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OFT proposes increasing maximum fine for anti-competitive behaviour

Out-Law News | 31 Oct 2011 | 4:58 pm | 4 min. read

Companies that act anti-competitively should face greater maximum fines, the Office of Fair Trading (OFT) has said.

The UK's competition regulator wants to issue fines of up to 30% of the "relevant turnover" companies make from their infringing behaviour in a year. Currently the OFT can issue fines up to 10% of that relevant turnover.

Under current procedures the OFT calculates a maximum starting fine a company faces based on the "turnover of the undertaking in the relevant product market and relevant geographic market affected by the infringement in the undertaking's last business year," according to its current guidance on penalties. The regulator can adjust the level of fine it first proposes to issue depending on the length of time the infringement has taken place for and other factors, including "aggravating and mitigating factors", providing that the final amount does not exceed 10% of the company's relevant turnover.

The OFT said that increasing the maximum penalty threshold to 30% of relevant turnover would help "reflect the gravity and seriousness of the range of competition infringements"; help deter breaches of the law, and be more in line with the level of fines that other European competition regulators issue.

"A maximum of 10 per cent is not large enough in absolute terms to capture the potential overcharge resulting from some types of infringement, in particular cartels and serious abuses of a dominant position," the OFT said in its consultation proposals (98-page / 833KB PDF) to increase the maximum penalty it can issue.

"Compared to a higher maximum starting point, 10 per cent may not provide sufficient scope to distinguish properly between the relative seriousness of different types of infringement ... [and] may not be high enough to contribute to achieving deterrent penalties. The OFT is therefore proposing to increase the maximum percentage rate that can be used at the starting point from 10 to 30 per cent of relevant turnover," the OFT said.

Under the UK's Competition Act companies are generally prohibited from establishing agreements with other UK trading firms that "have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom". Under the Act organisations are also generally prohibited from engaging in activity that amounts to an abuse of a dominant market position.

The OFT said that whilst it "notes that a higher maximum starting point will result in higher penalties" it would "consider carefully whether the resulting penalty is disproportionate or excessive having regard to the undertaking's size and financial position and other relevant circumstances of the case" and reduce the penalty if necessary "to ensure that a fair and proportionate penalty is imposed".

When adjusting fines for infringements the OFT has also proposed that infringements lasting for less than a year be "rounded up" to a year for the basis of setting fines, the regulator said.

In exceptional circumstances the OFT said it wants to be able to adjust the level of fines to big companies "where the undertaking had a very large turnover beyond its relevant turnover or where there was good evidence that it had made gains from the infringement greater than the level of the penalty calculated [after making adjustments for the period of time the infringement lasted for and] where an undertaking had zero or very low relevant turnover in the year before the infringement ended or in bidding markets where the relevant turnover did not reflect the likely true impact of the infringement".

The OFT's proposals would involve it assessing whether fines are proportionate overall during the adjustments stage. It wants to be able to make any adjustments on that basis after assessing whether there are changes to the level of fine to be issued based on "aggravating and mitigating factors". Companies that persist in delaying OFT investigations could face higher financial penalties under the OFT's new plans.

"As regards persistent delay, the OFT considers that, although there may sometimes be good reasons why a party is unable to meet a deadline, where a party does this in an unreasonable fashion, and persistently over the lifetime of a case, it would be appropriate to treat this as an aggravating factor. The possibility of increasing the penalty in this way is clearly without prejudice to a party's rights of defence," the OFT said.

The OFT has also proposed measures that would allow it to issue fines double the value of previously issued penalties to companies for each repetition of a prior offence.

"The OFT proposes that penalties will be increased by up to 100 per cent for each prior same or a similar infringement by an undertaking where the OFT or another European competition authority has found an infringement of the [Competition Act] or corresponding European Union provisions in the preceding 15 years," it said.

Companies that show "evidence of adequate steps having been taken in relation to achieving a clear and unambiguous commitment to competition law throughout the organisation – together with appropriate competition law risk identification, risk assessment, risk mitigation and risk review" may have their fines reduced, the OFT said.

In separate draft proposals (158-page / 1.28MB PDF) the OFT announced new "leniency" measures in which 'whistleblowing' companies can escape or reduce the punishment they would face for owning up to the infringing activity.

Those applying for leniency would have to admit they have participated in "cartel activity" and offer "complete and continuous cooperation" to an OFT investigation, the regulator said.

"Under the existing guidance, leniency applicants must already have a 'genuine intention to confess' and at the stage of signing a leniency agreement, the applicant formally accepts that the reported activity amounted to an infringement," the OFT said in its leniency guidance.

"Accordingly, this is not a substantive change to the policy, but is designed to avoid confusion and uncertainty on the issue of whether an undertaking must admit they have breached the law in order to benefit from leniency," it said.

The OFT said its proposed new guidance on leniency and penalties were "critical tools in encouraging greater compliance with competition law".

"The proposed revisions to our penalty guidance are designed to give us access to a greater range of fines, in order to better reflect the seriousness of the infringements and deter anti-competitive activities, whilst ensuring that penalties are fair and proportionate,"  John Fingleton, chief executive of the OFT, said in a statement.

"Our leniency guidance is designed to support an active programme of cartel enforcement, ensuring that the UK economy is protected from the harm that results from anti-competitive cartel behaviour," Fingleton said.

Respondents have until 26 January 2012 to respond to the OFT's proposals.