Global Investigations Review - The law and practice of international investigations

Americas Investigations Review 2020

Argentina

Mitrani Caballero & Ruiz Moreno

Competition compliance programmes under tougher regulations

The new trend in Argentine competition enforcement is clear. Implementing best practices following international standards is a priority.

During President Macri’s administration and the appointment of a new antitrust agency leadership, the main goals were adopting best international practices in competition matters, proposing changes in the legal framework and promoting a competition culture. [1]

To achieve such goals, in 2018, Congress passed a new Competition Act, [2] which brought about various innovations and revealed that competition enforcement has become a priority in Argentina. After the sanction of the act, the president of the agency announced that the competition policy ‘is a main goal of the government, since having a reputable institutionality in this matter, lasting and predictable, is key for the development of the country’. [3]

Main reforms in this regard include the following.

  • Introduction of a leniency programme to facilitate detection, prosecution and sanction of cartels. Anyone who discloses or acknowledges having engaged in agreements between competitors regarding prices, production limitation, market or client allocation, or bid-rigging, may benefit from the exemption or reduction of the corresponding sanction. As best represented by recent experience of Brazil, leniency programmes are potent weapons in the cartel enforcement effort. [4] This important change was complemented with the presumption of hardcore cartels’ illegality (meaning that investigated parties have the burden of establishing the non-existence of current or potential damage to the general economic interest).
  • Imposition of joint and several liability to controlling entities. In addition to the already established joint and several liability of the directors, managers, administrators, trustees or members of corporate supervisory boards, agents or legal representatives, who by their actions or negligent omission of their duties of control, supervision or surveillance, would have contributed, encouraged or allowed the infringement to occur. In addition, the new Competition Act imposes joint and several liability on parent entities.
  • Significant increase of sanctions and the implementation of new guidelines to calculate them, to increase deterrence. The infringing parties can be fined by the greater of the following amounts:
    • fine of up to 30 per cent of the turnover associated with the products or services involved in the illegal act incurred during the last fiscal year, multiplied by the number of years of duration of such act. The resulting amount cannot exceed 30 per cent of the consolidated turnover at the national level generated by the relevant group during the last fiscal year; or
    • fine of up to twice the economic benefit obtained from the illegal conduct.

In the event that the fine cannot be determined by applying such criteria, the fine may rise up to US$117 million [5] and will be doubled in case of recidivism. Besides fines, the act also includes other sanctions such us divestures, cease orders, conditions, disqualification to exercise trade activities from one to 10 years and the exclusion from the Registry of Government Suppliers for up to eight years.

Although anticompetitive practice investigations may be initiated either ex officio or by a complaint made by any company or individual, claim for damages is claimant’s sole compensation since they do not benefit from the collection of fines.

  • Encouragement of follow-on private lawsuits. The decision of the antitrust agency, once final, will be res judicata on the matter. Private claims will be substantiated according to the rules applicable to summary process. Also, as an additional incentive mechanism, punitive damages may be imposed at the defendant’s request by a competent court, based on the significance of the facts.

In addition, by the end of 2018, the antitrust agency published new guidelines for the prevention of anticompetitive conducts by business associations, chambers and professional associations, which often facilitate anticompetitive conducts. More recently, the agency has released its set of guidelines for the analysis of exclusionary abuses of dominant position. Both guidelines are normative interpretations of the Competition Act and clearly reflect that the antitrust agency is increasingly driven by the experience of foreign competition agencies, [6] specially the European Commission.

Though in its early stages, the competition enforcement regime in Argentina is clearly entering a more mature stage, with a new antitrust agency leadership, a volume of decisions on anticompetitive practices that has grown in number and an average timing that has notoriously decreased. But not only this renewed focus is relevant for local companies.

In Argentina, lack of competition compliance culture is the rule and local companies often expose multinational companies to antitrust issues that could have been avoided if early detection and a culture of competition compliance is inspired all the way from headquarters to local subsidiaries. Having a global compliance policy is no longer sufficient; it is now necessary to take such experience and apply it locally. Ordinary course conduct needs to be assessed and evaluated under these new rules. We are talking about a change of culture within the organisation. A change of culture that takes time and effort. Competition compliance programmes should be the first step towards such goal and shall likely be top priority on the agenda for Argentine entities.

Consequently, the relevance of these programmes is undoubtedly on the rise and Argentine businesses are becoming increasingly aware of the benefits arising from a proactive compliance attitude towards the Competition Act.

During recent years, a number of jurisdictions have introduced new policies allowing antitrust regulators to take into account antitrust compliance programmes as a mitigating circumstance in the calculation of the fine. For example, the Guidelines on Antitrust Compliance issued by the Italian Competition Authority provide a range of diverse fine reductions that may be awarded depending on whether the compliance programme has been implemented before or after the decision to open the investigation. However, the approach to antitrust compliance programmes as a mitigating circumstance is not consistent across Europe. While the United Kingdom has adopted a favourable approach similar to Italy’s, the European Commission values compliance programmes positively but continues to reject any direct reward.

On the other hand, the Department of Justice (DOJ) in the United States, which has also historically rejected direct rewards, [7] has recently announced that it is considering changes to its approach to crediting companies for having existing compliance programmes. In a recent speech, the assistant attorney general, Mr Delrahim, said:

the Division will move away from its previous refrain that leniency is the only potential reward for companies with an effective and robust compliance program. In line with the Department of Justice and its other components, we can and must do more to reward and incentivize good corporate citizenship. [8]

In Latin America, the Brazilian antitrust regulator’s guidance on competition compliance programmes states clearly that the existence of a strong compliance programme, with damage control measures and other requirements, may be considered evidence of ‘good faith’ on the part of the infringing company, which may result in fine reductions allowed by Brazilian Competition Law.

To date, in Argentina there are no specific laws or guidance governing the effectiveness or advantages in adopting a competition compliance programme. However, if a violation to the Competition Act occurs, the existence of an effective compliance programme should allow its prompt detection and eventually benefit the relevant company from being the first leniency applicant (in the case of hardcore practices) or from evidencing a proactive attitude on compliance when the antitrust agency establishes the fine amount and considers variables such as ‘the duration of the practice’ or ‘the intention of the parties’.

Tailor-made compliance programmes

There is no ‘one size fits all’ model: an exhaustive all-encompassing model would not be adequate. It is for each company to reflect on its needs to ensure compliance and develop its own strategy. [9]

The decision to develop an antitrust compliance programme may have several triggers, whether unexpected antitrust investigations or focus-driven by informed members of the company with higher awareness of antitrust compliance considerations, such as legal or audit teams. No matter what triggers the decision, compliance programmes need to be tailor-made to the company in question. That is the European Commission’s – and other foreign competition agencies’ – approach to compliance programmes.

Through compliance programmes, economic agents prevent serious risks, not only for the company but also for its directors and officers. Compliance programmes reinforce commitment with the specific values and goals put forward in the programme and, primarily, their commitment to complying with the law as an indistinguishable part of company culture, setting forth adequate internal proceedings, general awareness and specific corrective actions for those that depart from the programme.

As stated before, there is no ‘one-size fits all’ model for a compliance programme. Each programme must be thought ahead and needs to observe the specifics from each individual circumstance. It requires a risk-based analysis. In the competition field, organisations are exposed to various risks according to:

  • the characteristics of the market (main activity, position size, entry barriers, number of players in the market, etc);
  • level of interaction with competitors (whether in trade association meetings or day-to-day commercial dealings); and
  • sector activity (regulatory focus and past competition compliance).

The base of the programme shall therefore be a comprehensive analysis of the areas in which the company is most likely to run a risk of infringing competition rules (including risks around outright prohibitions and ‘grey areas’ that usually require the advice of a specialist).

As per the ‘ICC Antitrust Compliance Toolkit’, typical antitrust risks that are advisable to be considered include:

  • potential cartel activity between competitors, such as price-fixing, market sharing, bid-rigging, collective boycotts and production limitation agreement;
  • exchanges of commercially or competitively sensitive information that could potentially result in cartel activity; and
  • exclusionary conduct by companies with significant market power (eg, abuses of a dominant position and other prohibited unilateral conduct), among others. [10]

Once those risks are identified, company areas whose specific responsibilities cause them to be particularly exposed must also come into the spotlight of the programme.

Though it is possible to structure competition compliance programmes in many ways, the following features are common to robust programmes and may be incorporated as it better fits the company.

Commitment – tone at the top

An effective compliance program will inculcate a culture of compliance such that playing by the rules becomes business as usual. [11]

The major impact of ‘commitment’ in robust competition compliance programmes is recognised by several competition agencies around the globe. [12] Actions speak louder than words. Where the culture and tone at the top are clear and successfully embedded, employees will generally comply, not out of fear of getting caught, but because they believe that this is the right thing to do. They will also be comfortable ‘speaking up’ when improper conduct is suggested or spotted, so that prompt corrective action can be taken.

Unequivocal senior management support is vital. Compliance with competition laws must be a message clearly endorsed throughout senior, middle and lower management levels.

Simply rolling out a training programme will never lead to full compliance. Genuine commitment dispersed throughout the organisation will. At the end of the day, the compliance programme alone will not manage risks; individuals will.

Implementation

Company’s challenge is to ensure that applicable antitrust rules are both understood and upheld by management and employees, so avoiding unnecessary and inappropriate risks. [13]

Company strategy as regards competition compliance must be preferably laid down in writing, plainly worded and in all the working languages of the company. It usually is in the form of a manual, includes practical (business-specific) examples and highlights consequences of non-compliance.

Through training, employees understand the role compliance plays in a company and are able to ask questions regarding compliance processes. Effective training usually adopts different strategies, depending on the position and level of exposure of those subject to it. Most frequent methods are on-site and online (this latter mechanism is usually selected by big companies, which have difficulties gathering all their employees in one place at a given time).

In addition to training, companies usually adopt other types of constant communication (eg, conferences, videos, pocket guides, pamphlets, emails, intranet sites and apps) and back-up adherence methods (eg, compliance duties as part of employees’ job description, penalties for breach), so competition rules effectively become a part of the corporate culture.

Also, programmes should encourage employees to discuss compliance issues proactively. Communication should be a two-way street and the ideal situation is for employees to be fully aware of what the processes are and how they work. Whatever internal reporting system is adopted (whether, an informal open-door approach or a formal helpline), ‘an essential feature of a successful compliance programme is the inclusion of clear reporting mechanisms. Staff must not only be aware of potential conflicts with competition law, but also need to know who to contact and in what form when concrete issues arise’. [14] These methods must allow management to take prompt actions considering time is usually of the essence.

An adequate documentation of the adopted implementation methods can be of great value should the company be called to provide information regarding its conduct before the competition authorities.

Monitoring – internal compliance investigations

The appropriate procedure depends on the specific needs of the undertaking, but some form of control is surely important to underpin the internal credibility of a compliance strategy. [15]

Apart from regularly reviewing the compliance programme to include new risks that may eventually emerge (eg, derived from a merger transaction, from the introduction of a new product in the market or from the entry into a new geographic market with a history of competition infringements), monitoring is an effective tool to prevent and detect any non-compliance inside the company.

In general, monitoring activities verify adequate functioning of processes and controls (eg, review if the approval processes for commercial measures have been followed, certifying training) and also evaluate the effectiveness of the implemented programme enabling the company to identify substantive competition concern and to rectify any illegal behaviour.

To assess its effectiveness, companies exposed to high competition risks usually guarantee effective monitoring resorting to periodical compliance investigations or reviews to identify whether, in fact, an actual violation of competition law has occurred or is likely to have occurred.

Who may conduct compliance investigations?

It is advisable for the investigation to be undertaken by people with specialist antitrust knowledge and experience. For legal professional privilege reasons or to demonstrate impartiality of the investigatory methods, many companies rely on external antitrust specialist counsel for conducting such assessments. In these scenarios, local in-house counsel is usually responsible for ensuring that the investigation is properly run and, afterwards, for verifying that remedial actions (if any improvement area is spotted) are taken in a timely manner.

However, in companies with large sophisticated internal resources that have an adequate degree of independence from top management, some of the above activities could be conducted by internal audit and legal departments with the necessary training to conduct investigations.

The amount of time required to complete the assessment depends largely on the company’s size, the number of individuals that need to the examined and the volume of information sought for the purpose. Investigations that take four to six months (ie, from kick-off to debriefing sessions) are not uncommon.

What are common steps of an investigation?

Compliance competition investigations may involve different steps subject to company’s size and organisation (eg, companies with presence in various jurisdictions). Below are basic steps that should be adjusted on a case-by-case basis.

Selection of managers and employees of interest

Managers and employees exposed to competition risks (custodians), must first be selected. Selected custodians should cover all functions that are relevant from a competition law perspective. This will usually include management with commercial responsibilities (including the CEO) and senior employees from high-risk identified company areas (eg, sales, marketing, pricing, institutional relations and procurement when having a dominant position) or that may have regular contacts with competitors.

Custodian’s document review

If internal policies regarding the use of IT tools supplied by the company do not make it clear that it can access email communications for inspection at any time, data collection might only be possible once signed consent forms have been received from each custodian. Custodians’ electronic data (primarily emails but possibly also mobile phones, tablets or external hardware if used for business purposes) is normally collected by a forensic IT service provider using specific previously agreed search terms. Age of data will depend on the frequency of these assessments.

The documents are then reviewed by the external counsel to assess areas of improvement and look for evidence of competition law risks or competition law violations.

Face-to-face interviews

One – or more – rounds of face-to-face interviews are also held by counsel with the custodians. Second interviews are built on the findings from the first ones, as well as on the review of the custodians’ emails and documents, when these have not been the basis of the first interview.

Prior to the interview, external counsel liaises with in-house counsel to agree on any areas of focus for the interviews and to gather relevant background information on the interviewees and their history in the company to ensure that the interview sessions are as fruitful as possible.

Generally, interviews are then conducted along the following lines:

  • only one custodian is interviewed at a time;
  • interviewers should work in teams of two (one interviewer, one note-taker);
  • interviews should be as extensive as required to address all relevant issues and make a meaningful contribution; and
  • interviews are a fact-finding exercise, so interviewers should avoid offering opinions or conclusions.

What is the scope of the final report?

The external counsel’s final report documents the undertaken review, identifies areas of improvement and possible competition law concerns and sets out recommendations and follow-up or remedial actions within specified deadlines. This may include the necessity or benefits of self-reporting to the authorities. It also may address the need and significance of disciplinary action.

Its content is usually confidential (even for senior management). Each company should determine who should be authorised to review its content and identify an officer responsible for the follow-up in case remedial actions are needed.

Costs of non-compliance – crisis management

Spending on competition compliance should not be viewed as a sunk cost. Failure to comply with the Competition Act can have extremely heavy adverse consequences.

Violations of competition laws expose offenders to the risk of fines that in Argentina can reach up to US$117 million and will be doubled in case of recidivism, penalties imposed to individuals (including fines and temporary or permanent bans on serving as corporate officers) and payment for damages to the businesses or consumers affected by the anticompetitive behaviour. In addition, considering the greater cooperation between competition agencies, [16] any non-compliance investigated in Argentina may also expose multinational companies to other investigations around the globe.

In addition, investigations and findings of infringement may take years to resolve, leading to high costs and taking up management time that should be devoted to more profitable projects. These investigations attract adverse press comments and the reputation of a company found guilty is seriously damaged, which may adversely affect the possibility to do business with customers.

In view of the above, companies usually resort to crisis management protocols and services to cope with these non-compliance threats before and after their occurrence. Before the incident, preparation measures include the implementation of protocols (for example, of how to react to a dawn raid) and the appointment of a crisis team, together with relevant training and monitoring (which includes an internal antitrust investigation). Once the antitrust violation is detected, crisis management measures are diverse and may include the engagement of specialists, the design of a media strategy, the involvement of auditors and authorities (if applicable), the assessment of potential economic sanctions and follow-on actions, among others.

Aside from avoiding sanctions and other negative consequences, there are other benefits that derive from complying with competition law such as the good reputation of companies in the market, their good standing in public opinion and a business that is performed with increased confidence. The company can compete aggressively (but lawfully) as a result of implementing legitimate initiatives with the right level of safeguards in place. Finally, employee commitment is proved to be higher in ethical workplaces.

In addition to the organisations themselves, adoption of compliance programmes benefits third parties as it guarantees that markets will remain competitive and prevents infringements and its subsequent damages from occurring. For the antitrust agency, prevention is always preferable to repression as it represents a smaller cost to society.

Conclusion

Argentine competition enforcement is on the rise. The antitrust agency was made available with better tools to deal with anticompetitive conduct in accordance to international best practices, news on anticompetitive practices have gained space in the media and local companies are increasingly aware of the importance of healthy competition. Incentives to cooperate with the antitrust agency and to systematically comply with the Competition Act go beyond merely not being subjected to economic sanctions.

Though there is a long way to go under this new scenario, competition enforcement is now a priority in Argentina and prevention through compliance programmes can no longer be postponed.


Notes

[1] Greco, E, Quesada L and Volujewicz, F (3 September 2018), ‘Argentina: Competition Authority’, Global Competition Review, available at https://globalcompetitionreview.com/insight/the-antitrust-review-of-the-americas-2019/1173674/argentina-competition-authority.

[2] Act No. 27,442. The new Antitrust Law was enacted on 15 May 2018 and entered into force on 24 May 2018, the same day the Executive issued its Regulatory Decree No. 480/2018 (the Decree).

[3] Comisión Nacional de Defensa de la Competencia website. ‘Argentina firmó junto a países de la región una declaración conjunta que destaca los beneficios del programa de clemencia’. Available at https://www.argentina.gob.ar/noticias/argentina-firmo-junto-paises-de-la-region-una-declaracion-conjunta-que-destaca-los.

[4] According to a majority of respondents to a 2017 Organisation for Economic Co-operation and Development (OECD) Secretariat Survey on experiences with the OECD Recommendation concerning Effective Action against Hard Core Cartels (OECD Survey 2017), leniency programmes are the single most effective tool for detecting cartels. The percentage of cartel cases detected through leniency applications is reported in the survey to range between 45–55 per cent for countries like Canada, Chile, Germany, Korea and New Zealand and up to 80 per cent for the European Union (OECD, 2017). In the United States, over 90 per cent of penalties imposed by the US Department of Justice (DOJ) were linked to investigations assisted by leniency applicants. ‘Challenges and Co-Ordination of Leniency Programs’ (June 2018), Organisation for Economic Co-operation and Development (OECD). Available at: https://one.oecd.org/document/DAF/COMP/WP3(2018)1/en/pdf.

[5] At a US$1/AR$45 exchange rate.

[6] Regarding trade associations’ behaviour, see, for example: Sections 2 and 7 of the ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements’ issued by the European Commission; the ‘Guidance on Trade Associations’ issued by the Competition and Consumer Protection Commission (CCPC) in Ireland; and the ‘Commerce Act Trade associations’ issued by the Commerce Commission in New Zealand. On the other hand, regarding abuse of dominant position and vertical restraints, see for example: the ‘Guidelines on Vertical Restraints’ issued by the European Commission; and the ‘Guide for the analysis of vertical restrictions’ issued by the National Economic Prosecutor in Chile.

[7] ‘In an ideal world, corporate compliance programmes prevent wrongdoing altogether. If violations do occur, robust compliance programmes should lead to prompt detection, which not only nips the conduct in the bud, minimising the harm to consumers, but also gives companies the greatest chance of winning the race for leniency. If a company does not win the race for leniency, then it has an opportunity to be an early-in cooperator and receive a substantial penalty reduction for timely, useful, and thorough cooperation.’ Assistant Attorney General Makan Delrahim. Remarks at Fordham University School of Law, New York, 1 May 2019. Available at https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-fordham-university-school-law.

[8] Delrahim, M (10 May 2019). ‘“Algo está Cambiando”: Innovation and Cooperation Among Antitrust Enforcers in the Americas’, American Bar Association ‘Antitrust in the Americas’, Buenos Aires, Argentina. Available at https://www.justice.gov/opa/speech/file/1161646/download.

[9] Compliance matters: What companies can do better to respect EU competition rules published by the European Union (ISBN: 978-92-79-22094-4).

[10] The ICC Antitrust Compliance Toolkit (2013), ICC Commission of Competition. Available at: https://cdn.iccwbo.org/content/uploads/sites/3/2013/04/ICC-Antitrust-Compliance-Toolkit-ENGLISH.pdf.

[11] Promoting Compliance with Competition Law (29 August 2012), OECD. Available at: www.oecd.org/daf/competition/Promotingcompliancewithcompetitionlaw2011.pdf.

[12] Such as ‘the Guidelines for competition compliance programs’ (January 2016), CADE, available at: www.cade.gov.br/acesso-a-informacao/publicacoes-institucionais/guias_do_Cade/compliance-guidelines-final-version.pdf; Compliance matters: What companies can do better to respect EU competition rules published by the European Union (ISBN: 978-92-79-22094-4); and the new guidance for corporate compliance programmes entitled ‘Evaluation of Corporate Compliance Programs’ from the US Department of Justice, updated on April 2019; available at: https://www.justice.gov/criminal-fraud/page/file/937501/download.

[13] The ICC Antitrust Compliance Toolkit (2013), ICC Commission of Competition. Available at https://cdn.iccwbo.org/content/uploads/sites/3/2013/04/ICC-Antitrust-Compliance-Toolkit-ENGLISH.pdf.

[14] See footnote 11 (at page 32 of the ICC´s publication).

[15] Compliance matters: What companies can do better to respect EU competition rules published by the European Union (ISBN: 978-92-79-22094-4).

[16] For example, the cooperation agreement between Argentina and Brazil on cooperation between their antitrust authorities in the application of their antitrust laws.

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