articles

Competition law compliance programme an essential corporate strategy

by Paula Youens and Kerry Kopke

It is hardly a secret that many large, well-known, South African companies have been engaged in cartel behaviour over the past few years.

Nor is it a secret that the competition authorities have imposed substantial financial penalties upon cartel participants. Such penalties – of up to 10% of annual turnover in South Africa and exports from South Africa during the company’s preceding financial year—can extend to many millions of rands.

In February this year, the Competition Tribunal found that Pioneer Foods (through Sasko Bakeries) had been engaged in a bread cartel, having colluded with fellow bakeries to fix the selling price of bread and dividing the bread market amongst themselves. The Tribunal imposed a penalty of R195 million.

The Competition Commission has appealed the decision of the Tribunal on the basis that it seeks to have the penalty increased. If the Commission succeeds, the penalty could be increased to R1,5 billion.

In an atmosphere of increasing anti-competitive monitoring and enforcement, a drive by the Competition Commission for higher penalties, and pending criminal sanctions for managers and directors involved in cartel conduct, most companies should consider taking a proactive stance in relation to competition law violations by developing an effective competition compliance programme.

“I did not know it was illegal” is not an acceptable excuse to the competition authorities.

In some countries, competition compliance programmes are regarded as mitigating factors by competition authorities in the assessment of penalties. They may even assist a company in securing a lower penalty if found guilty of conduct like price fixing, market division or collusive tendering (cartel behaviour).

Although South African competition authorities have not considered this issue, it is likely that a competition compliance programme will be viewed as a mitigating factor in the consideration of penalties. It might, in other words, be considered a ‘defence’ to a rogue employee acting outside well understood competition law compliance policies set by the company.

A competition compliance programme is a formal programme specifying a company’s policies and procedures and is aimed at identifying competition law infringement risks that are present in a company’s business activities and correcting any of these if identified.

The programme informs company employees how to perform their jobs without creating competition law problems and assists them in the correct procedure to resolve competition law-related legal questions should they arise. The programme also provides a mechanism to prevent future transgressions by implementing ongoing monitoring procedures.

A competition compliance programme must adopt a clear and unambiguous policy of complete compliance with the letter and spirit of the law and demonstrate a commitment by the governing body to effective competition compliance.

The scope of the programme must be outlined, and the appropriate resources to develop, implement, maintain and improve a compliance programme allocated.

A competition compliance programme must also assign responsibility for compliant procedures. This includes, assigning responsibility to management and designating a compliance officer who:

• is responsible for developing, operating and monitoring the compliance programme;
• reports directly to the CEO and board;
• oversees the programme;
• coordinates and participates in the training of employees;
• independently investigates compliance matters; and
• ensures that necessary corrective action is taken.

A compliance programme must include a commitment to customised competition training for all employees, preferably face-to-face, to ensure that they are aware of the nature of behaviour that is contrary to competition law and are accordingly able to report such behaviour.

A compliance programme, which must establish effective lines of communication for reporting suspicious behaviour that may violate competition law, may include the creation of a hotline or other reporting system to encourage questions and complaints.

Procedures must also be established to protect the confidentiality of reports and the anonymity of the complainants, and to protect employees who disclose cartel behaviour against retaliation. All standards enforced in terms of the compliance programme must be publicised and the consequences to employees for competition law violations clearly set out.

Finally, the effectiveness of the compliance programme must be regularly reviewed and continually improved.

In essence, a good competition compliance programme should ensure that behaviours that create and support competition law compliance should be encouraged and behaviours that compromise competition law compliance should not be tolerated.

By developing an effective competition compliance programme, a company may secure a lower penalty should it be found guilty of contravening the Competition Act by engaging in anti-competitive conduct.

In addition, a competition compliance programme may limit any future Competition Act violations as a culture of competition law compliance is fostered and developed within the company through greater understanding and awareness.

Paula Youens is a Senior Associate and Kerry Kopke a Candidate Attorney at Bowman Gilfillan.

Thursday, May 27, 2010