On 20 January 2016, the Brazilian Competition Commission (CADE) published guidelines on competition compliance programs [1] .  The guidelines explain what sorts of steps companies can take to avoid breaking the competition rules and also sets out CADE’s view of the key ingredients of an effective competition compliance program.

Significantly, the guidance explains that a company which has sought to implement a “robust” compliance program (comprising of proportionate and good faith measures) is eligible for a penalty reduction in the event of a competition law violation.

The specific guidance on what CADE considers to be a robust compliance program is extremely useful for companies looking to solidify their corporate culture of compliance and is to be applauded.

CADE also joins a growing list of competition authorities around the world  (see map) which are willing to treat genuine attempts at compliance as a mitigating factor (leading to a lower fine) in the event the company breaks the competition rules.  Most recently, the Antitrust Division of the US Department of Justice has (in an apparent change of policy) recommended a lower fine in the face of evidence that companies took extraordinary efforts to improve their compliance programs for the future.

map

Regrettably (and in contrast to the guidance in other countries such as France and the UK) the Brazilian guidance stops short of explaining in clear terms how any reduction in penalty would be calculated.   It therefore remains to be seen how this guidance will be followed in practice.

In any event, what is clear is that any company seeking to obtain compliance credit in Brazil will need to be able to provide solid evidence of the steps and processes that it took in order to instill a genuine compliance culture.  So while there may be a lack of clarity around how any reduction in fine will be calculated, it would be prudent for companies to check that their compliance programs include the elements listed by CADE and that this can be evidenced.  For example, it is important to be able to show that employees in higher risk areas (e.g. those with responsibility for pricing or which may come into contact with competitors) have been properly trained and given an opportunity to seek guidance on how competition law affects their day to day job.

What is a “robust” compliance program?

CADE guidelines clarify that only a robust compliance program resulting in material changes to the corporate culture – as opposed to “sham compliance programs” – could entitle companies to a reduction of fine levels imposed by CADE.  The features of a robust compliance program include:

 

Table 1 – Features of a robust compliance program
    Commitment     from the top
  • Code of conduct;
  • Impact on employee’s salaries based on compliance initiatives;
  • Compliance matters in the agenda of the company’s board meetings.
    Appropriate     resources
  • Sufficient budget (i.e. a small company could adopt a program with lower expenditure);
  • Involve a number of employees proportional to the company’s size.
    Autonomy     and     independence
  • Compliance leader:
  • Deep knowledge of technical aspects relating to competition law;
  • Influence in the company’s decision-making process;
  • Sufficient autonomy and independence to take decisions with impact on the company as whole.
    Risk analysis
  • Individualized analysis of the risks associated with company’s activities (in some cases with the need to consult outside experts, depending on the level of risks)
    Risk     mitigation
  • Appropriate training to employees (including high profile employees)
  • Monitoring: constant analysis of program’s effectiveness and efficiency (external auditor); hotline to compliance leader; capacity to process the complaints
  • Paper trail: proper documentation of compliance actions
  • Internal discipline: mechanisms for punishing non-compliance
    Reviewing of     the program
  • Regular review of the adequacy of the program

These factors are very much in line with the emerging global consensus on the key elements of corporate compliance.  See for example Baker & McKenzie’s “5 Elements of Compliance”  and the UK competition authority’s four-step compliance ‘wheel‘:

What are the benefits of having a robust program in place?

CADE guidelines provide general directions on how compliance programs may impact fines imposed by the authority when a violation takes place.

The Brazilian Competition Law provides that the defendant’s good faith is one of the elements to be considered when determining the level of fines. A robust compliance program meeting the requirements explained above may be considered evidence of good faith of the company and thus be used as a mitigating factor in the calculation of the fine. The guidelines, though, provide no certainty or objective guidance on how a finding of good faith would ultimately impact on the fine levels (i.e., there is no clear percentage or methodology to anticipate the mitigating effect resulting from a finding of good faith).

In the context of settlement negotiations, a robust compliance program may justify CADE granting the maximum discount available to the company. The maximum discount available, however, depends on a number of additional elements, such as the timing for the settlement requirement, the level of cooperation provided by the settling party, among others.

In any event, CADE guidelines clarify that the company itself has the burden to prove that its compliance program qualifies as robust in order to benefit from any potential fine reduction. If the company can produce evidence of the adoption of such program, with the provision of clear, consistent and detailed guidance on compliance to a specific employee, her/his unlawful behavior could ultimately be considered as an individual deviation by a “rogue employee” — in which case the good faith of the company should be presumed.

Best practices: avoiding anticompetitive behavior

CADE guidelines also provide a non-exhaustive summary of best practices to avoid the risks of engaging in particular types of anticompetitive conduct:

Table 2 – Best practices
    Avoiding     cartels
  • Never share confidential or competitively sensitive information [2] with competitors;
  • Never discuss with competitors prices or market allocation;
  • Attend strictly necessary meetings with competitors accompanied by a company’s lawyer;
  • Immediately report to the Legal Department any improper conversation initiated by a competitor.
    Avoiding     bid-rigging
  • Adopt specific training for employees involved in public bids;
  • Monitor steps taken during the bid.
    Avoiding     unlawful     behaviour by     members of     associations,     trade unions     and SSO
  • Avoid that employees from the commercial area attend association meetings (unless strictly necessary);
  • Provide clear guidance on topics that can or cannot be discussed with competitors;
  • Ensure all topics discussed in meetings are recorded in minutes;
  • Always review the agenda prior to any meeting;
  • Immediately contact the compliance team once unlawful activity in the association is identified;
  • Review the content of documents issued by the association
    Avoiding     unlawful     behaviour of     associations,     trade unions,     and SSOs     themselves
  • Be transparent about the agenda of the meetings, sending it in advance to the members;
  • Disseminate the information collected from members in an aggregated form;
  • Hire independent audit services to gather data (“black box”);
  • Limit requests to historical data;
  • Whenever possible, make data collected available not only to members, but also to the public;
  • Do not disclose competitively sensitive information received from members;
  • Avoid price tables, even non-binding ones;
  • Adopt non-discriminatory criteria for the admission of new members.
    Avoiding     unlawful     unilateral     conducts     and     vertical     restraints
  • Because of their more complex structure, a prior evaluation of unilateral and vertical practices that companies intend to implement is recommended.

Conclusion

CADE’s new guidance is a helpful step forward in terms of competition compliance: companies can see what kind of elements their compliance programs should include and start to think about how they could evidence this in the event of a breach. Investment in compliance efforts now could completely avoid a breach or at the least help reduce any fine that CADE sought to impose.


[1] http://www.cade.gov.br/upload/Compliance%20Guidelines%20-%20final%20version.pdf

[2] The guidelines lists the following examples of competitive sensitive information: current and future prices, costs, production levels, expansion plans, discount policies and others.