Transcript OFT Structure - University of Amsterdam

To enforce and comply –
UK Experience
Andrea Appella
Director of International
ACLE, 5th March 2009
Overview
•
The OFT’s focus is on delivering high-impact outcomes,
not outputs.
•
Compliance via deterrence (not case volume) and
education.
•
Criminal sanctions are strongest deterrent, but other
factors also play an important role.
•
Prioritisation strategy is key to achieving good
outcomes.
•
Evaluation: ex post, ex-ante and wider impact.
OFT Framework
Crim
Civil
Action action
Penalties
Undertakings
Warnings
Dialogue
Established Means
Self Regulation
Education, Guidance & Advice
Achieving deterrence - theory
• Cartel gain vs probability of detection X penalty value
• Gain from Cartel
– 10 to 30 per cent above the competitive prices
– Natural life of ‘typical’ cartel thought to be around 6 years
• Likelihood of detection
– Mainly public enforcement & Prioritisation of high impact cases
• Example of why fines may not deter
– E.g., prices 5 per cent higher for 6 years & detection rate of 25
per cent
– 120% relevant turnover to deter: exceeds the statutory maximum
Achieving deterrence - evidence
• Deloitte survey (2007) shows deterrent effect for OFT
enforcement: cartels
– Legal survey
5:1
Company survey 16:1
• International experience
– Criminal sanctions taken more seriously by companies and
individuals
• Other factors relevant to deterrence
– Sanctions for individuals – criminal/ director disqualification
– Adverse publicity (N.B. link to penalties)
– Private damages actions
Importance of current sanctions:
focus on individual criminal penalties
Lawyers
Companies
1
Criminal penalties
Criminal penalties
2
Fines
Director disqualification
3
Director disqualification
Bad publicity
4
Bad publicity
Fines
5
Private damages
Private damages
Source: 2007 Deloitte Survey (pre-dates recent cases)
OFT cartel enforcement in practice
• First fruits of criminal cartel regime
• Entry into force in June 2003 – not retrospective
• First successful prosecutions in Marine hose
• Significant prison sentences of between 2½ and 3 years
(reduced on appeal)
• Director disqualification of between 5 and 7 years
• Confiscation orders
• Charges brought against four current and former BA executives
in Passenger fuel surcharge case
• Use of criminal investigation powers
• First search of domestic premises in Marine hose
Significance of criminal penalties
• Strong deterrence message
• Concrete demonstration of personal risks for individuals of engaging
in cartel conduct
• Marine Hose: example of international cooperation in action
• Additional impetus for compliance
• Increase importance of competition compliance
• Encourage a more proactive approach to compliance
• Further destabilise cartels
• Impetus for leniency
• Virtuous circle of enforcement
Virtuous Circle of Enforcement
OFT
Enforcement
Action
Impetus for
Immunity
Increased
Deterrence
Cartel
Instability
How to improve deterrence:
legal advisor vs company views
Lawyers
Companies
1
Private damages
Publicity and education
2
Criminal prosecutions
More activity
3
Publicity and education
Larger fines
4
Faster decision making
Faster decision making
5
More activity
Legal clarity
Source: 2007 Deloitte Survey (pre-dates recent cases)
Prioritisation is key for good outcomes
Objectives of Prioritisation:
• Making the best use of resources to maximise impact
• Ensuring decisions about what work to undertake are
taken consistently across the office
• Identifying ex ante what we expect to achieve
• Portfolio management
• Clarity/creation of external expectation
• Improving quality of complaints
Prioritisation principles (October 2008)
Impact
Significance
Risk
Resources
Balance of four factors:
Impact: Direct and indirect impact
(including deterrence) on consumer
welfare and the economy
Risk: Expected risk at outset of
project.
Risk if we do not act
Significance: Strategic impact,
innovation, precedent setting,
capacity building, whether OFT best
placed to act
Resources: People and
monetary resources needed
The Principles are a tool for understanding and explaining what factors we
take into account – they do not make decisions for us.
Conclusions on the UK experience
•
A range of tools to achieve compliance
– Enforcement is only one part of the framework
– Education and guidance play equally important roles
•
Criminal sanctions are strongest deterrent
– High financial penalties may not be sufficient to deter
– Criminal cartel law is expensive!
•
OFT’s high-impact work recognised in NAO’s Report published
today. Evaluation is leading to reflection and improvement.
•
International networks and organisations are important for
sharing knowledge and best practices.