“Compliance Defense” in Competition Law
What does “appropriate and effective” actually mean?
The amendment of the German Competition Act – Introduction of a “compliance defense”
As reported in our blog post a few months ago, the 10th GWB amendment called “Act Amending the Act against Restraints of Competition for a focused, proactive and digital competition law 4.0 and amending other competition law provisions” (GWB Digitization Act) came into force on January 19, 2021. With the GWB Digitization Act, the legislator has introduced, among other things, the possibility of a so-called “compliance defense”, by which companies can reduce any fines for competition law violations in the future. Specifically, the revised provision Section 81d of the German Competition Act stipulates that the following circumstances, among others, must be weighed when determining the amount of a potential fine:
“Prior infringements by the company and appropriate and effective precautions taken prior to the infringement to prevent and detect infringements” (paragraph 4)
as well as
“The company’s efforts to detect the infringement and repair the damage, as well as precautions taken after the infringement to prevent and detect infringements.” (paragraph 5).
This new regulation has significantly increased the importance that competition law-specific compliance measures can have for companies.
The “Standards of Effective Compliance”
According to the new regulation, compliance measures relevant to competition law, regardless of whether they were taken before or after the infringement, are to be taken into account in the calculation of a possible fine. However, this only applies to the extent that these measures are appropriate and effective. But what exactly does this mean?
According to the explanatory memorandum of the new law, compliance measures shall be appropriate and effective if the “owner of a company has taken all objectively necessary precautions to effectively prevent infringements of competition law provisions by its employees“. As a rule, this is to be assumed “if the measures taken have led to the detection and reporting of the infringement.”
In June 2021, the German Federal Cartel Office has now also published the “determination of appropriate compliance measures”, specifically in the draft “Guidelines on the early deletion of an entry from the competition register due to self-cleaning” as well as the draft practical guidance on “Early deletion from the competition register due to self-cleaning“. The background to the guidelines is the introduction of a competition register for companies that have attracted attention due to misconduct. In the event of so-called “self-cleaning”, such companies should be able to have themselves deleted from the register again. The compliance measures described by the Federal Cartel Office as relevant for self-cleaning also provide important guidance for compliance measures under competition law, as shown below.
Specifically, the German Federal Cartel Office describes that the compliance measures taken must not only represent an appropriate response to the sanctioned misconduct, but must also give rise to expectations that future misconduct will be prevented accordingly. The basis for determining the necessary compliance measures is always a company- and offense-related risk analysis. The specific situation of the company should be included in the evaluation of the compliance measures. Consequently, the introduction or adaptation of a compliance management system (CMS) can be considered as appropriate and effective measures, but so can targeted individual measures.
“Regardless of the nature and extent of the measures taken, the registry authority shall take into account the extent to which the risk analysis and measures meet established standards of effective compliance.” These “standards of effective compliance” are defined in more detail in the draft practical guidance on “early deletion from the competition register due to self-cleaning“. In particular, they include the following compliance measures:
- a risk assessment;
- adjustments to the organizational and supervisory structure;
- a commitment by company management to act in accordance with the law;
- careful selection, training and monitoring of company employees;
- the handling of whistleblowing / a whistleblowing system;
- adequate resources and competencies of the responsible persons;
- Incentives for observing compliance requirements and penalties for violations;
- evaluation and adjustment of compliance measures.
The German Federal Cartel Office lists exemplary questions for the respective measures and thus provides companies with valuable guidance with regard to the individual investigation and implementation of such measures.
With regard to the “Standards of Effective Compliance”, it should be noted in particular that it is by no means always necessary to implement all the elements mentioned. The German Federal Cartel Office explicitly points out that the objective is not to implement as many measures as possible in the shortest possible time. Rather, companies should act and react appropriately on an individual basis and implement targeted compliance measures on the basis of a risk analysis taking into account the company’s respective circumstances and business area(s).
The recent drafts of the German Federal Cartel Office also suggest that the importance of defining “standards of effective compliance” goes far beyond the context of self-cleaning. Through the definition described above, the German Federal Cartel Office has provided important guidance for the “compliance defense” in general. Companies should use the practical guidance provided by the German Federal Cartel Office to preventatively establish and operate effective compliance management under competition law.
In this regard, we will not only advise you in dealing with potential misconduct, but also gladly assist you in implementing new or adapting existing compliance measures under competition law. Our many years of experience in the review of compliance management systems, also along the lines of other (international) standards and guidelines, enable us to implement the “standards of effective compliance” expected by the German Federal Cartel Office in your company.
After various associations, institutes, ministries, etc. have commented on the drafts in the course of the public consultation, implementation steps can be expected in the near future. As usual, we will follow further developments for you in the coming weeks and months and report on this on our blog. If you have any questions, please feel free to contact us at any time.