Be ready for when an inspector calls – Melanie Martin
The best defence against unwanted attention from the CMA is a culture of compliance, writes Melanie Martin
The prospect of a competition regulator, such as the UK’s Competition and Markets Authority (CMA), turning up unannounced on the doorstep, is enough to bring most directors out in a sweat. Leaving aside the distraction and general turmoil that it can cause on the day, when scores of inspectors turn up to trawl through IT systems and interview employees, it can prove exceptionally costly longer term.
Reputational damage, management time and lawyers’ fees are the unavoidable consequences of a dawn raid, whether or not the regulator can prove wrongdoing. If the regulator manages to find incriminating evidence that competition law has been broken, then fines, director disqualification or even imprisonment (reserved for the most blatant cases of price-fixing or bid-rigging) may follow. There is a relatively low bar evidentially for civil competition cases: for example, receiving competitively sensitive information from a competitor, even if you did not ask for it, can be enough for you to be fined by the regulator.
In Scotland, however, some might point to the fact that dawn raids have not been a very common occurrence to argue that the risk of it happening to their company is low. The European Commission’s raids on various salmon producers in Scotland for alleged anti-competitive conduct made headline news last year; but there might be only a handful of such raids each year and not all lead to enforcement action.
However, are there signs that enforcement action here might increase, putting Scottish companies firmly in the CMA’s sights?
A newsletter published this month by the CMA highlights its recent activities in Scotland. In 2018, the CMA announced that it would be boosting its numbers in Scotland to help prepare for the increase in its workload arising from Brexit. The aim was also for the CMA to build stronger relationships in Scotland. Two years later and they now have more than 50 people based in Edinburgh, compared to just three in 2018, and they continue to recruit. So what are they are doing with their time and should Scottish businesses be worried?
It is clear that the CMA has been busy working to develop relationships in Scotland and embed itself in Scotland’s institutions, working with the Scottish Government, business bodies and universities. It has been providing input to discussions about the establishment of Consumer Scotland, the provision of bus services by local authorities and the review of Scottish legal services.
All fairly benign perhaps, and it may not set alarm bells ringing. However, there is a wider issue to which businesses should be alert. Having so many people on the ground in Scotland undoubtedly raises the stakes for businesses here and increases the likelihood of enforcement action being taken which is focused on Scottish-based companies.
The team in Edinburgh will be reading about Scottish businesses in the newspapers, will be closer to the politicians and consumers, and many will have worked in Scottish companies. They will be attending industry events and gathering intelligence on how markets are working. The CMA can also take proactive steps to screen markets for cartel behaviour (something that is particularly useful in relation to bidding markets) and has indicated that it may do so. All of this may increase the odds of dawn raids and investigations in Scotland.
Perhaps most importantly, the CMA will be experiencing Scotland’s products and services first hand, when previously they had to rely on evidence from third parties. In the past, the CMA has been accused by some of having a London-centric attitude (for example, discussions revealing a lack of understanding of the practicalities of providing services in remote Scottish regions). A local presence may lead to better decision-making as regards issues affecting Scotland.
If, in the past, geographic distance served Scottish businesses to an extent, there now seems to be no escaping the CMA’s watchful eye. Rather than being seen as an unwelcome development, it should galvanise businesses to ensure that their compliance procedures are in order. They say that “good fences make good neighbours” and the best protection from unwanted CMA scrutiny is embedding a culture of compliance, which starts at the very top.
Melanie Martin is a Senior Associate at Dentons