Transparency, Compliance, and Trouble makers

Gilbert Parleani, La transparence, la "compliance", et les “trouble makers", février 2016, Concurrences N° 1-2016, Art. N° 77336, pp. 1-3

This article was originally published in French. A translation in English is available below.

English Translation of the original article:

Are transparency and compliance really competitive virtues? It seems "a priori" futile to contest it. Current law everywhere engages in a formalism justified by words that immediately evoke sympathy. Loyalty is called for in case of need.

The freedom of commercial evidence, as well as the speed and flexibility of transactions (Winged-footed Mercury), are now a distant memory. The caricatural example is the famous Title IV of the Commercial Code Book, where everything is formalised. It is then that the question is born. This formalisation is of little interest to the market, which it does not modify. Its purpose is control and sanction by the administration. The case law relating to this "Title IV" rather gives the impression of a never-ending race, where reality and freedom are pursued by a law that seeks to contain them.

What if it’s the same thing with the "great law" of competition? Admittedly, the "major law" of competition does not require any written formalisation of relations between economic agents. But the authorities are today encouraging a formalism that could be insidious, by promoting the implementation of codes of good conduct, compliance or "compliance".

How can we worry about this when the "compliance" movement seems general? But maybe that’s where the problem lies. Beware of false symmetries.

Financial compliance, a universal model?

Compliance was born in the financial world, within the framework of the IOSCO (International Organization of Securities Supervisors), with the Brac de la Perrière report of 1989. At that time, the aim was to prevent market intermediaries from being unscrupulous agents. The situation of being an unscrupulous agent is undoubtedly a negative externality. Codes of conduct became mandatory; their raison d’être was to combat conflicts of interest. This consideration does not exist in most non-financial markets.

Again for financial companies, compliance, which was formalised and monitored, was then introduced for a new reason: to guarantee solvency, prevent systemic risks and, to do so, develop a new risk culture. Internal governance was made more rigid and sanctioned. New players have emerged, foremost among which are the RCCI and the RCSI. Entire departments within financial firms have acquired autonomy, while reporting to senior management has been organised, making them more accountable to the supervisory authorities.

Is what is justified in the financial markets justified for all markets? Competition law concerns are indeed of a different nature. They require a shift from the financial sector to the general. Negative externalities are no longer the same. Of course, distorting competition is clearly a negative externality. But the question is how to prevent it. Should we then transpose the procedures that the financial system is already familiar with? This is the path of simplicity.

That is what the competition authorities are pushing for. On 10 February 2012, the French Competition Authority published a framework document on compliance programmes. However, the French Authority warns that the existence of such programmes is neither an aggravating nor a mitigating circumstance in the event of an infringement being found, and the European Commission adds that it will not recognise any such programmes. So what is the real purpose of these programmes? Do they serve to prevent? The answer seems to be self-evident. The rules of governance, reporting and internal controls, which the financial sector already knew, have been transposed. That is already a lot. We have even provided for a sort of parallel, somewhat parasitic salary hierarchy, which must have the necessary "authority" and "powers". That is another step forward. Whistleblowing’ and internal whistleblowing procedures have been further promoted, simply by pointing out the criminal risk of slanderous denunciation. Above all, we have not guaranteed secrecy with regard to the authorities. This is yet another step forward.

The implementation of these codes has finally been included in the commitments that can be received by the authorities. These commitments become an integral part of competition policy. The French Competition Authority has even agreed to grant a 10% reduction in fines to companies which, in a procedure of non-contestation of the objections, put in place a compliance programme (see the framework document of 10 February 2012; adde, decisions 06-D-07 of 10 May 2007, film exhibition sector; 14-D-19 of 18 December 2014, cleaning products and insecticides, and hygiene and personal care products sector; 15-D-03 of 11 March 2015, fresh dairy products sector). The European Commission has certainly not gone that far. It has refused to put a price tag on this kind of improvement in the decision-making process of the companies being sued (see for example the brochure "Compliance Matters" published by the European Commission, point 4 of which sets out the compliance strategy to be put in place, while stressing that the Commission "will not endorse any of them"). For the French Authority, more specifically, these codes must be of real use to it. They must therefore have a certain consistency. This is why the French Authority has published a detailed model of "compliance", which it is better to reproduce in order to hope for relative administrative security. An authority cannot, of course, be satisfied with a simple commitment to comply with the law. Quite logically, no added value can be recognised in inconsistent codes.

As we can see, the codes serve both internal prevention and external sanction. The interest of companies in avoiding sanctions is then put forward to justify them (see the above-mentioned brochure of the European Commission, whose subtitle is "Compliance with the rules matters"). But these codes can also make it easier to prove infringements, especially when they are put in place before any litigation. They point out sensitive areas, and the way they are implemented can sometimes play the role of an admission. The company’s "black box" is thus open to repression.

A politically correct risk culture?

Is it a good, is it a bad? What’s in it for the market, or what’s in it for all the markets? The culture of competitive risk, like the culture of financial risk, probably involves an internalized fear of the administrative "policeman". From this point of view, this is progress. But are we not also witnessing the silent introduction of a straitjacket, all the more remarkable since it is no longer sector-specific?

The truth is that it is the autonomy and freedom of operators, the cornerstones of competition law, that are being significantly curtailed. And this backflow is taking place in favour of a single, politically correct discourse, sometimes based on "decision-making practices" that are questionable or uncertain in their foundations. The autonomy of action on the markets is then insidiously muzzled. Is "single thought", often decried, becoming the norm in market law? The "pensée unique" will inevitably be relayed by consultations with the councils and other lawyers recommended by codes of conduct. What else can one expect from a counsel, or lawyer, other than the recommendation of least risk? The fear of a challenge to the established law will become central. Isn’t this circular movement of self-justification and self-limitation already in place?

If this is the case, the trouble makers just have to behave themselves.

By the way, they are the ones who, historically, have made competition law, assuming the extreme risks of sometimes radical challenges. Competition law must remember what it owes them, unless it is playing against the market and for the established order.

We’ll dare a warning then. Nothing is ever played. Recent examples are worth thinking about. In France, transport regulations have favoured "Uber" and "Airbnb" rents, and Title IV has given "Amazon" large spaces. And these are all trouble makers’.

When the legal constraint becomes too strong, freedom escapes and finds its way.