Competition Enforcement Deters 40pc of Violations

Jack Humphrey, Regulatory journalist
December 19, 2011 /

A research published by the OFT estimates that for each completed competition enforcement case, up to 40 potential competition law infringements are deterred.

The deterrence ratios in the new research are significantly higher than those estimated in a similar company survey carried out by Deloitte and published in 2007. This is because the larger sample of both large and small businesses surveyed for the new research has allowed for a less conservative methodology to be used.

The new deterrence ratios are published as part of independent research carried out by London Economics, which focused on trying to understand what drives businesses to comply with competition law, and what deters them from infringing it.

Infringements of competition law can result in fines of up to 10 per cent of worldwide turnover for undertakings and, for individuals, director disqualification orders of up to 15 years and imprisonment for up to five years in relation to certain specified cartel arrangements.

The research, which consisted of a survey of more than 500 large companies and 300 SMEs, as well as a small survey of specialist competition advisers in legal firms, estimated that for each abuse of dominance case, 12 potential infringements are deterred; for each cartel case, 28 potential infringements are deterred; and for each commercial agreements case, 40 potential infringements are deterred.

The report found that businesses viewed the reputational damage and criminal sanctions arising from competition enforcement as the most important drivers of compliance with the law, followed closely by the associated financial penalties.

By contrast, competition advisers in legal firms placed the greatest emphasis on financial penalties, followed by criminal sanctions and leniency policy.

Businesses reported a lack of knowledge of competition law to be the most important driver of non-compliance. Around half of large businesses said that they were fairly or very knowledgeable about various basic aspects of competition law, although SMEs were less likely to report that they were knowledgeable.

Businesses in sectors with one or more OFT competition intervention since 2003 were found to be significantly more knowledgeable about various aspects of the UK competition regime and these companies also said they were more likely to use compliance measures.

Management commitment to compliance was also considered an important reason for companies staying within the law, by both businesses and legal advisors.

Notably, businesses said that the perceived negative impact on profits of complying with the law and the actions of rogue employees were not significant reasons for competition law breaches, whereas these were rated fairly highly as factors by advisers in legal firms.

Businesses also diverged from advisers in legal firms when asked how the OFT could most improve its effectiveness.

Over 50 per cent of business respondents agreed with the OFT’s high impact enforcement approach, saying that effectiveness would be most improved if the OFT undertook fewer but more high profile cases, a point with which only 10 per cent of advisers from legal firms agreed.

On the other hand, over 65 per cent of advisers from legal firms felt that the OFT would best improve its effectiveness by undertaking more cases.

The OFT recently launched new guidance, and a film including a dramatised dawn raid, to help businesses comply with competition law.

 

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