April 2004

The ACCC and compliance - Who cares? You should

Graeme Samuel was appointed Chairman of the Australian Competition and Consumer Commission for a five year term from 1 August 2003. There was much speculation prior to his appointment about whether he might favour the position of big business over their smaller counterparts, because of his large business network, and whether the ACCC under his rein would be as active in its enforcement of the Trade Practices Act as it was while Allan Fels was at the helm.

Now more than six months later, any suggestion that the ACCC has not been as active since the departure of Allan Fels should be seriously reconsidered. While the media exposure of the ACCC has not been as great since Graeme Samuel was appointed, a quick review of the ACCC media releases since August 2003 last year shows that the ACCC has been as active as ever.

Recent ACCC activity

  • The Federal Court ordered the Commonwealth Bank of Australia to publish corrective advertising (via in branch posters and on tv) for its Cricket Home Loan campaign, after finding the advertisements were misleading and deceptive. Corrective advertising can be costly, so it pays to get the message right the first time.

  • The ACCC found that 31 children's cosmetics products did not meet mandatory labelling requirements. Suppliers of the products subsequently withdrew and relabelled their products. The ACCC conducts random surveys of retail outlets throughout Australia to detect banned or non-compliant products.

  • The ACCC commenced action against High Adventure, a supplier of paragliders and accessories, alleging that High Adventure told a retailer that it would not supply the retailer with particular products unless it agreed not to sell or advertise them below a specified price. The matter has not yet been determined.

  • A proposed acquisition by Coca Cola Amatil of Australia's largest fruit drink manufacturer, Berri, was opposed by the ACCC. The ACCC was of the view that Coca Cola Amatil could exert its market power to link sales of the Berri fruit juice products to its dominant Coca-Cola soft drink product.

These examples demonstrate the extent of the ACCC's enforcement of the Trade Practices Act across many different industry groups and confirm that the ACCC is prepared to take action no matter how large or small your business. Graeme Samuel is also reported as contacting companies to encourage voluntary compliance.

This recent ACCC activity suggests that:

  • if your business does not have a Trade Practices Act compliance program you should implement one now; or

  • when you have a Trade Practices Act compliance program you should review the program regularly to ensure that it remains effective.

Why have a compliance program?

The Trade Practices Act applies to just about every aspect of your business - for example, advertising, price setting, and transactions with other businesses or consumers.

Various business groups acknowledge, and commentators have pointed out, voluntary compliance with the Trade Practices Act can generate significant benefits.

Voluntary compliance -

  • involves disseminating a positive, law-abiding corporate ethos throughout your business, creating an atmosphere that encourages employees to comply with the Trade Practices Act and other laws;

  • is consistent with the responsibilities now placed on the directors of your business for corporate governance;

  • helps reduce the risk of adverse publicity and the costs that can arise from unlawful conduct;is likely to be taken into consideration if you contravene the Trade Practices Act. Courts are more likely to impose a higher penalty when there is no compliance regime or one that is ineffective;makes your business more productive because it does not have to divert directors, managers and other senior level employees from profit making activity to deal with the legal consequences of non-compliance;

  • improves the profitability of your business through innovation, improved safety and quality of products and services; and

  • enhances your business reputation and strengthens consumer trust through recognition of good corporate citizenship.

However, compliance is not without costs.

Creating a culture of compliance within your business requires the commitment of resources for development of training systems and compliance programs. A compliance program may force your business to change otherwise profitable business practices.

But on balance, the benefits of compliance outweigh the costs. As well as being the right thing to do, encouraging adherence to the law and promoting ethical behaviour can enhance the financial position of your business.

The cost of non-compliance

The consequences of breaching the Trade Practices Act include -

  • Penalties - Pecuniary penalties for contravention of the restrictive trade practices provisions of up to $10 million for each act or omission by your business and up to $500,000 for each act or omission by an individual.

  • Fines - Fines for breach of some of the consumer protection provisions of up to $200,000 for each offence by your business and up to $40,000 for each offence by an individual.

  • Damages - A court may award damages against your business or an individual or both, for loss or damage suffered by a competitor or consumer.

  • Injunctions - A court may issue an injunction to restrain your business or an individual from taking particular actions.

  • Ancillary Orders - A court may order (amongst other things) the rescission or variation of a contract, or your business to hand back shares or assets illegally acquired, or the provision of repairs and spare parts.

  • Legal Costs - Your business or an individual or both may be liable for legal costs.

  • Management Downtime - You will spend considerable time defending an alleged breach.

  • Corrective Orders - A court may order disclosure of information or corrective advertising orders.

  • Adverse Publicity - Your business and individual employees may suffer embarrassment and adverse publicity.

In each of the above, 'individual' includes an employee, manager or director.

How to become compliant

Drafting a compliance manual and holding a training session for your employees is not enough. Compliance requires a commitment through management leadership and in everyday operating procedures. Your business should have a compliance policy, which sets out reporting mechanisms and a complaints handling policy. You should also allocate adequate resources to implement and maintain an effective compliance system, including a compliance officer or team, regular staff training at all levels, and adequate reference materials, tools and facilities.

But compliance doesn't stop there. Any effective compliance program needs regular monitoring and review. It is important to establish a system for recording complaints to quickly identify and rectify areas of practice that may breach the law or have a detrimental impact on your business operations or customer loyalty. Keep a staff training register to provide an accurate record of what training each employee has undertaken and when. Finally, you should carry out regular audits and reviews to test your program's effectiveness and ensure continuous improvement.