Remarks by John Pecman, interim Commissioner of Competition
October 30, 2012
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Thank you for the invitation to join you this morning.
Companies engaging in anti‑competitive activities face an increasing regulatory risk — not only in Canada but around the world.
They face stiff monetary penalties in the European Union. In the U.S., the risks go beyond fines and treble damages: individuals are facing increasing jail time for cartel offences.
There are a growing number of countries with competition laws and at the same time, we are seeing increasing and better cooperation between those countries that do have competition laws through fora like the OECD, ICN and regional competition networks. And bilateral trade and cooperation agreements often expressly contemplate coordination between anti-trust agencies.
This all means that both the likelihood of detection and prosecution are increasing. And with increasing cooperation and coordination between agencies, there are fewer and fewer places to hide.
Even within Canada, as a result of the Bureau's focused and principled approach to enforcement, awareness of anti‑competitive activity has been heightened among everyday Canadians and Canadian businesses.
To illustrate this, some of our recent cases involve the Canadian Real Estate Association, the Toronto Real Estate Board, Rogers/Chatr, United Airlines and Air Canada; Air Cargo, the retail gas sector and Bell, Telus and Rogers — in relation to charges pertaining to premium text services.
As you can see, the Bureau will not hesitate to go after anti‑competitive behaviour, wherever we find it.
And, the amendments made to the Competition Act in 2009, have not only strengthened our enforcement capacity, they have resulted in judges viewing these crimes with increasing severity.
Just a few short months ago, on May 3, 2012, Maxzone Autoparts Canada Corp. pleaded guilty in the Federal Court of Canada to one count under section 46 of the Competition Act, which targets international cartel activity by applying the Competition Act to conspiracies entered in to outside of Canada, when foreign directives that give rise to a conspiracy are implemented in Canada.
Maxzone was fined $1.5M for its involvement in an international cartel that involved the sale of aftermarket auto parts.
On September 24th, Chief Justice Crampton issued his reasons in this case and explained just how seriously these crimes are viewed by the judiciary.
He noted that price fixing and other hard core cartel agreements ought to be treated at least as severely as fraud and theft, if not more so.
- (54)…They represent nothing less than an assault on our open market economy. Buyers in free market societies are entitled to assume that the prices of the goods and services they purchase have been determined by the forces of competition. When they purchase products that have been the subject of such an agreement, they are effectively defrauded.
He also said that prison sentences are appropriate in these cases.
- (80) (A)chieving effective general and specific deterrence requires that individuals face a very real prospect of serving time in prison if they are convicted for having engaged in such conduct.
Which brings me to the Bureau's role in promoting compliance. Specifically, the Bureau promotes compliance through enforcement and it provides the education and the tools that assist the corporate community in developing corporate compliance programs.
We all know businesses and individuals have a duty to act lawfully — and, the Bureau expects that businesses and their senior management, on the whole, want to comply with the law.
It is our hope that by now, it is clear that the legal, economic and reputational risks of non-compliance far outweigh any perceived advantages. Non-compliance costs businesses dearly – not just in terms of financial and legal penalties, but through negative publicity, loss of business opportunities and lost management time.
While I suspect that you recognize the value of a compliance program and that many of you have clearly established compliance policies that identify and address questionable behaviour — and aim to prevent it from occurring in the first place, let me take a few minutes to expand on the benefits of such a program.
Benefits of a compliance program:
Essentially, a compliance program will:
- Reduce the risk of non-compliance; in turn preventing violations of the Acts and reducing the financial and reputational costs resulting from an investigation by the Bureau.
- It will increase awareness of the Act among employees, business associates, customers and suppliers, reducing potentially illegal conduct and exposure to civil, criminal or penal liability.
- And, it can also assist a company and its employees in their dealings with the Bureau, particularly in qualifying for leniency in cases where a violation occurs.
A credible and effective corporate compliance program provides its companies more than just increased protection from illicit behaviour. Implementing a compliance program may provide you a competitive advantage in all aspects of your business — financial, reputational and in recruitment and retention.
Fostering a culture of compliance: the role of business
Having explained the benefits of a compliance program, let me now move on to speaking of our collective roles in promoting compliance – yours in fostering compliance and ours, through our enforcement role.
Policies, procedures and training cannot and will not, on their own, ensure compliance. During the course of a search of a company's premises, the Bureau will, very often, locate a compliance policy document. Sometimes we find these electronically; sometimes they are lying in a drawer or in an employee's filing cabinet.
These policies are generally laid out clearly, succinctly and are accessible to employees. Unfortunately, they are also – more often than not – not worth the paper they are printed on.
There is little merit to having a perfectly written compliance policy that is not even being abided by senior management, let alone the employees at the ground level.
So — if the issue is not the calibre of the policies but the consistency of a company's internal enforcement, how do you begin to rectify this?
Successful compliance begins with a corporate culture that instils compliance as one of its fundamental values. That culture must start at the very top, with senior management actively and visibly participating in and promoting compliance programs.
It is incumbent on the leadership of any corporation or organization to lead by example and send the message that compliance is the rule, not the exception. And, to demonstrate this through their own behaviour.
This is true regardless of a business' size and available resources. Even the smallest operation, with the fewest resources, is capable of fostering a culture of compliance by educating itself and then acting on that knowledge.
Moreover, those entrusted with the responsibility of ensuring compliance must be in a position to act effectively, independently, with full financial support and a solid understanding of business operations. In short, they must be taken seriously by employees from the front office all the way up to the head office.
And, although employees play a critical role in the implementation of a successful program, as they execute day-to-day operations, senior management must always remember that they bear the ultimate responsibility for compliance.
Credible and effective corporate compliance programs
So, if a corporate culture of compliance is the starting point, how do you go about building that culture?
It boils down to five elements.
- Senior management must be involved — including the Board of Directors and this cannot be underscored enough. Senior management's clear and unequivocal support is what underpins a credible and effective corporate compliance program. This means that – in all ways – they demonstrate a commitment to compliance and a commitment to enforcing that compliance.
- Clearly establishing compliance policies and procedures that govern compliance. As I've noted, this is generally not the issue, but it is worth highlighting that these must be updated when changes within the business, the industry, or the laws and regulations themselves occur.
- Moving beyond a stack of papers in a drawer or a document on a shared drive, a successful compliance program must have an ongoing education and training component which lays out acceptable behaviour for all employees.
- A compliance program needs to be monitored, with auditing and reporting mechanisms to prevent and detect breaches of the program at all levels, including senior management.
- Finally it must have procedures for both disciplining and creating incentives and these must be consistently applied. It is interesting to note that some companies have implemented "whistleblower" provisions in their compliance programs to encourage employees to self-report potential or actual misconduct without fear of penalty.
As I noted earlier, most businesses that we see have compliance programs in place, and these are well written, easy to understand and accessible to all employees.
The issue is not their content, or their quality – the issue is internal enforcement of these policies.
Unless the senior management of corporations, businesses and organizations abide by these policies and enforce them in all dealings — a compliance program is effectively useless.
I would like to take a moment to touch on Trade Associations. As you know, the Bureau has had a number of investigations involving trade associations, several within the last year alone.
These include: the Canadian Real Estate Association, the Toronto Real Estate Board and the Canadian Wireless and Telecommunications Association.
Trade associations, by their very nature, face unique compliance issues. They are naturally exposed to greater risks of anti‑competitive behaviour because they provide a forum that may encourage competitors to collaborate. For this reason, compliance programs are of the utmost importance to trade associations.
While the Bureau does not believe that trade associations are inherently bad, it is also clear to us that there are practices they engage in which raise significant risks. Indeed, meetings and relationships formed between competitors through trade associations provide the forum and the temptation to engage in anti‑competitive activity.
On the criminal side, there is the potential for price-fixing and bid rigging and on the civil side there is also the potential to violate the Act in the establishment of rules, policies, by-laws and other initiatives enacted and enforced by an association.
These may be considered to be agreements among competitors for the purposes of both the criminal conspiracy and civil agreements provisions.
What this means is that any rule that restricts, in some manner, competition, could raise issues under the Act.
The Bureau is likely to show an interest in trade associations if they engage in three types of conduct:
- Restricting the types of professional service practice offerings – setting limits on things like office location, size.
- These sorts of restrictions can deter or limit expansion by competitors and could, depending on the circumstances, raise issues under the conspiracy, civil agreement and abuse of dominance or price maintenance provisions of the Act.
- Secondly, limiting the number or range of members or the ability of members to
compete — for example, through mandatory or suggested fee schedules or standards for product quality that advantage some members over others.
- Rules like these prevent entry and alternative service models and decrease choice for consumers. The CREA case is an example of this.
- Finally, we are concerned with conduct that reduces incentives to compete vigorously.
- Information sharing agreements are an example of this. Competitively sensitive information exchanged among competitors who can have serious negative effects on competition, especially if these are in highly concentrated markets with relatively homogeneous product offerings.
Clearly, Trade/Industry Associations must be extra vigilant in their efforts to manage and alleviate risk with respect to their activities.
Beyond developing a credible and effective corporate compliance program, there are other steps that trade associations can take including: exercising caution when sharing commercially sensitive information, ensuring accurate minute taking in meetings, and finding alternatives to fee setting guidelines.
I cannot; however, underscore enough the importance of what I have about spoken at length today – the development of and, commitment to, a corporate compliance program. And, first and foremost — instilling a culture of compliance throughout the organization.
Enforcing compliance: the Bureau's role
Moving on from your role — I would like to touch on the Bureau's part in compliance.
To be clear, our role in compliance is effective enforcement. The Bureau's mandate does not extend to monitoring and ensuring that your business and your employees are compliant — that is your job. That is how you promote compliance.
The Bureau, as I have noted, as an independent law enforcement agency, promotes compliance through the enforcement of the Act — by ensuring that those who engage in anti‑competitive conduct are held accountable for their actions.
In this way we create deterrence — that is our primary role and the best way that we can promote compliance.
Beyond effective enforcement — our approach to promoting compliance also includes transparency and education.
We recognize that transparency is critical because it enables counsel to advise their clients accurately and businesses to operate efficiently. To promote compliance, the Bureau strives to provide clear and transparent information about how we deliver our mandate. I will speak to this momentarily.
We seek to provide as much information as possible to ensure that all consumers and businesses are educated about the activities and role of the Bureau.
To that end, we publish a number of comprehensive guidance documents. They include Bulletins and Enforcement Guidelines on a host of issues and describe the Bureau's approach to almost all aspects of our work — for all of our branches criminal, civil, fair business practices and mergers.
These documents also include guidance on Corporate Compliance Programs in greater detail than I have offered here, these are frequently updated and they are available on our website, for your use.
Transparency in enforcement
I indicated earlier that transparency was one way in which we promote compliance. We recognize that understanding how the Bureau delivers on its mandate is a critical piece in enabling effective compliance. It supports counsel and businesses to provide appropriate advice and to make informed decisions.
Our enforcement decisions are informed solely by fact and are made on a case-by-case basis, guided by our priorities.
Since becoming Interim Commissioner, I am frequently asked what the pressing priorities are for the Bureau, and how my priorities differ from Commissioner Aitken's.
Quite simply, the Bureau's priorities were the right ones a few months ago and they will continue to guide us in the months ahead. They are:
- to achieve results for Canadians through active, targeted and principled enforcement;
- to apply Canada's competition laws in a progressive and transparent manner that keeps pace with a changing marketplace; and
- to cultivate a strong and agile enforcement capacity to deliver results that matter.
When determining whether or not we will move forward with a case we first look at four questions:
- Whether the harm has significant anti‑competitive effects — harming competition, consumers and the economy.
- How does it promote general or specific deterrence?
- Does the case fit with our priorities and available resources?
- How will it impact the average Canadian?
From there, our assessment might include other factors such as:
- Whether it involves a sector where deterrence is needed or, is this is a repeat offence or breach of a court order?
- The egregiousness of the conduct – did it impact vulnerable groups?
The Bureau has a number of tools at its disposal to detect and deter the most egregious anti‑competitive behaviour.
However, our Immunity and Leniency programs are perhaps the biggest contributing factors to the detection and faster resolution of many of these matters.
And, when speaking to the business community, I take every opportunity to mention them. A perfectly successful corporate compliance program will mean you never have the need to take advantage of these programs; but, they are crucial to our ability to detect these crimes and create a great deal of deterrence, because there is always a risk of a company turning in its co-conspirators.
Which leads me to my next important point:
Immunity and leniency
Because it is not a perfect world, and there are instances where companies engage in price-fixing, market allocation, bid-rigging or other anti‑competitive behaviour, it is important that you know about our immunity and leniency programs.
Through the Immunity Program, the Bureau recommends immunity from prosecution only for the first business or organization or individual to apply for and receive a "marker" under the Immunity Program, provided that all of the requirements of the program, including full cooperation with our investigation are satisfied.
Other parties to the anti‑competitive conduct can seek lenient treatment under the Leniency Program and may qualify for leniency in sentencing, again, if they co-operate with our investigation, agree to plead guilty and satisfy all of the program requirements.
The first-in leniency applicant is eligible for a 50 percent reduction in the fine that they would have otherwise been subject to. The Bureau will also recommend to the Public Prosecution Service of Canada (or PPSC) that no separate charges be laid against the applicant's current directors, officers or employees, provided that they cooperate with the investigation. I say "recommend", because the Bureau's recommendation is not binding on the PPSC or on the courts for that matter, but in practice it is given due consideration and is usually accepted.
Further leniency applicants qualify for a reduced penalty in exchange for their co-operation.
If a leniency applicant fails to meet its requirements and obligations under the Leniency program, its leniency marker and its place in the program may be revoked.
The Bureau's Leniency program works and it works well — a recent case that I mentioned earlier highlights the program's value.
Chief Justice Crampton's decision in the Maxzone case, speaks highly of the Bureau's Leniency Porgram and highlights the seriousness of price fixing conspiracies, the harm they cause and the punishments that should follow these acts.
And, despite the fact that some members of the bar have suggested that Justice Crampton's decision could hinder or chill the Bureau's Leniency program, it is very interesting to note that since his decision, we have received a number of new applicants to the program who are represented by experienced competition counsel.
Moreover, it provides greater incentive to be first in the door to co-operate with the Bureau, in order to receive the maximum benefits of the immunity or leniency programs.
Most importantly, this decision sends a clear message that price-fixing activities will not be tolerated.
I would like to close today on a positive note, in saying that Compliance programs can be and are successful and we have seen many examples of this.
They work best when they are developed in a clear, easy to understand manner, accessible to all employees and they are adhered to and applied universally across a business, corporation or organization.
Successful compliance begins with an organization's senior leadership — as they set the tone for the behaviour of their employees or members. This can only be realized when senior management commits to compliance and demonstrates this commitment actively and visibly, setting an example for all employees.
I believe, and I think you'll agree, that an ounce of prevention is worth a pound of cure.
When a company embraces compliance as a core value — they reap the benefits both competitively and within their own corporate culture.
The Bureau is committed to promoting compliance through the active, targeted and principled enforcement of the Act.
We will continue to provide businesses with the tools and information that assist in developing credible and effective corporate compliance programs. And we will continue to enforce the Act when breaches occur — using all of the tools at our disposal, including the Leniency and Immunity Programs.
Finally, I would like to underscore that compliance programs are your organization's best defence against the risks associated with non-compliance.
But, if I may leave you with one thought on this: in order for compliance to succeed — both the individual programs themselves and the Bureau need to have teeth and to be able to bite back, when needed.
I thank you for your time and look forward to your questions.
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