Can you rely on your colleagues and employees to do the right thing? Here’s a €15 million test: ask them “if the authorities are investigating us, should you delete your WhatsApp messages or your social media?” If they think you should, you’ve got a significant issue and your business could end up facing significant fines.
A company called International Flavors & Fragrances (IFF) was subject to a dawn raid in March 2023 by the European Commission to investigate alleged competition law breaches. Competition law is the set of complex rules that deals with fair business practices – for example, ensuring there are no cartels and no abuse of dominance.
During the IFF raid, one senior manager who had already been informed about the inspection intentionally deleted from his mobile phone various WhatsApp communications which he had shared with a competitor.
In dawn raids, the Commission expects all “evidence” will be preserved. That includes electronic data which must be intact and not deleted during the raid as that hinders the investigation.
The Commission discovered the deletions in IFF. The company co-operated fully and the messages were restored within four hours.
As IFF had co-operated and the messages were restored, it was fined “only” €15.9 million.
It could have been much worse: the Commission originally set the fine at €31.8 million, double the eventual penalty and 0.3 per cent of the company’s annual turnover in the year before the raid. It had the power to levy a fine of up to 1 per cent of previous year turnover – and that is just for the procedural breach.
The cap for “substantive” breaches – for example, being in a cartel or abusing dominance – is 10 per cent at EU level and 20 per cent at an Irish level.
Learnings
So, what can we learn?
First, massive fines for breaking procedural rules are well-established. E.on, the German energy company, had previously been subject to dawn raids over a few days. The Commission placed a plastic seal on the door of an office each night to preserve evidence which they left. The Commission believed that someone had tampered with the seal. E.on was fined €38 million. The European Court upheld the fine.
Two businesses in the Czech Republic were fined €2.5 million for accessing an email account which the Commission asked to be blocked during a dawn raid and for diverting incoming emails to another account.
Secondly, the employee who deleted the WhatsApp’s in IFF was senior. It is not just junior employees who might be unaware of the consequences. People often regret such lapses, but the consequences are severe and staff often claim that they were not trained.
Thirdly, to this last point, there is not enough training. Most employees are untrained and are shocked by the fines.
Businesses should have competition compliance training just as much as they have fire prevention training. They need to train their staff on how to comply with competition law because some of the rules are complex and the penalties can be severe personally and commercially.
Lack of awareness
The need for training is even greater in Ireland. First, there is still a relatively low awareness of competition law here anyway, despite 30 years of Irish rules and 50 years of EU membership.
Secondly, at EU level, only businesses can be fined but, in Ireland, directors and certain employees can be personally liable for breaches of competition law and find themselves facing harsh fines and draconian jail sentences. And yet compliance training is patchy at best. Often, those who need the training least are the best trained and vice versa.
Questions may also legitimately be asked of the Commission. Has it done enough to warn businesses of this type of penalty?
Yes, it is for businesses to train themselves and yes, individual cases (such as IFF) highlight the rules. That said, it can certainly be argued that the Commission does not do enough to inculcate into managers the value, virtue and vital need to comply with competition law. Competition agencies could do more to brief businesses and employees alike.
Competition can benefit businesses and consumers alike. But while the rules are long-established, they are complex and not widely understood. An agency having a website is useful but it is like putting a message into a book in the Library of Congress and hoping that someone will come across that book and find that message. Competition agencies need to spread the message of competition more proactively.
The new College of Commissioners could usefully brief consumers and executives more on the value of competition. By following the rules, Europe becomes more competitive. The rules are not taught at business school or schools generally so there is a gap.
The cases that have emerged have highlighted why “big” companies need to comply, but the rules apply to everyone. Every good or service could be cheaper, better and more widely available in a competitive market.
Finally, are these procedural fines proportionate? At one level, the Commission should not be blamed – it is just following the rules – and its fines are usually upheld by the courts. But is €15.9 million for deleting WhatsApps which were restored quickly “proportionate”? The Irish Courts Service collected €11.3 million in fines for all sorts of offences in an entire country for the whole of 2022.
Businesses and executives breaching the law should be punished. However, competition agencies and employers need to do more to brief employees and consumers. And penalties need to be credible. But that will only happen when everyone appreciates the rules.
Vincent Power is a partner at A&L Goodbody, specialising in the EU, competition and procurement
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