Brazil: Administrative Council for Economic Defence

In summary

2019 was the year of consolidation of institutional and structural changes at the Administrative Council for Economic Defence (CADE). Following the changes introduced by the new Brazilian competition law in 2012, CADE made historical achievements that not only consolidate competition laws, but also take the defence of competition in Brazil to new levels, including Brazil being accepted by the Organisation for Economic Co-operation and Development (OECD) as an associate member of its Competition Committee, and CADE being granted actual administrative, budgetary and financial autonomy.

Discussion points

• Institutional advances
• Merger assessment
• Anticompetitive practices
• Advocacy
• National and international cooperation

Referenced in this article

• Resolution on Administrative Procedures for Merger Assessment
• The Train cartel
• Cease-and-desist agreements with Petrobras
• Google investigations
• Project Cerebro
• Department of Economic Studies
• General Law of Regulatory Agencies
• OECD Competition Committee
• 2019 ICN Cartel Workshop
• BRICS report on digital economy

Institutional advances

The Brazilian system for the defence of competition is governed by Law No. 12,529/2011,¹ which updated the Brazilian legal framework regarding antitrust matters, strengthening the performance of the agency in the defence of free competition. The main alteration caused by the enactment of the new law was the introduction of the pre-merger notification regime. With Law No. 12,529/2011, business solutions for administrative proceedings gained unparalleled strength at the Administrative Council for Economic Defence (CADE). From the agency’s point of view, these are interesting for simultaneously allowing the cessation of the practice and the identification of agents behaving in ways that are harmful to competition, which were previously impossible to identify. Leniency agreements, cease and desist agreements (TCCs) and merger agreements can be signed with CADE.

In 2019, CADE achieved an important goal with its inclusion in the scope of the General Law of Regulatory Agencies (Law No. 13,848/2019),² which gave it actual administrative, budgetary and financial autonomy, as recommended by the Organisation for Economic Co-operation and Development (OECD) in its last evaluation of CADE’s practices and structure. The Law updates the rules for CADE’s management, organisation and decision-making, and regarding public access to CADE’s data. With respect to CADE, the Law addresses compliance mechanisms and establishes that CADE must adopt internal control and risk management practices, as well as elaborate and advertise an integrity programme, to prevent, detect, penalise and remedy fraudulent and corruptive practices. The Law also provides for increasing transparent practices through three important documents: an annual activity report, pointing out the sectors’ compliance with policies in effect; a quadrennial strategic plan containing objectives, goals and strategic results expected from the agencies’ actions; and an annual management plan, which will be the consolidated plan, including actions, results and goals expected from the agency’s management processes and main activities. Moreover, the regulation institutionalises exchanges between regulatory agencies. CADE will be able to request technical advice from other regulatory agencies and, should other agencies suspect any economic crime, they will have to report it to CADE for the appropriate measures to be taken.

Mergers

As per the legal provisions on the matter, mergers and acquisitions related to all economic sectors must be reported to CADE if they involve a company with an annual revenue equal to or greater than 750 million reais in the year prior to the transaction, and another whose annual revenue was equal to or greater than 75 million reais.

In 2019, CADE received 442 notifications of mergers and acquisitions, a record number since the enactment of Law No. 12,529/2011, with the majority related to electricity generation, transmission and distribution, property development, extraction of petroleum and natural gas, and health insurance. In the same year, CADE assessed 433 transactions, maintaining the quantitative balance between new notifications and the conclusion of ongoing assessments. ³

In 2019, procedural terms were suspended temporarily due to a lack of quorum at CADE’s Tribunal. However, there was no significant impact on the time taken to review cases. In general, the average term was 29 days, and CADE reviewed approximately 83 per cent of all transactions within an average term of 16.9 days through summary proceedings.

Disney and Fox

In February 2019, CADE cleared the acquisition of Fox by Disney⁴ with the condition that the Fox Sports channel was sold, among other things. Even though the parties made efforts to fulfil the request, the sale was not carried out in the time frame set by the Tribunal. Thus, CADE decided to review the transaction in November 2019.

GSK and Pfizer

In June 2019, CADE cleared, upon the signing of a divestiture agreement, the joint venture between the GSK and Pfizer healthcare businesses.⁵ The parties suggested selling the Magnésia Bisurada line, which is the only medicine carried by Pfizer in the Brazilian market for common antacids.

Gun-jumping

Mergers and acquisitions that meet the legal threshold for mandatory reporting cannot be consummated before being cleared by CADE, under penalty of the companies being investigated for gun-jumping. In July 2019, CADE issued the Resolution on Administrative Procedures for Merger Assessment,⁶ aimed at increasing the predictability and transparency of the administrative process and, whenever applicable, the calculation of appropriate penalties.

In 2019, CADE launched 14 investigations related to gun-jumping. Of these, three were filed and four were concluded after settlements with the parties involved, which acknowledged they were involved in antitrust violations and pledged to contribute financially to the Fund for De Facto Joint Rights, managed by the Ministry of Justice and Public Security. The resources from the fund return to society through the financing of projects linked to the environment and consumer and competition law, as well as to historic, cultural and artistic heritage. The most relevant gun-jumping case was the acquisition of Red Hat by IBM. In December 2019, the companies entered into an agreement with CADE and pledged to pay 57 million reais for having consummated the transaction before it was cleared by CADE. ⁷

Anticompetitive practices

In 2019, CADE launched 89 investigations related to anticompetitive practices: 39 cartel cases, 36 unilateral conduct cases and 14 concerted practices. Companies convicted for anticompetitive practices are subject to fines and other penalties, such as being prohibited from partaking in government procurements. CADE’s Tribunal judged 15 cartel cases, 10 unilateral conduct cases and three concerted practices in relevant markets. ⁸

Cartels

In 2019, CADE reviewed and ruled on several important cartel cases in the Brazilian market.

In January 2019, CADE found two companies guilty of involvement in an international cartel related to the optical disk drive (ODD) market, which brought about adverse effects in Brazil.⁹ The fines imposed amounted to 19.5 million reais. According to the investigations, the companies and individuals exchanged sensitive competitive information on a regular basis and entered into agreements on prices and their roles in procurement processes carried out by the main buyers of ODDs. The cartel, which was operative from 2003 to 2009, led to losses in Brazil both to companies that purchased their products on a global scale (Dell, Hewlett-Packard, Samsung Electronics, Asus, Gateway, Acer and Microsoft) and to final consumers of goods that used these products in their manufacturing process.

In February 2019, CADE found three companies and nine individuals guilty for taking part in a national cartel related to electric components for air-insulated switchgears used in high-voltage power stations.¹⁰ These switchgears are responsible for the efficiency and reliability of the electricity supply. The fines imposed totalled 56.1 million reais. The investigations started in 2006, after the signing of a leniency agreement that gave the agency access to documents proving the existence of the cartel, which operated mostly within Brazil through price-fixing and market allocation schemes, and making arrangements for procurements, projects and lots. The participants used strategies such as bid rotation, cover bidding and subcontracting arrangements, which preceded the procurement process. The collusion, which lasted at least from 1996 until 2006, mainly affected electricity companies (such as Chesf, Furnas, Eletronorte and Eletrosul) and impacted the final price of electricity, resulting in widespread losses to society as a whole.

Also in February 2019, CADE imposed fines amounting to 27.4 million reais on two companies and 17 individuals after they were found guilty of partaking in an international cartel related to the market of thin-film transistor liquid crystal display, which is a component of LCD monitors and notebooks.¹¹ The cartel had significant effects in Brazil and, according to the investigations carried out, operated from 2001 to 2006. The conspiracy resulted in losses to Brazilian companies that acquired the product from international companies on a global scale, as well as Brazilian consumers who bought monitors and notebooks with this technology, which, at that time, was dependent on importation. The cartel operated through price-fixing, market division, sharing of commercially sensitive information and production control, to manipulate both the supply and the price of the product on an international level.

In April 2019, CADE found 27 fuel stations, two distributors and 12 individuals guilty of cartel formation and other economic crimes related to the distribution and resale of fuels in the metropolitan area of Belo Horizonte.¹² The fines imposed amounted to 156.9 million reais. According to the investigations, the group operated at least from March 2007 to April 2008, setting fuel resale prices and adopting measures to monitor and punish stations that did not adopt the given price.

The Train cartel

In July 2019, CADE concluded one of the largest investigations in its history: the case of the cartel in government procurements of trains and subways in the states of São Paulo, Minas Gerais and Rio Grande do Sul, and in the Federal District. The investigation was launched in May 2013, after the signing of a leniency agreement with Siemens. Based on the evidence presented by the company, CADE obtained judicial authorisation to carry out a dawn raid. CADE’s Tribunal found 11 companies and 42 individuals guilty of cartel practices. The evidence collected throughout the investigations indicated the cartel members had divided the market, fixed prices, and established conditions, advantages and forms of participation of the companies in the procurements. At least seven projects and 26 processes were affected by the cartel from 1999 to 2013. For anticompetitive practices, the 11 companies were ordered to pay fines totalling 515.6 million reais, and the 42 individuals were ordered to pay fines amounting to 19.5 million reais. In addition to fining everyone involved, the Tribunal prohibited Alstom from partaking in government procurement processes, in the fields of activities affected by the illegal practices, for five years. CADE also recommended that Alstom, Bombardier and CAF should not be granted tax breaks or incentives or government subsidies for five years.

IT cartel

In October 2019, CADE found four companies and six individuals guilty of forming a cartel to influence government procurements related to outsourced IT services.¹³ CADE found that the group tampered with at least 11 procurement processes carried out by government bodies and state-owned enterprises based in the Federal District from 2005 to 2008. The fines imposed amounted to 2.2 million reais. The case was launched in 2012 and the evidence clearly indicated the cartel fixed prices, divided customers and markets among its members, and attempted to take advantage of procurement processes related to outsourced IT services. The group mainly operated through bid suppression, complementary bidding and bogus price quotes. In addition to the fines imposed, CADE has determined the Tribunal’s decision should be sent to all government bodies affected by the group’s actions so they can consider pursuing lawsuits for damages, and improving their procurement and control mechanisms.

Auto parts

Another important decision relates to the auto parts market. In 2019, CADE signed eight TCCs related to seven cartel investigations into the auto parts market. Through the agreements, the signatories acknowledged their participation in illegal acts and committed to cease all anticompetitive practices, and to make a total financial contribution of 120,084,528.58 reais.

Unilateral conduct and abuse of dominance

In July 2019, CADE signed two historical agreements with Petrobras. The TCCs, signed amid ongoing investigations, were aimed at stimulating competition in the natural gas and refinery markets, hitherto almost entirely exploited by the company.

The first agreement suspended the ongoing investigation on the alleged abuse of dominant position by the state-owned company in the refinery market. Under the agreement, Petrobras committed to sell eight refineries, including assets related to fuel transportation. The measure is intended to increase competition in the national refinery market through the entry of new agents, which would attract investment to the sector. The divestment of the refineries must be completed by 31 December 2021, subject to the impending circumstances provided for in the agreement. The transactions must be reported to CADE for detailed analysis of competition regarding the acquisitions, insofar as the reporting is mandatory as per the legal provisions.

The agreement concerning the natural gas market, on its turn, was mainly aimed at mitigating structural problems in this market, to stimulate the entry of new companies and new national and international investment in the sector. Under the agreement, the state-owned company committed to sell the three carriers and any indirectly owned shares of distribution companies. The signing of the agreement suspended ongoing investigations carried out by the agency on the company’s alleged anticompetitive practices in the natural gas market.

In October 2019, CADE launched an administrative proceeding against Itaú and Rede to investigate alleged anticompetitive practices in the payments market. CADE also imposed a preventive measure that terminated the requirement that commercial establishments hold accounts at Itaú to be entitled to the most advantageous settlement conditions offered by Rede, until a final decision is made on the case.

During 2019, CADE judged and filed three proceedings involving alleged anticompetitive practices by Google. In the investigations carried out by the agency, no losses to competition related to the search engine market were observed. The antitrust body also came to the conclusion there was no evidence that Google had copied content from competitors or adopted abusive clauses in its ad platform contracts.

Project Cerebro

Project Cerebro is an information technology tool created in 2013 that allows for the integration of many government procurement databases by using data mining tools and economic filters to identify possible signs of anticompetitive practices in government procurements. The strategy of using economic filters enables the analysis of a significant amount of data on procurement procedures and information on companies’ conduct and coordinated action strategies. CADE monitors markets that are historically problematic, have been reported or are under investigation. This is only feasible and effective with the use of information technology tools and statistics aimed at detecting suspicious behaviour. The initiative focuses on the automation of analyses usually conducted by case handlers. A set of techniques are used to identify suspicious or improbable facts or patterns of behaviour – for instance, identical bids – that may indicate simulated competition. This is part of a strong policy carried out by CADE’s General Superintendence over the past few years, which seeks to develop investigative tools capable of detecting cartels and other anticompetitive conduct without an exclusive dependence on leniency instruments. This includes continuous investments in intelligence tools and investigative techniques. The screening project’s activities have already enabled the opening of investigations in public procurement and play an important role in CADE’s investigations, evidence gathering and dawn raids.

Advocacy and transparency

In September 2019, CADE celebrated the 10th anniversary of its Department of Economic Studies (DEE). In the beginning, the DEE was an administrative unit subordinate to CADE’s Tribunal. Subsequently, Law No. 12,529/2011, which rearranged the Brazilian system for the defence of competition, formally instituted the DEE as one of the bodies that make up CADE, together with the General Superintendence and the Administrative Tribunal.

The DEE’s activities are divided into two supplementary areas: advising the Superintendence and the Tribunal in the instruction and analysis of proceedings involving mergers and acquisitions and anticompetitive practices; and carrying out studies to evaluate the competitive situation in the market and the performance of the agency.

In 2019, CADE published a series of works that contribute to the dissemination of the culture of competition:

• the ‘Detection of cartels in government procurements’ working document¹⁴ presents a methodology that uses economic filters based on Moran’s I statistics for detecting cartels in electronic reverse auctions of government procurements;
• the ‘Fuels in the Federal District’ working document¹⁵ estimates the positive impacts of CADE’s actions for fuel consumers in the Federal District after its intervention resulted in the cartel being dismantled;
• the ‘Sadia/Perdigão’ working document¹⁶ analyses the competitive effects of the merger involving Sadia and Perdigão, which created BRF Brasil Foods, in the frozen food market in Brazil;
• the ‘Antidumping measures’ working document¹⁷ addresses the relationship between competition in the markets and policy measures aimed at exempting national companies from external competitive pressure;
• the ‘Crushed stone cartel’ working document¹⁸ assesses the benefit of CADE’s actions in fighting the Crushed stone cartel in the São Paulo City metropolitan area;
• the ‘Payment market’ study¹⁹ analyses the payment market in Brazil and competition concerns; and
• the ‘Cement market in Brazil’ study²⁰ compiles information regarding methodologies adopted by CADE’s Tribunal, throughout the years, on economic analysis in the cement market.

In 2019, CADE worked hard to improve its performance in matters related to competition advocacy, aimed at promoting competitiveness between government bodies and society.

CADE has played an important role in the discussions about the civil aviation market, especially regarding luggage allowance and the company Avianca’s remaining slots. In April 2019, the DEE issued a technical opinion in which it listed concerns regarding competition matters related to the Bill that opened the aviation sector to foreign investment, especially with respect to luggage allowance.²¹ In June 2019, CADE, the Federal Prosecution Services and the Federal Department of Consumer Affairs sent a formal letter to the Brazilian Civil Aviation Agency making the recommendation that the new entrant concept should be more flexible at Congonhas Airport, and that the percentage of Avianca’s remaining slots should be modified. The proposed measures are intended to stimulate competition in the Brazilian civil aviation sector.

The agency also had a prominent role in actions related to the natural gas and refinery sectors, which culminated in the opening up of these markets. The coordinated actions by CADE, the National Petroleum Agency, the Ministry of Economy and the Ministry of Mines and Energy resulted in the launch, in July 2019, of the New Gas Market programme.²² The federal government initiative is aimed at establishing the necessary conditions for companies to become increasingly competitive in the production and transportation of gas through the economic opening of the sector.

The elaboration of a report on competition policies and enforcement in the countries that make up BRICS (Brazil, Russia, India, China and South Africa) regarding digital markets also shows the important role performed by the agency in this area. Issued in September 2019, the ‘BRICS in the Digital Economy: Competition Policy in Practice’ report²³ provides an overview of competition and enforcement policies in the BRICS countries. The document addresses different experiences in the application of antitrust measures to explore common challenges and possible insights for each of the group’s authorities.

In 2019, CADE was also focused on the publication of guidelines on matters related to competition policy and institutional procedures, aiming to reinforce transparency and legal certainty. The ‘Guide for sending data’²⁴ offers guidance to the market on the standardisation of information requested by the antitrust authority to improve and speed up the analysis of cases, and the ‘Guide to fighting cartels in procurements’²⁵ consolidates CADE’s experience in its more than 20 years of fighting cartels, with emphasis on collusion in procurement processes.

Moreover, in 2019, CADE held the 40th edition of CADE’s Exchange Programme (PINCADE),²⁶ one of its most remarkable advocacy initiatives. The project has been carried out since 1999, and gives undergraduate and postgraduate students from all over the country the opportunity to experience CADE’s day-to-day activities, carrying out both technical and procedural work. The programme is aimed at disseminating and strengthening the competition defence culture, promoting scientific cooperation and prompting discussions and academic studies on the subject. It is an opportunity for young talent from every region of Brazil that fosters technical, scientific and cultural exchange.

National cooperation

Because violations against the economic order are frequently related to crimes in other legal spheres, addressing CADE’s responsibilities entails close cooperation with other government bodies and with civil society to prevent, detect and investigate wrongdoings. In this sense, CADE has actively pursued stronger ties with other institutions. These efforts contribute to the coordination and improvement of the authority’s investigations, especially those encompassing both antitrust and anti-corruption matters.

In 2019, CADE achieved its goal of having partnerships with all state prosecution services in the country. These partnerships are aimed at improving communication, thus promoting greater efficiency and promptness to deter and prevent cartels and other economic crimes. Through these agreements, the agencies commit to exchange information, knowledge, data and documents to act in a coordinated manner to fight these crimes. For instance, the cooperation with prosecution services proved fruitful in the three dawn raids carried out by CADE in 2019 during investigations into anticompetitive practices.

Moreover, CADE has intensified its institutional cooperation with control bodies. These partnerships are aimed at increasing communication between institutions to strengthen actions intended to deter and prevent economic crimes, such as cartels in government procurements. Additionally, throughout 2019, the Brazilian Court of Accounts and CADE carried out activities together to detect any anticompetitive practices in government procurements, within the scope of the cooperation agreement signed in December 2018.

To improve the coordinated actions to oversee and audit regulated markets, CADE has established several technical partnerships with regulatory agencies, furthering the defence of free competition in these sectors. The agreements provide for the interchange of documents, information and technology tools, and for arranging meetings, gatherings, workshops, technical visits and training sessions. In 2019, CADE signed agreements with the Brazilian Health Agency and the Brazilian Waterway Transportation Agency; extended its partnership with the Brazilian Health Surveillance Agency; and added a work plan to the agreement in force with the Brazilian Civil Aviation Agency. CADE has also carried out actions together with the Brazilian National Agency of Petroleum, Natural Gas and Biofuels, with the Securities and Exchange Commission, and with the Brazilian National Mining Agency, all within the scope of previously established partnerships.

International cooperation

CADE maintains a close dialogue with several foreign jurisdictions to ensure their work converges for the purpose of more effective competition enforcement, regarding not only the resolution of anticompetitive cases but also merger assessment. In 2019, CADE had 33 cooperation initiatives for exchanging information with other competition authorities and international organisations in benchmarking and case analysis.

CADE also plays an active role in international competition forums, such as the OECD, the United Nations Conference on Trade and Development, the International Competition Network (ICN) and the Latin American Strategic Alliance for Competition.

Brazil joins OECD Competition Committee as an associate member

In March 2019, CADE accomplished a historic feat: Brazil was accepted to join the Competition Committee of the OECD as an associate member.²⁷ CADE underwent a peer review process in 2018, which included a thorough and comprehensive analysis of the Brazilian competition policies and legislation, and their fulfilment of the OECD’s standards. As a result of the analysis, the OECD formulated the Competition Law and Policy in Brazil report, which mentioned CADE as one of the most efficient government bodies in Brazil. The OECD recognised the important advances of the agency since the enactment of Law No. 12,529/2011 and the wide implementation of the recommendations of the previous peer reviews conducted in 2005 and 2010. The report also called attention to CADE’s policy for fighting cartels, which, according to the publication, has been improved as a result of advances in the agency’s leniency programme, as well as in its institutional cooperation agreements, intelligence tools and investigative techniques. In March 2019, CADE gathered federal government authorities and representatives of the antitrust community to release the report, which supported Brazil’s acceptance as an associate member of the OECD Competition Committee. Brazil’s acceptance as an associate member is a recognition of the notable advances the agency has made in antitrust matters in recent years and consolidates more than 20 years of close cooperation with the OECD Competition Committee.

International Competition Network

CADE has been a member of the ICN Steering Group since 2005 and co-chair of its Cartel Working Group since 2017. In this context, CADE shares its experience with the leniency programme and contributes to overcome inherent challenges in the prevention and detection of, and fight against, cartels. Moreover, in 2018, CADE was chosen to organise and host the 2019 ICN Cartel Workshop.

2019 ICN Cartel Workshop

In October 2019, CADE hosted the 2019 ICN Cartel Workshop.²⁸ The event, in Foz do Iguaçu, in the Brazilian State of Paraná, brought together over 200 professionals from 40 different countries to discuss issues related to the fight against cartels, which is universally regarded as the most serious economic crime. The workshop is organised annually by the ICN and is aimed at fostering discussions on the challenges and best practices related to the matter. Moreover, it also promotes the strengthening of institutional ties among the major competition authorities around the world, and boosting international cooperation in the investigation of cartels. The main topic of the event was cartels in the age of the data-driven economy. Discussions revolved around the challenges of the data-driven digital age, which may facilitate the creation of collusions between competitors while at the same time making it easier for competition authorities to detect cartels. Among the topics discussed were challenges and information management in data-driven markets; antitrust responsibility for software-based violations; intelligence and screening tools; leniency agreements and evidence in the digital age; and due legal process and cooperation tools.

BRICS

CADE also actively participates in three working groups with BRICS competition authorities related to the automotive, pharmaceutical and digital markets. The working group on the digital economy is headed by CADE and the Russian competition authority, and conducts a strong international benchmarking agenda, aiming to better design and adapt competition law for the digital era.

BRICS report on digital economy

In September 2019, CADE released ‘BRICS in the Digital Economy: Competition Policy in Practice’²⁹ during the VI BRICS Competition Conference held in Moscow. The document provides an overview of competition and enforcement policies for digital markets in BRICS countries. It addresses different experiences on the enforcement of antitrust rules to explore common challenges and gain possible insights from each of the group’s authorities. The report is a result of the efforts of the research on competition issues in the digital economy working group, led by CADE and the Russian competition authority. The group was created during the V BRICS Competition Conference held in Brasília in 2017. The report was created from responses to a survey intended to examine the practices and challenges faced by the BRICS competition authorities regarding the digital economy. The publication is based on the replies submitted by the Brazilian, Russian, Indian and South African bodies. Due to a recent institutional reform, the Chinese authority could not contribute to this report, although it will be included in future analyses. This is the first of a series of products to be published by the working group in the coming years to improve the understanding and assessment of competition policies for the digital economy and strengthening cooperation among the authorities.

Designing Antitrust for the Digital Era international conference

Between 31 July and 1 August 2019, CADE hosted the Designing Antitrust for the Digital Era international conference, to discuss how to adapt Brazilian competition defence policies to digital markets. The discussions addressed different views on an array of topics connected to antitrust enforcement in these markets. Representatives from the BRICS competition authorities spoke about the recent challenges caused by the digitalisation of the economies in their countries, and discussed how to adjust antitrust policies to the digital age. The event also focused on the role of data in the digital economy and the challenges faced in formulating antitrust remedies for this market.

Notes