Cartels are seen as a serious risk which adversely impacts consumers and competitors. Most jurisdictions have outlawed them due to their harmful impact on the economy and society. In some countries, the behaviour has even been criminalized. Cartels involve an agreement between competitors to rig the market in some way. The agreement can be based on a single event, and an entire group can be held accountable for the behaviour of a single employee (of any level).
Cartels are hard to detect. Consequently, regulators are often given very wide powers of investigation (including dawn raids, property seizures and daily fines for non-compliance). Equally the sanctions for a breach of cartel laws are significant and include fines of up to 10% of the group’s worldwide revenue, prison, imposition of undertakings and disqualification of directors as well as reputational damage.
Businesses have been alive to the risk of cartels for a long time, but it has been equally hard for businesses to discover issues within their own organisation, until now. For the most part, regulatory compliance has been sought by providing compliance training for staff to ensure they are aware of the consequences and nature of cartel activity. However, training does not assist a business in identifying and preventing the activity.
The Speed Limit Analogy
A good analogy for compliance training would be the speed signs on the motorway, which are designed to alert you of the speed limit on the road you are on. Speed signs, however, do not stop drivers from driving too fast. As a result, monitoring and enforcement tools are needed to track speeds and punish rule breaking – such as speed cameras and fines. Active monitoring and audits in a business are the equivalent of speed cameras in the context of cartels. Employees are more likely to respect what they have been taught in compliance training, if they know they could be monitored.
Active auditing for cartel behaviours within a business has not traditionally been done, due to the costs and time involved in reviewing data for an unidentified risk. It is hard for a business to justify those costs for prevention. We predict that this approach is about to change.
A Breeding Ground for Cartel Investigations
The past few years have had a significant impact on businesses. The Covid-19 pandemic, economic downturn and geo-political issues have seriously impacted many industries. We know that recessions have increased cartel activity in the past, which creates higher risks at this moment in time.
Additionally, the remote working required during lock-downs means that cartel behaviours that may have been run covertly in previous years are more likely to have a digital footprint. While Covid prevented regulators from running on-site investigations over the last couple of years, this has now changed.
These factors, coupled with headlines about an increase in living costs, are likely to push the focus onto consumer protection, which could mean increased attention on competition issues in general.
While monitoring for cartel behaviours can help businesses identify gaps in their training, some regulators are pushing for proactive monitoring programs in exchange for leniency and exemptions, in the event a cartel is found out.
In April this year the US Department of Justice (DoJ) announced they were updating their leniency program for cartels. Through the leniency program, businesses can receive immunity and substantial reductions on fines. However, the DoJ will now only provide leniency or immunity when a business self-reports promptly on spotting a cartel issue. They have publicly stated that the intention of this change is to increase the pressure on businesses to be the first to report acartel. The Prisoner’s Dilemma effect sought is likely to be picked up and copied by other regulators as it is expected to reduce the cost and effort of investigations.
Additionally, in the Republic of Ireland, there have now been cases where parties settling a cartel investigation were required to put a monitoring process in place – to prevent future wrongdoing.
An Affordable Speed Camera
To help businesses proactively tackle cartel behaviours, DLA Piper has created Aiscension, an AI solution which can quickly audit structured and unstructured corporate data to detect cartel risks. Aiscension harnesses specially lawyer-trained AI (based on neural-networks and deep learning) to detect legal and regulatory risks related to potential cartel activity.
In a recent case study run on the tool, Aiscension audited almost half a million communications and documents from company employees using its neural-net AI. The legal team were then able to review the output. This took the legal team less than 1% of the time a standard technology assisted review would have taken. These tools allow businesses to actively monitor and prevent risky behaviours. Like speed cameras, they allow the business to spot an issue early and also to deter problematic conduct. They can also demonstrate to regulators that organisations take anti-competitive practices seriously and are actively checking for compliance.