Innovations & Strategies for Troubled Times

INTERNATIONAL COMPETITION COMPLIANCE:
 GLOBAL PITFALLS AND BEST PRACTICES
   ...
International Competition Compliance: Global Pitfalls and Best Practices




Introducing Our Panel:
 George Addy, Davies ...
International Competition Compliance: Global Pitfalls and Best Practices




What We’ll Cover:
 Why are international com...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authorities in...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in C...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in C...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in C...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authorities in...
International Competition Compliance: Global Pitfalls and Best Practices

Recent Practice of Competition
Authorities in th...
International Competition Compliance: Global Pitfalls and Best Practices

Recent Practice of Competition
Authorities in th...
International Competition Compliance: Global Pitfalls and Best Practices




Case Results:




                           ...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in B...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in B...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in K...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in K...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authority in K...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of the European
Commission (1...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of the European
Commission (2...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of the European
Commission (3...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of the European
Commission (4...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authorities in...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authorities in...
International Competition Compliance: Global Pitfalls and Best Practices




Recent Practice of Competition
Authorities in...
International Competition Compliance: Global Pitfalls and Best Practices




Important Issues of International
Competition...
International Competition Compliance: Global Pitfalls and Best Practices




United States – EU Comparison Overview (1):
 ...
International Competition Compliance: Global Pitfalls and Best Practices




United States – EU Comparison Overview (2):
 ...
International Competition Compliance: Global Pitfalls and Best Practices




General issues in establishing an
internation...
International Competition Compliance: Global Pitfalls and Best Practices




General issues in establishing an
internation...
International Competition Compliance: Global Pitfalls and Best Practices




General issues in establishing an
internation...
International Competition Compliance: Global Pitfalls and Best Practices




Compliance Network Members around
the World (...
International Competition Compliance: Global Pitfalls and Best Practices




Compliance Network Members around
the World (...
International Competition Compliance: Global Pitfalls and Best Practices




Compliance Network Members around
the World (...
International Competition Compliance: Global Pitfalls and Best Practices




Checklists / Guidelines / Instructions (1):
...
International Competition Compliance: Global Pitfalls and Best Practices




Checklists / Guidelines / Instructions (2):
...
International Competition Compliance: Global Pitfalls and Best Practices




Diagnostics / Antitrust Due Diligence (1):
 ...
International Competition Compliance: Global Pitfalls and Best Practices




Diagnostics / Antitrust Due Diligence (2):
 ...
International Competition Compliance: Global Pitfalls and Best Practices




Diagnostics / Antitrust Due Diligence (3):
 ...
International Competition Compliance: Global Pitfalls and Best Practices




Diagnostics / Antitrust Due Diligence (4):
 ...
International Competition Compliance: Global Pitfalls and Best Practices




The five most dangerous Global Pitfalls:
 Co...
International Competition Compliance: Global Pitfalls and Best Practices




The five most important Best Practices:
 It ...
International Competition Compliance: Global Pitfalls and Best Practices




             Panel Discussion & Questions



...
International Competition Compliance: Global Pitfalls and Best Practices




                           Final Questions?

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International Competition Compliance: Global Pitfalls and Best Practices


                                               ...
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International Competition Compliance: Global Pitfalls and ...

  1. 1. Innovations & Strategies for Troubled Times INTERNATIONAL COMPETITION COMPLIANCE: GLOBAL PITFALLS AND BEST PRACTICES April 29, 2009 Washington, D.C.
  2. 2. International Competition Compliance: Global Pitfalls and Best Practices Introducing Our Panel:  George Addy, Davies Ward Phillips & Vineberg, Toronto, Canada  David Braun, Drinker Biddle & Reath, Chicago, Illinois, U.S.A.  Marcelo Calliari, TozziniFreire, São Paulo, Brazil  Ri Bong Han, Bae Kim & Lee, Seoul, Korea  Harald Kahlenberg, CMS Hasche Sigle, Stuttgart, Germany, and Brussels, Belgium (Moderator) 2
  3. 3. International Competition Compliance: Global Pitfalls and Best Practices What We’ll Cover:  Why are international competition compliance programs important?  Recent practice of competition authorities in Canada, U.S.A., Brazil, Korea, of the European Commission and in Germany (fines, "dawn raids", etc.)  Important issues of international competition compliance (compliance officer; commitment of senior management; compliance network members; checklists, guidelines and instructions; diagnostics / antitrust due diligence)  Global pitfalls and best practices  Your questions 3
  4. 4. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in:  Canada  U.S.A.  Brazil  Korea  European Commission  Germany 4
  5. 5. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Canada (1):  Largest Fines: • For one cartel: CAD 95 million (bulk vitamins) • On one company: CAD 48 million (F. Hoffman-LaRoche) • On one individual: CAD 250,000 (bulk vitamins)  Longest Prison Sentences: • Following extradition to US for trial: 23 years and 4 months (for conspiracy, mail fraud and wire fraud tied to deceptive telemarketing) • In Canada: 12 months (driving school; retail gasoline) 5
  6. 6. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Canada (2):  Competition Act amendments – increased risk to parties • New per se cartel offence (beginning in March 2010) • Maximum cartel penalties increased to 14 years imprisonment and fines of CAD 25 million (up from 5 years and CAD 10 million) • Introduction of “AMPs” for abuse of dominance – maximum CAD 10 million for first offence (CAD 15 million for subsequent offences) • Increased penalties for obstruction and failure to comply with a search warrant or production order • Increased penalties for misleading advertising (14 years imprisonment, up from 5 years) • Bid-rigging offence expanded to include agreements to withdraw bids 6
  7. 7. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Canada (3):  Competition Act amendments – increased pricing flexibility • Price discrimination and predatory pricing provisions repealed • Price maintenance offence de-criminalized  Competition Bureau bulletins and guidelines recently released • Bulletin on corporate compliance programs • Draft bulletin on trade associations • Draft bulletin on sentencing and leniency in cartel cases • Draft updated enforcement guidelines on the abuse of dominance provisions 7
  8. 8. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in the U.S.A. (1): Urgent Need for Compliance Program  Criminalization/Jail Time • Corporations: USD 100 million per offense • Individuals: USD 1 million per offense. Up to 10 years in jail.  Private Treble (3x actual) Damages Action • Juries • Class Actions  U.S. Department of Justice Leniency Program 8
  9. 9. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in the U.S.A. (2): 9
  10. 10. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in the U.S.A. (3): 10
  11. 11. International Competition Compliance: Global Pitfalls and Best Practices Case Results: 11
  12. 12. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Brazil (1):  Full priority to antitrust investigations in the last 5 years  Adoption of leniency / leniency-plus programs  Progressive increase in fines (legal limits of 1% - 30% of turnover)  Launching of criminal prosecutions (cooperation with prosecutors)  Increased cooperation with authorities from other countries  Extensive use of search warrants  Public campaigns / authority hotline 12
  13. 13. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Brazil (2):  Specific developments • Investigation of most international cartels with effects in Brazil • 93 search warrants (“dawn raids”) executed in 2008 • Over 100 individuals currently facing criminal prosecution • Imposition of prison terms (up to the 5-year limit) • Fines raised to 15% - 20% of turnover (+ USD 80 million / 1 million) • Simultaneous dawn raids with US DOJ / EC • Coordinated leniency and investigations with other countries 13
  14. 14. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Korea (1):  Increased Fine Amount • Maximum amount was increased in 2005 from 5% to 10% of the relevant sales during the violation period.  More Active Enforcement by KFTC Amount of fines imposed by KFTC (KRW million) Year 2003 2004 2005 2006 2007 Amount 109,838 28,758 249,326 110,548 307,043 14
  15. 15. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Korea (2):  Criminal Prosecution Increased Year 2003 2004 2005 2006 2007 No. of criminal prosecutions 5 3 4 3 7 No. of fines imposed 11 14 23 27 24  Leniency Program Year 2003 2004 2005 2006 2007 No. of times leniency granted 1 2 7 7 9 Amount of fines (KRW million) 3,433 – 173,673 54,992 221,373 15
  16. 16. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authority in Korea (3):  Wide Range of Industries • Government procurement (military gasoline) • Consumer products (sugar, detergent, flour, gasoline) • Industrial products (polypropylene, CRT glass) • Financial services (insurance, bank fees) • Other services (air cargo)  Increased International Cooperation • Formal and informal information sharing with US, EU and other countries • Examples : Air cargo transportation, LCD, CRT glass, copy paper • KFTC established a new division to investigate international cartels 16
  17. 17. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of the European Commission (1):  Total amount of fines imposed (2005-2008) Year 2005 2006 2007 2008 Amount in € million 683 1,846 3,338 2,271 17
  18. 18. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of the European Commission (2):  Highest fines • for one cartel – € 1,383,896,000 (car glass, 2008) – € 992,312,200 (elevators and escalators, 2007) • on one company – € 896,000,000 (Saint Gobain, car glass, 2008) – € 479,669,850 (Thyssen Krupp, elevators and escalators, 2007)  No prison sentences  Private damages claims upcoming 18
  19. 19. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of the European Commission (3):  Legal framework • Strict guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 • Commission Notice on Immunity from fines and reduction of fines in cartel cases  Practice of the European Commission regarding compliance programs • Not taken into account in decisions on hardcore cartels • Some older decisions with reduced fines (1982-1992) for breaches other than hardcore-cartels 19
  20. 20. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of the European Commission (4):  Why establish a compliance program? • Prevent future breaches of Articles 81 and 82 EC Treaty, especially in view of increasing fines and claims for damages • Improve chances to obtain leniency (after internal revelation of breaches of Article 81 EC Treaty) 20
  21. 21. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in Germany (1):  Most recent fines: • € 250 million for 11 liquefied gas suppliers (2007 / 2008 / 2009) – December 2007 and February 2008: € 209 million for 9 companies – April 2009: € 41.4 million for further 2 companies • € 216 million for 2 advertising time-marketing companies (2007) • € 165 million for 6 manufacturers of clay roof tiles (2008)  Highest fine for one company (since 2007): € 120 million (Pro7Sat.1)  Basically no prison sentences (exception: bid-rigging) 21
  22. 22. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in Germany (2):  Legal Framework • Notice no. 9/2006 of the German Federal Cartel Office (FCO) on immunity from and reduction of fines in cartel cases – Leniency Program – of 7 March 2006 • Notice no. 38/2006 on the imposition of fines under Section 81 (4) sentence 2 of the German Act against Restraints of Competition (ARC) against undertakings and associations of undertakings of 15 September 2006  Practice of the FCO and state competition authorities regarding compliance programs: • Not explicitly mentioned in those notices • Not explicitly taken into account in decisions in the past 22
  23. 23. International Competition Compliance: Global Pitfalls and Best Practices Recent Practice of Competition Authorities in Germany (3):  Why establish a compliance program? • Prevent future breaches of national rules, especially in view of increasing fines and claims for damages • Improve chances to obtain leniency (after internal revelation of breaches of national rules) • Compliance programs are taken into account in an examination of a breach of "obligatory supervision" requirements applicable to natural persons (particularly managing directors) (§ 130 GWB) 23
  24. 24. International Competition Compliance: Global Pitfalls and Best Practices Important Issues of International Competition Compliance:  Appreciation of different competition law systems  General issues in establishing an international compliance program  Compliance network members around the world  Checklists for compliance officers, guidelines for inspections, instructions for reception  Diagnostics / antitrust due diligence 24
  25. 25. International Competition Compliance: Global Pitfalls and Best Practices United States – EU Comparison Overview (1): United States EU  Criminalization / jail time  Heavy administrative fines  Very tough on cartels  Very tough on cartels  Easy on “vertical restraints” (no  Tough on “vertical restraints” (market market integration objective) integration objective)  Private actions:  Private actions: - Treble (3x actual) damages - Damages claims upcoming in EU - Class actions Member States, e. g. Germany and UK - Contingency fee bar - On EU level, no collective redress for  Jury trials now, but discussion concerning possibility of introducing such claims  State attorneys-general  Administrative proceedings  EU Member State competition authorities 25
  26. 26. International Competition Compliance: Global Pitfalls and Best Practices United States – EU Comparison Overview (2): United States EU  Resale Price Maintenance  Resale Price Maintenance - Colgate exception - No exception for independent - “MAP” programs dealers - U.S. Supreme Court “Rules of Reason”  Merger Control - But states want to overturn - DG Comp, Brussels S.Ct. - Member State systems - European “CFIUS”?  Merger Control - DOJ and FTC - Attorney-General - CFIUS 26
  27. 27. International Competition Compliance: Global Pitfalls and Best Practices General issues in establishing an international compliance program (1):  Goal to create structural environment for detection and prevention of, and reaction to, potentially anticompetitive practices, minimizing risks to the company as a whole  Not enough to adopt program only in some jurisdictions • Risks can come from anywhere; trend of increasingly more active enforcement around the globe  How uniform can / should an international program be? • Issues of cost, manageability, legal certainty, business flexibility 27
  28. 28. International Competition Compliance: Global Pitfalls and Best Practices General issues in establishing an international compliance program (2):  Main principles and rules apply across borders, but beware of cookie-cutter solutions  National law, practices and idiosyncrasies demand local attention  Clear commitment from senior local management indispensible • Importance of also showing support from headquarters  Hot lines: language, cultural, time zone issues 28
  29. 29. International Competition Compliance: Global Pitfalls and Best Practices General issues in establishing an international compliance program (3):  International programs offer strategic choices  Besides common general principles, should company: • Adopt the most stringent rules across the board? OR • Selectively maximize the possibilities of each local rule?  Ex: resale price maintenance, distribution policies (exclusivity, geographic allocation, price differentiation etc), sales promotions  Several opportunities open for exploration 29
  30. 30. International Competition Compliance: Global Pitfalls and Best Practices Compliance Network Members around the World (1):  Time is of essence at the initial stage of investigation. The company needs to act quickly.  We should assume that information obtained by an authority in one country will be shared with the relevant authorities in other countries. 30
  31. 31. International Competition Compliance: Global Pitfalls and Best Practices Compliance Network Members around the World (2):  Simultaneous dawn raids in multiple jurisdictions are increasing.  Information gathering and analysis should be conducted to cover all relevant jurisdictions.  Strategy for all relevant jurisdictions should be coordinated and consistent. 31
  32. 32. International Competition Compliance: Global Pitfalls and Best Practices Compliance Network Members around the World (3):  Internal networks of compliance officers and reporting system should be in place and ready to react.  External advisors should be lined up and clear instructions must be given in advance. 32
  33. 33. International Competition Compliance: Global Pitfalls and Best Practices Checklists / Guidelines / Instructions (1):  Establishment of a "compliance structure" To be able to react upon unannounced visits by investigating authorities, it is important to establish in advance an appropriate structure. This includes: – Compliance officer (or other responsible) for every subsidiary of the company – Compliance team for every subsidiary of the company – One person responsible for the coordination of all compliance activities of the whole group – Consistent strategy for all subsidiaries of the group (in different national legal systems), including the creation of checklists and instructions for the compliance team and the employees (e.g. receptionists) 33
  34. 34. International Competition Compliance: Global Pitfalls and Best Practices Checklists / Guidelines / Instructions (2):  Considering the different national laws (especially procedural rules) • Companies with subsidiaries in different countries should consider the different national enforcement / procedural laws. • Observation of the rules of the country in which the group has its headquarters is not sufficient. • In view of the fact that the European Commission is frequently supported by the national competition authorities during the dawn raids, the consideration of national enforcement / procedural laws gains more and more in importance. These national authorities may have more investigative powers. 34
  35. 35. International Competition Compliance: Global Pitfalls and Best Practices Diagnostics / Antitrust Due Diligence (1):  Goal: identifying legal risks which exist within the company  Risks include criminal and civil liability; void contracts/contractual provisions  It doesn’t have to be costly!  Steps: • Determine scope of review • Identify problem areas • Conduct review • Undertake corrective measures 35
  36. 36. International Competition Compliance: Global Pitfalls and Best Practices Diagnostics / Antitrust Due Diligence (2):  Determining scope of review • What is the purpose of the review? – The result of a specific concern? – Part of transaction-specific due diligence? • Which business segments will be covered? – Divided on a product and geographic level 36
  37. 37. International Competition Compliance: Global Pitfalls and Best Practices Diagnostics / Antitrust Due Diligence (3):  Identifying problem areas • Areas with past infringements • Major contracts with suppliers/customers (especially those with exclusivity, non- compete clauses, etc.) • Markets where company has high market shares • Acquisitions – In due diligence of target, identify trade association participation, pricing strategies, etc. – Transactions without merger control – possible ex post review? 37
  38. 38. International Competition Compliance: Global Pitfalls and Best Practices Diagnostics / Antitrust Due Diligence (4):  Conduct review • Review agreements and practices (including trade association activities) • Interview employees in areas of concern • Check market shares  Corrective measures • Revise agreements, policies and business practices • Make merger filings • Decide on immunity/leniency applications  Issues to be aware of – maintaining privilege 38
  39. 39. International Competition Compliance: Global Pitfalls and Best Practices The five most dangerous Global Pitfalls:  Companies sometimes establish an international competition compliance program but forget to enhance it later or, even worse, disregard it.  Following the competition rules of the country in which the company has its headquarter does not automatically exclude a different appreciation in other jurisdictions.  Companies should not forget to involve the senior management in the process of establishing and performing of the international competition compliance program.  In Asian countries (especially in Korea and Japan), because cooperation and coordination among competitors have been widely accepted culturally, sales people often do not come forward immediately with what they have done. This attitude makes it difficult for compliance officers or legal advisors to gather information and to analyze the legal implications.  It is a false economy to reduce budgets for competition compliance in difficult times (e.g. financial and economic crisis). However, especially in times of downturn, there is a considerable temptation to resort to unfair means to attract new or retain existing business. 39
  40. 40. International Competition Compliance: Global Pitfalls and Best Practices The five most important Best Practices:  It is essential not only to establish an international competition compliance program but to ensure its proper implementation, including continuous training and monitoring, and thus to improve the effectivity of the program.  In case of doubt concerning intended procedures, companies should not be afraid to seek advice from their competition lawyer.  It is important to include interviews with local employees, and sometimes trade associations as well, to identify sensitive areas like sales, distribution or promotion.  Continuing education is important. One company in Korea implemented a mandatory compliance learning program where senior level employees and officers can only start up their PC after completing a compliance e-Learning program.  An advisable strategy for an undertaking would be to invest continuously in competition compliance programs, especially in times of downturn, and not to make false economies. 40
  41. 41. International Competition Compliance: Global Pitfalls and Best Practices Panel Discussion & Questions 41
  42. 42. International Competition Compliance: Global Pitfalls and Best Practices Final Questions? Thank you for Joining Us! 42
  43. 43. International Competition Compliance: Global Pitfalls and Best Practices T +1 416 863 5588 George Addy F +1 416 863 0871 E gaddy@dwpv.com 191 North Wacker Drive, Suite 3700 W. David Braun Chicago, IL 60606-1698 T +1 312 569-1109 F +1 312 569-3109 E David.Braun@dbr.com Office São Paulo T +55 11 5086-5313 Marcelo Calliari F +55 11 5086-5555 E mcalliari@tozzinifreire.com.br T +82 2 3404 0138 Ri Bong Han F +82 2 3404 7692 E ribong.han@bkl.co.kr Schöttlestraße 8 70976 Stuttgart Harald Kahlenberg T +49 711 9764 303 F +49 711 9764 939 E harald.kahlenberg@cms-hs.com 43

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