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October 7, 2013 5:28 pm

Ensuring antitrust compliance may require stick, not only carrot

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This article is provided to readers by PaRR (Policy and Regulatory Report)— a newly launched product of The Mergermarket Group providing proprietary intelligence and research on competition law and sector-specific regulatory changes around the world.


Ensuring companies’ compliance with antitrust rules in practice may require certain disciplinary measures, in-house competition counsel told PaRR at the Antitrust Forum.

Compliance programmes have become an integral part of corporate governance programmes, said Jörg Häring, Division General Counsel Legal & Compliance at Siemens. They include multiple elements – from identifying risks, top and middle management communications to employees, antitrust counseling and training sessions, to internal investigations and disciplinary sanctions when needed, noted Häring.

For a successful compliance programme, internal communication is crucial, echoed Susan Jones, Head of Corporate Legal Antitrust at Novartis International. But certain additional measures may be necessary, especially at multinational companies that have very low “risk tolerance thresholds” and cherish their reputation.

The completion of compliance training may be tied to an employee’s targets, for example, Jones suggested. Failure to complete training may be escalated to the CEO of the company, she added.”

But even with the best compliance programme in place, ensuring that employees comply is a “tough job”, said Carel Maske, Director of Competition Law for EMEA at Microsoft. Identifying and targeting the right people among almost 100,000 employees at Microsoft worldwide, or among 370,000 at Siemens, is a challenge, agreed both Maske and Häring.

Perhaps the employees that fail to comply, often called “rogue employees”, should also be subject to financial sanctions, remarked Christopher Rother, the head of the Deutsche Bahn group’s Regulatory, Competition and Antitrust department. If a company faces a fine of EUR 5m as result of a cartel, the “guilty employee” could in turn perhaps have to pay a portion of it – some EUR 50,000, for example, Rother suggested.

Financial disciplinary measures may be imposed, but only within limits allowed by labour law, cautioned Häring. The process of imposing sanctions on employees must be very transparent.

At Siemens, following an internal audit, a final internal report would be reviewed by an internal disciplinary committee that would decide whether to impose sanctions on certain employees, he explained. Ultimately, the employee can also be fired.

If the “guilty ones” are board members, then the company would also consider whether to sue them, Häring said. In the past, Siemens has pursued lawsuits against certain board members who failed to respect internal compliance rules and put the company “into trouble”.

In January 2010, Siemens filed a lawsuit with the Munich District Court against two former board members involved in a public corruption scandal. In 2008, Siemens settled with the US Department of Justice and the Securities and Exchange Commission a Foreign Corrupt Practices Act (FCPA) investigation resulting in a total fine of USD 800m for alleged corruption in several countries over a period of six years.

Merely threatening with potential fines is not always efficient, noted Maske, especially at companies that do not get fined.

Regulatory authorities’ investigations may prove to be an “instructive experience”, noted Maria Ouli, Senior Competition Lawyer at BT Legal. UK communications industries regulator OFCOM probed BT’s pricing policies over alleged margin-squeeze. The authority scrutinised the company’s compliance and governance structure in great detail, noted Ouli.

In June 2013, OFCOM closed its investigation into BT. The investigation had started in 2008, prompted by complaints from two BT’s competitors.

Compliance processes at Siemens became all the more rigorous after the FCPA investigation, according to Häring.

Asked about incentives for employees to confess, Jones explained that at Novartis there is a dedicated “whistle-blowing hotline” allowing staff to admit deviations from compliance rules in exchange for a promise that they would not be punished. She added, however, that immunity from sanctions is subject to a caveat that the confessing employees were not the ringleaders or instigators of anticompetitive practices.

Siemens has a similar “amnesty” system with an equivalent caveat, Häring revealed.

An additional “carrot” that Siemens provides is a special insurance policy that covers legal expenses and/or defence costs of the individual who “blew the whistle”. This also excludes the leaders of infringements.

Role of external legal counsel

Ouli emphasised the importance for BT to have employees championing governance.

Jones explained that in-house lawyers at Novartis work together to craft a message including practical business examples tailored for the company’s employees. She added that they set up their own compliance programmes rather than relying on external counsel, to boost the “ownership feeling” and the importance of compliance for employees.

But external counsel must be involved in internal audits, Häring emphasised, summarising the stages of compliance process in three words: “prevent – detect – respond”.

Because in-house counsel correspondence and advice are barely covered by legal privilege, it is essential to have outside counsel participate at the “detect” stage, Häring explained.

As previously reported, in 2010, in the Akzo case, the European Court of Justice reiterated its position – originally taken in 1982 in the AM&S case – that in Europe internal communications with in-house counsel are not covered by legal professional privilege, meaning that they can be obtained by the European Commission as part of antitrust investigations.

External lawyers may also be useful when it comes to the more “confrontational situations” when assessing compliance internally so that the relationship with company counsel’s “internal clients” is not affected adversely, commented Maske.


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