To enforce and comply – UK Experience
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To enforce and comply – UK Experience
Andrea Appella
Director of International
ACLE, 5th March 2009
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Overview • The OFT’s focus is on delivering high-impact
outcomes, not outputs.
• Compliance via deterrence (not case volume) and education.
• Criminal sanctions are strongest deterrent, but other factors also play an important role.
• Prioritisation strategy is key to achieving good outcomes.
• Evaluation: ex post, ex-ante and wider impact.
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OFT Framework
Education, Guidance & Advice
Dialogue
Warnings
Undertakings
Penalties
Civil
action
Self Regulation
Crim
Action
Established Means
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Achieving deterrence - theory• Cartel gain vs probability of detection X penalty value
• Gain from Cartel– 10 to 30 per cent above the competitive prices
– Natural life of ‘typical’ cartel thought to be around 6 years
• Likelihood of detection– Mainly public enforcement & Prioritisation of high impact
cases
• Example of why fines may not deter– E.g., prices 5 per cent higher for 6 years & detection rate of 25
per cent
– 120% relevant turnover to deter: exceeds the statutory maximum
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Achieving deterrence - evidence
• Deloitte survey (2007) shows deterrent effect for OFT enforcement: cartels
– Legal survey 5:1 Company survey 16:1
• International experience– Criminal sanctions taken more seriously by companies and
individuals
• Other factors relevant to deterrence– Sanctions for individuals – criminal/ director disqualification– Adverse publicity (N.B. link to penalties)– Private damages actions
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Importance of current sanctions: focus on individual criminal penalties
Source: 2007 Deloitte Survey (pre-dates recent cases)
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Criminal penalties
Fines
Director disqualification
Bad publicity
Private damages
Criminal penalties
Director disqualification
Bad publicity
Fines
Private damages
Lawyers Companies
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OFT cartel enforcement in practice• First fruits of criminal cartel regime
• Entry into force in June 2003 – not retrospective• First successful prosecutions in Marine hose
• Significant prison sentences of between 2½ and 3 years (reduced on appeal)
• Director disqualification of between 5 and 7 years• Confiscation orders
• Charges brought against four current and former BA executives in Passenger fuel surcharge case
• Use of criminal investigation powers
• First search of domestic premises in Marine hose
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Significance of criminal penalties
• Strong deterrence message
• Concrete demonstration of personal risks for individuals of engaging in cartel conduct
• Marine Hose: example of international cooperation in action
• Additional impetus for compliance
• Increase importance of competition compliance
• Encourage a more proactive approach to compliance
• Further destabilise cartels
• Impetus for leniency
• Virtuous circle of enforcement
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Virtuous Circle of Enforcement
OFT Enforcement
Action
IncreasedDeterrence
Cartel Instability
Impetus for Immunity
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How to improve deterrence: legal advisor vs company views
Source: 2007 Deloitte Survey (pre-dates recent cases)
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Private damages
Criminal prosecutions
Publicity and education
Faster decision making
More activity
Publicity and education
More activity
Larger fines
Faster decision making
Legal clarity
Lawyers Companies
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Prioritisation is key for good outcomes
Objectives of Prioritisation:• Making the best use of resources to maximise
impact• Ensuring decisions about what work to undertake
are taken consistently across the office• Identifying ex ante what we expect to achieve • Portfolio management• Clarity/creation of external expectation• Improving quality of complaints
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Prioritisation principles (October 2008)
Balance of four factors:
Impact: Direct and indirect impact (including deterrence) on consumer welfare and the economy
Impact Significance Risk Resources
Risk: Expected risk at outset of project.
Risk if we do not act
Resources: People and monetary resources needed
Significance: Strategic impact, innovation, precedent setting, capacity building, whether OFT best placed to act
The Principles are a tool for understanding and explaining what factors we take into account – they do not make decisions for
us.
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Conclusions on the UK experience• A range of tools to achieve compliance
– Enforcement is only one part of the framework
– Education and guidance play equally important roles
• Criminal sanctions are strongest deterrent– High financial penalties may not be sufficient to deter
– Criminal cartel law is expensive!
• OFT’s high-impact work recognised in NAO’s Report published today. Evaluation is leading to reflection and improvement.
• International networks and organisations are important for sharing knowledge and best practices.