Supply Chain Competition Compliance in Scotland Scottish Supply Chain Forum 14 June 2011 Garfield House Hotel, Cumbernauld Road, Stepps Mark Clough, Partner QC (England and Wales) Brodies LLP © Brodies LLP 2011

Overview  Current issues in competition law – drivers for compliance  Compliance – what do you need to do?  Training  Dawn Raid Support

Drivers for competition law compliance The consequences of breaching competition law  Fines up to 10% of worldwide group turnover  Adverse impact on reputation and brand  5 years in prison and/or an unlimited fine for individual participants in a cartel  Disqualification of company directors  Court actions by customers or competitors damaged by the breach  Invalidity of agreements that infringe the law  The management and legal cost involved in dealing with investigations and/or litigation

Perceived Importance of Sanctions in Deterring Infringements of Competition Law OFT 962, The Deterrent Effect of Competition Enforcement by the OFT, November 2007, available at Ranking by BusinessesRanking by Lawyers 1. Criminal Penalties 2. Disqualification of Directors2. Fines 3. Adverse publicity3. Disqualification of Directors 4. Fines4. Adverse publicity 5. Private damages actions

Most common competition compliance measures  Taking external legal advice (40% of businesses)  Having a policy code (34%)  Providing seminars on competition law (26%)  Employing a dedicated competition compliance officer (20%)  Taking economic advice (16%)  Requiring employees to take an online training programme (9%) OFT 962, The Deterrent Effect of Competition Enforcement by the OFT, November 2007, available at

Drivers for competition law compliance Current messages  OFT Consultations:  Draft Guidance on Company Directors and Competition Law  Draft Guidance on How Your Business Can Achieve Compliance

OFT Draft Guidance on Company Directors and on Compliance  Key messages:  “Culture of compliance”  Compliance starts at the top  All directors have some responsibility for compliance, with risk of disqualification for breach  Recommended process for dealing with competition law risks:  Identify  Assess  Mitigate  Review

Competition Compliance – starts at the top  Compliance must be led by senior management and directors  “Visible, active and regularly reinforced” support for compliance  Signals to the outside world, employees and regulators – in the event of a breach, compliance efforts may reduce fine levels  Designate compliance director, but support from all management, including non-executive directors

Competition Compliance – director’s duties  Risk of competition disqualification order  All directors have some responsibility  OFT expectations depend on circumstances:  conduct of director  whether executive or non-executive  risk profile of responsibilities within the company (e.g. sales director = high-risk; HR director = low-risk)  size of the company / group

Competition Compliance – risk identification  Requires a knowledge of competition law essentials  What sort of agreements / behaviour does competition law prohibit?  Competition Act, Chapter 1 – Article 101 TFEU  Prohibits agreements between undertakings that have the object or effect of restricting competition, unless satisfy exemption conditions  Competition Act, Chapter 2 – Article 102 TFEU  Prohibits an undertaking in a dominant market position from abusing its dominance

British Airways/Virgin  OFT investigated price-fixing by BA and Virgin of fuel surcharges on long-haul passenger flights out of UK  Virgin escaped fine for whistle-blowing  Very significant fines for BA (OFT: £121.5m; DOJ - $300m)  BA and Virgin agreed to compensate both US and UK customers who suffered damage as a result of fixing of fuel surcharges  Passengers entitled to refund of up to £10 for each single journey  Criminal investigation into BA executives dropped in UK

Marine Hose  Alleged cartel for marine hose (used to transport oil between tankers and storage facilities)  First case investigated by Commission under civil powers (then Art.81 EC Treaty) and by OFT under its criminal powers (s.188 Enterprise Act 2002)  Co-ordinated dawn raids involving OFT, European Commission and DOJ  Innovative plea bargain arrangement  3 UK citizens pleaded guilty to violations of US antitrust law and charged with criminal cartel offences  Allowed to return to the UK to plead guilty to price-fixing charges under EA02 and serve time in UK prison for a period no less than the time agreed in their plea agreements  Resulted in first prosecutions under the UK cartel offence  Prison sentences reduced after appeal

Competition Compliance – risk assessment  What is the company’s market position?  Do directors / employees have frequent contact with competitors (e.g. industry association events)?  Is there a high turnover of staff between competitors?  Do competitors work in partnership (e.g. joint ventures)?  Where are the risks highest (e.g. sales department vs HR department, IT department)?

Competition Compliance – risk mitigation  Appropriate policies and procedures – e.g. compliance manual setting out duties, and procedure for seeking advice if in doubt  Training  Tailor to focus on identified risks  Tailor to recipients – more detail for management and for staff in higher-risk areas, general overview for others  Discipline employees for breaches BUT consider leniency arrangements to encourage whistle-blowing  Senior management commitment!

Competition Compliance – review  Essential to have regular review of risk identification, assessment and mitigation procedures.  Has the company’s market position changed?  Have the company’s activities changed?  Has the market changed?  Regular testing of management / staff awareness of issues  Competition audits?  Employee amnesty programmes?

Compliance: the practicalities  High level policy commitment to compliance  Board communications  Training  Practical, punchy and user friendly policy  External legal support

Training Needs  Understanding the risks and drivers for compliance  Live introductory training  On-line toolkits  Face to face training  DOs and DON’Ts for staff  Directors’ checklist

Dawn Raid Support  Which authority is carrying out the raid?  What are their powers?  How should you respond?

Dawn Raid Support  Dawn raid manual  Training – particularly for key roles  External support – call out ‘dawn raid team’  Mock raids?

Competition Compliance Mark Clough QC (England & Wales), Partner Charles Livingstone, Associate © Brodies LLP 2011