Speaking Notes For Sheridan Scott Commissioner of Competition

Competition bureau

“Change and Redemption in Cartel Enforcement”

CBA Spring Meeting
Sutton Place Hotel
Toronto, Ontario

April 29, 2008

As you know, I always enjoy our opportunities to get together. But I was a bit concerned this time when I heard that the event was to be based on a Dostoyevsky title. After all, aside from Crime and Punishment, he also wrote “The House of the Dead”, not to mention “The Idiot”, neither of them very inspiring titles to contemplate in advance of this conference.

As it turns out, Crime and Punishment is our theme, and I got to wondering how that novel is relevant to the Competition Act. After all, Crime and Punishment is the story of an impoverished and desperate former student who commits murder and then suffers both physical punishment and mental anguish before redemption.

The Competition Act instead contemplates deeds performed by usually prosperous corporate executives, not down-and-out former students. These executives are not murderers like Raskolnikov, although metaphorically they do set out to do away with their competitors or competition itself. And punishment under the Act falls far short of the experience of Raskolnikov – no Canadian executive need fear a term in a prison camp – at least not under the current Act.

But Crime and Punishment is relevant to the extent it deals with change and reveals internal transformations leading to a personal redemption. Over time, under the pressures of changing circumstances and economic realities, the criminal provisions, interpretation and enforcement of the Act have undergone their own transformation leading to, if not redemption, then at least to a better base to safeguard competitive markets.

So I thought that, in keeping with these themes, I would focus my comments on a few of the changes or transformations, current and future, that we are pursuing, all with a view to improving our ability to promote and protect competitive markets and encourage informed consumer choice. I will address the more general aspects of where we are putting our attention and where we intend to move forward, particularly on the cartel side, since I know you will have ample opportunity over the course of today to delve into the details.

I have said before that combatting domestic cartels is the number one anti-trust priority for the Bureau, but also that it would take time to see the fruits of our efforts.

We have chosen to focus our resources domestically because it is our duty to pursue made-in-Canada cartels to the fullest extent possible. This shift in focus has brought its own challenges. Domestic cartel cases can be hard slogging. They are complicated and time-consuming, and the fact we have one under way often becomes public only after a multi-year investigation. I can assure you that Bureau officers are engaged, as we speak, in multiple major domestic investigations.

Does this mean we are abandoning our work on international cartels? Far from it, and the record will bear this out. Over the past two years we have recorded fines totalling $8.6 million against four companies involved in international cartels, and are actively investigating more than a dozen such cases.

But our emphasis on home-grown cartels does mean an increased openness to considering whether a full-blown Canadian investigation is warranted, or whether the remedies pursued in other jurisdictions might also serve to halt the activity in the Canadian market and provide the deterrent effect in the marketplace we seek.

I have spoken before about the importance to our international work of the three Cs of communication, co-ordination and co-operation. As our work through the ICN, bilateral meetings and other fora continues to broaden and deepen, those words have taken on even more meaning.

Tighter and more frequent communication between agencies means that we now hear about some cases more quickly from our international partners than through counsel. We currently hold bi-monthly bilateral meetings with our US, EU and Japanese counterparts, where senior management discusses case-related issues such as investigative steps and timing. There is also a high level of regular contact with foreign counterparts at the officer level.

These closer ties have led to even more co-ordination in enforcement actions. For instance, in one recent case the Bureau delayed the use of formal powers to accommodate several other jurisdictions, thus preserving the element of surprise for all.

As for co-operation, a recent example can be seen in the marine hose international cartel case, where we worked alongside the US, the EU and other international agencies in conducting the investigation. We were satisfied that, due to the minimal competitive effects in Canada, the settlements in other jurisdictions were able to sufficiently address our concerns. This approach allows us to focus our energies where we can secure optimum deterrence while at the same time making the most effective use of finite enforcement resources.

It also suggests there may be a fourth “C” – that the principles of comity represent a further factor that might be taken into account. Indeed, the International Competition Network announced at the conclusion of its recent annual conference in Japan that it will be looking at global settlements, including the issues of duplicative recovery and double counting.

The Competition Bureau plays a leading role in the cartel work of the ICN, as co-chair of the sub-group on enforcement techniques. The sub-group has developed an anti-cartel enforcement manual, and organizes an annual workshop for cartel investigators to hone their skills – and develop even closer ties.

Now I have spent some time speaking about the three (or four) “Cs” of our international work, having just told you that our priority is on domestic cartels. And it is, as challenging as that may be. However, one recent case illustrates that, even with that focus, international issues can easily emerge.

Many of you will have heard that a few months ago we raided a number of Canadian chocolate manufacturers.

What began as a purely Canadian cartel investigation has since drawn the attention of the US, Germany and the European Commission, all of which have launched their own probes, not to mention over 50 class-action lawsuits in the US to complement the nine or more filed in Canada.This has led to interesting issues about the sealing of ITOs, material which formed the basis of many of the class actions. Among these are the chilling effect lawsuits filed so early in the investigative process could have on potential witnesses in criminal investigations, both domestic and international. We are also conscious of the possibility of cartel members in other jurisdictions being tipped to potential probes and acting to destroy evidence. We would welcome your views on this topic, and wonder whether it might even become the subject of a CBA-Bureau working group.

This would be, incidentally, just one of the consultations and working groups under the aegis of the joint CBA/Bureau task force on collaboration, which has tackled many issues of mutual interest over the last year or so.

While co-operation, co-ordination and communication are essential to our success as enforcers, the single most effective tool in attacking cartels – domestic or international – is our immunity program. We have approximately eight to ten applications a year, many of which result in the granting of conditional immunity, and ultimately a successful resolution of liability. But this is not enough. We also want to provide an incentive to companies that, for whatever reason, did not obtain immunity, to nevertheless co-operate with the Bureau. In return, we will consider such companies under our leniency program. This assists our investigation, avoids unnecessary and costly litigation and typically results in a more timely resolution of liability.

In order to encourage parties to come forward to seek leniency, we believe it is important to provide as much transparency and predictability as possible regarding the leniency program.

In Canada, the court is responsible for determining the sentence imposed, based on the submissions of the parties. However, the Bureau also has a role to play in making recommendations to the Crown and we believe that parties will benefit from a better understanding of our approach.

For this reason, we have issued a draft bulletin, which explains in detail how the Bureau’s leniency program works. It clarifies the approach the Bureau will take in arriving at its recommendations for fines and leniency reductions in sentences. It also sets out the steps involved in the leniency process so that companies know what to expect when they contact us.

We look forward to the comments you will offer on the draft, so that we can make it even more useful.

This and other publications reflect our dedication to providing as much transparency and predictability in our work as possible, so that corporations and their counsel know what to expect from the Bureau. We aim to do this collaboratively wherever possible, as with the draft leniency bulletin.

The Bureau has also produced draft guidelines and bulletins on predatory pricing, corporate compliance, and sections 15 and 16 of the Act , and we expect to publish a bulletin later this spring on trade associations – all of these, by the way, examples to us of successful Bureau Bar consultation.

Another aspect of transparency is communicating the rules clearly to businesses, not all of whom may have the appetite to read the Act or some of our bulletins. In this regard, I am proud of the work that went into our recently updated bid-rigging presentation.

With this work, we are acting to prevent, not just to detect and punish criminal activity. This online anti-bid-rigging presentation, available on our web site, includes surveillance video excerpts from an actual cartel in progress. While that is new, talking about bid-rigging is something we do quite regularly. Bureau personnel have given over 100 presentations on how to detect the signs of bid-rigging over the last three years, to audiences totalling over 3,200.

Many of those presentations were carried out by the staff in our regional offices across the country. Those same regional offices are also heavily involved in many of our criminal investigations. We believe it is important to have staff close to the activities they are monitoring or investigating and to the businesses we seek to educate.

This last point brings me to an announcement I would like to make. We have decided to expand our regionalization effort. The Bureau plans to establish a mergers presence in Toronto this fall. While some of the details remain to be worked out, the intent is clear: to add another element to our recruitment and retention strategy, and to have some mergers staff closer to the heart of the Canadian business community.

We would expect the staff complement to be small, but to constitute at least one case team capable of conducting a full investigation effectively and efficiently. We will monitor the initiative and make further decisions down the road.

And while this is a conference dedicated more to the criminal provisions of the Act, I would be remiss if I didn’t make a couple of observations on other merger-related topics.

First, and in keeping with our theme of transparency and clarity, a word on hold separates. There appears to be a sense on the part of some that the Bureau sees no role for hold separates. This is not the case. While the Bureau is not, and never has been, enthusiastic about hold separate provisions prior to the completion of its review and a commitment to a remedy, if one is ultimately required, there are a number of examples where we have concluded that they make sense.

There are three situations where the Bureau has been open to considering hold separates: to protect assets pending execution of a commitment to divest; to preserve competition pending the outcome of a contested Tribunal hearing; and, in some rare cases, to allow the merger to close while the Bureau completes its review. In this last category, we have agreed to nine since 1986. In considering whether such an agreement is appropriate, the Bureau conducts a principled assessment to determine whether material and/or lasting harm will be caused to competition in the interim period or to our ability to remedy the anti-competitive effect. If the Bureau concludes that no such harm is likely, then it may be that a hold separate is the appropriate course.

The most recent example of a hold separate agreement of this kind materialized in the context of a Section 100 application in the American Iron case. In the unique circumstances of that case, the Bureau agreed to preservation orders to resolve its pending Section 100 application, since the buyer was willing to commit to such orders for longer than the interim injunction could extend.

Secondly, I’m sure you wouldn’t want me to leave you without a word about our approach to seeking orders under Section 11. As you know, your colleague Brian Gover has been charged with reporting to myself and John Sims, the Deputy Minister of Justice, on our procedures regarding section 11 production orders. Mr. Gover is consulting with not only Bureau and Justice officials but also representatives of the CBA Competition Law Section and the US Department of Justice.

We look forward to receiving his report and examining it in conjunction with the work being done by an internal Bureau working group on this issue.

We are also looking forward to renewing the work already started with a joint CBA-Bureau committee on ways to improve the Section 11 process.

We will take the opportunity afforded by Mr. Gover’s work, and that of Bureau and Bar experts, to reflect on our process and to make any changes that would improve the operation of this important investigative tool.

We are also anticipating the report of the federal government’s Competition Review Panel, which is due to report at the end of June on broader issues of competition policy in Canada. The panel’s high-level attention to the issues we all care about can only bode well for the future of competition policy, and ultimately of Canadian competitiveness and prosperity.

Now Crime and Punishment is indeed a long novel, and I want to stop here before my speech feels every bit as lengthy. But I want to make one more point.

While we don’t need to suffer the physical and mental anguish of Raskolnikov, we cannot avoid some difficult decisions if we are to continue to enjoy a modern, well enforced Act in a rapidly changing world.

Change in regulatory areas always requires a fine mixture of detailed technical analyses and the balancing of very real and powerful forces of self-interest. The stakes are high, the infighting intense and the adversaries usually well funded and committed. And in the case of the legal profession, you are well equipped by both nature and nurture for debates.

All of which explains why achieving change in our regulatory regimes is difficult at best.

However, the evidence is clear. If Canada is to prosper, we need to protect and promote competitive markets as effectively as possible. Constantly improving our ability to do this, through state of the art frameworks and tools, may not lead to redemption, but it will certainly encourage growth and innovation in our country. I hope you will join with us in finding better ways to carry out this important work, to the benefit of Canadian consumers and business.

Thank you.