Speaking Notes for Sheridan Scott Commissioner of Competition

Competition Bureau

Cartels: Beyond our Border

Reception hosted by Simpson Grierson
Wellington, New Zealand
August 1, 2007

(Check against delivery)

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I am extremely pleased to be here in New Zealand and to have the opportunity to speak to you. And I don’t say that lightly, given that it takes a lot to persuade me to trade just a few of our summer weeks for the cooler temperatures that even temperate Wellington experiences in the winter.

But I believe that there is a very good reason to do so – a reason that you have implicitly recognized in the topic that you have asked me to address this evening, Cartels: Beyond our Border.

That reason is the increasing globalization of the marketplace. And in New Zealand you know, perhaps more than most, that our prosperity as trading nations depends on the strength of the international marketplace. So if you care about what’s going on at home on the economic front, as I certainly do, it’s important that you keep an eye abroad.

Indeed, nowhere is this more true than in the field of competition law and policy: in Canada like in New Zealand, the Competition Act (or the Commerce Act and Fair Trading Act in your case) is a key lever of economic policy and its enforcement is critical to national economic growth.

So I believe that trips to places like New Zealand – which is literally on the other side of the globe from Canada – are critical if we are to know firsthand what important developments are taking place with respect to all aspects of competition policy. So I am delighted to have this opportunity to be in Wellington to share some Canadian experiences with you this evening. And also to continue to build on longstanding and important relationships that we at the Competition Bureau in Canada have with the Commerce Commission, with whom we are having bilateral meetings tomorrow. I count Paula Rebstock, Geoff Thorn and Peter Taylor amongst my international friends and look forward to deepening our mutual understanding of each other’s regimes not just tomorrow, but on an ongoing basis.

My willingness to leave our 30 degree temperatures is also influenced by a new role I have recently taken on as Chair of the International Competition Network (ICN).

Now those of you who are not familiar with the ICN may think it is just another international bureaucracy. But I can assure you that nothing is further from the truth and I hope you will forgive me if I take just a few minutes to describe this organisation, which I believe is an excellent symbol for the growing importance of multilateral co-operation in the pursuit of all aspects of our antitrust work.

It is a great symbol for a number of reasons.

First, it illustrates the meteoric rise in importance of competition law and policy, due in large part I believe to the growing number of market-based economies in nations around the world.

The ICN was founded in the fall of 2001, with just 16 member agencies. It now engages the voluntary efforts of 100 competition authorities and many more private sector representatives (or non-governmental advisors) from 88 jurisdictions around the world. This trajectory mirrors closely the rapid introduction of competition laws globally, as those of you seeking to clear multinational mergers will know. Whereas a decade or two ago there was only a handful, we now see close to 100.

Our twin goals speak volumes about the importance of multilateral co-operation in the antitrust world, as we aim to:

1. Promote greater substantive and procedural convergence among antitrust authorities; and,
   
   
2. Provide support for new antitrust agencies, both in enforcing their laws and in building strong competition cultures in their countries.

And we get things done. The ICN in its very short history has produced an impressive number of documents to facilitate the move to greater international convergence of antitrust practices and more effective co-operation and co-ordination of competition agencies’ work around the globe.

Often when I speak about the growth in multilateral cooperation, I mention the “three Cs”¹ of international competition enforcement effectiveness: cooperation, coordination and communication. All three are invaluable to all aspects of our antitrust work: cartels, mergers, and abuse of dominance.

But I will focus my comments here on our cartel work, not just because you have asked me to, but because we believe in Canada that eradicating cartels is our number one antitrust priority.

• Cartels have no redeeming social value.
• Cartels corrode not only the markets they are in, but also all markets they touch. Price fixers raise costs to you – costs that will be passed on down the chain.
• Cartels are a priority around the world.

So returning to the three Cs, once again our work at the ICN provides a number of illustrations.

Cooperation

• Exchanging information at yearly workshops dealing with merger and cartel enforcement (e.g. Sydney cartel workshop 2004).
  
  
• Working together to develop common investigative techniques (e.g. the Anti-cartel enforcement manual and anti-cartel enforcement template).

Co-ordination

• Chapter 1 of the Enforcement Techniques Manual is “Searches, Raids and Inspection.”
  
  
• Nothing is more impressive than global dawn raids requiring carefully timed and well orchestrated searches and seizures of cartel operations straddling the globe.

Communication

• This may be the most important.
  
  
• The ICN creates the opportunity to get to know each other and allows us to build relationships essential to cooperation and coordination.
  
  
• This personal connection through communication ensures the most effective use of our tools to detect and attack cartels.

So what are the tools?

Our number one tool for effective detection of cartels is our immunity program – the so-called “get out of jail free” card. Let me say a few words about the Canadian approach.

• In Canada, our program offers immunity from criminal prosecution to cartelists who are the first to disclose an offence we are unaware of or, in cases where we are aware, can provide additional evidence to support referral to the Attorney General.
  
  
• It is not sufficient to be the first in. The immunity applicant must:
  • Terminate participation in illegal activity; and,
  • Provide complete and timely cooperation, amongst other things.

The ICN focussed in this area to find ways to encourage greater convergence to maximize the benefits of this powerful tool.

A close sister to immunity is leniency – not a complete “get out of jail free” card, but an ability to seek a lesser penalty.

• We are working in this area to articulate guidelines.
  
  
• We work alongside the prosecutors, who are ultimately responsible for sentencing recommendations.
  
  
• We believe that the more transparent we can be about the consequences of cartel behaviour, the greater the chances are that we will deter.
  
  
• High water mark in transparency is the US where it is a foregone conclusion that significant prison sentences will be sought, leading some officials to claim that cartelists now avoid the US, the ultimate in deterrence from their domestic perspective.

These are our formal tools for detection, but two other considerations should be taken into account:

Structural

• Domestic cartels have been a Bureau priority for the last several years.
  
  
• If we put our investigators closer to the scene of the crime, we can improve our ability to detect a cartel, in the absence of an immunity applicant. Therefore, we have given our regional offices responsibility for local cartels, especially bid rigging. This is our “feet on the street” strategy.

Diagnostic

• We are also very interested in current research in the UK about how to use diagnostic, economically based tools to identify those markets that are more likely to attract cartelists.

I believe that we should continue to identify as many ways as possible to detect cartels. The greatest deterrent is the fear of detection, and we will work hard to improve our ability in this regard.

Once we have detected a cartel through our immunity program or otherwise, our work is not done. That is just the beginning of our investigation. And here too, we have a set of tools we use:

• Subpoena powers
• Search and seizure powers
• Ability to wire tap

In the international context, the key to the effective use of these tools, to my mind, is once again the strength of our international relationships.

Cooperation

• We routinely seek waivers to exchange information with other jurisdictions where there is an immunity applicant.
  
  
• We exchange leads and thoughts on the theory of cases.
  
  
• Comparing notes on what documents other jurisdictions have obtained and examined is invaluable in identifying and then wading through the copious – and increasingly electronic - documentation that we need to mount a successful prosecution.
  
  
• Knowing who you are dealing with on the other end of the phone is of the utmost importance.

Coordination

• As mentioned earlier, the ultimate in co-ordination is the global search and seizure activities, which would not be possible in the absence of close working relationships.
  
  
• In one recent example, one jurisdiction delayed its search to allow another jurisdiction to complete part of its work, thus avoiding alerting the party prematurely, which could have led to the destruction of documents.

That being said, there are also formal mechanisms that operate outside these personal relationships, such as requests for mutual legal assistance under international treaties.

Now I previously indicated that the best deterrent is effective detection with clear consequences for those detected. Let me just say a few words about two other tools we have for trying to deter cartel behaviour.

First, to deter those who might engage in this behaviour: businesses.

• Most businesses want to respect the law.
  
  
• They may have some employees who either purposefully (to meet sales targets) or inadvertently (through lack of understanding) engage in price fixing behaviour.
  
  
• That is why it is critical to have in place a proper compliance programme.
  
  
• Compliance programs are more challenging in the international marketplace, where acceptable activities in one jurisdiction may not be in another.

Second, we arm those who might be the victims of price fixing, particularly in the area of bid-rigging.

• Success in targeting procurement officers.
• Can be done on priority sector (e.g., health in Canada).
• Our Web site provides material on this topic.

Before I open the floor to questions, I would like to share a few words about the Canadian government’s approach to competition policy.

• Since the overhaul of the Competition Act in 1986, the approach to improving competition policy has been incremental.
  
  
• A parliamentary committee conducted a major review in the late 1990s and published a report in 2002, which we have taken as a blueprint for possible change.
  
  
• A bill was introduced to pursue some of the recommended changes:
  • Decriminalization of predatory and discriminatory pricing;
    
    
  • Introduction of administrative monetary penalties for abuse of dominance;
    
    
  • Increase in cartel fines; and
    
    
  • Introduction of market studies.

But the legislation did not get through parliament before the last election.

The government has recently announced the creation of a competition policy review panel to examine the key elements of Canada’s competition and investment policy in light of the evolution of the global economy. The panel will report back by June 2008. To quote their mandate:

Competition policy is more complex in a global economy because a great deal of market activity takes place outside Canada's borders. As such, market activity may also be subject to the competition laws of other countries. The Panel will therefore need to determine how our competition laws can best cope with these situations. It may wish to examine how other countries are managing these challenges, identify best practices and assess how they could be adapted to the Canadian context.

And so it seems that I have come full circle. I began by explaining how important I believe it is for organisations like the Competition Bureau to actively follow the development of competition policies and laws around the world – to the point of leaving summer for winter and traveling to the other end of the globe – and now find I am finishing with my own government’s endorsement of that very same view. The next nine months will be busy ones back at home as we try to find ways for Canada to make competition policy work for our prosperity in the global marketplace.

Thank you for your attention.

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¹ Speaking Notes for Sheridan Scott, Commissioner of Competition, Competition Bureau, Canadian Perspectives on the Role of Comity in Competition Law Enforcement in a Globalized World. To Defer or Not To Defer? Is that the question?, American Bar Association’s Section of Antitrust Law 2006 Spring Meeting, Washington, DC, March 29, 2006, available online at Canadian Perspectives on the Role of Comity in Competition Law Enforcement in a Globalized World