Peru: Indecopi

The year 2018 was important in the effort undertaken by the National Institute for the Defence of Free Competition and the Protection of Intellectual Property (Indecopi) to generate a culture of free competition in the country. Collusion investigations initiated in recent years concluded with sanctioning proceedings where strong sanctions were imposed and corrective measures were issued so that these behaviours will not happen again. The message is clear: zero tolerance against those who participate in a cartel and expropriate consumers from the benefits of a market economy.

This activity has been complemented with guidelines and competition advocacies not only to inform different actors about prohibited anticompetitive behaviours, but also to promote competition.

In addition, amendments were made to the Peruvian Competition Law, to give greater powers to Indecopi to be able to detect and sanction cartels, which, as it is known, have been one of the priorities of action of the Peruvian competition agency in recent years.

Changes to the Competition Law

On 7 September 2018, by Legislative Decree 1396, a set of amendments to competition law were introduced, including the incorporation of rewards for useful information to detect, investigate and sanction cartels. This type of programme has already been implemented in other countries and is complemented by the leniency programme, because it is aimed at those who are unable to benefit from leniency; that is, those who know the cartel but have not participated in it. Thereby, it is expected to increase the capacity of the competition agency to detect more cartels.

Another important change is the competition agency’s power to order a company that is responsible for the commission of anticompetitive conduct to implement a compliance programme to reduce the risk of recidivism of anticompetitive behaviours and, moreover, generate within the company a culture of respect for the rules of free competition.

Soft law

In April 2018, the Leniency Program Guidelines, published by Indecopi the previous year, were given an award in the Antitrust Writing Awards competition, organised by the Competition Law Center of George Washington University Law School and Concurrences magazine. The award is a recognition of the technical work of Indecopi and the effort made by the institution to encourage the use of the programme to detect more cases of cartels. ¹

In addition, in September 2018, the Commission published the Guide to Fight Collusion in Public Procurement, addressed to all officials who are in charge of developing state public procurements and contracting procedures. The aim is to give them tools to identify certain behaviours related to a possible case of bid-rigging in public procurements and to warn Indecopi of this situation to carry out the relevant investigations to confirm or dismiss the hypothesis. The Guide also contains recommendations for the design of public procurement to promote competition as well as to avoid public procurement where the winner is previously ‘selected’ or other unjustified restrictions on competition.

The Guide is written in simple language and alludes to many cases of bid-rigging in public procurement and other problems warned by Indecopi in recent years. It also contains a checklist as a summary of the main signals that may lead to a preliminary identification of a possible case of a cartel. ²

Though its main targets are public officials, the Guide is also useful to bidders and their advisers or representatives to identify prohibited conduct, so that they can orientate their behaviour to respect competition law.

Competition advocacies

The promotion of competitive markets is one of Indecopi’s lines of work. In August 2018, Indecopi recommended to the Ministry of Economy and Finance and the State Procurement Body the amendment of the State Procurement Law to promote competition and generate savings to state purchases.

The recommendations were made in a context where Parliament delegated to the Executive Power faculties to legislate on various matters such as public procurement, which made it easier to include the recommendations in the State Procurement Law approximately a month later through Legislative Decree 1444. Other recommendations were accepted in December 2018 and introduced in the Regulations of the Government Procurement Law by Supreme Decree 344-2018-EF. The legislative amendments promoted by Indecopi are the following:

• The reference value or reserve price that the public entity in charge of the public procurement is willing to pay must be confidential or secret, because its advertising gives an advantage to potential bidders to reduce the possibility of better offers and, in addition, because this value can be used as a benchmark for possible anticompetitive agreements between bidders.
• The obligation of bidders to submit an independent affidavit of offer, namely that their offer has not been coordinated or agreed with another competing undertaking. These types of affidavits aim to make providers and their representatives aware of the prohibition of anti­competitive conduct and its consequences, assuming administrative and criminal responsibilities if the affidavit is false.
• The obligation of public entities to warn Indecopi of possible indications of anticompetitive behaviours immediately and without notifying bidders or representatives of this approach to Indecopi, to prevent the evidence being modified or destroyed.
• Bidders who are responsible for participating in bid rigging will not be qualified to enter into a contract with the state for up to one year, as long as the conduct has been classified within the category of a very serious infringement by the Peruvian Competition Law.

Indecopi was recently awarded by the World Bank and the International Competition Network for the changes driven through this advocacy in the ‘Promoting competition as a tool to the fight against corruption and for an equal playing field among public and private players’ category. As is well known, the promotion of competition in public procurement is a powerful tool to combat corruption and fraud in public procurement, hence the organisers awarded Indecopi in this category.

Solved cases

Indecopi concluded 13 sanctioning procedures at first-instance level in 2018. Among the most relevant cases are those of collusion in the market of shipping companies, vehicular natural gas in the city of Lima and Callao, and gasoline and diesel in the city of Chimbote, among others. Indecopi focused on price-fixing cartels, which is the most serious anticompetitive behaviour. Total fines imposed on the companies and their executives for collusion were approximately US$157 million, representing the highest fine in Indecopi history. ³

Shipping companies case

In May 2018, the Commission for the Defence of Free Competition imposed a sanction of more than US$14 million to six shipping line companies for agreeing to distribute customers (manufacturers or importers of cars and trucks) for the shipping of vehicles of various brands. This cartel has been operating clandestinely from 2001 to 2012, affecting contracts that were in execution even until 2015.

As a result of extensive research, the Technical Secretariat of the Commission for the Defence of Free Competition proved the existence of a coordinated system of understanding between the aforementioned shipping companies, which had the main objective of ensuring ‘respect for customers’ (with whom they had contracts to transport vehicles from certain manufacturers or specific routes). Thus, maritime companies agreed not to dispute other shipping companies’ customers and demanded the respect of this agreement from other maritime companies.

To this end, the shipping companies established coordinated mechanisms, ensuring the system of respect for customers. When a manufacturer or importer undertaking decided to invite shipping companies to submit to a tender or requested quotes, the customer’s ‘holder’ shipping line coordinated with potential competitors to refrain from participating, to offer quotes higher than the holder or offer on less attractive conditions than those the holder would offer. This system benefited all shipping companies involved in the cartel by affecting vehicle imports to various countries, including Peru, from brands such Chrysler, Ford, Mazda, Nissan, Renault, Toyota and Volkswagen.

The sector is very important because the annual growth in vehicle imports was 16.28 per cent (free on board) and 15.83 per cent (cost, insurance and freight) from 2001 to 2015. Over the same period, the import of new vehicles increased permanently at an average annual rate of 23.48 per cent.

Authorities in other countries have also investigated and sanctioned those undertakings for their participation in this international cartel. Most of these have confessed to their participation in this anticompetitive system and have collaborated with the relevant authorities under leniency programmes or plea agreements.

In the Peruvian case, the cartel could be proved with the collaboration of two companies that applied the leniency programme, recognising the infringement and providing relevant evidence of the cartel. This case confirms the importance of the leniency programme as an effective tool in the fight against cartels.

The decision of the Commission for the Defence of Free Competition has been appealed by three of the six undertakings to the Indecopi Tribunal.

Vehicular natural gas case

In December 2018, the Commission for the Defence of Free Competition sanctioned 63 companies and 29 natural persons with more than US$141 million for their participation in a secret agreement on the price of vehicular natural gas in Lima and Callao from July 2011 to May 2015.

The evidence gathered by the Technical Secretariat were emails, WhatsApp messages, PowerPoint presentations, meeting logs, interviews and the company price series, and proved the existence of a scheme of coordination that had the active participation of key natural persons that worked in certain involved companies, who were responsible for communicating the agreements adopted to other companies in their ‘zone’ and monitoring their compliance.

The cartel generated price increases on average of 14 per cent, and up to 38 per cent, in 2012, affecting the main service claimants who are taxi drivers, but also probably the users of the taxi service. Vehicular natural gas consumption in Lima and Callao accounts for approximately 95 per cent of national consumption.

This case represented a challenge for the Technical Secretariat due to the number of agents involved – a case with the largest number of companies and executives investigated so far. Most of those sanctioned have appealed the Commission’s decision to the Indecopi Court.

Diesel and liquid fuel markets in Chimbote

In September 2018, the Commission sanctioned 24 companies that operated in the marketing of liquid fuels and eight of its representatives for their participation in a price cartel from May 2012 to October 2014 in the city of Chimbote. The sanction estimated up to approximately US$3.6 million.

The infringement was identified owing to the market monitoring performed by the Technical Secretariat, which triggered a preliminary investigation in 2014, where dawn raids were performed without notification to the investigated companies to obtain a copy of emails and electronic records, which were used as evidence in the sanctioning procedure initiated subsequently.

The cartel included coordination between employees of competing service stations and members of the Association of Costa Service Stations, who determined the price they would charge for a litre of diesel and the 84, 90 and 95-octane gasohols. The cartel established price increases of up to 7 per cent on its customers, which impacted the cost of the transport service provided by heavy and light transport vehicles, and probably also on consumers who used such transportation.

In addition to the sanction, the Commission ordered as a corrective measure that each company must inform the Technical Secretariat in advance for a period of three years of their association meetings, including the agendas. This corrective measure allowed the Technical Secretariat to be able to supervise the association meetings, taking into consideration that the association served as a platform for the operation of a cartel.

When the Technical Secretariat made the first dawn raid, the cartel was in full activity, hence the intervention of the Technical Secretariat generated the disruption of this cartel.

Finally, during 2018, the Indecopi Court upheld the decisions of the Commission for the Defence of Free Competition that sanctioned those responsible for conciliation cases in the markets for toilet paper, hemodialysis in Lima and Callao, and notary services in Lambayeque. ⁴

Merger control

Peru only has a merger control regime in the electric sector. In this context, in January 2018, the Commission authorised without conditions the application for prior authorisation of the merger filed by ATN SA for the acquisition of 100 per cent of the share capital of Hidrocañete SA.

In April 2018, the application for prior authorisation of the merger filed by ISQ Global Fund GPGP, Ltd and ISQ Global Fund II GP, LLC was approved without conditions, for the acquisition of 10 per cent of the shares of Inkia Americas Ltd. This is considering that these operations did not affect competition in the analysed markets.

Future agenda

In the same vein as 2018, Indecopi will continue to devote greater efforts and resources to soft law activities. At the date of publication of this article, the following guides or guidelines are in the process of being prepared or even published: trade associations and free competition, dawn raids, compliance programmes, whistle-blowing rewards for information about cartels and settlements. Indecopi has never had a similar production of guides or guidelines and this is a signal of the institution’s effort to prioritise these activities and give greater clarity to all actors on the scope of competition rules.

However, the review of competition policies by the Organisation for Economic Co-operation and Development (OECD) during 2018 left recommendations to be implemented in Peru to achieve the OECD standard on free competition. These recommendations are taken seriously and responsibly by the institution, which has already been taking the steps to accomplish these recommendations. For example, it has been recommended to adopt a merger control regime in all sectors. Although the provision of a law is an exclusive power of Parliament, Indecopi has been providing support and making comments on drafts of legislative initiatives, following the best international standards.

In addition, it has been recommended that Indecopi intensify its fight against cases of abuse of dominant position and bid-rigging in public procurement. In this area, Indecopi has allocated more resources in 2019 for the initiation of investigations into alleged anticompetitive conducts. In addition, initiation of bid-rigging cases is expected after the publication and dissemination of the Guide to Fight Collusion in Public Procurement.

Notes