EU Cartel Analysis Update: 2012
GCR's 2012 update to our EU cartel fines study - examining statistics and trends in the cases handed down by the European Commission since 2010.
Two years ago, GCR published its EU cartel study, an in-depth, computer-assisted reporting project that used primary European Commission records and other information to catalogue and examine five years’ worth of DG Comp cartel enforcement data. The project resulted in a package of stories that aimed to explain how the commission approached cartel fines – the levels at which it would fine companies, why it would give discounts for leniency and other behaviour, and under what circumstances it would punish companies beyond its involvement in a price fixing conspiracy alone.
The project also included an examination of DG Comp’s willingness to grant inability to pay requests – an examination using internal DG Comp records that found the commission had spent time and resources pursuing lawbreakers who had no ability to pay their prescribed fines and eventually filed for insolvency, even after they told DG Comp that they wouldn’t be able to pay.
While that reporting remains relevant today, there have been enough developments in cartel cases over the past two years to justify updating and expanding our data to better reflect both new DG Comp decisions, as well as new information about prior cases that have come to light since we first published our study.
Our data now includes the 43 most recent DG Comp cartel matters, starting with the Monochloroacetic Acid case in 2005 and ending with the water management products cartel decision from June this year. In all, information from nine new cartel decisions handed down over the past two years has been added to the dataset.
First, it is worth pointing out that the past two years have been relatively slow for DG Comp’s cartel enforcement shop – especially when compared to the two or three years prior. When we first published our examination of EU cartel fines in late 2010, the commission had just completed three of its most active enforcement years in history. Between 2008 and 2010, DG Comp levied fines against 144 companies – including 69 cartelists in 2010 alone. In 2011, the commission fined 14 companies, well off of its prior pace. Although there has been a slight uptick in enforcement this year, with 29 companies fined, it looks unlikely that DG Comp’s cartel fines will reach previous levels with only two months to go in the calendar year.
Fines imposed against cartelists were down as well, the data shows. From 2008 through 2010, annual fines never fell below €1 billion, with a peak of more than €2.8 billion in cartel fines in 2010. In 2011, however, the commission handed down €614 million in fines, and has, as of this survey, issued only €401 million in fines so far this year.
There is, however, more parity in the number of cases the commission has brought from year to year. The past two years has seen the commission bring four cases each – four in 2011 and four so far this year. While there were more cases in the prior three years, including seven each in both 2008 and 2010, that is a relatively small difference.
And as we mention in our annual Rating Enforcement survey, numbers can be misleading and are no indication of an enforcer’s performance year-in, year-out. DG Comp took in 60 leniency applications last year had have very likely taken in just as many this year, with the massive auto parts investigation now well underway and the related vehicle shipping cartel in progress.
Gerwin Van Gerven, partner at Linklaters in Brussels, says the low levels of cartel fines are likely to be temporary. “Despite the drop in fine levels, the commission remains busy on cartels with some major investigations underway that are likely to result in heavy fines in the near future,” Van Gerven says.
Large-scale investigations take time to complete, he says, and some investigations that have given rise to high fines in other jurisdictions remain underway in Europe.
The auto parts investigation has already led to record-level fines in the US and hundreds of markers in jurisdictions around the world. Whatever charges DG Comp brings will likely be just as numerous, and fines just as significant. This is likely to factor into the next update of the survey.
Plus, Van Gerven says, when enforcers take their time with investigations to ensure that evidence and arguments are properly done, it makes for better outcomes. “We need to remind ourselves that high fine levels are not the only measure for good anti-cartel enforcement,” he says.
Stephen Kinsella, partner at Sidley Austin in Brussels, says that he and others in the competition bar believe that DG Comp has generally taken longer to finish individual cases than in prior years. “That is certainly our impression and there is a strong feeling that a lot of personnel changes had an impact there, with the current hierarchy being very cautious and risk averse, which leads to lots more scrutiny and polishing of drafts,” Kinsella says.
He also pointed to several other factors that might be leading to a slowdown in cartel cases – and, consequently, fewer fines – including DG Comp using resources on a growing number of appeals against their decisions, and the complexity of pursuing parent companies and joint ventures to avoid circumvention.
In this update, we for the first time examined how often EU cartel fines targeted companies according to the country in which they were headquartered. When viewed through the prism of national origin, the data provides a relatively clear picture of the EU’s cartel enforcement priorities over the better part of the past decade – that is, which industries were more likely to have been targeted for cartel activity in the years after the liberalisation of EU economies, and which investigations led to leniency applications or DG Comp suspicions in other, related industries, leading to investigations that often targeted companies headquartered in the same countries.
The data is also somewhat revealing about how the commission calculates its fines. The commission constructs a company’s base fine according to the percentage of the company’s overall sales, which factors in the geographic scope of the infringement, among other things. If a cartel raised prices and hurt consumers specifically in the European Economic Area, for example, the companies involved in the cartel would be punished at a higher level than, say, a cartel that was global in scope and had only a tangential effect on the EU economy. In some industries, companies based in Europe are more likely to have a larger portion of their overall sales in Europe – which leads to higher fines than cartels operating internationally.
Examining the number of EU cartel fines handed down against a country’s native companies, the trend is clear. Aside from the US and Japan, DG Comp has fined companies based in its own member states far more often than countries outside of the continent. With Europe’s largest economy, Germany has seen its companies fined 66 times over the past seven years – by far the most in our study. The US is next on the list, with 33 cartel fines for its companies over the same period of time. The UK and Japan are next, with 32 and 31 fines against their companies, respectively, followed closely by the rest of Europe’s largest economies, including France, the Netherlands and Italy.
Moreover, the data shows that three of the five countries whose companies have suffered the largest EU cartel fines over the past seven years are EU member states. And companies in those two countries have accumulated a far higher amount of total fines than any other countries in the dataset. Companies headquartered in France and Germany, the data shows, have been hit with more, and higher, EU cartel fines than any other countries in the world, and it’s not particularly close. Combined, they have been fined close to €5.3 billion for cartel activity – more than companies based in the next five countries combined.
What’s more, seven of the top ten countries in our list are EU members. Indeed, aside from a few outliers, the data makes clear that the vast majority of EU cartel fines have been levied against companies based within the economically-linked bloc. Cartel fines over the past seven years levied against companies based in Europe total close to €10 billion. In that same time, the rest of the world has been fined just €4 billion, give or take.
A cursory look at the EU’s cartel hit list reflects this finding. The ten largest cartel fines in Europe’s history have all been levied against companies headquartered within its borders. All of those fines save for one – the 2001 vitamins cartel fine against F Hoffman-La Roche – factor into our dataset.
DG Comp records show that, in general, the commission has continued its pattern of only granting inability to pay requests in the rarest of circumstances.
According to the full and public cartel decisions that were available for our study, the commission has granted only two requests for a reduction in fines because of an inability to pay over the past two years. The details behind one of those two reductions remains shielded from public view – a company involved in the window and door mountings cartel had their potential fine reduced by 45 per cent after pleading poverty to the commission, but the commission has yet to say which company it was. However, the other accepted inability to pay request was as clear-cut as a poverty plea is likely to get.
During the settlement negotiations between DG Comp officials and members of the alleged refrigeration compressors cartel, advisors for Appliances Components Companies told the commission that if it fined the company the amount it intended, it would destroy the business and likely force it out of business. ACC, as the company is known in the commission’s documents, was already in Italian bankruptcy proceedings as the settlements were being hashed out – clearly financial dire straits. But the calculations were tricky, records show. The company had the highest value of sales of any of the five cartel members – as much as €360 million, the commission said. Plus, it was involved in the cartel for the longest period of time – three years and five months, the same duration as three of its fellow cartel members. Because of the commission’s mandatory cap on fines of 10 per cent of a company’s annual turnover, ACC was in line for the maximum €40 million cartel fine before any reductions, records show.
After a reduction for leniency and other factors, ACC was still facing fines that would have put it in financial jeopardy, the company told the commission. In its final decision, the commission granted the company’s poverty plea, precisely because it had entered the insolvency scheme under Italian bankruptcy law. “The fine in the full amount would frustrate the ongoing financial restructuring of the group, and hence lead to its insolvency,” DG Comp wrote in its decision.
The company completed its reorganisation in December 2011.
According to records, the poverty pleas of at least seven other companies did not fare so well. While their names remain redacted from the public record, DG Comp denied two inability to pay requests from electronics companies implicated in the LCD cartel. Meanwhile, five airlines saw their pleas rejected during negotiations over the air cargo cartel fines, records show. Two years after the decision, the air cargo decision has still not been made public and there has been no indication as to which companies requested poverty reductions from the commission.
Factoring in the new cases, the commission has since 2005 accepted only 13 poverty pleas – all of which came since 2009, after the financial crisis took its toll on company balance sheets. Still, it is clear that the commission remains strict about how much and under what circumstances it will grant inability to pay requests. It has only granted reductions in fines of more than 50 per cent three times – none of which came in the past two years since we first published our survey.
Although the data is incomplete, it appears that the commission has grown increasingly willing to give discounts to companies found to have fixed prices beyond the standard discounts for cooperation within the EU’s leniency programme.
Meanwhile, the commission appears to be reluctant to increase a company’s fine for any aggravating circumstances or as a means of deterrence – perhaps more reluctant than in some prior years or prior cartel investigations.
First, the reductions. The cartel data compiled by GCR shows that DG Comp granted fine reductions for mitigating circumstances in five of the six cartel cases in which information was available. Leaving out the three cases in which the commission has yet to release such data – freight forwarding and water systems – the commission has accepted arguments for reductions in fines at a far higher rate than it had in prior years.
In our last survey, using data from 2005 until mid-2010, DG Comp granted reductions in 13 cartel cases in which the firms argued for reduced fines. What’s more, DG Comp cut the fines of only 24 businesses out of 158 requests for a fine reduction and 278 fines in all.
But over the past two years, the commission has cut fines because of mitigating circumstances at a significantly higher clip. Out of 41 individual businesses in the data, 16 – more than one-third of the fined companies – received reductions in their fines for a host of reasons, including extensive co-operation outside of the leniency programme and limited involvement in the cartel. As in the prior survey, those two reasons were the most commonly accepted by the commission. It is of note, however, that the two banana companies each received 20 per cent reductions in their fines because their conduct was authorised by a public authority or legislation.
Of those same 41 individual companies included in the available data, the commission only increased the fines because of aggravating circumstances in four instances. According to DG Comp documents, the commission increased the fine against air carrier SAS by 50 per cent under the recidivism clause in DG Comp’s fining guidelines; the airline had been fined in 2001 for striking an illegal market sharing agreement with Maersk Air on flights between Copenhagen and Stockholm. The commission also raised fines against three companies for deterrence. Samsung’s high annual turnover led to a 20 per cent increase for its role in the LCD cartel (a fine which was erased after Samsung won full leniency from the commission). Panasonic was hit with a similar increase for its role in the refrigeration compressors conspiracy, while Procter & Gamble saw DG Comp increase its consumer detergents cartel fine by 10 per cent.
So, among the cases in which information was available, the commission increased fines for circumstances outside of the cartel infringement itself in fewer than 10 per cent of all cases. That’s a higher rate than in some prior cartel cases, in which there were no aggravating factors, and less than others in which more than half of the companies involved saw their fines increased for one reason or another.
Looking back at our past study, the last four cases we analysed – DRAM, bathroom fixtures, pre-stressing steel and animal feed phosphates – saw the commission increase only one company’s fine, out of 50 companies that were punished in the four cartels. Meanwhile, companies targeted in some older cartel cases – hydrogen peroxide, methacrylates and copper fittings, for example – received increases in their fines for aggravating circumstances at a much higher rate. Three out of the five companies fines in the methacrylates investigation had their fines increased for both recidivism and deterrence, while four of the nine companies involved in the hydrogen peroxide cartel saw fine increases for the same offenses.
GCR summer intern Obiajulu Chukwu, a law student at William and Mary School of Law, contributed to this report.