Peru: Indecopi

In summary

This article presents the progress made in the past year by the National Institute for the Defence of Free Competition and the Protection of Intellectual Property (Indecopi) and the upcoming challenges of Peruvian competition policy.

Discussion points

• The enactment and implementation of the Premerger Control Act
• The launch of the Antitrust Rewards Program
• The launch of Indecopi’s Guidelines on Competition Compliance Programs
• New investigations on bid rigging in public procurement
• Indecopi’s designation as the OECD’s Regional Competition Centre for Latin America

Referenced in this article

• Organisation for Economic Co-operation and Development
• Supervisory Agency for Private Investment in Telecommunications
• Superintendence of Banks, Insurance and Pension Fund Managers
• Indecopi’s Tribunal for the Defence of Competition and the Protection of Intellectual Property
• United Nations Conference on Trade and Development

Peruvian competition policy

Peru’s competition agenda over the past year has been chiefly marked by the adoption of the Premerger Control Act, ¹ the launching of new guidelines aimed at deterring cartel formation and the creation of the Organisation for Economic Co-operation and Development’s (OECD) Regional Competition Centre for Latin America.

The adoption of the Premerger Control Act represents a long-standing desire of the Peruvian competition agency (the National Institute for the Defence of Free Competition and the Protection of Intellectual Property (Indecopi)), which has been in favour of the adoption of an act of this nature since 2005, given that in Peru it was previously only possible to review mergers in the electricity sector. However, the new Act could be improved further by Congress (eg, by acquiring a permanent character, as it is currently only valid for five years).

It is also well known that most of Indecopi’s efforts are aimed at prosecuting cartels. Therefore, it is constantly evaluating the improvement of its detection capabilities, and the Antitrust Rewards Program for whistle-blowers will contribute to that goal. Significantly, Peru is the first country in Latin America to implement an antitrust rewards programme.

However, any effort to deter cartel formation cannot come exclusively from the competition agency, but requires the participation of the private sector through the voluntary implementation of programmes aimed at preventing risks of non-compliance with competition regulation. Thus, draft guidelines for the design of a competition compliance programme were published in September 2019 for public discussion, and were finally approved in March 2020.

Merger control

In 1997, Peru enacted a Premerger Control Act in the electricity sector, which allowed the analysis of the possible effects of mergers and other transactions on competition within that sector as long as they exceeded the thresholds established by the Act. Since the Act’s entry into force, Indecopi has received 27 authorisation applications. Of these 27 cases, only three were authorised under conditions. No merger applications were rejected.

In 2005, Indecopi made public, for the first time, its intention to adopt a Premerger Control Act for all economic sectors. Since then, various members of Congress have introduced bills supporting this initiative, but Congress never enacted the Act, despite it being discussed within various parliamentary committees and even in the plenary session. However, in November 2019, the Executive Branch enacted the Premerger Control Act by emergency decree. The Act will run for five years. ² After five years, Congress will assess pre-merger control and decide the Act’s future.

The Act was initially planned to enter into force on November 2020, but in May 2020 the Executive Branch deferred its entry into force until 1 March 2021. Although some improvements have been made to the Act in the interim, such as the creation of a simplified notification procedure and the possibility of adopting a failing firm defence, the opportunity to give the Act a permanent character has, unfortunately, not been taken.

Prior to the Act coming into force, Indecopi is preparing to provide technical assistance for the development of the Regulation of the Act to be issued by November 2020 by the Ministry of Economy and Finance, and for the issuance of guidelines that could give agents greater clarity on the scope of the pre-merger review system.

The new merger control system that will soon come into force gives Indecopi powers to analyse mergers and other transactions that exceed the sales or revenue thresholds legally established in all economic activities, with certain exceptions recognised for banking and insurance, however, which are limited to specific circumstances.

Although Indecopi will normally be competent to review mergers in such sectors, in cases where there are ‘relevant or imminent risks’ that may compromise the solidity or stability of banks or insurance companies or, in general, of financial and insurance systems, the regulator of those sectors (SBS) will be the only authority to rule on the transaction’s authorisation request. The Regulation of the Act (see above) should define the scope of the term ‘relevant or imminent risks’, as this could be viewed quite broadly and may create valid uncertainty for market participants as to when transaction notification to Indecopi would be required.

Moreover, it is important to state that Indecopi will be tasked with analysing mergers in the telecommunications sector. Peru’s telecommunications regulatory body (Osiptel) requested that it be assigned the role of reviewing mergers in the sector, considering that it is currently responsible for investigating and sanctioning anticompetitive conduct in telecommunications (Osiptel has the dual role of regulator and competition agency in the sector). However, this request was not accepted. The telecoms sector, therefore, presents the peculiarity that Indecopi will review mergers and Osiptel will investigate and sanction anticompetitive conduct.

This unique division of competition powers highlights the recommendations made by the OECD to Peru in 2018, contained in its Peer Reviews of Competition Law and Policy: ‘it is recommended that Peru study whether it is justified to keep competition enforcement powers with Osiptel as regards telecommunications, or whether all competition enforcement powers should be concentrated in Indecopi’. ³

Soft law

Antitrust Rewards Program

In December 2019, the Commission approved its Antitrust Rewards Program Guidelines for cartel whistle-blowers. ⁴ The Guidelines were necessary because, although the amendment to the Peruvian Competition Act was enforced in 2018, ⁵ the Act itself specified that guidelines for interpreting its rules, conditions, exceptions and restrictions would be created.

The antitrust rewards programme and the leniency programme have the same purpose: to improve the competition agency’s ability to detect cartels and thereby deter companies and executives from participating in these violations. ⁶

While the leniency programme operates through the exemption or reduction of the fine that would have been imposed on the infringers who choose to cooperate with the authority, the rewards programme works through monetary incentives of up to US$120,000.

The antitrust rewards programme rewards collaboration and ensures the confidentiality of natural persons who hold valuable information about the practice, enabling the authority to detect, prosecute and sanction. This could be a secretary or employee who is aware of a cartel within the company, or a relative of a manager, among others.

The Guidelines clarify who can and cannot apply for the rewards programme. It is important to mention that those who participated in cartels are excluded from the rewards benefit. However, in exceptional circumstances, the authority may consider granting a reward to individuals whose role in the cartel was indirect or peripheral; for example, employees who only monitored or verified the prices agreed by the cartel, without playing any role in decision-making or control, and who had no contact with competitors. In other words, those who played a peripheral, fungible or easily replaceable role in the cartel. However, these individuals would be liable for competition infringement, despite only playing a minor role in the implementation and development of the cartel, and having little chance to prevent or stop its occurrence.

Indeed, Indecopi’s experience in cartel enforcement shows that those who participate in the planning of a cartel (ie, in the conception and definition of the anticompetitive agreement) or coordinate the anticompetitive conduct with competitors have the highest level of involvement and control over the existence of the anticompetitive scheme, in contrast to peripheral participants.

Compliance officers, attorneys holding privileged information, Indecopi officers and other public officials that have access to privileged information because of the functions they perform are also excluded from the rewards programme.

Furthermore, to prevent the misuse of the programme by ‘reward hunters’, the Guidelines recognise that Indecopi will impose fines for malicious allegations and will initiate criminal proceedings against those who misuse the system. In addition, applicants that submit irrelevant or impertinent information on three occasions will be automatically disqualified.

Guidelines on Competition Compliance Programs and Guidelines on Trade Associations and Competition

Any effort that the competition agency can undertake to fight anticompetitive conduct alone will be insufficient if the private sector does not participate through the adoption of internal measures to prevent the occurrence of anticompetitive conduct. As compliance programmes concern the identification of risks of non-compliance (in this case, competition) and the adoption of control mechanisms to manage risks, they can become the first line of defence for combating anticompetitive conduct. This may explain the interest of more competition agencies to encourage such programmes through mitigating fines or the issuance of guidelines.

In March 2020, Indecopi approved its Guidelines on Competition Compliance Programs, ⁷ which constitute a reference model for companies that wish to voluntarily implement a compliance programme. These Guidelines identify the essential components for compliance programmes in identifying, assessing and controlling the risks of potential anticompetitive conduct:

• commitment of senior management;
• identification of current and potential risks;
• adoption of internal procedures and protocols;
• training;
• constant programme updating;
• use of monitoring mechanisms;
• audits;
• ethics for consultation and denouncing; and
• the appointment of a compliance officer.

However, the Guidelines rightly identify that a compliance programme with these features can be costly and difficult to apply for medium or small businesses. Thus, it recognises that the essential components can be moderated for these businesses and should focus on certain aspects such as the commitment of senior management, risk identification, employee training and the appointment of a senior official within the organisation who, in addition to their regular work, helps to generate a culture of compliance in the company.

While a company’s primary motivation for implementing a compliance programme should be the satisfaction of complying with the law, the Guidelines recognise that a compliance programme can help a company identify whether it is involved in a cartel, to ‘win the race’ and be the first to report the conduct to the authority through the leniency programme. If this occurs before Indecopi initiates its investigation, the company may be exempted from the sanction if it also provides evidence to help detect and punish the remaining cartel participants.

In addition, a compliance programme that adheres to the essential components mentioned above may be considered a mitigating factor and result in a reduction of 5 or 10 per cent of the fine, provided that it meets strict conditions such as the non-participation of senior management in the conduct. The reason for this requirement seems quite logical: a compliance programme requires the commitment of the senior management and if the senior management is rather committed to anticompetitive conduct, the compliance programme could not be classified as one that tried to actually prevent non-compliance with competition regulation. In other words, Indecopi acknowledges that compliance programmes are not infallible and that the efforts of companies that seriously implemented compliance programmes should be valued, but at the same time does not accept that any programme can be considered effective and deserve a reduction of the fine.

Finally, the Guidelines are also a model of reference for cases of infringing companies that are required to implement a compliance programme either because it was part of commitments made by companies in settlements or because it was issued as an injunction to prevent the commission of future anticompetitive conduct. ⁸

Compliance programmes have been ordered in the latest cases resolved by Indecopi, some of which are being discussed judicially or before Indecopi’s Tribunal (the second administrative instance), and some have already been executed, such as in the following sectors: medicines and nutritional supplements, toilet paper, PET preforms for the production of plastic packaging and container shipping of maritime cargo.

To avoid non-compliance with competition regulation, in August 2019 Indecopi launched its Guidelines on Trade Associations and Competition, ⁹ which contain a number of recommendations for trade associations, professional colleges and their members to detect and minimise the risks of illegal actions.

Competition Act enforcement

Indecopi’s focus in the past year has been the investigation of possible anticompetitive conduct in public procurement. In January 2020, Indecopi initiated sanctions against 35 companies and 18 of their executives for an alleged agreement to distribute among themselves 112 bids for the construction, rehabilitation and maintenance of roads at the national level, between 2002 and 2016. The construction work involved was valued at approximately US$3.69 billion by the government.

Likewise, in October 2019, Indecopi initiated sanctions against five companies and 11 of their executives for an alleged agreement to distribute among themselves 23 bids for public schools’ educational material (such as maths and literature text books), between 2009 and 2016. The contracted services were valued at US$166 million by the government.

These bid-rigging cases have taken place in a context in which Indecopi was providing specialised training on its Guide to Fight Collusion in Public Procurement ¹⁰ to public officials responsible for public procurement in different parts of the country, ¹¹ to enable them to identify and advise Indecopi of possible signs of anticompetitive conduct so investigations could be instigated.

In April 2019, Indecopi concluded sanctions against two companies that manufacture PET plastic packaging preforms through a settlement procedure in which the companies pleaded guilty, paid a US$3.56 million fine and committed to implement compliance programmes supervised by Indecopi.

Moreover, two additional sanctioning procedures were initiated for alleged cases of abuse of dominant position in the electricity sector (November 2019 and March 2020). Although the investigated companies carried out different procedures, there was a pattern in their conduct: the two electricity distribution companies, taking advantage of their dominant positions, allegedly imposed unjustified differentiated conditions on customers who migrated to competing companies compared to their own customers, with the purpose of retaining them. In other words, it would be more expensive for customers to change to a competing supplier than stay with the dominant company, which allegedly affected competition.

Competition advocacy

In December 2019, Indecopi approved the ‘Report on the Convenience of Denouncing the Convention on a Code of Conduct for Liner Conferences (1974)’. The Convention was discussed under the United Nations Conference on Trade and Development and approved with the goal of promoting the development of national flag lines and countering the power of conferences in relation to shippers and potential competitors. Though it cannot be asserted that the Convention expressly establishes, promotes or obliges Peru to recognise an immunity of shipping conferences against the Competition Act, it has created confusion and indetermination among shipping companies and users regarding their rights and obligations. Accordingly, the Report concludes by recommending that Indecopi promotes the denunciation of the Convention to the state of Peru.

These recommendations have been formally notified to the Ministry of Foreign Affairs, the Ministry of International Trade and Tourism and the Ministry of Transport and Communications. In compliance with the Competition Act, these public bodies have 90 business days to respond to the Advocacy report, explaining their opinion and the actions they would carry out accordingly.

International agenda

Since October 2019, Indecopi has been designated as the official host of the OECD’s Regional Competition Centre in Latin America, which joins the two current OECD regional centres in South Korea and Hungary. This new centre offers training for officials from competition agencies in Latin America. Since its inauguration, three workshops have been held: in November 2019 on merger control, in March 2020 on competition advocacy and in June 2020 on competition in the health sector. In its short time of operation, it has become an important training platform in Latin America, helping to improve the technical capabilities of competition officials in the region.

Future challenges

Indecopi’s agenda for the rest of the year is mainly marked by the health emergency derived from covid-19, in which Peru has been one of the worst-affected countries. Indecopi has redirected a large part of its resources to monitor possible anticompetitive conduct or formulate pro-competitive recommendations (competition advocacy) in markets linked to covid-19 treatment, such as medicines and medicinal oxygen. It is worth clarifying that the Peruvian Competition Act does not consider excessive prices as an alleged abuse of a dominant position.

Furthermore, in the context of the health emergency, Indecopi is concerned that Congress will approve amendments to the Competition Act that may not follow international best practices or may not consider the effects on the tools available to the authority to detect and investigate anticompetitive conduct (eg, the Act that criminalises anticompetitive conduct, enacted by the plenary of the Congress of the Republic of Peru on 5 June 2020). In the past, Indecopi has had a favourable opinion on the criminalisation of cartels because criminal sanctions can have a greater effect on agents and their behaviour than monetary punishments.

The effects of criminal sanctions (ie, the deprivation of freedom) can act as a greater deterrent than fines because of the direct and personal impact such sanctions have on convicted individuals, in contrast to the application of fines, which can be offset by the illicit benefits obtained from participation in the anticompetitive conduct or that can be financed by the companies the individuals represent.

However, Indecopi’s favourable opinion on criminalisation has always been conditioned to the fact that any kind of legislative initiative in this matter considers the following basic conditions:

• criminalisation should be restricted to cartels only; and
• criminal legislation should provide a leniency programme for those who collaborate with the authority in the detection and investigation of cartels.

The Competition Act not only criminalises cartels but also the conduct of abuse of a dominant position, and does not foresee the implementation of a leniency programme for potential collaborators.

At the time of writing, the Peruvian Executive Branch, in exercising its constitutional authority, has noted that the Competition Act should be re-evaluated.

Indecopi will continue promoting the leniency programme because of the success it has had in the detection and penalising of cartels in recent years, and will continue defending the programme against eventual legislative initiatives seeking to eliminate or limit its effects. In addition, in the different forums where it is invited, Indecopi will continue to highlight the benefits of having a leniency programme and what would happen in a counterfactual scenario where the competition authority is not able to reach collaborators to detect cartels. We hope for this message to be heard by the public policymakers.

Notes