Is it possible to trust your colleagues and staff to make the right decisions? Try this €15 million question: would they delete their WhatsApp or social media interactions if we were under investigation? If they believe they should, it indicates a major problem that could result in hefty penalties for your business.
Take note of how International Flavors & Fragrances (IFF), faced a surprise inspection in March 2023 by the European Commission due to claims regarding the violation of competition laws. These complicated regulations, known as competition laws, aim to promote fair business conduct, prohibiting activities such as monopolistic dominance and collusion.
An upper-level manager at IFF, who had been made aware of the impending raid, deliberately erased various Whatsapp messages from his phone that he had sent to a rival. During such spontaneous operations, the Commission anticipates all ‘evidence’, including digital data to be preserved. Deletion of such evidence during an investigation hampers the process.
The Commission discovered these deletions within IFF. However, the company fully cooperated, and the messages were recovered within four hours. Therefore, IFF was “merely” penalised €15.9 million. But it could have been a graver scenario: the Commission initially intended to impose a €31.8 million fine, equivalent to double the final penalisation and 0.3% of the organisation’s annual revenue pre-raid. The Commission holds the right to impose fines up to 1% of the prior year’s revenue for procedural infringements.
As for significant violations, like monopolistic practices or involvement in a cartel, the ceiling for fines is 10% at the EU level and 20% at the Irish level.
Lessons can be learned from both cases. Practically, heavy fines for procedural law breaches is a norm. Previously, E.on, a German energy firm, faced consecutive dawn raids. The Commission secured the door to an office using a plastic seal to safeguard evidence after each raid. When the Commission suspected tampering with the seal, E.on was fined €38 Million, a decision upheld by the European Court.
Two Czech companies were penalised with a €2.5 million fine for improperly accessing an email account, a violation that the Commission previously requested to be blocked during an unexpected inspection, and for redirecting incoming emails to a different account. Notably, the staff member involved in erasing WhatsApp exchanges at IFF held a senior position, highlighting that it is not solely junior personnel who may be oblivious to the potential fallout. Instances of regret following such misdemeanors are frequent, but the penalties are stringent, and the workforce often asserts a lack of proper instruction.
Regarding this critical point, it is evident that training provision is lacking. The majority of staff remain under-un-prepared and are taken aback by the severity of the monetary penalties. Enterprises need to make competition acquiescence education a priority, akin to their fire safety drills. They must educate their personnel on adhering to competition legislation since it is intricate, and the punishments can have severe personal and business implications.
In Ireland, the demand for such training escalates. Despite three decades of local regulations and half a century of EU membership, competition law familiarity remains relatively low. Moreover, while the EU exclusively penalises companies, in Ireland, company directors and specific staff members can be held personally accountable for contravening competition law, risking substantial fines and austere prison terms. Yet compliance instruction is sporadic at best, with a perplexing pattern observed: those who need the training the most often receive the least and vice versa.
The Commission’s efforts to caution businesses about these types of penalties can also be scrutinised. While businesses are responsible for their training and some cases (like IFF) do illuminate the regulations, it is arguable that the Commission isn’t doing enough to instil the importance, virtue and urgent necessity of competition law compliance in managerial personnel. Competition authorities can do more to educate both businesses and employees.
Competition law, although intricate and not universally understood, can serve to the advantage of both business and its consumers. But competition bodies must become more proactive in circulating their message. The incoming College of Commissioners would do well to enlighten consumers and executives concerning competition’s value. Adherence to these rules can make Europe more competitive. Generally, however, these rules are not taught in business or regular schools, leaving a significant gap in understanding.
The emergence of various cases underscores the importance of “large” corporations adhering to regulations, but such regulations encompass all. Each product or service has the potential to be cheaper, superior in quality, and more broadly accessible in a competitive environment.
However, a question arises around whether penalties for contraventions are at an equitable scale. The Commission is merely enforcing the rules, for which it shouldn’t be censured, and its imposed penalties are frequently endorsed by legal bodies. Yet, is a €15.9 million fine for briefly erased WhatsApp messages a “fair” consequence? In contrast, the Irish Courts Service accumulated €11.3 million in levies for various infractions countrywide throughout 2022.
Companies and their leaders that violate the law ought to face a penalty. Yet, there is a shared responsibility with competition authorities and employers to deliver more comprehensive information to their workers and consumers. The penalties should also be believable and effective to ensure everyone understands the implications of not following the rules.
Vincent Power, a partner at A&L Goodbody, is an expert in EU law, procurement, and competition matters.