Competition Law Compliance

Chile is seen as a model of free-market efficiency in a region where protectionism is on the rise. Yet recent cases of collusion involving pharmacies, poultry producers and bus companies have tarnished that image. The companies have denied the charges, which include price-fixing, agreeing on quotas and conspiring to keep other actors out of the market, but Chile’s Competition Tribunal (TDLC) has handed out huge fines.

Before cases like these ever get to court, companies are investigated – often for years – by the Office of the National Economic Prosecutor (Fiscalía Nacional Económica, or FNE), which is the Chilean equivalent of the U.S. Department of Justice’s Antitrust Division. In June, under instructions from President Piñera, it launched Chile’s first antitrust compliance guide titled “Guidelines for Competition Law Compliance Programs”.

The guide is meant to serve as a “trampoline” for companies to reflect on how to avoid the pitfalls of anticompetitive practices and to design their own compliance manuals, said the National Economic Prosecutor, Felipe Irarrázabal, at an AmCham breakfast on June 7.

Chile’s economic freedom has brought great benefits for companies, he said, but also certain risks that must be limited. “We don’t aim to replace the market economy, but to strengthen it.”

The guide is necessary, he explained, because some Chilean companies are not aware that their business practices fall into the grey area of competition law or they believe, falsely, that because they have been doing things the same way for years that they are immune from prosecution.

“You can’t be like the ostrich, and bury your head, it’s better for companies to face it,” he said. “We can be very tough [on companies], just ask those we have investigated.”

While cases of collusion between large companies have generated the most publicity, the FNE can investigate any company in any sector, including state-owned companies, regardless of their size, he pointed out.

Chile’s current competition law was adopted in 1973 by the military government. Enforcement resources were initially small and it was not a major part of Chile’s reform program, which emphasized trade liberalization and deregulation. But that has changed since the return of democracy in 1990, especially with the creation of the independent Competition Tribunal in 2003 which has helped to strengthen enforcement.

Today, Chile’s enforcement system, with the Tribunal’s decisions appealable in the Supreme Court, is “unique” in the world and similar only to South Africa’s which was developed in the 1990s, he noted.

The FNE can engage companies in a costly legal war, he said, but it is not the “town sheriff” since it must submit all cases to the Tribunal for review.

The Tribunal has the power to terminate contracts, dissolve companies or hand out fines up to US$20 million and US$30 million in cases of collusion. In 2011, it imposed fines totaling around US$160 million, which is a large amount for a small country like Chile, he noted.

So why, given these penalties, do Chilean firms still risk being caught? Part of the problem is the shortage of rigorous public information. “If there was better quality information, we could see problems faster and make better decisions,” he said.

Another problem, he added, is the lack of a “culture of compliance”. Unlike in the United States, where companies seek advice from lawyers as a matter of course, compliance in Chile is still considered bad for business, which can generate friction within companies. Indeed, since the rewards of certain dubious sales practices are high, some companies tend to overlook the risks involved, he pointed out.

For example, performance-linked bonuses for sales executives may bring benefits for the company, but they can also be an incentive for employees to engage in anticompetitive practices.

Creating a “carrot and stick” system for employees to avoid risky practices is essential for compliance, but this has a cost as companies must invest in creating internal guidelines, training and monitoring, he said.

Even then, there is no guarantee your company will not be investigated since there is a large grey area in competition law where interpretation plays a key role. “The law is open and flexible about what you can and can’t do,” he said.

As a result, the FNE does not certify or approve programs. “We can’t write blank checks.”

Even without certification, however, the benefits of compliance programs outweigh the costs, he said. Most importantly, they can help companies avoid infractions or detect them early on, which can result in reduced fines.

The FNE does not have the resources to chase every lead and it must be careful about interfering in the functioning of the market, but if companies act in “good faith” to implement compliance programs, then the FNE will have less work to do, he said.

The aim is not to “freeze” companies, he emphasized, but rather to make them think about the risks they may be taking. In other words, an ounce of prevention is better than a pound of cure.