COMPETITION COMMISSION OF PAKISTAN

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Strengthening Private Sector Capacities for Competition Compliance

S U B M I S S I O N O F T H E C O M P E T I T I O N C O M M I S S I O N O F P A K I S T A N U N C T A D , 17 - 2 1 O C T O B E R 2 0 1 6

Introduction1. Both competition and consumer protection form the bulk of the enforcement work done by the Com-

petition Commission of Pakistan. Since 2007, when it was formed, the Commission initially focused on enforcement to establish itself in the public’s perception. At that time, it was understood that it was pos-sible to have everything in place – a new law and a new organisation to implement it – but still have a weak competition regime because of inadequate enforcement activity.

2. With the experience of almost a decade, the Commission realises that not only must it be a market regu-lator but a market developer as well. This paper talks about the recent steps taken by the Competition Commission of Pakistan in encouraging compliance by the private sector and for building their capacity for this compliance.

Why Encourage Compliance? Challenges in Enforcement3. Compliance has become important globally.

PwC, in its 3rd ANNUAL STATE OF COMPLIANCE

SURVEY, says “It has become increasingly clear that managing compliance is not only required to maintain legal or regulatory standing, but is essential to navigating the global environment in order to execute the business strategy. In particular, companies that expand into new markets must have ef-fective compliance programs in place in order to navigate the complexities of operating in multiple geographies with differing local and regional rules and regulations. To be effective today, compliance officers must ensure that their compliance programs work in concert with their organizations’ wider strategic goals.”1

4. Encouraging compliance in companies is im-portant for the Commission for two reasons. First, although the Commission’s various en-forcement actions since 2007 have resulted in the imposition of penalties to the amount PKR

26 billion (US$ 247.62 million),2 this has failed

1 PwC’s 3rd Annual State of Compliance Survey, 2013, pg. 4, available at https://www.pwc.com/us/en/risk-management/as-sets/pwc-soc-survey-2013-final.pdf

to produce any compliance commitments as these penalties are simply a price of non-com-pliance and are pending judicial review. And second, there is more to compliance than just deterrence, especially when deterrence can be delayed by the legal process. The Commis-sion’s approach to enforcement requires re-thinking to move beyond the traditional fines and penalties – the market regulator role. In-stead, an important part of enforcement should emphasise creating pro-compliance – and competition - cultures in companies – the market developer role.

5. Although compliance programmes can help mitigate fines, this is not the Commission’s sole aim in encouraging these. Competition law has become a global law and there is in-creased international co-operation to improve enforcement, especially against cartels than span national boundaries. Given Pakistan’s level of economic development and the chal-lenges it faces in integrating in the global markets, the premise behind its compliance

2 Exchange rate of PKR 105 to US$1.00

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activities is simple: help local companies un-derstand the ramifications of violating com-petition – or for that purpose, any other – law, promote ethical behaviour by and between companies, and explain the usefulness of hav-ing internal mechanisms that reward good behaviour and sanction that which is unac-ceptable, locally and globally.

6. Encouraging compliance is also important for matters of practicality. With limited human

and financial resources, the Commission can-not handle all cases that may arise, nor can it monitor the entire economy. Companies need to be actively encouraged to undertake a more central role in changing internal values, existing ways of doing business that could be questionable, and ensuring genuine compli-ance efforts to supplement any enforcement by the regulator.

Promoting Compliance in the Private Sector – Pakistan’s Strategy and Experience So Far

7. The Commission organised a NATIONAL ROAD

SHOW ON COMPETITION LAW from 4 Decem-ber 2015 to 30 January 2016 in 22 cities of the country. The main objective of the Road Show was to encourage voluntary compliance by familiarising the business community with Pakistan’s competition law. This was a neces-sary first step as encouraging compliance meant increasing awareness of the law and its benefits for the business community.

8. Given the sequential manner and the specific route plan in which the Commission’s teams travelled throughout Pakistan, the Road Show was termed the “Competition Cara-van.” The Commission organised around 30 interactive sessions in the chambers of com-merce and trade associations of 22 cities that saw considerable participation of the business community.

9. One of the objectives of the Road Show was for the Commission to establish a channel of communication with the business community

to encourage regular liaison with them through their appointed focal persons and, at the same time, set a future strategy for mu-tual co-operation and collaboration in the area of competition advocacy and voluntary compliance.

10. The Road Show also helped create awareness of the general public about the role of the Commission in the economy. National media helped the Commission communicate its message through extensive coverage of the Road Show sessions. In total, 270 news report published by newspapers with a balanced mix of both English and Urdu.3

11. The Road Show proved to be mutually benefi-cial both for the Commission and the partici-pating business community in terms of knowledge sharing and feedback on competi-tion issues. The information imparted to the participants laid the foundation for helping companies improve compliance with the law.

Promoting Compliance – the Strategy for 2017 Onwards12. In 2012, the Commission prepared a VOLUN-

TARY COMPETITION COMPLIANCE CODE – along with a list of frequently asked ques-tions4 – to encourage the discussion on com-pliance by companies and its adoption.

13. The Code, renamed as the GUIDANCE ON

COMPETITION COMPLIANCE, is being revised to make it more accessible to the business community and the general public. The first part of the Guidance talks about Pakistan’s competition law and defines concepts such as

3 The Commission’s website contains much information about the NATIONAL ROAD SHOW ON COMPETITION LAW at http://cc.gov.pk/index.php?option=com_content&view=arti-cle&id=322&Itemid=226&lang=en

abuse of dominance, prohibited agree-ments, deceptive marketing practices, and mergers and acquisitions.

14. The second part help companies to under-stand possible drivers of non-compliance that include lack of importance to compliance by senior management, unfamiliarity with legal requirements, employee naiveté or “rogue” employees, arrogance, and competing inter-ests etc. Understanding what drives compli-ance and non-compliance has important im-plications for these companies. The relative

4 The Code can be found at: http://cc.gov.pk/images/Down-loads/research_and_publications/vccc.pdf and the Frequently Asked Questions at http://cc.gov.pk/images/Downloads/re-search_and_publications/faqs_on_vcc_code.pdf

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costs and benefits of compliance could shape the behaviour of companies and the decision to comply (or not) with the law.

15. Different drivers can be addressed internally through risk assessments. Such risk assess-ment varies across companies and within a company depending on the level of em-ployee, industry, country, and existing norms. This makes a one size fits all approach difficult to implement and probably inappropriate. In some cases, companies may not properly as-sess the risks of non-compliance. The inability or failure to identify such risks can impact company behaviour and goodwill.

16. The revised GUIDANCE will be presented to select representatives from the various cham-bers and trade associations at an event sched-uled to coincide with (the informal) World Competition Day – 5 December 2016.5 The Commission is planning this event carefully. Any training on compliance should not be

simply the transfer of information so that em-ployees know what is allowed and not al-lowed but it must also be motivational.

17. These are areas of culture change and this is one of hardest challenges for management to change the “business as usual” approach to operations. Changing the culture of a com-pany involves changing the incentives to pro-mote compliance and to promote the ethical value of compliance. There are monetary and other consideration that militate against such change.

18. In the long term, the Commission would like to see certain outcomes from its collaboration with the private sector e.g., competition law compliance is integrated into the ethics and compliance infrastructure, not isolated; senior management demonstrates support through action, not just words; the possibility for em-ployees to communicate misconduct safely and protection against retaliation for those who do raise concerns.

Conclusion 19. The Competition Commission of Pakistan recognises that promoting compliance is an important part of

its overall portfolio of work. But promoting compliance will not come at the expense of enforcement. While enforcement remains essential and penalties will continue to have an important role to play, the real debate with the business community is how to change normative societal values, so that competi-tion compliance is part of good management, not because of a fear of enforcement, but rather because it is ethically the right thing to do. The success of any enforcement activity – namely, to reduce anti-com-petitive conduct in the market – is closely linked to the creation and effective implementation of a com-pliance culture.

20. The Commission has, in the initial phase, begun to engage more with the business community in such efforts to create a more visible and useful competition compliance system. The ambit of interaction in future will include academics, the legal community, and ethics and governance professionals, all of whom play a key role in instilling good business practices.

5 See http://incsoc.net/World_Competition_Day.htm