The European Commission has in recent times adopted a number of decisions and imposed significant fines against cartels. The landscape of cartel enforcement is, however, shifting due to a number of factors: classic cartels have given way to less traditional forms of cartels; the pandemic has disrupted cartel investigations and significantly changed companies’ working methods; the increase in damages actions in Europe may have affected incentives of parties to approach the Commission for leniency; and cartel enforcers are seeking to increase their own initiative investigations in response to the decline in leniency applications. The article explores the current state of cartel enforcement in Europe, the challenges facing cartel enforcers and the approach of the European Commission in addressing them.
By Chris Mayock[1]
I. INTRODUCTION
Cartel enforcement remains at the top of the European Commission’s priorities, which is evident from the significant number of infringement decisions recently issued and the high level of fines imposed. However, while the fight against cartels continues unabated the battle lines are shifting: there has been a move away from classic cartels to less traditional forms of cartels; the pandemic has posed issues for all enforcers but even more so for the Commission given its multi-jurisdictional remit; the significant increase in damages claims following the introduction of the Damages Directive[2] seems to have had a knock on effect on the level of leniency applications; and this in turn has led to the need for greater ex officio/own initiative investigations.
These are challenges facing the Commission, which need to be addressed if strong and successful enforcement against cartels is to be maintained.
II. RECENT ENFORCEMENT
Last year, the Commission adopted 10 infringement decisions and imposed total fines[3] of EUR 1.7 billion[4] on over 30 corporate groups. These figures speak for themselves and send a clear message that cartel enforcement continues to be right at the top of the Commission’s agenda. From these decisions a number of trends and policy directions are evident.
First, the Commission has a zero-tolerance policy towards all types of cartels.
Second, the Commission maintained a broad portfolio of cases across sectors by sanctioning cartels concerning rail cargo, food packaging, financial benchmarks, bond trading and car emissions. Such a portfolio sends a message of general deterrence to all undertakings not to engage in cartel conduct and sends a more focused message of specific deterrence to those undertakings involved or operating in the relevant sectors.
Third, in terms of how cases were resolved, roughly half were concluded under the settlement procedure[5] and half under the normal procedure. This shows that the Commission exercises its discretion to decide when the settlement procedure is most appropriate, which is based on a number of factors (e.g. number of parties, number of leniency applicants, strength of evidence and how the parties position themselves during the investigation). The Commission is also prepared to discontinue the settlement procedure if insufficient progress to resolve the case is achieved.
Finally, while the Commission continued to pursue classic cartels involving price fixing and market sharing (e.g. Canned Vegetables), there were a number of decisions involving less traditional forms of cartels, which warrant a more in-depth assessment.
III. LESS TRADITIONAL CARTELS
There is certainly a trend that enforcement is moving away from classic cartels towards less traditional cartels. It may be that strong enforcement in the EU and elsewhere has led to a situation where the stereotypical ‘smoke filled room’ cartels are less prevalent. Classic cartels have to a degree given way to more sophisticated arrangements and the Commission has had to adapt to this new environment.
A good example of this is the Car Emissions case, where the Commission took a decision against five car manufacturers – Daimler, BMW, as well as Volkswagen, Audi, and Porsche, which are part of the Volkswagen group – imposing a total fine of 875 million euros. The car manufacturers colluded to restrict technical development in the area of emission cleaning technology for diesel cars and with its decision the Commission entered to some extent into new enforcement territory. It recognized that price is not the only relevant parameter of competition and that product characteristics can be just as important. Further, the case is also interesting as, together with the decision, the Commission issued a letter to the parties in which it clarified the aspects of their cooperation, which were considered unproblematic.
This is, of course, not an isolated case. The Commission has already issued a number of decisions concerning less traditional cartels e.g. benchmark manipulation in the financial sector (Yen, Swiss, Franc and Euro Interest Rate Derivatives), coordinating list prices rather than final prices (Trucks) and buyer cartels (Car Battery Recycling, Ethylene).
The difficulty with less traditional cartels is for parties to understand the dividing line between legitimate cooperation and illegal conduct. However, the Commission is building up a decisional practice, which should serve to guide parties over what constitutes a cartel infringement in such types of cases and as the Car Emissions example shows the Commission is prepared to provide clarification in appropriate cases.
IV. RESPONSES TO THE PANDEMIC
It is well-known that in times of crisis the temptation to enter into cartels increases. This applies equally to secret cartel arrangements as well open crisis cartel schemes designed to assist industries in distress. However, the Commission’s line remained firm throughout that there would be no relaxation of cartel enforcement. Such circumvention of the cartel rules as a short term ‘quick fix’ would have only served to delay and jeopardize the recovery. Furthermore, the Commission intends to be equally vigilant to ensure any increased prices resulting from the crisis are not artificially maintained through collusion as we emerge from it.
Although cartel enforcement continued throughout the pandemic, the Commission was forced to curtail its activities on the investigative side. As a multi-jurisdictional enforcer it was impossible for the Commission to maintain its usual practice of simultaneously carrying out dawn raids at business premises in a number of EU countries. Raids were accordingly suspended for a period of almost two years but resumed in the second half of 2021 and the Commission has continued to be active on this front in the first part of 2022.
With respect to dawn raids conducted at private homes, in practice the Commission has so far exercised this power[6] in a limited fashion and generally only when there were strong indications that key evidence was located at domestic premises. However, the pandemic has brought a significant shift in working arrangements with many people working from home. Increased home working is likely to remain the case even as we emerge out of the pandemic. Therefore, evidence, relevant individuals and searchable hardware are now more often located at domestic premises. Equally, given the electronic nature of modern data, relevant information can be readily deleted from domestic premises.
To respond to this shifting nature of working and to secure the acquisition of relevant evidence, it is likely that the Commission will more frequently use its power to conduct inspections at domestic premises. This applies to both stand-alone domestic inspections and also those in conjunction with inspections at business premises. The Commission successfully made use of this power recently, which is the first instance in many years, where a search of domestic premises of (an) employee(s) was conducted in parallel with a search of the business premises of the employer.
One significant positive of the pandemic was the increased use of the Commission’s e-leniency tool. E-Leniency is an online platform developed by the Commission that allows applicants to submit their leniency applications, including marker applications, through the e-Leniency tool. Using e-Leniency provides the same legal guarantees in terms of confidentiality and legal protection as the traditional procedure of oral statements (i.e. protected from disclosure in civil litigation). As it was impossible during the pandemic to come to the Commission premises to make oral statements in person, e-leniency has become the primary and preferred procedure for leniency submissions.
V. LENIENCY
A significant challenge facing the Commission is that it, like many other agencies around the world, has witnessed a downturn in leniency applications in recent years.
The downturn in leniency could be due to many factors: the possibility that there are fewer cartels to report due to the deterrent effect of strong enforcement and greater compliance; the proliferation of leniency regimes across the globe and the burden of applying in a multitude of jurisdictions; or uncertainty about whether less traditional forms of cartel fall within the Leniency Notice[7] and benefit from its provisions.
It is clear that the landscape in which the Commission’s leniency policy operates has changed and the emergence of follow-on damages actions following the implementation of the Damages Directive is important in that respect. For example, the wave of damages claims in Europe following the adoption of the Trucks decision is unprecedented. However, it is important to underline that this was the goal of the Damages Directive: to facilitate cartels victims to claim compensation.
A parallel goal of the Damages Directive was to protect public enforcement. Accordingly, protections were built into the Damages Directive for immunity and leniency applicants. First, a key exception to the normal disclosure obligations is that leniency corporate statements are never disclosable.[8] Given the self-incriminatory nature of the statements, which have been specifically created for the purpose of the Commission’s investigation, complete protection was necessary to avoid any chilling effect on the leniency program, which is very much at the core of public enforcement. A second point is that the Directive further safeguards the attractiveness of applying for leniency by providing that the immunity applicant is only liable for damages to its own customers.[9] This derogates from the usual position that co-infringers are jointly and severally liable for the entire harm caused by an anti-trust infringement and provides an added incentive for parties to apply for immunity. However, as these protections are only just beginning to kick in it is difficult to gauge how effective they may be.
In Europe, the issue has been raised as to whether further protections should be given, such as shielding the immunity applicant from civil liability. On the one hand, this may serve to promote public enforcement. It would remove a significant disincentive for immunity applicants to come forward and may have a major impact on the level of applications. It could also have a knock-on effect on settlements as parties cooperating under leniency also tend to settle cases. On the other hand, it poses fairness issues, legal issues, and practical issues. The fairness issues are that the immunity applicant would get away without paying a fine or damages and because of the EU requirement that victims must receive full compensation the co-cartelists would likely have to pay the immunity applicant’s share. Legally, it would need to be assessed if this is compatible with the tort law systems of the Member States. Practically, it would require legislative change and could therefore only be a long-term solution.
To address the current situation the Commission has been reviewing its leniency policy to look at reasons for the decline and to identify ways to maintain incentives to apply. An integral part of this process has been to engage with stakeholders, particularly the private bar who have a unique insight into the drivers that dictate whether companies will apply for leniency. The Commission has also engaged with other enforcers on a bilateral basis to see what lessons we can learn from each other. There have also been discussions at a multilateral level, notably within the European Competition Network and the International Competition Network where agencies can exchange ideas on how to collectively improve the situation.
However, it is crucially important not to see leniency in isolation. A number of policies or practices have an impact on it and can make it more attractive. First, leniency is dependent on strong enforcement and significant sanctions, so companies are aware of the cost of entering into cartels and not reporting them. Second, it is important to link leniency to other legislation. For example, by providing immunity from criminal prosecution to employees of immunity applicants[10] or granting successful leniency applicants an exemption from exclusion from public procurement procedures following a cartel infringement.[11] Third, it is crucial to have an effective ex officio/own initiative policy to generate cases outside of leniency. This is important not only because it generates cases in its own right but because by increasing the risk of being caught by an own initiative investigation it increases the incentive of parties to come forward under leniency.
VI. EX OFFICIO STRATEGY
The Commission has strengthened its ex officio program in recent times. It has put in place the following elements.
First, the setting up of a dedicated unit within DG Competition staffed by professionals specialized in digital investigation techniques, which allow enhanced intelligence gathering and data analysis. Second, the creation and the management of a centralized intelligence network from multiple information channels – other Commission DGs, other EU institutions and other non-competition national enforcers. Third, the launching of the anonymous whistle-blower tool in 2017, which encourages informants to come forward safe in the knowledge their identity will be protected.
The whistle-blower tool has received a significant amount of interest. As well as guaranteeing anonymity, it allows the Commission to have fully protected two-way communication with informants. This means the Commission can react to the reported lead and ask for clarifications and further information from the informant while at all times respecting their anonymity. In terms of figures, the whistle-blower tool generates over a hundred leads per year and the Commission has current cases based on such leads within its portfolio. The Commission also shares whistle-blower leads with other agencies within the European Competition Network.[12] Notably, the Spanish NCA when adopting its recent infringement decision imposing a EUR 24 million sanction against a number of steelmakers revealed publicly that the investigation had been triggered by a lead passed on to it by the Commission.
The whistle-blower tool also provides an interesting link with leniency policy. For those engaging in cartel conduct the traditional risk has been that one of their co-cartelists would report the illegal arrangements to the Commission under the leniency program. However, with the advent of the whistle-blower tool there is the possibility that one of their own employees may blow the whistle and inform the Commission. This opens up another front in the risk assessment that companies have to make in the leniency context.
VII. CONCLUSION
To maintain strong enforcement in Europe the Commission must operate in a shifting environment of cartel practice. The days of ‘bread and butter’ price fixing or market sharing cartels in traditional sectors that result from an immunity application and are sanctioned exclusively under the normal procedure are now the exception rather than the norm.
The ‘new normal’ is that it will be necessary to generate more cases through ex officio means, to take measures to address the decline in leniency applications, to expand investigative measures such as raids on domestic premises, to continue to tackle less traditional cartels, to bring cases across different sectors and to adopt decisions under both the settlement and normal procedures.
[1] Deputy-Head of Unit, Cartels Directorate, DG Competition, European Commission. The information and views set out in this article are those of the author and do not necessarily reflect the official position of the European Commission. The author would like to thank Maria Jaspers and Gerald Miersch, respectively Director and Head of Unit in the Cartels Directorate, for their comments and contributions.
[2] Directive 2014/104/EU of the European Parliament and the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union (OJ L 349, 5.12.2014, p.1).
[3] Under the Commission’s administrative system, the only sanction available is to impose fines on undertakings.
[4] Approximately USD 1.9 billion.
[5] Under the settlement procedure, in return for admitting the infringement the parties receive a 10 percent reduction in the amount of the fine, enjoy a more streamlined procedure and are issued with a shortened decision. See Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No 1/2003 in cartel cases (OJ C 167, 2.7.2008, p.1).
[6] Article 21 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4.1.2003, p.1) consolidated version amended by Council Regulation No 1419/2006 (OJ L 269, 28.9.2006, p.1).
[7] Commission Notice on immunity from fines and reduction of fines in cartel cases (OJ C 298, 8.12.2006, p.17), as last amended (OJ C 256, 5.8.2015, p.1).
[8] Article 6(6)(a) of the Damages Directive.
[9] Article 11(4) of the Damages Directive.
[10] Article 23 of the ECN+ Directive – Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, OJ L 349 of 5.12.2014, p. 1-19.
[11] Articles 57 (4) (d), 57 (6) and 57 (7) of Directive 2014/24/EU of the European Parliament and the Council of 26 February 2014 on public procurement. Directives 2014/23/EU and 2014/25/EU, on sector procurements and concession contracts respectively, include identical provisions. The EU Financial Regulation (2018/1046) also includes similar provisions in view of the protection of the EU budget.
[12] Consisting of the European Commission and the National Competition Authorities of the Member States of the European Union.
