The Compliance Stepchild: Antitrust

by Michael Volkov
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antitrust4Let’s try and put this all in perspective.  Last fiscal year, the Antitrust Division collected over $1 billion in criminal fines and sent a number of senior executives to prison.  The Antitrust Division’s enforcement record is impressive and is likely to grow with the LIBOR investigation and the ever-expanding investigation of auto parts suppliers.

Based on this clear enforcement risk, you would expect that antitrust compliance would be a high priority for global businesses.  Instead, we hear a deafening silence on the issue.  FCPA compliance still rules the day.  If you weigh the impact of an antitrust cartel enforcement action, with the potential US fines, treble damages in private class actions and EU enforcement actions, antitrust risks may exceed those of the corrupt payments.

The compliance industry reflects corporate demand for compliance services.  Why is antitrust compliance on the back burner (or not even on the stove)?  Companies are playing a serious game of Russian roulette when it comes to cartel risks.  Senior executives have plenty of incentives and opportunities to interact with competitors to carry out illegal price-fixing, bid-rigging or  territorial allocation schemes.

Common characteristics of global cartels include: (1) Senior executive involvement who have the authority to carry out pricing, output or operational changes in a global company; (2) Attempts to avoid detection, especially in the United States where criminal penalties can be imposed; (3) Use of trade association meetings to facilitate joint meetings and coordination;  (4) Ability to fix prices, output or bid-rig on a regional or global basis; (5) Monitoring “compliance” with terms of illegal agreements and attempts to discourage cheating;  (6) Concentrated markets and product homogeneity are higher-risk markets because of the ease or coordinating a smaller number of participants’ who provide similar products or services.antitrust3

Chief Compliance officers need to examine antitrust compliance issue.   Antitrust compliance programs have the same objective as any other compliance program – to prevent and detect antitrust violations.  The detection of a potential violation is critical – antitrust fines can be very large but the collateral consequences can be equally devastating when private victims earn treble damages.  The Antitrust Division’s leniency program is extremely effective – the first company in the door can get a free pass on criminal liability in the US, a reduced fine in the EU and avoid treble liability and receive only single damages.

The sentencing guidelines standards apply to antitrust compliance and require:  (1) Clearly established compliance standards; (2) Assigning overall responsibility to oversee compliance to high-level executives within the company; (3) Exercising due care not to delegate responsibility to employees who have a propensity to engage in illegal conduct; (4) Taking reasonable steps to communicate standards and procedures effectively to all employees; (5) Taking reasonable steps to achieve compliance with standards; (6)  Consistent enforcement of standards through appropriate disciplinary mechanisms; and (7) Taking reasonable steps when an offense occurs to respond and to present future violations.

An antitrust compliance program should focus on many of the same broad principles involved in any compliance program.  Specific risks in the antitrust area center on contacts between and among competitors – opportunities for senior officials to interact with competitors, meet with competitors and potentially reach illegal understandings and antitrustagreements, especially in those markets where competition is ruthless.  Antitrust audits usually focus on risks relating to:

Trade Association Meetings should be reviewed for attendance, purpose and patterns, especially meetings outside the United States.  If the trade association is involved in collecting industry data which may include specific pricing practices, or forward-looking pricing and output data, the risk of illegal interactions increases significantly.

Joint Ventures among competitors in a concentrated market are very high-risk since legitimate interactions in the joint venture can easily be expanded into illegal agreements in markets outside the joint venture where the participants are competitors.

Market Share and Pricing History can sometimes reveal an illegal agreement resulting in stable market shares and pricing in a normally competitive market.

Sales Transactions between your company and competitors may, in fact, be a disguised payment to offset disputes or violations of a market allocation scheme.

Sudden and Unexplained Price Rises can indicate an illegal agreement among competitors combined with pricing announcements from competitors or other sensitive information in company files.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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