Back in 2013, the European Commission fined a group of six high-profile financial institutions for “participating in cartels in the interest rate derivatives industry,” according to a European Commission press release.
Eight firms were initially fined, with two ultimately escaping punishment, for rigging financial benchmarks of the London interbank offered rate (Libor), the Tokyo interbank offered rate and the euro area equivalent (Euribor). The derivatives are used to manage the risk of fluctuations in interest rates and are pivotal to the global economy. Together, the banks were fined a record €1.71 billion, the highest antitrust penalty ever imposed by the European Commission, which regulates the European Union’s competition laws.
In a statement, then-EU Competition Commissioner, Joaquín Almunia, expressed his dismay at the violation. “What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other,” he noted.
UBS and Barclays reported the violation and were granted immunity for their participation in the price-fixing.
Competition law, also known as antitrust law in the United States, ensures healthy competition among businesses in the open market, providing options for customers and consumers, and leading to higher-quality, more innovative products and services. From a consumer perspective, competition law enables individuals and businesses to select the best options for them; organisations must continually improve their services and offer them at fair terms to the benefit of the consumer.
Compliance officers and others dealing with fair competition at your business must be cognisant of the laws and risks involved in their violation. For example, personnel may not share official company or market-sensitive information with competitors, or, as in the above example, enter into a price-management strategy –in other words, price-fixing or collusion –with a competitor.
Protecting a free market protects the consumer. For instance, when service providers charge different prices based on their country of residence, redirect consumers to country-specific websites with higher prices, or refuse to deliver to a buyer’s country of residence, the consumer loses.
Take the case of Disneyland Paris. In 2015, the major tourist destination was investigated by the European Commission following complaints that the theme park was setting different prices for consumers of different nationalities. For the same premium package, French consumers were paying €1,346 while British visitors were charged €1,870. Germans were paying nearly double the French price at €2,447. This was illegal; unless they meet very specific criteria, organisations may not charge consumers a higher price for the same product or service, based on their country of residence or nationality.
The following year, Disneyland Paris announced that it would abandon the pricing policy, ensuring that people of other countries of residence would have access to the same deals as residents of France, and be able to use foreign payment cards and accounts to buy subscriptions. In return, the European Commission dropped the investigation.
The purpose of the EU competition law is clear: when organisations violate it, they are harming the consumer.
How does EU competition law affect you and your business? As illustrated by the examples we have discussed, violations can and will be investigated by the European Commission –sometimes resulting in severe penalties. At the very least, you will be required to revise your policies should anyone report or discover your violations. At worst, you could be responsible for paying huge penalties –as much as 10% of global turnover.
Furthermore, apart from corporate accountability, individuals, particularly those in senior management positions, may be held responsible for competition law violations. In several countries in Europe and around the world, these violations are considered criminal offences, and perpetrators could face prison sentences.
All employees who work with competition in the marketplace must be trained properly and effectively to understand what they can and can’t do. From sharing sensitive market information, to rigging bids and colluding to set prices, to making exclusivity arrangements, the potential violations are numerous and must be avoided. The penalty can be severe to both individuals and their organisations, but making personnel aware of the risk and encouraging them to speak up can help you ensure that your business is safe and compliant.
Want to safeguard against violations by giving your business and employees the proper training in and information about competition law in the UK? Through Interactive Services’ Antitrust & Competition Law course, your employees will learn about the laws and regulations with a special focus on EU competition law in theory and practice, how to deal with consumers and competitors, communication and document creation, and more. We will help you and your employees fulfil your legal and ethical responsibility to guard against breaches of the law.
By Neil Cullen (Director, Compliance Learning, Interactive Services)
For more information contact Becky Murphy (email@example.com), Client Engagement Manager, Interactive Services.