitigate the risk
 External legal advice
 Training
 Compliance programs
 SME awareness
 Creating a compliant culture
OFT 1341: Achieving compliance
Four step guidance to firm compliance
 Review your effectiveness
 Has your mitigation been successful?
 Are there any new risks?
 Have any old risks changes or
decreased?
 Is there a clear culture of compliance at
all levels?
OFT 1341: Achieving compliance
Four step guidance to firm compliance
 Ensure a core commitment to compliance from the
top down
 Appoint a responsible director for compliance
with competition law
OFT 1341: Achieving compliance
A note on fine reduction
 The OFT will sometimes reduce a firms fine if it had
a compliance program in place and shows good faith
during the investigation
 Other authorities think that “compliance is its own
reward”
 Compared to getting the big things right, it’s not very
important
OFT 423 guidance on appropriate penalty (2012).
Conclusion
Enforcement is key
• Predictable, consistent, and transparent
• Strong sanctions, lots of cases
Focus on firms and individuals
• Sanctions
• Training and information
Training and information helps
• Can’t comply without knowledge of law
• Public awareness supports moral incentive
Resources
 www.oft.gov.uk
 http://www.oft.gov.uk/OFTwork/competition-act-andcartels/competition-law-compliance/