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Law firm: ‘prepare for competition law enforcement’

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Law firm: ‘prepare for competition law enforcement’

Law firm: ‘prepare for competition law enforcement’
June 02
10:00 2013

Food and drink manufacturers should prepare for more civil and criminal competition law enforcement as recent UK reforms have made it easier for the authorities to bring prosecutions, warns law firm Stephenson Harwood.

Marta Garcia, competition partner at Stephenson Harwood, said recent UK competition law reforms have removed the dishonesty requirement from anti-cartel legislation – which could make it easier for competition authorities, including the Office of Fair Trading (OFT) – to bring more criminal cases.

Competition authorities were “relentless” in their enforcement of all competition laws in the food sector, including information exchanges, she added.

“Food and drink companies need to be aware of the competition rules so they can defend themselves vis-à-vis the regulators, but also watch out in case they are the victims of illegal anti-competitive conduct,” warned Garcia.

‘Danger of breaking the law
 
Garcia said that many firms were unfamiliar with the competition laws or thought they were protected by normal business practice. That put their businesses in danger of breaching the laws at a time when regulators are looking to clamp down on violators.

Cartels are illegal agreements between supposedly competing businesses to fix prices, share markets or customers. These agreements often involve competitors passing commercially sensitive information to each other.

The OFT regarded these agreements as the most serious infringement of the competition rules. Cartels cause serious damage to businesses and the economy and cost consumers money, according to a statement on the OFT website.

The OFT can fine companies up to 10% of their group annual turnover if they are found guilty of cartel activity. Individuals face criminal prosecutions – which may result in imprisonment for up to five years.

Directors, if found guilty, could also be banned from holding directorial roles within a business for up to 15 years, Garcia added.

Increasing fines

In a bid to deter these kinds of practices, regulators are increasing the fines handed out to companies for breaking competition law.

“Fines are increasing; EU competition regulators are not scared to impose fines on companies involved in illegal cartels, illegal information exchanges, illegal resale price maintenance or other anticompetitive activity,” said Garcia.

“Only last month Nestlé was fined [£17M] €20M in Germany for exchanging planned price increases and customer specific contract negotiations with competitors.”

This fine was significantly higher than previously seen for such offences – typically less than [£4M] €5M, Garcia added.

She warned in a sector where there is increasing merger and acquisitions, companies needed to take extra care in due diligence and ensure they are not taking on the liabilities of a target company that has violated the competition rules without having sufficient protections in place.

“If a company you are trying to buy is, or has been, involved in a suspected cartel activity, when you buy that company you in effect buy its liabilities, including the competition liabilities.”

She warned that the message is “loud and clear”. “Competition compliance is not optional for food and drink companies. They are well advised to ensure their houses are in check and that they put in place effective competition compliance programmes and training.”

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