The ACCC clarifies its approach to trade practices compliance

In this article we outline recent comments by the Australian Competition and Consumer Commission (‘the ACCC’) about its approach to compliance with the Trade Practices Act (1974) ("the TPA”), its development of s87B Enforceable Undertakings templates and new guidance provided by the ACCC about the contents of TPA compliance review reports.

Evolution of a compliance focus in the ACCC

In recent years, the ACCC has increasingly focussed its attention on building a culture of compliance with the TPA in Australian companies. The introduction of Australian Standard AS3806 in 1998, which set out what the ACCC and other interested bodies such as the Australian Compliance Institute and the Australian Securities and Investments Commission ("ASIC”) considered to be the elements of a successful compliance policy and program, created frameworks for companies to assist them to implement trade practices compliance. In a recent white paper, Allan Fels, the former Chairman of the ACCC, stated that "Some companies regularly use AS3806 to assess whether their compliance program meets current compliance management norms. AS3806 represents a quantum leap for compliance in Australia, demonstrating the number of components that must come into play if compliance systems are to be effective”.

AS3806 has also become a benchmark for Australian regulators, including the ACCC and ASIC when considering a company’s compliance program and negotiating compromises with companies, including Enforceable Undertakings. Under s87B of the TPA, the ACCC has the option of accepting an undertaking from a company which has breached the TPA, instead of prosecuting the company. In many instances, one of the undertakings required by the ACCC is that the company will implement a compliance program in order to prevent future breaches of the TPA.

In addition, Australian Courts have increasingly had regard to compliance measures undertaken by companies when considering what penalties to apply to companies in breach of the TPA. The Federal Court in particular has begun to look at compliance as a mitigating factor in deciding what penalties to impose for breaches of the TPA.

S87B(3) of the Trade Practices Act provides that if the ACCC considers that a company has breached a term of an undertaking which it has given, it can apply to the Court for various orders under subsection 87B(4). In recent years, Australian Courts, and in particular the Federal Court, have expressed frustration about the difficulties in trying to determine whether or not a company which has given an undertaking to implement a compliance program has breached the undertaking or complied with it. In particular, the Courts have said that they are unable to determine what amounts to a successful compliance program, and what is required by the undertaking. In addition, according to Mark Quinane of the ACCC, businesses have increasingly complained to the ACCC that they need help to understand exactly what is required of them in order to meet the standards set out in AS3806, and in complying with Enforceable Undertakings which they have given to the ACCC.

Response of the ACCC

The ACCC has responded to these criticisms by setting up a compliance monitoring unit based in Canberra, devising four templates for compliance related s87B Enforceable Undertakings and providing additional guidance on compliance review reports. The ACCC recently conducted a series of seminars around the country to explain the new templates and review reporting guidelines. Below is a summary of the comments made by Mark Quinane and Justin Lucas of the ACCC at the Sydney seminar on 15 November 2005, and by Commissioner David Smith in an address to the Australian Compliance Institute on 26 May 2005:

(a) The Enforceable Undertaking Templates

The templates, which are for use by companies giving an Enforceable Undertaking to the ACCC in relation to the development of a compliance program, are designed to:

(i) reflect the ACCC’s interpretation of AS3806 and provide a clear indication of what the ACCC sees as the most important measures of a successful and sustainable compliance program;

(ii) provide companies with a clearly worded undertaking so that it is easy for them understand what is required of them if they give an undertaking;

(iii) provide Courts with clear measures for determining whether a company has complied with an undertaking to implement a compliance program.

The details required to be included in the different templates follow the structure of AS3806. Not all of the issues identified in AS3806 are included in all of the templates. For example, the Level 3 and 4 templates require a company to appoint a compliance advisor with experience in trade practices issues, within a certain period of the Enforceable Undertaking coming into effect. However, the Level 1 and 2 templates do not require this. On the other hand, all of the templates contain a requirement that all relevant staff of the company must have an understanding of, and be given training about, the TPA.

Justin Lucas stated that the templates reflect the ACCC’s view that an effective trade practices compliance program will:

• have a strategic vision, and will include methods and benchmarks
• ensure that a company identifies trade practices risks and regularly reviews those risks to ensure that they are being managed
• help a company to manage risks at control points, and recognise that risks include both strategic and behavioural risks
• ensure thorough and detailed documentation of compliance efforts
• identify who in the company is accountable for compliance breaches, and
• provide mechanisms for continuous improvement and review by a company.

However, he emphasised that the intent of the templates was not to impose a compliance management program, and that it was very much up to the individual company to decide how best to implement and manage the requirements set out in the ‘Enforceable Undertaking’ it had given.

(b) Compliance Review Reporting

The Level 2, 3 and 4 templates require a company to cause annual reviews of its compliance program to be carried out by an independent reviewer. The reviewer must be an expert in trade practices issues and be independent of the company. They should also have skills and experience in compliance review methodology and be able to assess the condition of the Company’s compliance program and TPA related business operations. The Reviewer should be separate from the company’s compliance advisor.

The Reviewer is to report to the Commission and the company on his or her findings on a 2 report system. That is, they will write two separate reports, one for the ACCC and one for the company, which may contain different information. This is so that the reviewer can provide advice to the company about potential or actual breaches, without needing to report that information to the ACCC, thereby avoiding the risk of incriminating the company.

The requirements of the reports are only set out in the Level 3 and 4 templates. However, these requirements reflect the wider requirements of the ACCC for those reporting to it about TPA compliance. The report to the company differs from the report to the ACCC, in that it requires a greater level of detail about the actual risks and compliance activities being undertaken by the company. The report to the ACCC is more general, and focuses on whether the company has met the elements of AS3806, rather than any risks which have been identified. Mark Quinane emphasised that it was important that both reports contained a high level of detail about the methodology that the reviewer had used to assess the current compliance position of the company.

The ACCC’s general approach to Section 87B undertakings

In presenting the new templates, Mark Quinane outlined the ACCC’s general approach to compliance related s87B undertakings. He said that the ACCC views the undertakings as a way of helping to rehabilitate companies and of making sure that a compliance culture is sustained within a company after the undertaking expires, thereby lowering the risk of any future breaches of the TPA. Further, the ACCC sees s87B undertakings as a way of helping companies move from simply showing a willingness to comply with relevant legislation, to having compliance as a central plank of the way their business is run.

Implications for Australian companies

The ACCC is focusing on Trade Practices compliance in a way in which it never has before. Its stated approach of engaging in dialogues with companies and, where possible, resolving issues through self reporting and negotiation reflects its efforts to be perceived as a partner to Australian companies and consumers, rather than simply an enforcer.

However, the increasing level of detail in the ACCC’s views of what is a substantial trade practices compliance program, and the increasing interest of Australian Courts in compliance programs, mean that now, more than ever, companies must focus on their compliance programs. Furthermore they must allocate resources to ensuring that their compliance programs are effective and proactive, to ensure that potential breaches of the TPA are avoided or, at the very least, identified and dealt with early on. Given the penalties for non-compliance with the TPA, including fines of up to $10 million for each breach by a company, or $500,000 for each breach by an individual, and the adverse publicity which may accompany prosecutions by the ACCC, it is clear that investment in its compliance programs is essential for every Australian company.

For more information please contact:

	Michael Daniel, Partner Phone: +61 2 8266 6618 Send email
	Sophie Cockayne, Associate Phone: + 61 2 8266 6642 Send email