Brazil: Administrative Council for Economic Defence
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Since the entry into force of the new Brazilian competition legislation in 2012, the Administrative Council for Economic Defence (CADE) is experiencing steady and significant institutional development, as evidenced in the initiatives and results in each one of its core competencies.
With the new pre-merger review system, acknowledged by the Brazilian National School of Public Administration as a major innovation within the Federal Public Management, the replacement of the former post-merger assessment procedures has led to significant improvement on the appraisal of mergers within the agency. Since its implementation, fast-track cases, which account for 80–90 per cent of all merger cases reviewed by CADE, are decided in an average of 20.5 days and, in 2016, internal regulation was proposed to establish that all fast-track mergers must be reviewed under 30 days, something that had already been happening in practice and that will now become mandatory. Ordinary cases are reviewed by CADE in an average of 86 days, whereas challenged and complex mergers are analysed in just over 200 days on average. The average time of analysis of all merger cases reviewed by the authority in 2015 was, in its turn, 26.3 days, significantly more agile than the overall average of 154 days in 2011, before the entry into force of the new competition law.
After over four years of experience within the new merger regime, it has become clear that these achievements are a permanent policy that puts Brazil side by side with top competition agencies when it comes to merger review. This has allowed CADE to turn its attention, in 2016, to more material aspects of merger analysis, and propose both the alteration and renewal of its Horizontal Mergers Guidelines, and the development of Remedies Guidelines, reflecting CADE’s accumulated experience in reviewing and applying remedies in complex transactions. The agency’s experience includes major worldwide mergers, such as the Holcim/Lafarge, Continental/Veyance and Fedex/TNT cases, analysed in cooperation with other jurisdictions, and also significant national transactions, as in the ALL/Rumo (railway infrastructure) and the Bradesco/HSBC (banking) mergers.
The efficiency achievements regarding the pre-merger review system have made resources available to renewed efforts in the field of anticompetitive practices. In parallel with the strategy to reduce the agency’s backlog of pending investigations – which fell from 320 to 238 cases between 2012 and 2015 – the agency has been able to focus its resources on stronger and more significant cases. Although the overall number of investigations was deliberately reduced, the number of in-depth investigations that demonstrate significant evidence of anticompetitive behaviour and the number of administrative indictments has steadily risen. The number of such in-depth administrative proceedings went from five in 2012 to 14 in 2013, 21 in 2014 and 37 in 2015. Similarly, the number of administrative proceedings trialled by CADE’s Tribunal was significantly raised: from 16 sentences a year in 2011 (before the new regime) to over 50 sentences in 2015.
At the same time, CADE has also managed to decrease the length of anticompetitive conduct-related proceedings. In 2013, only 28 per cent of the investigations in the General Superintendence were one year old, and over 36 per cent of investigations were more than five years old. By the end of 2015, 67 per cent of the investigations were one year old and 73 per cent were two years old. Only 17 per cent were over five years old and CADE’s efforts to reduce the backlog of lengthy investigations continue.
Projects and legal instruments
CADE’s 2013 new rules regarding cease-and-desist agreements seem to have paid off. These agreements have been particularly employed by CADE as means of dealing with anticompetitive practices and collecting evidence, in accordance with international best practices. The agreements also consolidate CADE’s decisions, avoiding further disputes within the judiciary. In 2015, CADE has signed 58 cease-and-desist agreements with companies from different economic segments, as opposed to the mere five agreements signed in 2012. These results reflect mutual openness to dialogue and negotiation, as well as this instrument’s capacity to contribute to more efficient and quicker enforcement of anticompetitive practices.
The success of such legal instrument is also due to its complementarity with CADE’s leniency programme, which provides immunity only for first-in applicants. The agency’s leniency programme has reached its most successful results since its introduction in 2000. The number of leniency applications is at least 50 per cent higher than five years ago, and the numbers of leniency agreements signed between CADE’s General Superintendence and companies involved in cartel conducts has been consistently increasing. In 2015, 10 leniency agreements have been signed, each of them in different sectors and with different companies, an annual record in CADE’s history, along with a record number of applications. Also in 2015, for the first time CADE’s ‘leniency plus’ instrument was used (in three different investigations). Over 70 per cent of the leniency agreements relate to fully domestic cartels, fully reversing an early tendency of the programme to rely mostly on international cartel investigations carried by other jurisdictions. Such achievements seem to demonstrate that the Brazilian antitrust leniency programme has been consolidated and has reached a greater level of maturity. In this sphere, CADE continues to collaborate closely with the federal prosecution services, which handle criminal cartel enforcement in Brazil, to simultaneously negotiate leniency agreements with parties, so as to ensure that applying for leniency in the administrative sphere does not lead to exposure in the criminal sphere.
While the antitrust authority has the objective of fostering the signing of leniency applications and cease-and-desist agreements, it also recognises the importance of encouraging the parties harmed by anticompetitive conduct to seek damage compensation. After all, both public and private enforcement are fundamental pillars of an effective competition system. In light of that, CADE has invested in the definition of its Discovery Policy, in order to achieve the fine balance between, on one hand, the incentives parties have to sign leniency or cease-and-desist agreements and, on the other, the compensation for damages caused to individuals in the private sphere.
In order to provide clarity and guidance on how the agency discloses documents, protects information provided by signatories of agreements and gives the judiciary access to evidence, CADE has made an effort to systematise its own experience and align it with best international practices. For that, a benchmarking was conducted and a beneficial dialogue was not only held with other antitrust authorities, but also with international organisations, the business community, civil society and the judiciary. The product of this work is still under way through a resolution about CADE’s Discovery Policy, to be proposed soon.
Simultaneously, CADE’s Lock Project was launched, focusing on information security and confidentiality of leniency and investigations. In order to adopt the best practices in terms of protection of sensitive knowledge, CADE has been assisted by the Brazilian Intelligence Agency (ABIN).
Since infractions against the economic order are frequently related to crimes in other legal spheres, addressing CADE’s responsibilities entails close cooperation with other governmental bodies and with civil society in order to prevent, detect and investigate wrongdoings. In this sense, CADE has actively pursued stronger ties with other institutions. Consequently, the agency currently holds 26 technical cooperation agreements with several partners, such as public prosecution services, courts of auditors, regulatory agencies and thinktanks, among others. Such agreements foresee information exchange and data sharing, as well as joint initiatives between the parties concerning projects, research and policies.
In respect to cartel practices, special attention has been granted to public bids. Brazil’s statistics of procurement procedures are startling. Since 2010, the country has had more than 3 million procurement procedures, adding up to more than $300 billion. Due to the importance of such procedures, CADE is currently developing a Screening Project, a platform that allows the integration of large public procurement databases by applying data mining tools and economic filters capable of identifying and measuring the probability of occurrence of cartels in public bids. The construction of the techniques is still in progress, but CADE already has a few tools working. By the end of 2015, data analysis played an important role in one dawn raid operation conducted by CADE. Furthermore, the Screening Project’s analyses have already allowed the opening of other investigations in public procurement. This is part of a strong policy carried out by CADE’s 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 results of all these initiatives towards bolstering competition enforcement are reflected not only in the relevant decisions CADE’s Tribunal issued in 2015, but also in the high-profile, complex cartel investigations the agency initiated and completed this year. As one of the most important examples regarding this matter, the investigations within the scope of the ‘Car Wash’ operation evidence the challenges and responsibilities that CADE is addressing when dealing with one of the largest investigations ever held by Brazilian authorities, comprising a sophisticated scheme based on the intersection of cartels in public bids and on corruption within the highest political levels in Brazil.
Since the beginning of CADE’s participation within the scope of the investigations in 2015, the agency has managed to act efficiently without neglecting its other competencies, despite the complexity of the case and the resources required by it. In the context of such efforts, leniency plus agreements have proven their efficiency. According to this legal instrument, a company involved in a cartel informs CADE of a second cartel – about which the agency had no prior knowledge – in order to reduce the penalties in the first investigation. As previously mentioned, by signing three leniency plus agreements with individuals and companies involved in the scheme, CADE is playing an important role in the investigations related to public bids in Petrobras and in other state companies, unveiling cartels and supporting domestic authorities.
The magnitude of the ongoing Car Wash operation has demanded close cooperation between Brazilian authorities and efficient coordination in order to address crimes in different spheres. It has also shed light on the fight against cartels, competition defence and on the relevance of CADE’s role. This engagement has been successfully achieved up until now.
Another important example regarding anticompetitive conduct is the administrative proceeding regarding an alleged cartel in the manipulation of foreign exchange rates. The investigations, which began after the signature of a leniency agreement in 2015, are currently revealing anticompetitive practices aimed at manipulating reference indexers.
In addition to these cases, CADE has also recently conducted proceedings regarding unilateral anticompetitive practices, which include sham litigation, such as in the Eli Lilly case, and abuse of a dominant position, as verified in the Telemar and Salvador/Rio Grande Seaharbours cases.
The above-mentioned cases evidence that the authority is on top of and in line with landmark cases that deeply and directly affect society, and that domestic and international cooperation has been a crucial tool in fighting anticompetitive practices.
In addition to domestic cooperation, the cooperation between CADE and international institutions is also a relevant asset in fighting anticompetitive conducts. The exchange of experiences has been gradually intensified over the years and is now part of the routine of CADE’s staff.
For instance, in 2016 CADE continued to develop benchmarks with its sister agencies approaching several subjects, which ranged from specific topics, such as gasoline retail and banking markets, to more general discussions, regarding gun jumping, remedies implementation, procurement data and the protection of whistleblowers.
Capacity building is also an important item in the cooperation agenda, targeting the development and embodiment of best practices in the antitrust field. In 2016 members of CADE’s staff will, for the second time, take part in the economic and legal training programme, offered by the Global Antitrust Institute (GAI), of the George Mason University. Another example in this field is CADE’s close cooperation with the FTC, which, over the last three years, resulted in two annual training sessions for CADE’s staff on competition subjects. Furthermore, CADE’s participation in a workshop on investigation techniques and a training in interview techniques, both organised by the Israeli Antitrust Authority, are good examples of the profitable cooperation between agencies.
The same applies to merger cases. In a globalised economy, the existence of multi-jurisdictional transactions require competition authorities around the world to increase their dialogue, share their knowledge and coordinate their work for more effective enforcement. In line with this, international cooperation plays a fundamental role in the definition and implementation of remedies, as evidenced by the recent Ball/Rexam, Holcim/Lafarge, GSK/Novartis and Continental/Veyance cases. By means of regular consultations with other authorities, CADE has been managing to exchange information and coordinate the pace of its proceedings with antitrust developments abroad. Coordinated efforts send a message to global businesses that competition agencies are communicating in order to synchronise procedural calendars and coordinate remedies in order to ensure efficient decisions and actions in defence of competition.
It is worth noting that, not only does CADE cooperate in specific cases, but it also values all opportunities to foster debate with other jurisdictions on challenges faced in competition enforcement. In 2015, CADE participated in several competition fora, both acquiring knowledge and contributing to its peers by means of presentations, debates and roundtable discussions. Moreover, the agency has organised a series of international events in the same year, gathering representatives from different jurisdictions to exchange views and experiences on the currently most important antitrust topics worldwide. One example of that is the 2015 OECD-CADE Competition Summit on Public Procurement and Fighting Bid Rigging, which addressed a topic that has been very much in the public eye, as mentioned previously.
It should also be highlighted that, in 2017, CADE will host for the first time the Antitrust Authorities Conference from the BRICS group. Backed by the recently signed memorandum of understanding between the BRICS antitrust authorities and centred in markets of social relevance, the summit aims to reduce the institutional and cultural differences between BRICS members, in order to allow fluid and active cooperation between countries in the antitrust sphere.
Advocacy and transparency
Apart from domestic and international cooperation as a means to disseminate competition culture, CADE has spared no efforts to provide greater guidance on the benefits of competition. The recent publication of guidelines on gun jumping, compliance, cease-and-desist agreements and leniency programmes is evidence of that. The guidelines not only reinforce transparency and legal certainty regarding the authority’s interpretation and understanding in competition enforcement, but also contribute to the engagement of the business and legal communities in the development of competition policy in Brazil. By means of public consultations, citizens, companies and civil society organisations played an active role in the development of the guidelines in question, thus helping CADE to spread and consolidate fair competition practices. This is a permanent and continuous endeavour of the agency, as shown by the current development of the Guidelines on Horizontal Mergers.
In regards to institutional memory, the above-mentioned guidelines published by CADE are also important. The consolidation of years of experience in public documents largely discussed with the legal community, the business sector and society in general, can work as benchmarks and an institutional repository for best practices and policies.
Following the same logic of its guidelines, CADE has also released a series of studies on its online platform, named CADE’s Journals, in order to consolidate, systematise and disseminate the authority’s jurisprudence related to specific markets, considering both economic and competition aspects. Three journals, approaching the educational, supplementary health and fuel retail markets, have been released and a fourth one, approaching the sea harbours’ market, is currently being developed.
Furthermore, CADE has taken part in broader advocacy initiatives, such as the studies conducted by CADE’s Department of Economic Studies, focusing on contemporary issues in competition economics. Two studies addressed the topic of disruptive innovations, specifically in the market of transportation, following the recent public debate on the Uber app in Brazil. For these studies, CADE received an honourable mention in the 2015–2016 Competition Advocacy Contest promoted by the World Bank in partnership with the ICN.
It is also interesting to mention CADE’s Competition Journal, which recently had its rank improved by the Ministry of Education’s rating. As an important communication tool bridging the antitrust authority and the academy, the Journal enables close interaction between theory and practice regarding relevant topics in competition policy and enforcement in Brazil.
CADE has also organised a series of domestic events, targeting different audiences and addressing different matters. As one of the agency’s most remarkable advocacy initiatives, CADE’s national exchange programme (PinCADE) has recently completed 18 years since the first initiative was launched, in 1999. The authority, in partnership with some of its stakeholders, offers undergraduate and postgraduate students the opportunity to experience the day-to-day work within the antitrust agency and provides courses on competition-related subjects. Since the beginning of the project, more than 400 students from all over Brazil have taken part in the initiative. Given its wide outreach capacity, this project is a fundamental tool in spreading competition culture.
CADE has also sought to strengthen the robustness of Brazilian competition policy by way of a normative agenda, through publishing resolutions. Among others, CADE recently published resolutions regarding the notification of associative contracts clarifying the criteria that must be fulfilled in order for a contract of this kind to be notifiable to the agency, and such resolution is now being rediscussed with lawyers, companies and society, looking for further improvements; and the consultation procedure, whereby parties can consult CADE’s Tribunal on the particular interpretation of points of law that had yet to be clarified. Both resolutions are only part of a wider agenda set up to reinforce transparency and legal certainty regarding CADE’s interpretation and understanding in competition enforcement.
Changes to competition regulation and policy have also engendered improvements to the authority’s institutional mechanisms. One of the key developments in this area is certainly the paperless CADE project, enabled by the introduction of the electronic information system (SEI). Initiated in the beginning of 2015, this project aims to significantly reduce the duration of competition cases and allow for statistics and data regarding institutional activity and performance. The project is currently in its second stage, in which several other services shall also become available online. As part of this initiative, the establishment of the electronic protocol, already available on CADE’s website, allows external users to file complaints and provide documents related to the agency’s proceedings online, rendering communication between the antitrust authority and external users easier and more efficient – a reflection of CADE’s commitment to transparency and due process.
Finally, in respect to the effectiveness of the agency, CADE’s efforts regarding the performance of its internal control mechanisms have led it to develop a search mechanism within its website that allows external users to check the status of CADE’s proceedings. For this initiative, CADE has recently been awarded at the ‘III Good Practices Award’, promoted by the Brazilian General Comptroller Office, in the ‘Promotion of Transparency’ category.
In conclusion, CADE’s institutional improvements enabled the authority to enhance the quality of its services. There is a wide variety of objectives for the following years, which include strengthening cartel enforcement with emphasis on public bids, continuing the good performance related to merger assessment and working on several fronts to foster competition. The challenges CADE faces today are those of a newly mature authority, which is striving to maintain the level of its achievements, while aiming to constantly improve in all areas of its activities, and relationship with its stakeholders, with a view to promoting a strong, consolidated, competition culture in Brazil through transparency, dialogue, efficiency, and effective enforcement. The 2015 GCR Award for Agency of the Year in the Americas and the rating as a four-star antitrust authority, according to GCR Rating Enforcement, are good signs that CADE is following the right path.