The Rising Tide of Cartel Enforcement: Who Will Get the First 1bn Euro Fine? 

March, 2007 - John Schmidt and David Cardwell

With competition authorities across Europe increasingly keen to demonstrate their toughness when it comes to market-sharing and price-fixing, cartel-busting is very much flavour of the month. The European Commission is imposing larger and larger fines in order to ramp up its cartel-busting activities.

These hefty fines are flanked by a strong leniency programme that encourages whistleblowers and the promotion of private litigation for damages by customers who have overpaid due to cartel activities, all of which goes to show that the Commission is getting serious about cracking down on cartels.

The increasingly substantial nature of the fines being imposed by the Commission is demonstrated in two cartel decisions that the Commission has adopted this year, imposing record fines of some 1.7bn Euro: in January the Commission imposed fines totalling 750m Euro on eleven groups for their participation in a cartel in the Gas Insulated Switchgear (GIS) market, while 17 companies were fined a total of 992m Euro for their role in a cartel concerning bid-rigging and market-sharing in the lift and escalator manufacturing industry.

The Commission is certainly making its mark in terms of financial penalties with the fines imposed in these two cases alone almost equalling the total fines imposed by the Commission last year. In 2006 and 2007, six of the ten largest fines for cartels were imposed by the Commission.

The Commission's enthusiasm for hefty fines seems even more remarkable when contrasted with the US approach. Fines in Europe are now significantly higher than in the US – the statistics for last year alone show that while the Commission racked up total fines of 1.8bn Euro, the US authorities managed to bring in a comparatively meagre $473m. The level of individual fines is also different with US fines consistently lower than those imposed in Europe by the Commission. The US authorities recently trumpeted one of the highest fines ever imposed on a US cartel – participants in a computer hardware cartel were fined a total of $729m (about 575m Euro).

While fines of this order are becoming routine in Europe, a fine of this amount still grabs the headlines in the US. This difference in the level of fines is explained by the US authorities' use of not only fines, but imprisonment as a punishment and deterrent for cartelists. In March 2006, Thomas Barnett, the assistant attorney general in the US Department of Justice stated that his department "seeks to maximise deterrence of cartels not only through substantial monetary fines, but also by ensuring that key participants serve time in a US prison.

The OFT has been working for the past two years on its biggest bid-rigging cartel investigation to date. 57 companies in the construction industry have been raided although the OFT has offered leniency to the companies in return for cooperation, the total fines imposed are likely to be significant.

The Commission has recently been seeking to encourage private enforcement actions, publishing its Green Paper on damages actions in 2005 with a view to encouraging debate on the issue. There are some procedures available to consumers or businesses who want to take matters into their own hands, but the Commission is keen to make this a truly accessible option. There is an increasing buzz of activity around the area of private enforcement, with the announcement in this year's Budget that the UK government intends to investigate and resolve issues with the private enforcement of competition breaches, the OFT is also studying this area closely. There is an increasing number of companies seeking to get some form of redress through private enforcement and they can only be spurred on by these current developments.

So where does competition enforcement go from here? The Commission has a clear focus on inflicting pain on cartelists. For repeat offenders the pain can be particularly significant: in February the European Court of Justice, in a Belgian beer cartel case, confirmed that the Commission had been correct to use a company's repeated competition law infringements as a basis for increasing their fine and in November last year the Commission increased by 50% the fines on participants in a synthetic rubber price-fixing cartel due to their repeated offences.

The approach in Europe is still to focus on a small number of large cases: the overall number of EC cartel decisions is still relatively low ranging between five and ten per annum. Even though absolute levels of fines are no doubt increasing, the number of cartel decisions is not. The highest number of cases so far were decided in 2002 (nine cases). However, below EU level, national authorities are active and have their own leniency programmes: in the UK some examples of the action taken by the Office of Fair Trading against cartels include a 1.38m pounds fine imposed on double glazing industry firms in June 2006 and 2.3m pounds imposed on roofing contractors in February 2006. The UK also has criminal sanctions available for punishing competition infringements and the OFT have said that its ongoing investigation into BA for its fuel surcharges includes looking at both civil and criminal sanctions. With the ongoing attempt by US authorities to extradite Ian Norris, chief executive of Morgan Crucible, on price-fixing charges, the threat of imprisonment in the UK for competition infringements seems very real.

Back at European level, the Commission is just in the final lap in a cartel investigation of videotape producers. Intuitively, it would seem that that market is too small to make it a likely candidate for the first 1bn Euro fine – but with the Commission focused on imposing maximum pain and in the context of the constantly growing level of individual fines, bets are on that the Commission may achieve its target by the end of the year.



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