Five Key Elements of an Antitrust Compliance Program: Risk Assessments (Part I of III)

In July 2019, the U.S. Justice of Department’s Antitrust Division ended a long-running controversy surrounding compliance program credit by issuing its Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations (“Antitrust Guidance”).  The Antitrust Guidance is a terrific resource, filled with excellent ideas and innovative suggestions. 

Companies need to review and enhance their antitrust compliance programs, especially those companies with tangible antitrust risks. 

In designing an effective antitrust compliance program, there are five key elements to an antitrust compliance program, which I will examine in this three-part series. The five key elements include:

  1. Risk Assessment
  2. Culture and Senior Management Buy-In
  3. Monitoring and Testing
  4. Training
  5. Speak Up and Reporting Systems

In today’s posting, I examine antitrust risk assessments. An antitrust risk assessment should focus on: (a) market concentration; (b) products and homogeneity; (c) geographic markets; (d) sales and tender process; (e) trade association meetings and industry gatherings; and (f) joint ventures. 

Market Concentration: A company has to examine its product markets and where it sells each product.  Within each product and geographic market, a key initial inquiry is market concentration. 

If a company has only two competitors in a specific market, the risk of anti-competitive horizontal agreements (e.g. price-fixing, customer or territorial allocations or bid-rigging) increases because of the incentive to enter into illegal agreements with competitors.  The simple rule is the more competitors, the harder to execute a cartel scheme. To assess this factor, a compliance officer has to understand the company’s competitive landscape and understand the level of market concentration.

Product Homogeneity: A related question is the homogeneity of a company’s product, i.e., whether the competitors offer a similar product that is largely interchangeable.  The electronic capacitor price-fixing prosecutions center on a homogeneous product, the capacitor which are interchangeable among competitors.  As a result, competition is usually based on price and no other product-specific characteristic.  Another example is consumer batteries which are interchangeable and subject to intense price competition.  In these markets, competitors have a strong incentive to restrict competition over price.

Tender Process: Depending on the specific industry, companies may also participate in formal and informal tender processes in which they submit bids for specific projects.  In large projects in both the private and public sectors, companies may be provided formal RFPs and submit bids simultaneously.  In these situations, companies may have incentives to “rig” or agree on bid prices or  allocate bids among themselves.  Such a procedure may create incentives and opportunities to enter into illegal agreements.

Trade Association/Industry Gatherings: Most companies that participate in trade association activities or industry meetings recognize the danger of contacts among competitors.  As a result, companies usually have procedures and policies designed to train participants on antitrust risks, and to report on their contacts at such conferences.  Industry gatherings create opportunities for company sales employees and others to interact and discuss anti-competitive opportunities.  Companies have to ensure, to the extent these meetings occur and company staff attend, that robust controls are in place to prevent and monitor such interactions.  It is a delicate dance since there are many legitimate reasons to have contact with others in the industry (e.g. political activities, lobbying on issues of common concern, standard setting).

Joint Ventures: In many industries, companies enter into joint venture arrangements with competitors.  There are real and significant benefits from such joint ventures, but there is a potential for anti-competitive activities.  By bringing together competitors in a legal entity to jointly operate a business, the competitors have opportunities to discuss and agree on a cartel under the legitimate cover of a joint venture.

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2 Responses

  1. March 20, 2020

    […] into an Anti-Trust Compliance Program in a 3-part series on Corruption, Crime & Compliance. Part 1-Risk Assessments, Part 2– Ethical Culture and Monitoring, Part 3- Training and Speak Up and […]

  2. March 20, 2020

    […] into an Anti-Trust Compliance Program in a 3-part series on Corruption, Crime & Compliance. Part 1-Risk Assessments, Part 2– Ethical Culture and Monitoring, Part 3- Training and Speak Up and […]

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