CANADIAN COMPETITION LAW COMPLIANCE
“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.”
(Commissioner of Competition)
The Canadian Competition Act (the “Act”) contains both criminal and civil provisions prohibiting or regulating a range of activities that can arise in commercial activities – for example, in the context of supplier/distributor/customer relations, trade association activities and commercial agreements including joint venture and strategic alliance, franchise and other agreements.
The criminal parts of the Act include offences relating to criminal conspiracies (price-fixing, market division/allocation and output restriction agreements between competitors or potential competitors), bid-rigging agreements (i.e., in relation to bids or tenders, public procurement, etc.), criminal misleading advertising, deceptive telemarketing and pyramid selling schemes.
Civil (i.e., non-criminal) “reviewable matters” under the Act include abuse of dominance, civil misleading advertising, refusal to deal, price maintenance and certain types of “vertical” restraints that prevent or lessen competition substantially (e.g., exclusive dealing and tied selling).
The potential penalties for violation of the Act can be severe and include fines of up to $25 million (and in some cases without limit – i.e., in the discretion of a court), imprisonment for up to 14 years, prohibition orders, civil fines of up to $10 million and court orders to stop or modify conduct.
Directors and officers can also face potential liability under the Act. In this regard, it is common for employees and directors and officers of companies to be involved both in Competition Bureau investigations and to be named as parties in competition law related civil actions.
COMPETITION COMPLIANCE PROGRAMS
Canada’s Competition Bureau (the “Bureau”) has been working over the past year or two to update its competition law compliance guidelines and policies. Competition law compliance has also figured prominently in recent remarks by Canada’s new Commissioner of Competition, John Pecman (see for example: here).
As part of the Bureau’s initiative to raise competition compliance awareness, on September 18th the Bureau issued a revised draft Corporate Compliance Programs Bulletin for public comment (see: here and here). In releasing the new Bulletin the Bureau said:
“In a speech at the Canadian Bar Association’s Annual Competition Law Fall Conference in Ottawa, Commissioner Pecman presented the draft Bulletin as a key part of the Bureau’s ongoing efforts to support healthy competition in Canada by promoting compliance. Compliance with the law ensures competitive markets, spurring innovation and economic activity that benefits businesses and delivers lower prices and more choice to consumers. The Commissioner emphasized that the best way for companies to reduce their risk of involvement in anti-competitive activities is to put in place a credible and effective corporate compliance program.”
The Bureau’s new Bulletin is a significant expansion from its prior version, both in terms of length and topics, and follows the recent release of other new Bureau compliance resources including a Promoting Corporate Compliance video, Trade Associations and the Competition Act pamphlet and posting of the International Chamber of Commerce’s (ICC) Antitrust Compliance Toolkit.
The new Bulletin includes, among other things, reasons to adopt a competition compliance program; Bureau guidance on credible and effective corporate compliance programs; a framework for the essential elements of compliance programs; a due diligence checklist; and hypothetical case studies of compliance issues.
Of note, the Bureau’s revised Bulletin also includes a proposal to increase the incentives to reward credible and effective compliance programs.
HIGHLIGHTS OF THE BUREAU’S
NEW APPROACH TO COMPLIANCE
A few highlights of the Bureau’s proposed new approach to competition law compliance include:
Updated key elements of a credible and effective compliance program: Like the Bureau’s prior Bulletin, its new draft includes a number of key elements of an effective compliance program (now expanded from five key elements to seven): (i) management involvement and support; (ii) corporate compliance risk assessment; (iii) compliance policies and procedures; (iv) training and education; (v) monitoring, auditing and reporting mechanisms; (vi) disciplinary procedures and incentives for compliance; and (vii) compliance program evaluation.
New key compliance program element for effective programs: risk-based assessment: One new key element of the Bureau’s new approach to compliance is for “Risk-Based Corporate Compliance Assessments”. The Bureau lists the following key types of risk factors that compliance officers and managers should consider: (i) whether staff participate in trade associations; (ii) whether the business regularly recruits employees from competitors; (iii) whether markets are concentrated; (iv) whether it is common practice to have (or is easy to gain) competitor intelligence in an industry sector; (v) whether competitor-competitor joint ventures are common; and (vi) whether competitors are also customers.
Importance of compliance for associations: Also like the Bureau’s prior Bulletin, its new draft Bulletin describes the importance of compliance programs for associations:
“A credible and effective compliance program also plays a crucial role for trade associations because they face unique compliance issues. Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct. A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition. It is critical that trade associations implement credible and effective programs with strict codes of ethics and conduct and appropriate procedures and compliance steps to prevent improper conduct and to protect the trade association and its members from being used as a conduit for illegal activities.”
The Bureau also flags the fact that companies’ participation in associations without credible competition compliance programs can be problematic:
“Competition law compliance risks can arise outside of the proprietary business activities of companies, such as through relationships with third parties. As part of their compliance program, companies should examine the third parties with whom they do business, or interact with respect to business, for potential risk. Where third parties represent significant risk, companies should encourage or require, as appropriate, that those parties also have credible and effective compliance programs. Thus, a company may determine that its participation in a trade association represents a significant risk relating to potential cartel behaviour, and may prohibit its representatives from participating unless the association implements a credible and effective competition law compliance program.”
Compliance policies and procedures are key: The Bureau confirms that compliance policies and procedures tailored to a company’s or association’s operations are key (e.g., “do’s and don’ts”, information exchange guidelines, restricting employee participation in associations to those that have credible and effective competition compliance programs, etc.).
Periodic education and expert training are also key: The Bureau also confirms that “on the shelf” compliance programs are likely of little practical effect. In this respect, it recommends that companies/associations implement periodic training and that effective training is best delivered by experts (i.e., by knowledgeable legal counsel or a compliance officer).
Incentives to adopt a compliance program: The Bureau confirms that a competition compliance program does not necessarily immunize a company/association from potential competition law risk. A credible and effective program, however, may be given weight in competition law offences with due diligence defenses and may influence the Bureau in determining how to proceed against companies or sentencing recommendation to the Public Prosecution Service of Canada (“PPSC”). The Bureau also proposes that it will treat a compliance program as a mitigating factor when making recommendations to the PPSC in connection with Leniency Program applications.
Management participation in illegal conduct or merely “on the shelf” programs may be aggravating factors: While the draft Bulletin expands the potential mitigating value of an effective program, conversely manager participation in illegal competition activities or mere “on the shelf” compliance programs that are ignored may be aggravating factors and in fact amplify competition law exposure.
Increased emphasis on independent compliance officers: The Bureau’s new Bulletin emphasizes the importance of compliance officers and their independence:
“Where there is a board of directors, it should be involved in the appointment of the compliance officer and endorse the company’s compliance program. The compliance officer should communicate with the board of directors and report directly on compliance program issues, such as the implementation and effectiveness of the program, disciplinary actions resulting from a breach of the program’s policies and procedures, as well as any allegations of contraventions of the Acts. The compliance officer should only be removable by the board of directors on terms set in advance by the board. The involvement of the board of directors serves as an additional level of fiduciary protection where managers may be the perpetrators of a contravention of the law.”
SMEs: The Bureau’s view is that while larger businesses will likely need more comprehensive compliance programs, SMEs must also implement and follow corporate compliance programs (albeit proportional to their size and business activities). The Bureau also confirms that compliance programs and approaches will vary by industry and the types of activities a company or other organization is engaged in.
The Bureau also says that a competition compliance program can both help SMEs identify potential competition compliance issues and “help a SME identify circumstances where it potentially is being victimized by anti-competitive conduct of other parties.” According to the Bureau it is developing additional compliance resources for SMEs (which sounds like a similar approach adopted by some other major jurisdictions, including Australia and New Zealand).
The Bureau may recommend a compliance monitor in some cases: The Bureau may request that an independent compliance monitor be appointed in cases where a compliance program is established following a prohibition court order or negotiated consent agreement. This would appear to be an incentive for companies/associations to adopt a credible competition program in itself (i.e., to avoid this possibility).
LINKS AND RESOURCES
Competition Bureau: Competition Bureau – Bulletins: Corporate Compliance Programs, Draft Corporate Compliance Programs Bulletin – Videos: Promoting Corporate Compliance – Trade Associations: Trade Associations and the Competition Act – Toolkits: International Chamber of Commerce Antitrust Compliance Toolkit.
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