30 Oct 2014

Being put on probation in competition law cases: what does it mean for companies?

by Michael Corrigan

Australian probation orders may start to resemble the more descriptive and demanding features of the US corporate monitors.

At the recent International Competition Network Cartel Workshop in Taipei, there was much interest in the increasing use of probation orders for breaches of competition law and MC participated in a panel on the topic along with US practitioners. Recent high-profile probation orders in the United States has put the spotlight on probation orders, while in Australia, the ACCC is increasingly seeking them too, usually requiring the company to institute a trade practices or competition law compliance program.

What does it mean for a company to be on probation for a contravention of Australian law? And will the US approach be adopted here?

What's involved in corporate probation for breaches of competition law in Australia?

In Australia, corporate probation can include a requirement to establish a compliance program, to educate and train employees about their legal responsibilities and to revise internal operations of the company's business structure in relation to the contravention (section 86 of the Competition and Consumer Act).

Australian corporate probation orders may not require an external audit report to audit the compliance program in the sense of giving that auditor the right to specify the particular obligations which should be met by the company or whether there has been compliance with them.

The court can order an external audit of a probation or compliance program where the major obligations are clearly defined. The auditor however cannot determine whether they have been complied with. These remain for the Court, which can deal with the issue of possible breaches after hearing a report from the auditor.

The US model: corporate monitors

In the US orders for corporate monitors are more intrusive and include interviews of senior managers and Board members to find out the source of the unlawful conduct and what has been done to avoid it in the future. The monitor will provide detailed reports to the court and the parties on a quarterly basis reporting on the steps taken to improve compliance, revise procedures, the assessment of the legal risk by the business and the degree of cooperation of the company concerned.

The report includes an assessment of the internal anti-trust compliance policies, procedures and training and recommendations designed to improve those policies and compliance.

In Taipei, one US practitioner who has been engaged in this task recently in a high profile case discussed the scale of the role - over a hundred interviews, extensive reporting, the need for corporate cooperation, the extensive internal resources which must be applied to improving compliance systems and the intrusive nature of the questioning which can occur

Key themes which emerge from this trend for corporate probation include:

  • each compliance program must be tailored to the structure and operations in the particular company for which it has been designed; "one size fits all" programs are not regarded as effective;
  • the company needs to take steps to reform its internal culture including the commitment of senior and mid-levels of management to understand and abide by the requirements of the law;
  • the company may be required to communicate its commitment to compliance through key messages from the Board of directors and senior executives; and
  • the company may need to hire specialist competition law in-house lawyers or compliance officers to support these measures and provide oversight over the compliance program.

Other measures include establishing a business conduct helpline, record keeping, internal investigation and reporting violations, and annual audit and training.

What if further unlawful behaviour is uncovered as part of the probation?

Under the US system, any findings of further competition law breaches will need to be the subject of a report to the court.

It is likely the same obligation will exist in Australia – the auditor has extensive reporting obligations to the court and the ACCC as to what further contraventions may come to light during probation.

However, US courts could not impose a further fine or sanction without separate proceedings by the regulatory agency. Without that step, the only sanction which appears to be open is that the corporate probation period might be extended. The probation period might also be extended if there was a lack of co-operation by the company. Australian courts are likely to take a similar view.

A more prescriptive probation order in Australia?It can be expected that more of these orders may be made in the future. Australian regulators certainly do look at international practice, and may well begin asking courts for more prescriptive orders, so that the probation may resemble the more descriptive and demanding features of the US corporate monitors.

Here and abroad, these orders send a strong message to corporates of the need to develop an effective compliance program, to have it regularly reviewed and updated, to see that it is reinforced and kept fresh in the minds of company management and to install the correct culture throughout the organisation. This usually means the message has to come from the top that compliance is treated seriously and is valued as part of the company's overall performance.

If you would like further information about this please contact us.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.