Build a compliance culture

Financial Express, November 22, 2013

By Pradeep S Mehta

CCI must move from simply adjudicating anti-trust law violations to fostering an environment of competition compliance

Every country needs a healthy competition culture through regulation of anti-competitive practices, removal of competition impediments and awareness generation. In many competition regimes, penalties for violating firms are reduced if the said firms have compliance programmes in place; such provisions incentivise businesses to be competition-friendly.

Hitherto, the role of CCI has been restricted to limited awareness generation without any proactive advocacy. So, the unilateral awareness-generation approach of CCI seems to be short-sighted and misses the ultimate goal of building a culture of competition and self-compliance. Building a culture of compliance is a step ahead of plain awareness generation. It involves the market players ensuring that their organisations do not engage in anti-competitive conduct.

Typically construed, a competition compliance programme should include risk identification, assessment and mitigation, and review. Organisation-wide commitment to competition compliance is at the core of such culture-building. Worldwide, the importance of competition compliance programmes is reflected in the enforcement and advocacy practices followed by competition authorities in their respective jurisdictions. For compliance to be effective, it is necessary to create an environment where businesses comply with the law on their own.

To make businesses follow the path of compliance, a carrot-and-stick approach is needed. In the current scenario, the carrots can be incentives for businesses to comply with the competition law, a path endorsed by businesses themselves through the CII platform. Moreover, initiatives like leniency programmes, guidance on compliance and penalty guidelines are some of the required sweeteners. Proactive checking of anti-competitive practices and deterrent penalties could act as sticks. In one of my earlier columns (FE, Need for a realistic penalty regime,, I had said that there is a lack of clarity and systemisation in levying penalties. COMPAT averred the same in a judgment on October 29, 2013. While upholding CCI’s decision that the companies involved had contravened the Competition Act, it modified the penalty awarded by the competition watchdog. The appellate body observed, “Time and again we have been reiterating the necessity of the reasons while ordering the penalty. We hope that the CCI take serious note of that factor”.

Alas, the CCI is yet to evolve a set of guidelines for penalties. The prospect of damage to reputation and financial penalties are the key drivers for businesses in taking up competition law compliance. This aside, companies could also face division of the dominant enterprise in case of abuse of position, loss of business from potential investors, etc. Proactive compliance, thus, stave off such risks.

Globally, competition authorities have created competition compliance cultures in their respective jurisdictions using approaches such as advocating competition compliance through various media, directing competition-compliance training, directing competition audits for infringers, tailoring compliance programmes, certifying compliance programmes, considering effective compliance programmes in mitigating fines and so on. Brazilian law helps companies design a compliance programme by spelling out the requirements and conditions for the competition authority to issue a Compliance Certificate with a two-year validity. Sentencing guidelines in US, a jurisdiction which criminalises anti-trust violations, provide for mitigated fines if effective a compliance and ethics programme is in place at the company involved. In South Africa, the authority often requires the companies to give an undertaking to implement a compliance programme in the context of enforcement action. Fair Trade Institute, an affiliate of the anti-trust authority in Japan, helps companies establish and implement compliance programmes. In Japan, the infringing companies were once ordered to provide training on the Japanese Anti-monopoly Act for sales staff and to conduct periodic audits by legal affairs personnel. Such directions help in intertwining competition compliance with in the corporate governance framework of firms. CCI should also consider framing penalty guidelines which could include pre-existing compliance programmes as a mitigating factor while calculating fines.

Self-regulation and compliance by the businesses goes a long way in creating a culture of competition law compliance. For this to happen, there should be clear rules regarding application of the law and incentives for self-compliance. Directing competition training, competition audits and competition compliance programmes, especially for infringers, will be better than the current approach of passing Quixotic orders on violations of the provisions of the Competition Act, 2002. Enacting and applying clear rules, including penalty guidelines rather than just apprising market players of likely effects of anti-competitive practices, will create incentives for the market players to be competition compliant.

The means to achieve the twin objectives of competition law should include creating a framework wherein companies move for compliance themselves. Going ahead, as illustrated above, adapting the practices of international jurisdictions will help in ushering in competition compliance and foster a competition culture in India. There is no doubt that competition law needs to be tailored in line with the economic milieu of the country. Yet, what’s wrong in learning from international best practices? After all, India, being a new kid on the block, has the last-mover advantage.

The author is the secretary general of CUTS International. Saket Sharma of CUTS Institute for Regulation & Competition contributed to this article.

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