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Competition and Trade Services By EY’s Fraud Investigation and Dispute Services
Competition and Trade ServicesBy EY’s Fraud Investigation and Dispute Services
2 | Competition and Trade Services May 2014
behavior or combination. This is achieved by using qualitative and quantitative economic evidence. Qualitative evidence includes a product’s characteristics and market structure, defines the product and its geographic markets, analyzes the unilateral effect of a merger, the entry and expansion of a product, etc. Quantitative evidence includes price correlation analysis, market shares and concentration, elasticity analysis using economic models; price concentration, countervailing of buying power, price undercutting analyses, etc.
Figure 1: Economic tools for competition analyses
► Critique econometric analysis
► Sense check results against market intelligence
► Describe and quantify barriers to entry
► Econometric and qualitative analyses are always complements
EY has extensive experience analysing and explaining consumer behaviour and deep knowledge about companies’ ability to challenge what may seem like consolidated markets
Understand demand and supply substitution key to determining or success-fully challenging market definitions
SSNIP standard approach but lack of reliable data means that it often relies more on qualitative than quantitative analysis
Market definition key for whether it is even relevant to consider actual or potential company behaviour in case of abuse of dominant position
Global market forleisure activity
Local market forleisure activity
Local market forholidays
Local market for cruises
-15%-15% -15%
-15%
Price charge product X
Y = 1.0896K + 0.0043R2 = 0.8953
Pric
e ch
arge
pro
duct
Y
-10%
-10% -10%
-10%
-5%
-5%-5%
-5%
0%
0%
Determine possible market components Test cross price elasticities Qualitative assessment and Communication
Our team of econometricians provide the essential framework to help our clients analyze the functioning of markets and assess combination effects by understanding how these function. This enables them to formulate credible theories and apply the relevant evidence to these to better understand the effects of specific anti-competitive
Many large companies have been accused of cartelization or of abusing their dominant positions in their relevant markets due to the increasing effect of competition-related regulations, including the rising levels of fines in recent years. This means that they are spending a considerable amount of time and money on lengthy investigations conducted by the Competition Commission of India (the Commission) as well as on issues relating to appellate tribunals, courts and enforced changes in operations.
Damage claims can also be made by customers and other competitors due to courts’/arbitral tribunals’ infringement-related decisions. The likelihood and magnitude of such claims has increased due to the emergence of specialist law firms that target potential claimants. Individual directors involved in anti-competitive activities can face fines or imprisonment.
Intr
oduc
tion
Our services
Competition economics
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Electronic Discovery Reference Model (EDRM)
InformationManagement Identification Review
Volume
Source: EDRM stages, EDRM website, http://www.edrm.net/resources/edrm-stages-explained, accessed 15 November 2013
Relevance
Infrastructure
Project Management
Production Reporting
Processing
Analysis
Preservation
Collection
When faced with a discovery-related request to find the right evidence in relation to abuse of dominant position, an inquiry relating to suspected anti-competitive activity or an investigation on a cartel as part of a regulatory review from the Commission, the sheer volume of electronic documents and the enormous capacity for storage of duplicates means that focusing quickly and cost-effectively
on the most relevant material in a consistent manner is a challenge. With a team comprising forensic technologists, we compile documents in a convenient format to enable investigators and lawyers to review them swiftly by, for example, placing such documents in a suitable database. We assist our clients to devise search strategies, which help them locate relevant documents quickly, thereby reducing the time required for review. In addition, our solutions are fully scalable and meet the demands of investigators, lawyers and other reviewers. We also facilitate reviews via the internet or by small teams working locally, for example, where security or data privacy concerns require this.
e-Discovery
4 | Competition and Trade Services May 2014
Companies are often not aware that what they consider a normal commercial activity, such as having discussions around prices with fellow competitors or through intermediaries, could fall foul of the competition law and may end up in litigation before the tribunals and the courts. Cases against companies may be in due to their abuse of their dominant position, which adversely affects competition in and the dynamics of the market or in any anti-competitive agreement executed by them. Our Competition and Trade Services team represents our clients in actions against the decisions of the Commission, and defends them in cases involving damage claims due to cartel and other competition cases including predatory pricing. We represent clients that have been victimized on grounds of competition law offences, formulates coordinated strategies for the Commission’s or Appellate Tribunal’s proceedings, and offers them advanced defense techniques and technology tools to handle litigation proceedings requiring management of large amounts of documentation.
Litigation-related support
Competition risk framework
Training and awareness
One important reason why a company should comply with competition rules, apart from being seen as doing business ethically, is the potentially high cost of non-compliance. However, compliance can also — and indeed should — be approached positively. Our Competition and Trade Services team helps companies in managing competition risk by conducting analyses of their pricing mechanisms, commercial contracts, competitive strategies, distribution channels, sales models and trade association activities.
Competition compliance diagnostic review: Our team of experienced professionals diagnostically review the competition-compliance measures adopted by our
Under the present circumstances, competition law training is a necessity for companies. This is especially true for organizations that are members of trade associations, are entering agreements with other organizations or are dealing with their competitors. At a minimum, all employees and agents in strategic positions should receive training on compliance with competition law.
Our training and awareness services in the area of competition law includes programs on competition-specific policies and procedures and highlight details of how employees can receive further guidance on matters about which they are unsure, identifying potential “red flags” or problem situations, and reporting and escalating potential violations. Our services include a mixture of live training for high-risk employees and web-based training for all employees. Along with senior management, our team has developed a specific tailor-made training and awareness program for senior management and employees in the sales, marketing, finance, legal, M&A and internal audit functions of organizations on grass root compliance with competition laws.
clients. Our diagnostic approach includes a review of their internal documents, including emails and sell-purchase databases, and monitoring the commercial behavior of members with respect to factors that affect competition, e.g., prices, discounts, profit margins, etc. Our team members help to set up compliance programs, which makes it easy for their management to monitor the effectiveness of such programs by using a checklist, proposing a risk management model and monitoring plan for assessment updates and giving an early warning on emerging competition law-related risks. Out team also assists our clients to set up centralized compliance policies or programs by setting the “tone at the top,” driving their companies’ culture and addressing the risks associated with various business units and products, providing stakeholders with relevant insights and enabling them to take preventive action at the right time.
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We combine our competence in this area with our wider sector knowledge, as required.
► Assisting them in combination filings for approval before the Commission
► Analyzing the combination transaction structure in light of combination regulations and competition rules in India
► Conducting economic analyses to help them with their merger-clearance applications to a regulator
► Reviewing compliance procedures to ascertain that these are appropriate
► Using e-Discovery solutions to examine electronic records, for example, in response to requests from regulators or to search for evidence of anticompetitive activity in leniency applications
► Assessing our clients’ liability for potential anticompetitive activities and the resultant effect on competition through performing cost or margin, price and other economic analyses
► Quantifying potential fines and damages in prosecution or defense of a case
► Providing monitoring and divestiture trustee services when required by the regulator, to help ensure their smooth transition to a new business combination
► Acting as expert witness in litigation
We can help our clients by:
Using our forensic, economic and financial analysis skills, our team can help our clients on competition matters ranging from combination clearance applications to assessment of compliance procedures and gathering of relevant data to respond to inquiries. We can advise them on their submissions to regulators as well as with accusations of anticompetitive activity and damages claims.
6 | Competition and Trade Services May 2014
Cartel cases
Our global experience
Excessive pricing
Data analysis and quantification of fines
Support in application for leniency
Analysis of regulator’s decision
The European Commission alleged that a telephone operating company was abusing its dominant position in its provision of wholesale international inbound roaming services in the UK by charging excessive prices to foreign operators whose customers were using the service when visiting the UK.
We produced a report on the costs that needed to be allocated to the service. This was attached to the company’s reply to the statement of objections. We later presented the contents of this report at the Commission’s oral hearing in Brussels. The Commission eventually dropped its charges against the company.
We helped a large dairy company in its appeal to the UK Competition Appeal Tribunal (CAT) against the decision by the OFT, which did not find its main competitor guilty of abusing its dominant position in the market. We investigated the basis of the OFT’s decision and assisted our client in formulating its appeal. We helped it identify shortcomings in the methodology the OFT had used and information on which it had relied in reaching its decision. Our investigation focused on correct analyses of costs and prices within specified markets, which we presented to the CAT at the hearing. The CAT eventually set aside the OFT’s decision and awarded our client substantial costs.
Abuse of dominance cases
We helped a company that was making a leniency application to the OFT (due to the suspected anticompetitive activity of some of its employees) to collect pertinent data. We collected email server data, and processed and hosted this information to facilitate a review by the company. In addition, we removed duplicates from the data and set key words to reduce the number of documents for review.
A manufacturing company successfully appealed against a penalty imposed by the Office for Fair Trading, UK (OFT) for entering a series of individual arrangements with several retailers, whereby the retail price of its products was linked to that of competing manufacturers.
The OFT claimed that these agreements had an anticompetitive object or an anticompetitive effect on the market. We drafted an expert report, providing an analysis of price increases in the period during and after the arrangements were in place. This was used to support the case and prove that there was no anticompetitive effect. We also reviewed the penalty calculation prepared by the OFT, recalculating this, based on alternative definitions of “relevant turnover.” We used our forensic data analytics team to analyze the large volume of data extracted from the company’s systems.
7Competition and Trade Services May 2014 |
OFT enquiry into credit card charges
Defending a claim for damages
Competition Commission’s investigation into local bus services
The OFT launched an investigation into the over-limit and late payment charges of six banks and two credit card companies on the basis that these fees should only cover the costs incurred when customers default or exceeds their limit. We reviewed the company’s cost base on a line-by-line basis to determine costs attributable to its relevant activities. We then presented our findings in a report that was used to prepare its response to the OFT. Our input was crucial in differentiating between the company’s and the respondents’ business operations, and clearly demonstrated that activities driving the default charges were not the same for all the businesses under review.
We assisted a client that was subjected to the investigation on local bus services by the UK Competition Commission. As part of this investigation, it was required to fill in a financial questionnaire, which needed to be submitted to the Commission. We helped it complete the questionnaire and also provided valuations of its key assets on a modern equivalent asset basis. Our technology and business modeling teams helped our client extract and compile detailed route-related information garnered from its systems to respond to queries on the profitability of its routes and operations.
Other cases
A company in liquidation brought a damage claim in the CAT against our client for losses it had suffered due to the latter’s alleged predatory pricing in the local market. The claimant alleged that our client’s activities forced it to go out of business. We were asked to review the financial position of the claimant to determine whether (i) it would have gone out of business anyway and (ii) if it had not gone out of business when our client’s alleged anticompetitive actions began, and how these actions would have caused it to exit the market.
We prepared a report, which concentrated on reviewing the claimant’s financial position prior to its entry in the market. This was submitted to the CAT in November 2011. Our representative was cross-examined on his report in a hearing before the CAT, which accepted the view that the claimant would have gone into liquidation in any case, and only awarded our client minimal damages.
8 | Competition and Trade Services May 2014
Review of compliance with competition
Acting as a divestiture trustee
We were jointly appointed to act as divestiture trustee under the mandate of the European Commission and a company. Our role was to assist the company in divesting certain assets that were the subject of commitments it had made to the Commission following its takeover of a smaller business. We assembled a team that had significant sector knowledge and wide experience in working with the Commission in managing and executing complex contractual restructuring and sales processes. Our team worked with the client and the Commission throughout the period of our trusteeship to find a solution that was suitable for all parties.
We were asked to review the effectiveness of an energy company’s competition compliance program and report back to its management whether it was fit for this purpose. We checked whether key staff members in at-risk departments were properly trained on competition-related issues and knew where to turn for help when required. We interviewed the in-house competition lawyer and senior managers in key departments including pricing, marketing and competitor intelligence. We also reviewed its training material and plans to roll out future online training. Our final report raised important issues such as its introducing a code of conduct for gathering and using competitor-related intelligence.
The OFT eventually ruled that a default charge should only be resorted to recover certain limited administrative costs, and any charges that amounted to more than a specified amount (as determined by the OFT) would be presumed unfair. However, our client was allowed to charge more than the determined amount on the basis that its operations were considered different from those of the other banks.
9Competition and Trade Services May 2014 |
About EY’s Fraud Investigation & Dispute Services (FIDS)Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from your efforts to achieve your company’s potential. Enhanced management of fraud risk and compliance is a critical business priority — whatever the industry sector. With our more than 2000 fraud investigation and dispute professionals around the world, we will assemble the right multi-disciplinary and culturally aligned team to work with you and your legal advisors. In addition, we will provide you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our global activities.
FIDS India• Deep competencies: Our FIDS team has specific domain
knowledge along with wide industry experience.
• Forensic technology: We use sophisticated tools and established forensic techniques to provide requisite services to address individual client challenges.
• Global exposure: Our team members have been trained on international engagements and have had global exposure to fraud scenarios.
• Market intelligence: We have dedicated field professionals, who are specifically experienced and trained in corporate intelligence, and are capable of conducting extensive market intelligence and background studies on various subjects, industries, companies and people.
• Thought leadership: We serve a variety of leading clients, which gives us deep insight into a wide range of issues affecting our clients and business globally.
• Qualified professionals: We have a qualified and experienced mix of chartered accountants, certified fraud examiners, lawyers, CIAs, CISAs, engineers, MBAs and forensic computer professionals.
Our services• Anti-fraud and fraud risk assessment
• Fraud investigation
• Dispute advisory services
• Forensic technology and discovery services
• Regulatory compliance
• Forensic business intelligence
• Anti-bribery program
• Third-party due diligence
• Whistle-blowing services
• Competition and trade services
• Supply chain and compliance integrity
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For more information, visit www.ey.com/in
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Ernst & Young LLPEY | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
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