Fcwp Report 1 Final Version

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Fcwp Report 1 Final Version

  1. 1. BADC Fair Competition Working Party Report 1 - Final Version 6 August 2009 The BADC and competition matters: Early Analysis Prepared and presented in draft form to the BADC Committee 18 April 2009 by TK Checked by OFT Executive Officer Phil Butcher Thursday, 6 August 2009 1
  2. 2. The BADC and Competition Matters: Early Analysis I. Competition II. The BADC as an entity III.Categories of (BADC) behaviour that must comply IV. Pitfalls: Examples of OFT identified anti-competitive behaviour V. Worst case scenarios VI. Compliance strategy Appendix 1: Letter from Phil Butcher, OFT Executive Officer Thursday, 6 August 2009 2
  3. 3. This report would not be possible without... ... the patience and assistance of Philip Butcher of the OFT. Philip is keen I pass on a message to everyone at the BADC... • ‘Finally, I would ask that you stress that the membership or leadership of the association can in no way discuss pricing information, set pricing that the individual members must adhere in their normal business, artificially divide markets or territory or act in any way that could significantly effect competition between members.’  • ‘I would also stress that the assistance I have provided is no substitute for professional legal advice.’ (email correspondence, Phil Butcher OFT, 6 August 2009) Thursday, 6 August 2009 3
  4. 4. Part 1: Competition • Competition Theory • UK Authorities • Two principal types of anti-competitive behaviours • Bringing the BADC up to Date • Vulnerabilities • Opportunities • Benefits of Compliance Thursday, 6 August 2009 4
  5. 5. Competition Theory On a broad level, the main aim of competition law is to ensure that UK and EC markets remain competitive. (OFT424 p3) ‘Competitive markets provide the best means of ensuring that the economy's resources are put to their best use by encouraging enterprise and efficiency, and widening choice. Where markets work well, they provide strong incentives for good performance - encouraging firms to improve productivity, to reduce prices and to innovate; whilst rewarding consumers with lower prices, higher quality, and wider choice. Where markets operate freely and effectively competition can be expected to bring all the benefits mentioned above. However, markets can and do fail. Competition policy is therefore used to ensure the efficient workings of markets and to avoid such market failures, most notably to prevent abuses of market power (that is less innovation, higher prices, lower choice, and lower quality than would result from efficient competition).’ http://www.berr.gov.uk/whatwedo/businesslaw/competition/index.html Thursday, 6 August 2009 5
  6. 6. UK Authorities * * Since the draft version of this report this UK department has changed names from The Department of Business and Regulatory Reform (BERR) to the Department for Business Innovation and Skills(BIS). See Appendix 1. Thursday, 6 August 2009 6
  7. 7. The Government has created a new Department for Business, Innovation and Skills whose key role will be to build Britain’s capabilities to compete in the global economy. The Department was created on June 5, 2009 by merging the Department of Business Enterprise and Regulatory Reform (BERR) and The Department of University Innovation and Skills (DUIS). The BERR had only recently been created on 28 June 2007 on the disbanding of the Department of Trade and Industry (DTI). BERR has a wide range of responsibilities. The main areas covered were essentially those previously covered by the DTI: Company Law, Trade, Business Growth, Employment Law, Regional Economic Development, and Consumer Law. (http://en.wikipedia.org/wiki/BERR) Thursday, 6 August 2009 7
  8. 8. The Office of Fair Trading (OFT) exists to make markets work better. The OFT was established as statutory corporation under the Enterprise Act 2002 and took over Competition Act 1998 powers from Monopolies Commission. The OFT addresses anti-competitive practices and consumer empowerment, by a mix of enforcement and communication, so benefiting businesses and consumers. Thursday, 6 August 2009 8
  9. 9. Recent competition regulation activity • 1998 The EC Treaty (Articles 81 & 82) • 1998 Competition Act (UK) • 2002 The Enterprise Act (UK) • 2003 EC Regulation 1 • 2004 the OFT publishes an extensive series of guidance booklets on Competition Law. Most of the OFT information in this report is drawn from these publications. Thursday, 6 August 2009 9
  10. 10. Two Prohibitions • Anti-competitive agreements (e.g. cartels ) between businesses are prohibited by Chapter I of the Competition Act 1998 (CA98) and Article 81 of the EC Treaty • Abuse of a dominant position in a market is prohibited by Chapter II of CA98 and Article 82 of the EC Treaty. (http://www.oft.gov.uk/advice_and_resources/resource_base/legal/competition-act-1998/) Thursday, 6 August 2009 10
  11. 11. Bringing the BADC up to date • The BADC (as the SBFD) was established long before the modern competition statutes (1998, 2002, 2003) came into being. • The BADC (as the SBFD) was established with a social club constitution as a template, which may not be helpful as a trade association. • Our profession appears generally to be behind the times considering competition regulation. • The OFT is very interested in professions like ours growing more competition minded not only in the UK, but Europe as well. We may be small, but a significant part of the UK economy is made of small businesses and the OFT is interested in making all markets work better. Thursday, 6 August 2009 11
  12. 12. Vulnerabilities There are significant penalties for parties falling foul of Competition law. These will be presented in a later part of this presentation ‘Worst Case Scenarios’ Thursday, 6 August 2009 12
  13. 13. Opportunities • The Office of Fair Trading (OFT) exists to make markets work better. Free advice and guidance can be gained from the OFT. • There are bodies which provide support to encourage the development of organisations such as our, and provide constructive goals and targets for organisations to improve how they are serving their membership. One of these organisations is the Trade Association Forum (www.taforum.org) Thursday, 6 August 2009 13
  14. 14. Benefits of compliance • Greater legitimacy and recognition • Advice and guidance from sources set up to support associations like ours • The authority to speak on behalf of our profession to the media and to advise the government • Peace of mind that we are serving the membership, encouraging them to compete fairly in the profession Thursday, 6 August 2009 14
  15. 15. Part 2: The BADC as an Entity What type of entity are we in terms of competition law? are we: A business? An association of undertakings? A club? A trade association? A professional body? Thursday, 6 August 2009 15
  16. 16. Is the BADC a Business? Thursday, 6 August 2009 16
  17. 17. OFT Criteria and Application • A business or ’Undertaking’ includes any natural or legal person or entity involved in economic activity, regardless of its legal status or how it is funded that offer goods and services to market. It includes companies, firms, businesses, partnerships, individuals operating as sole traders, agricultural cooperatives, trade associations and non-profit making organisations. (OFT513 p2) • If you are involved in any economic activity, or if the members are engaged in an economic activity then you are subject to competition law. AND business regulations. (telephone call TK to Philip Butcher OFT, 3 April 2009) Thursday, 6 August 2009 17
  18. 18. ✓Business If the BADC is conducting exams, workshops, and other economic activity, for the purpose of Competition Law, it is a commercial venture/ business/undertaking. (telephone call TK to Philip Butcher OFT, 3 April 2009) Thursday, 6 August 2009 18
  19. 19. Is the BADC an Association of Undertakings? Thursday, 6 August 2009 19
  20. 20. OFT Criteria Any body formed to represent the interests of its members in commercial matters may be an association of undertakings. An association of undertakings is deemed to represent the interests of those undertakings which have chosen to join, and it is therefore irrelevant how the association is organised. It is not necessary for it to have any formal constitution for its activities to fall within the scope of Article 81 and/or the Chapter I prohibition. An association of undertakings will fall within Article 81 and/or the Chapter I prohibition if its decisions, rules, recommendations or other activities lead to an appreciable restriction of competition, regardless of the exact form that the association takes. (OFT408 1.4) Thursday, 6 August 2009 20
  21. 21. ✓ Association of Undertakings ‘The BADC is an association of undertakings by virtue that the membership is linked by a common economic activity.’  (Email from Philip Butcher, OFT, 6 August 2009) Thursday, 6 August 2009 21
  22. 22. A Club, perhaps? Thursday, 6 August 2009 22
  23. 23. Club? • Club is definitely not a term used in Competition Law. For the purposes of Competition Law the BADC would be considered an association of undertaking, irrespective of the constitution of the organisation or the preference of the members. The individuals that make up the membership are members because they share/are linked a common economic activity and no other reason. (email from Philip Butcher, OFT, 6 August 2009)  • Example: A plumberʼs association deals with matters of plumbing. Further Example: The plumberʼs football club is not an association of undertakings since the professional activity (plumbing) is not related to the activity of the association (football.) (telephone call TK to Philip Butcher OFT, 3 April 2009) Thursday, 6 August 2009 23
  24. 24. X Club • The BADC is not a club. • However, we could have a club unrelated to stage combat within our association. Example the BADC Football club. (call to PB 3 April 2009.) Thursday, 6 August 2009 24
  25. 25. Is the BADC a Trade Association? A Professional Body? Thursday, 6 August 2009 25
  26. 26. OFT Criteria for Trade Association Trade associations are the most common form of association of undertakings The functions of such associations in furthering the trade interests of their members are diverse but they can be broadly categorised as: • representing to Government, the European Commission and other public bodies the interests of members on legislation, regulations, taxation and policy matters likely to affect them • promoting and protecting the interests of members in the media • collecting and disseminating statistics and market information, and • information about legislation and Government policy • promulgating standards, codes of practice or standard terms and • conditions of sale • providing a range of services of an advisory or consultancy nature on, for example, legal, accounting, training or environmental matters • providing advice of a more commercial nature. (OFT408-5.1) Thursday, 6 August 2009 26
  27. 27. Overlaps with Professional Body • the term Professional Body and Trade Association are largely interchangeable and are not defined under the Act or Article 81 (see OFT 408 1.4). Both Trade Associations and Professional Bodies can set down standards, educational and/or experience qualifications and standards of conduct for their members. • The only major difference is that traditionally Professional Bodies have a government recognised role in the regulation of a profession, for example the Royal College of Physicians, and have the powers/ability to remove or bar persons from the given profession, so that one could not work as a doctor without being a member of the Royal College i.e. to be struck off. The counter example would be a plumber is still able to trade without being a member of the National Association, however the lack of membership can effect their reputation and marketability. (email from Philip Butcher, OFT, 6 August 2009) Thursday, 6 August 2009 27
  28. 28. ✓ Trade Association If all the members are engaged or aspire to engage in the same business then yes we are a trade association. Because of what the association represents the BADC is a trade. (telephone call TK to Philip Butcher OFT, 3 April 2009) Thursday, 6 August 2009 28
  29. 29. Is the BADC a Professional Body? Thursday, 6 August 2009 29
  30. 30. * Professional Body It would be good to think of ourselves as one. (call to PB 3 April 2009.) The BADC is best viewed as a trade association.  This does not prevent the BADC representing the industry or its membership to the media or government. However as its reputation as the benchmark for the standards of practice, conduct and skill for its membership grows and gains wider industry recognition to the extent that it represents those involved in the industry, there is no reason that the BADC should not aspire the status of a professional body. (Email from Philip Butcher, OFT 6 August 2009) Thursday, 6 August 2009 30
  31. 31. Summary of Part 2 The BADC in terms of compliance, should comply with competition law as: ✓a commercial venture ✓an association of undertakings ✓a trade association ✴and a professional body. (call to PB 3 April 2009) Thursday, 6 August 2009 31
  32. 32. Our Responsibilities We have a responsibility to make sure our association’s behaviour is compliant with competition law. We have a responsibility to make sure our members are aware of their obligation to comply to competition law. This may be as simple as referring them to OFT guidance and the OFT website, and letting them know they can call in for free advice. Thursday, 6 August 2009 32
  33. 33. Part 3: What categories of BADC behaviour need to comply? These four broad and overlapping categories define behaviour which needs to comply. • Decisions • Rules • Recommendations • Other activities that may prevent, restrict or distort competition Thursday, 6 August 2009 33
  34. 34. Decisions Decisions has a wide meaning. It may include, for example: • the constitution or rules of an association of undertakings • its recommendations or other activities • In the day to day conduct of the business of an association • resolutions of the management committee or of the full membership in general meeting • binding decisions of the management or executive committee of the association • or rulings of its chief executive will all be decisions of the association. The key consideration is whether the effect of the decision, whatever form it takes, is to limit the freedom of action of the members in some commercial matter. (OFT408 2.2 reformatted to add clarity) Thursday, 6 August 2009 34
  35. 35. Rules The rules of an association may constitute a decision of the association, as may any co-ordination of the members’ conduct in accordance with its constitution. Any rule which has an appreciable effect on competition within the common market and which may affect trade between Member States will fall within Article 81. A rule which has an appreciable effect on competition within the United Kingdom and which may affect trade in the United Kingdom will fall within the Chapter I prohibition. It may be possible for a rule to fall within both Article 81 and the Chapter I prohibition. (OFT408 2.3 reformatted) Thursday, 6 August 2009 35
  36. 36. Recommendations A recommendation of an association of undertakings may also be: • a decision • an oral exhortation which it is intended that members should follow. This will be the case even if the recommendation is not binding on the members or has not been fully complied with. • Any recommendation which has an appreciable effect on competition within the common market and which may affect trade between Member States will fall within Article 81. A recommendation which has an appreciable effect on competition within the United Kingdom and which may affect trade in the United Kingdom will fall within the Chapter I prohibition. It may be possible for a recommendation to fall within both Article 81 and the Chapter I prohibition. (OFT408 2.4 reformatted) Thursday, 6 August 2009 36
  37. 37. Other Activities This category is a catch all of behaviours which might be engaged in which have an appreciable effect on competition. These other activities may take the form of: • decisions of associations of undertakings or agreements between the undertakings which form part of the association. • They would cover the exchange of specific price information. (OFT408 2.5) Thursday, 6 August 2009 37
  38. 38. Part 3: Competition Pitfalls • Anti-competitive Agreements - less involved parties - concerted practices • carving up the marketplace • Abuse of a dominant market position • Terms of membership (OFT408 3.19) • Certification/ Quality Labels • Exchange of Price information • Advertising (OFT408 3.14) Thursday, 6 August 2009 38
  39. 39. Agreements Agreement has a wide meaning and covers agreements whether legally enforceable or not, written or oral; it includes so-called gentlemen’s agreements. There does not have to be a physical meeting of the parties for an agreement to be reached: an exchange of letters or telephone calls may suffice. (OFT408 2.7) Thursday, 6 August 2009 39
  40. 40. Anti-Competitive Agreements Article 81 of the EC Treaty and the Chapter I prohibition contained in the Competition Act 1998 (the Act) both prohibit, in certain circumstances, agreements which prevent, restrict or distort competition. (OFT401 1.1) Thursday, 6 August 2009 40
  41. 41. less involved parties The fact that a party may have played only a limited part in the setting up of the agreement, or may not be fully committed to its implementation, or may have participated only under pressure from other parties does not mean that it is not party to the agreement (although these facts may be taken into account in deciding the level of any financial penalty.) (OFT401 2.8) Thursday, 6 August 2009 41
  42. 42. Exchange of Price Information The membership or leadership of the association can in no way discuss pricing information or set pricing that the individual members must adhere in their normal business. (email from Philip Butcher, OFT, 6 August 2009) Thursday, 6 August 2009 42
  43. 43. Agreements involving Associations The functions of trade associations are clearly useful to members – especially, perhaps, to smaller firms – and they may also be beneficial in increasing the efficiency of the market system as a whole. Activities of trade associations which have no appreciable effect on competition will be of no concern. A trade association may, however, provide directly or indirectly the vehicle for anti-competitive, or even collusive, activity, and any decision, rule or recommendation of a trade association or agreement between its members which has an appreciable effect on competition may fall within Article 81 and/or the Chapter I prohibition. (OFT408 5.2) Thursday, 6 August 2009 43
  44. 44. Definition of ‘appreciable effect’ Whether or not an agreement has an appreciable effect usually depends on the market shares of the businesses involved. However, where an agreement fixes prices, shares markets or imposes minimum resale prices, it is generally capable of having an appreciable effect whatever the businesses’ market shares. (OFT424 p5) Thursday, 6 August 2009 44
  45. 45. Concerted Practices vs. Agreements The boundary between the two concepts is imprecise. The key difference is that a concerted practice may exist where there is informal co-operation without any formal agreement or decision. The OFT will need to establish that the parties, even if they did not enter into an agreement, knowingly substituted cooperation between them for the risks of competition. (OFT401 2.11-2.12) Thursday, 6 August 2009 45
  46. 46. Terms of Membership Rules of admission as a member of an association of undertakings should be transparent, proportionate, non-discriminatory and based on objective standards. Terms of membership will have an appreciable effect on competition where the effect of exclusion from membership is to put the undertaking(s) concerned at a competitive disadvantage. Similarly, procedures for expelling members of an association may have an appreciable effect on competition, particularly where they are not based on reasonable and objective standards or where there is no proper appeals procedure in the event of refusal of membership or expulsion. (OFT408 3.19) Terms of membership rules criteria also apply at all levels of membership (which have an appreciable effect on competition) in an association of undertakings If basing membership on external recognition (from another organisation), the rules of admission as a member should be transparent, proportionate, non- discriminatory and based in objective standards. (call to Philip Butcher 16 April 2009) Thursday, 6 August 2009 46
  47. 47. Certification/ Quality Labels An association of undertakings may certify or award quality labels to its members to demonstrate that they have met minimum industry standards. While such a scheme has benefits for consumers in the form of quality assurances, it may lead to a restriction of competition. A scheme is less likely to have an appreciable effect on competition for the purposes of Article 81(1) and/or the Chapter I prohibition where certification is available to all manufacturers that meet objective and reasonable quality requirements. Where manufacturers must accept additional obligations governing the products which they can buy or sell, or restrictions as to pricing or marketing, the scheme is likely to have an appreciable effect on competition for the purposes of Article 81(1) and/or the Chapter I prohibition. (OFT408 3.20) Thursday, 6 August 2009 47
  48. 48. Restrictions on Advertising • Restrictions on advertising, whether relating to the amount, nature or form of advertising, have the potential to restrict competition. • Whether the effect is appreciable depends on the purpose and nature of the restriction, and on the market in which it is to apply. • Rules or decisions of associations of undertakings aimed at curbing misleading advertising, or at ensuring that advertising is legal, truthful and decent are unlikely to have an appreciable effect on competition, • Restrictions which more generally prevent members from using advertising are another matter. Rules or decisions of associations of undertakings prohibiting members from soliciting for business, from competing with other members, or from advertising prices, or prices below a minimum or recommended level, are all likely to have an appreciable effect on competition. (OFT408 3.14) Thursday, 6 August 2009 48
  49. 49. Carving up/ Sharing Markets Undertakings may agree to share markets, whether by territory, type or size of customer, or in some other way. Where the object of the agreement is to share markets in this way, it will almost invariably infringe Article 81 and/or the Chapter I prohibition. The OFT considers that such market-sharing agreements, by their very nature, restrict competition to an appreciable extent. (OFT401 3.10) Thursday, 6 August 2009 49
  50. 50. Abuse of a dominant market position There are two tests common to assessing whether this prohibition applies: • whether an undertaking is dominant, and • if it is, whether it is abusing that dominant position. (oft402 4.1) The OFT considers it unlikely that an undertaking will be individually dominant if its share of the relevant market is below 40 per cent, although dominance could be established below that figure if other relevant factors (such as the weak position of competitors in that market and high entry barriers) provided strong evidence of dominance. (OFT402 4.18) A dominant position may be held collectively when two or more legally independent undertakings are linked in such a way that they adopt a common policy on the market. (oft402 4.24) Abusive conduct: (potentially in our field) is conduct which amounts to exclusionary behaviour, because it removes or weakens competition from existing competitors, or establishes or strengthens entry barriers, thereby removing or weakening potential competition. (oft402 5.5) Thursday, 6 August 2009 50
  51. 51. Part V: Worst Case Scenarios (Penalties and Consequences) Thursday, 6 August 2009 51
  52. 52. At an individual level, businesses that comply with the law will avoid the various consequences of non-compliance. These are potentially very serious and include the following : • Investigation by the OFT, the sector regulator or the European Commission • A financial penalty • Agreements being void and unenforceable • Adverse publicity • Third Party Claims: the possibility of being sued for damages by those harmed by the unlawful behaviour • The Cartel Offence (list from OFT424 p3) And for some relief: • Exceptions, Exemptions • Leniency Thursday, 6 August 2009 52
  53. 53. Penalty and Prosecution Businesses that breech the law can be fined up to ten per cent of their worldwide turnover and third parties (including injured competitors, customers and comnsumer groups) can bring damages against them. In addition, individuals found to be involved in cartels can be fined and imprisoned for up to five years and directors of companies that breech prohibitions can be disqualified for up to 15 years. Thursday, 6 August 2009 53
  54. 54. Investigation The OFT has a wide range of powers to investigate suspected common law infringements. An investigation can be very disruptive for a business. The OFT can: • Obtain documents and information from businesses suspected of committing an infringement • Obtain documents and information from their competitors, customers or suppliers • enter and search premises (with a warrant) (OFT477 4) Thursday, 6 August 2009 54
  55. 55. Knock on Effect Because the OFT can request documents and information from a businesses competitors, customers or suppliers; there is a further liability that an investigation can spread to other related businesses and trade associations. Thursday, 6 August 2009 55
  56. 56. Failure to Co-operate Anyone who fails to co-operate with the investigation, obstructs OFT officials or hides, destroys or falsifies relevant documents may be guilty of a criminal offence punishable by a fine and in some cases imprisonment. (OFT477 4) Thursday, 6 August 2009 56
  57. 57. Financial Penalties The OFT may impose a financial penalty on an undertaking which has intentionally or negligently committed an infringement. The amount of the penalty imposed may be up to 10 per cent of the worldwide turnover of the undertaking. OFT408 8.2-4) Thursday, 6 August 2009 57
  58. 58. Financial Penalties for Associations The involvement of an association of undertakings may result in financial penalties being imposed on the association itself, its members or both. The penalty shall not exceed 10 per cent of the sum of the worldwide turnover of each member active on the market affected by the infringement. (OFT408 8.2-4) Thursday, 6 August 2009 58
  59. 59. Mitigating Factors • role of the undertaking, for example, where the undertaking is acting under severe duress or pressure • genuine uncertainty on the part of the undertaking as to whether the agreement or conduct constituted an infringement • adequate steps having been taken with a view to ensuring compliance with Articles 81 and 82 and the Chapter I and Chapter II prohibitions • termination of the infringement as soon as the OFT intervenes • co-operation which enables the enforcement process to be concluded more effectively and/or speedily (OFT423 2.16) Thursday, 6 August 2009 59
  60. 60. Aggravating factors • role of the undertaking as a leader in, or an instigator of, the infringement • involvement of directors or senior management • retaliatory or other coercive measures taken against other undertakings aimed at ensuring the continuation of the infringement • continuing the infringement after the start of the OFT’s investigation • repeated infringements by the same undertaking or other undertakings in the same group • infringements which are committed intentionally rather than negligently • retaliatory measures taken or commercial reprisal sought by the undertaking against a leniency applicant. (OFT423 2.15) Thursday, 6 August 2009 60
  61. 61. Voidness Agreements found to be anti-competitive are void. Thursday, 6 August 2009 61
  62. 62. Adverse Publicity If the OFT subsequently decides there has been a breach of competition law they will notify the infringing business and publish a decision on their website. (OFT477 p18) Thursday, 6 August 2009 62
  63. 63. Third Party Claims Third party claims can be conducted concurrently, independently, or after OFT enforcement. Thursday, 6 August 2009 63
  64. 64. The Cartel Offence The Enterprise Act 2002 introduces the cartel offence - a criminal offence for individuals who dishonestly engage in cartel agreements. The cartel offence will operate alongside the existing Competition Act 1998 regime, which provides for the imposition of civil sanctions on undertakings that breach the Chapter I prohibition on anti-competitive agreements. An individual is guilty of an offence if he or she dishonestly agrees with one or more other persons that undertakings will engage in one or more of the prohibited cartel activities. These are: ■ price-fixing ■ limitation of supply or production ■ market-sharing, ■ bid-rigging. The offence is committed only if the individual acts dishonestly, a concept which is well understood in criminal law. (OFT513 1&2) Thursday, 6 August 2009 64
  65. 65. Exceptions, Exemptions There are many exceptions and exemptions in Competition regulation. For Example: In the case of public interest-professional bodies should apply a proportionality test, ie. they should consider whether existing restrictions pursue a clearly articulated and legitimate public interest objective, whether they are necessary to achieve that objective, and whether there are no less restrictive means to achieve this. (OFT408 6.7) If our interests as an organisation requires us to take an option that relies on a exception or exemption it may require more extensive research or legal assistance. Thursday, 6 August 2009 65
  66. 66. Part VI: Compliance Thursday, 6 August 2009 66
  67. 67. Why bother with Compliance? All businesses have a duty to act lawfully, but there are more practical reasons why compliance with competition law is particularly important. Compliance ensures that this aim is achieved to the benefit of both business and consumers. At an individual level, businesses that comply with the law will avoid the various consequences of non-compliance. Furthermore, a business that has taken adequate steps to achieve compliance but has nonetheless committed an infringement may receive a reduction in the amount of financial penalty imposed. (OFT424 p3) Thursday, 6 August 2009 67
  68. 68. What should the compliance programme contain? The content of a compliance programme must be tailored to your particular requirements. There is no standard programme that can apply in all cases. However, there are certain general features that must be included as a minimum in any programme if it is to work effectively. We take the view that there are four such features: • support of senior management • appropriate policy and procedures • training • regular evaluation (OFT424 p10) Thursday, 6 August 2009 68
  69. 69. 1. Support of Senior management This element can be achieved in a number of ways, including: • a personal message to staff from the most senior individual in the organisation stating their commitment to the programme • referring to the policy in the business’ mission statement or code of behaviour and ethics • making adherence to the programme one of the overall objectives of the organisation -or- • designating a particular member of the board or senior management team to take on overall responsibility for ensuring that the programme is functioning correctly and to report at regular intervals on how it has operated. Thursday, 6 August 2009 69
  70. 70. 2. Appropriate policy and procedures An effective policy would contain at least the following elements: • an overarching commitment to comply with competition law • placing a duty on all employees and directors to conduct their business dealings within this overarching policy and seeking a written undertaking from them to this effect • a commitment to take disciplinary action against employees/ directors who intentionally or negligently involve the firm in an infringement of competition law – this is essential if the programme is to be taken seriously. a framework should be provided to enable employees to: • seek advice on whether or not a particular transaction complies with competition law • report activities that they suspect infringe competition law. (OFT402 p12) Thursday, 6 August 2009 70
  71. 71. 3. Training You can deliver the training in a variety of ways – such as informal seminars, video presentations and role play. Ideally the training should be related in some way to your activities in order to be seen as relevant and to retain the interest of employees.You should keep a record of any training you give. (OFT424 p14) Thursday, 6 August 2009 71
  72. 72. 4. Regular evaluation The evaluation element should include some or all of the following: • testing of the individual employee’s knowledge of the law, policy and procedures • the inclusion of adherence to your compliance policy as an objective against which an individual’s and a department’s performance are appraised • mechanisms for reporting actual or potential infringements to senior management, and for taking steps to put right the problem and limiting the risk of recurrence. (OFT242 p14) Thursday, 6 August 2009 72
  73. 73. Does the programme have to be extensive? It is vital that small businesses take compliance seriously. We recognise, however, that the way in which businesses choose to ensure compliance may reflect their size. ie: smaller businesses may not need to implement a formal compliance programme of the type described but will need to ensure that employees are aware of and are kept up to date with the implications of and the need to comply with competition law. (OFT242 p4) Thursday, 6 August 2009 73
  74. 74. QUESTIONS Thursday, 6 August 2009 74
  75. 75. Appendix 1 This document was reviewed for accuracy and clarity by Philip Butcher at the OFT. His suggestions follow and they have been included in this report. Here is the text of his email for reference and confirmation.. Dear Tim   Thank you for forwarding a copy of your report to the working party.   By and large the report is accurate and detailed, there are a couple of points that you may wish to address to ensure total accuracy and clarity.   1) On pages 5 and 6, the references to BERR, unfortunately BERR has recently been restructured and renamed to Department of Business Innovation and Skill (BIS for short) their website can be viewed at http://www.berr.gov.uk/    2) Page 7 the OFT was established as statutory corporation under the Enterprise Act 2002 and took over Competition Act 1998 powers from Monopolies Commission.   3) pg 17: The OFT defines a business/undertaking as "Any natural or legal person or entity involved in economic activity, regardless of its legal status or how it is funded that offer goods and services to market."    4) Pg 21: Association of undertakings This could be shortened to state "The BADC is an association of undertakings by virtue that the membership is linked by a common economic activity.     5) pg 23: Club is definitely not a term used in Competition Law. For the purposes of Competition Law the BADC would be considered an association of undertaking, irrespective of the constitution of the organisation or the preference of the members. The individuals that make up the membership are members because they share/are linked a common economic activity and no other reason.    6) Pg 25-30: the section on professional bodies vs.. Trade Associations. It may help if I clarify the distinction on these areas As noted the term Professional Body and Trade Association are largely interchangeable and are not defined under the Act or Article 81 (see OFT 408 1.4). Both Trade Associations and Professional Bodies can set down standards, educational and/or experience qualifications and standards of conduct for their members. The only major difference is that traditionally Professional Bodies have a govt recognised role in the regulation of a profession, for example the Royal College of Physicians, and have the powers/ ability to remove or bar persons from the given profession, so that one could not work as a doctor without being a member of the Royal College i.e. to be struck off. The counter example would be a plumber is still able to trade without being a member of the National Association, however the lack of membership can effect their reputation and marketability.   Therefore the BADC is best viewed as a trade association, This does not prevent the BADC representing the industry or its membership to the media or government. However as its reputation as the benchmark for the standards of practice, conduct and skill for it membership grow and gains wider industry recognition and the extent that it represents those involved in the industry there is no reason that the BADC should not aspire the status of a professional body.   Finally, I would ask that you stress that the membership or leadership of the association can in no way discuss pricing information, set pricing that the individual members must adhere in their normal business, artificially divide markets or territory or act in any way that could significantly effect competition between members.    I would also stress that the assistance I have provided is no substitute for professional legal advice.   I hope the above helps and if you require anything further please feel free to contact me again.   Yours sincerely Philip Butcher Executive Officer - Enquiries And Reporting Centre - OFT enquiries@oft.gsi.gov.uk 08457224499 Thursday, 6 August 2009 75

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