Brazil: Administrative Council for Economic Defence
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 area 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 authority. Since its implementation, fast-track cases, which account for 80 per cent of all merger cases reviewed by CADE, are decided in an average of 16 days and, in 2016, internal regulation was proposed to ensure that all fast-track mergers are reviewed within 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 68 days, whereas challenging and complex mergers are analysed in just over 133 days on average. The average time of analysis of all merger cases reviewed by the authority in 2016 was 28 days, significantly faster than the overall average of 154 days in 2011, before the entry into force of the new competition law.
With more than five years of experience under 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. These efficiencies have allowed CADE to focus, in 2016, on more material aspects of merger analysis, and have enabled it to renew its Horizontal Merger Guidelines and develop a Remedies Guideline, reflecting CADE's accumulated experience in reviewing and applying remedies in complex transactions. The authority's experience includes major worldwide mergers, such as the Halliburton/Backer-Hughes, ChemChina/Syngenta and Ball/Rexam cases, analysed in cooperation with other jurisdictions, and also significant national transactions, as in the Unipar Carbocloro/Solvay (chemical and petrochemical industries) and the BM&F Bovespa/Cetip (stock and over-the-counter markets) mergers.
The efficiencies achieved as a result of 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 275 cases between 2012 and 2016 - 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, 37 in 2015 and 26 in 2016. Similarly, the number of administrative proceedings judged by CADE's Tribunal significantly increased: from 16 decisions a year in 2011 (before the new regime) to 31 decisions in 2016. The imposed fines amount to 196.6 million reais.
2016 also saw intense cartel enforcement activity at CADE, with a special focus on bid-rigging. The authority has been taking a significant role in the ‘Car Wash' operation, which is investigating the largest corruption and cartel scheme in Brazilian history. In this context, CADE has opened administrative proceedings on alleged cartels in public procurement, for the alleged manipulation of foreign exchange rates, public infrastructure works, health products and services, and subcontractors' services.
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 2016, 66 per cent of the investigations were one year old and 73 per cent were two years old. Only 13 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 2016, CADE has signed 61 cease-and-desist agreements with companies from different economic segments, as opposed to the mere five agreements signed in 2012. As a result, the pecuniary contributions resulting from cease-and-desist agreements totalled nearly 800 million reais. These outcomes 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 achieved its most successful results since its introduction in 2000. In 2016, applications for leniency agreements increased 510 per cent considering the request for markers in the previous year, and the authority signed 11 new leniency and six leniency plus agreements, an annual record in CADE's history, along with a record number of applications. All leniency agreements relate to fully domestic cartels, fully reversing an early tendency of the programme to rely mostly on international cartel investigations carried out 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. It is also due to the importance of cartel cases related to the ‘Car Wash' operation. 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 Disclosure 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 resulted in a draft version of a new resolution on the procedures for the disclosure of documents obtained by means of leniency and cease-and-desist agreements and on the instruments that may promote the compensation for anticompetitive harm in Brazil. The draft resolution has been submitted for public consultation and should be published in 2017.
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. These efforts contribute to the integration and improvement of the authority's investigations, especially those encompassing both antitrust and anti-corruption matters. In this context, the authority has been taking a significant role in the ‘Car Wash' operation, which is investigating the largest corruption and cartel scheme in Brazilian history. Consequently, in 2016, CADE signed eight technical cooperation agreements with criminal law enforcers, such as the Office of the Comptroller General and the Federal Prosecution Services. Such agreements foresee information exchange and data sharing, as well as joint initiatives between the parties concerning projects, research and policies.
It is noteworthy that CADE signed a memorandum of understanding with the Federal Prosecution Service of the State of São Paulo (MPF/SP), which foresees joint negotiations and coordination for the signature of cease-and-desist agreements, under CADE's mandate, and criminal leniency agreements, under the responsibility of MPF/SP. CADE has also collaborated with the Federal Prosecution Service of the State of Paraná regarding the signing of a leniency agreement in the scope of the ‘Car Wash' operation. This specific cooperation resulted in the discovery of a cartel in the public bids for the concession to operate the Belo Monte hydroelectric power plant.
It is also worth mentioning the partnership between CADE and IBRAC, the most important Brazilian think tank working on competition matters. IBRAC has a working group that studies and discusses best practices on competition law and policy. This working group's debates and perspectives are frequently presented to CADE in order to continuously improve and strengthen the Brazilian competition environment.
Finally, CADE has also cooperated with some of federal government's key institutions, such as the Ministry of Mines and Energy (MME), the Secretariat of Partnerships and Investment Plan (PPI) and the Institute for Applied Economic Research (IPEA). As a result of the first partnership, a study will be carried out regarding the competition environment in the oil refining and fuel distribution markets. The second initiative focuses on recommendations to stimulate the competition environment on public bids. Finally, the third initiative aims at developing an institutional partnership and the definition of a working plan with the IPEA.
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 US$300 billion. Due to the importance of such procedures, CADE has developed 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. Data analysis has been playing an important role in CADE's investigations, evidence gathering and dawn raids. 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 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 results of all these initiatives towards bolstering competition enforcement are reflected not only in the relevant decisions CADE's Tribunal issued in 2016, 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 authority 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 authority had no prior knowledge - in order to reduce the penalties in the first investigation. As previously mentioned, by signing 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 conducts is the administrative proceeding related to an alleged cartel in dynamic random access memory (DRAM) international market. After the formal investigation started, an involved company signed a partial leniency agreement and other several participants of the cartel agreed to cooperate with the investigation by signing cease-and-desist agreements. The imposed fines totalled 7 million reais. CADE ruled that the companies shared sensitive information, such as market conditions. Other antitrust authorities also investigated the cartel, and several of its participants agreed to plead guilty in United States and European Union antitrust authorities. The DRAM cartel affected the Brazilian economy, harming companies that bought DRAM from the parties involved in the cartel as well as final consumers of computers, laptops, GPSs and other devices that depended on DRAM chips.
In addition to these cases, CADE has also recently conducted proceedings regarding unilateral anticompetitive practices, which include the radius clause, such as in the Shopping Malls case, and abuse of a dominant position, as verified in Salvador/Rio Grande Seaharbours case. The above-mentioned cases evidence that the authority is on top of and in line with landmark cases that deeply and directly affect society.
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. In this context, in 2016, CADE signed four new international cooperation agreements. These agreements were signed with the Competition Commission of South Africa, the Federal Antimonopoly Service of Russia, the Federal Economic Competition Commission of Mexico and the competition authorities of the BRICS countries.
CADE has cooperated with foreign competition authorities regarding 27 merger cases and seven anticompetitive conducts 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 Halliburton/Baker-Hughes, TNT/Fedex, Technicolor/Cisco and Latam/IAG 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.
Additionally, in 2016, CADE continued to develop benchmarks with its sister agencies regarding 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 on the cooperation agenda, targeting the development and embodiment of best practices in the antitrust field. In 2016, members of CADE's staff have, for the second time, taken part in the economic and legal training programme offered by the Global Antitrust Institute (GAI) of the George Mason University. Another good example of the profitable cooperation between agencies is CADE's close cooperation with the FTC, which, over the past four years, has resulted in annual training sessions for CADE's staff on competition subjects.
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 2016, CADE participated in several competition fora, both acquiring knowledge and contributing to its peers by means of presentations, debates and roundtable discussions.
It should also be highlighted that CADE will host, for the first time, the 5th BRICS International Competition Conference, to be held in Brasilia in November 2017. Backed by the recently signed memorandum of understanding between the BRICS antitrust authorities and centred in markets of social relevance, the conference 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.
CADE's successful international engagement has been acknowledged on many occasions. In 2016, the authority's advocacy initiative related to disruptive innovation and the car rides' applications received an honourable mention at the 2015-2016 Competition Advocacy Contest, promoted by the International Competition Network (ICN) and the World Bank Group in Singapore. In 2017, CADE was mentioned as one of the most efficient antitrust authorities in the world during the World Economic Forum, in Davos, and won two important international awards. It was elected for the third time as the best antitrust authority in the Americas by Global Competition Review. The authority has also received this prize in 2011 and 2015. In addition, the Concurrences 2016 Antitrust Writing Awards granted CADE's Guidelines on Cease and Desist Agreements for Cartel Cases the prize of ‘Most Innovative Soft Law related to concerted practices'.
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, competition compliance, cease-and-desist agreements, leniency programmes and horizontal mergers 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.
CADE's above-mentioned guidelines are also important in regards to institutional memory. 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 also released a series of studies conducted by its Department of Economic Studies on its website. The studies focus on contemporary issues in competition economics and, in 2016, a relevant study has been published on the identification of the relevant geographic market for hospitals in Brazil.
It is also worth mentioning CADE's Journal of Competition Defense, 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. These documents rely on contributions from the competition community and undergo public consultations that foster communication between the authority, stakeholders and the Brazilian society.
In 2016, CADE amended its Internal Regulation by means of Resolution No. 15. The Resolution instituted:
- rules regarding the access of documents and information obtained by means of the signature of cease-and-desist agreements;
- ranges of fine reductions that may be granted to the signatories of these settlements;
- deadlines for leniency agreement applications; and
- procedures regarding the granting of markers for leniency applicants.
In the same year, CADE approved Resolution No. 16, which sets out the deadline of 30 days for the assessment of fast-track merger proceedings. Resolution No. 17, also adopted in 2016, establishes the criteria concerning associative contracts' mandatory notification. 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 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. 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. Moreover, all citizens have online access to the public versions of CADE's files and documents. This feature is particularly appreciated by companies, lawyers and other users that have to notify or negotiate cases with the authority. The ‘Paperless project' reflects CADE's commitment to transparency and due process.
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 in its relationship with its stakeholders, with a view to promoting a strong, consolidated, competition culture in Brazil through transparency, dialogue, efficiency and effective enforcement. The 2017 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.