Two years ago I wrote a short article (which I recently republished here) on why reducing competition fines because a company had a compliance policy would be a mistake. Since then, I’ve changed my mind. But only on the reasoning, not the result. At least for now. And I may change it again.
There is fairly profound disagreement on this point between the Commission and many companies (and their advisers). The Commission does not want to give fines reductions for companies that have a compliance programme in place; companies believe that investing in a compliance programme should be recognised by the Commission by a reduction in fines.
The disagreement could be simply because companies that have put in place a compliance programme know that there is a risk that it will fail, so they are trying to reduce potential future fines. This would be a rational argument but would be somewhat self-serving and I don’t believe it’s the main reason for companies’ disagreement with Commission policy.
It could also be because it might make it easier for inhouse and external counsel to “sell” an expensive compliance programme to the CEO. Though as I noted at the end of my last article, if the compliance programme avoids just one antitrust infringement, that will almost certainly be far more effective than a fine reduction or damages for any infringement that does occur. So if that avoidance of cartel behaviour isn’t enough of a sell to the CEO, it’s hard to see why a reduction in a potential future fine would be more persuasive. (There may be an argument here that the fines reduction is somehow perceived as more proximate or significant and therefore has a bigger impact on CEO decision-making but I don’t really see it.)
Rather than the above reasons, I wonder if the difference in view on rewarding compliance programmes by reducing the fine is in part driven by the lack of successful damages actions in Europe.
I admit the link may not be immediately obvious.
Let’s look at the basics of what a fine has to achieve. Any fine has to punish and to deter.
From the perspective of a company that has put a lot of time, effort and money into creating a comprehensive compliance programme, it may feel that there is little more that it can do to increase compliance. It already has no intention of breaking the competition rules – it does not need to be deterred further – and it has already gone to great efforts to avoid such infringements – so any punishment should recognise these efforts.
From the perspective of the Commission, on the other hand, for a fine to deter, any revenue generated by the cartel and not paid out in damages has to be taken into account. This has been recognised by the Court:
‘profit which the undertakings were able to derive from their practices is one of the factors to be considered in assessing the gravity of the infringement’, Cases C-189/02P, etc, Dansk Rørindustri v Commission  ECR I-5425, para 211.
This idea is also picked up in the European Commission’s 2006 Fining Guidelines which refers to:
‘the need to increase the fine in order to exceed the amount of gains improperly made as a result of the infringement where it is possible to estimate that amount.’Fining Guidelines, OJ 2006 C210/2, para 31
Let’s call this the unjust enrichment resulting from the cartel.
For a cartelist to be forced to disgorge the unjust enrichment leaves the cartelist in a neutral position – neither worse nor better off than if the cartelist had never engaged in the cartel in the first place.
Given the lack of damages actions in Europe, disgorgement of this unjust enrichment by these means almost never takes place. Although the number of damages actions is increasing – and the Commission is proposing legislative changes to make such actions more likely to succeed – the starting assumption in looking at the fine has to be that damages are not being paid.
As an aside, this does not mean that if damages actions take off then cartel fines will, or should, go down – there is plenty of economic evidence to suggest that cartel fines are currently too low: estimates of cartel uplifts are often high, the detection rate can never be 100% so a deterrent fine has to take account of undetected cartels, and so on.
But an increase in successful damages actions might alter the terms of the debate about the relevance – for example – of compliance programmes.
Faced with a case where damages had been paid (so there was no question of unjust enrichment), an authority might then want to look at issues such as efficacy of compliance programmes when deciding what the appropriate punishment should be.
If, for example, the company has an extensive compliance programme in place, the infringement was committed by someone knowingly circumventing that programme, and the victims have been compensated, then a fine could perhaps take that into account without it being any less deterrent.
Before people seize on this as a sign that the Commission may be thinking of changing its cartel policy, a couple of points:
– first, have you read the disclaimer? These are just my thoughts;
– second, being able to assume that damages will deal with the unjust enrichment is not something that the European Commission will be able to do for the foreseeable future;
– third, the difficulties of distinguishing between the moral culpability of different types of companies highlighted in my first article will remain. Whether or not a company has a compliance programme would seem to be only one potentially relevant factor amongst several;
– finally, the question “why should we reward a failed compliance programme?” will remain.
So don’t expect a change anytime soon. But I think that focussing on the separate elements of unjust enrichment and punishment is helpful in framing the debate about fining policy and compliance programmes, and potentially other areas as well.