By Jonathan Parker and Calum Warren
On 2 August 2017, the UK Competition and Markets Authority (CMA) launched a consultation on proposals to amend the Office of Fair Trading’s 2012 guidance as to the appropriate amount of a penalty for infringements of the prohibitions against anti-competitive agreements and an abuse of a dominant position contained in the Competition Act 1998 (the Current Penalties Guidance). The consultation proposes the following four main changes to the Current Penalties Guidance, most of which are clarifications to the CMA’s current policy based on its existing decisional practice. The CMA has not proposed any amendments in relation to the adjustment for duration (step 2) or the adjustment to prevent the maximum penalty being exceeded and to avoid double jeopardy (step 5).
1. The starting point for calculating fines (step 1). The Current Penalties Guidance provides that the starting point for a fine may be up to 30% of an undertaking’s turnover in the relevant product and geographic market in the last business year. Whilst the CMA does not consider detailing a starting point for every type of infringement appropriate, and confirms that there is no pre-set “tariff” for different infringements, the CMA proposes to amend the Current Penalties Guidance to state that it will generally use a starting point of:
(i) Between 21-30% for the most serious types of infringement (i.e., those which the CMA considers to be so-called “object” infringements, such as cartel offences, as well as excessive and predatory pricing)
(ii) Between 10-20% for certain less serious object infringements and for infringements by “effect” (i.e., those for which the CMA must carry out an assessment to establish that the behaviour in question has had an anti-competitive effect on the market)
(iii) Less than 10% may be applied if the assessment of the specific circumstances of the case leads to a downwards adjustment. If more than one undertaking has taken part in an infringement, the CMA proposes clarifying that it will expect to apply the same starting point for each undertaking.
2. Adjustment for aggravating and mitigating factors (step 3). The CMA proposes to provide further details relating to the adjustment of a penalty amount for aggravating and mitigating factors. In relation to aggravating factors, the CMA proposes including a failure to comply with competition law following the receipt of a warning or advisory letter as a further illustrative example of an aggravating factor. In relation to mitigating factors, the CMA proposes clarifying that a fine may be reduced if an undertaking has:
(i) Demonstrated a clear and unambiguous commitment to compliance, including a public statement on its website to this effect and evidence of periodic reviews of its compliance activities, and/or
(ii) Cooperated with the CMA’s investigation, including the provision of voluntary witness interviews and/or the provision of witness statements.
3. Adjustment for specific deterrence and proportionality (step 4). The CMA may increase a penalty amount for deterrence, or decrease a penalty amount to ensure that the penalty is not disproportionate or excessive. The CMA may take into account several factors to assess whether a penalty is proportionate, including total turnover, profits, cash flow, and industry margins. Further, to give a more accurate picture of a business’ true financial position, the CMA proposes that profits after tax, net assets, and dividends should be taken into account as well, and that any indicator may be considered over a period of time (usually three years).
4. Application of reduction for leniency and settlement (step 6). The Current Penalties Guidance provides that the CMA may reduce a penalty if the CMA has granted leniency to an undertaking or an undertaking has entered into a settlement agreement with the CMA. The CMA is also proposing to include the possibility of a discount in respect of voluntary redress schemes. If multiple discounts are available, the CMA proposes clarifying that these will be applied consecutively (i.e., a leniency discount followed by a settlement discount and/or a discount for an approved voluntary redress scheme).
Interested parties may respond to the consultation on the proposed amendments by 27 September 2017.
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