Brazil: Administrative Council for Economic Defence
Since the entry into force of the new Brazilian competition law 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 adoption of the pre-merger review system has led to significant improvement on the appraisal of mergers within the authority. Since its implementation, fast-track cases, which account for almost 85 per cent of all merger cases reviewed by CADE, are decided in an average of 15 days. This efficient assessment helps the authority to uphold the quantitative balance between new notifications and the conclusion of undergoing assessments. Even with a significant increase in the number of mega-mergers assessed, the average time for reviewing merger cases remained in an excellent standard according to the international comparison and to the opinion of key stakeholders.
In 2017, the authority assessed major worldwide mergers such as Dow/Dupont and AT&T/Time Warner. Moreover, significant national transactions including Mataboi/JBJ (cattle and bovine meat), Itaú/Citibank (banking), Ipiranga/Alesat (fuel distributor) and Kroton/Estacio (undergraduate and graduate courses) were assessed during 2017. Due to the complexity of the transactions, when compared to 77 days in 2016, there has been a slight increase in the average time of analysis for ordinary mergers – being 96 days. The overall average remained in 30 days, both records are aligned with CADE’s goals.
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. 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 Superintendency were one-year-old, and over 36 per cent of investigations were more than five years old. By the end of 2017, 63 per cent of the investigations were up to one-year-old and almost 80 per cent were up to two years old. In contrast, less than 10 per cent were over five years old as CADE’s efforts to reduce the backlog of lengthy investigations continue.
Intense cartel enforcement activity was also seen at CADE in 2017, with a special focus on bid-rigging. The authority has continued to take 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 and public infrastructure works.
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 2017, CADE has signed a record of 75 cease-and-desist agreements (TCCs) with companies from different economic segments, as opposed to the mere five agreements signed in 2012. As a result, the pecuniary contributions resulting from TCCs totalled nearly 850 million reais. These outcomes reflect a mutual openness to dialogue and negotiation, as well as this instrument’s capacity to contribute to more efficient and quicker enforcement of anticompetitive practices. In 2017, CADE updated the Guidelines on Cease and Desist Agreement for Cartel Cases, which encompasses the best practices and adopts procedures related to TCCs’ negotiation. The guidelines aim at providing an institutional framework for future negotiations that may be used by civil servants, attorneys, companies, legislators, scholars, among other stakeholders.
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 2017, the authority signed 21 new leniency agreements, an annual record in CADE’s history. 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 Car Wash. In this sphere, CADE continues to collaborate closely with the Federal Prosecution Service, which handles 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. In order to maintain the success of the programme, CADE updated the Guidelines on its Antitrust Leniency Program in September 2017. Although the document is not binding, a significant part of its content stems directly from Law No. 12.529/2011 and CADE’s Internal Regulation (RICADE). The guidelines represent a milestone in the history of the leniency programme in Brazil, reflecting CADE’s experience with leniency agreements negotiations based on the past 15 years and in line with international best practices.
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 coordination and improvement of the authority’s investigations, especially those encompassing both antitrust and anti-corruption matters.
In 2017, CADE established several working groups with other government institutions that are important to the promotion of competition law. As an example, CADE established a partnership with the Brazilian Central Bank in order to coordinate activities regarding competition in the financial system. Another working group was established with the Secretariat for Economic Monitoring, which encompasses joint activities on competition law.
In addition, in 2017 CADE established several technical cooperation agreements. For instance, the authority has signed agreements with
• the Brazilian Health Regulatory Agency;
• the Ethics and Health Institute;
• the São Paulo Municipal Court of Accounts, the Court of Accounts of the State of Rio de Janeiro; and
• the Federal Prosecution Service of the Brazilian States of Acre, Goiás, Mato Grosso do Sul, Minas Gerais, Pará, Paraná, Rio Grande do Sul, Santa Catarina, among others.
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 activities 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 2017 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 evidences 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. In 2017, CADE negotiated its biggest pecuniary contribution relatively to public bids in Petrobras, totalling 130 million reais.
Another important example regarding anticompetitive conducts is the administrative proceeding related to an alleged cartel in the market of manufacturing and selling of cathode ray tubes for colour television image. With the signing of two cease-and-desist agreements, more than 15 million reais were collected as a pecuniary contribution.
As a result from an investigation started in 2016, the online travel agencies Booking.com, Decolar.com and Expedia have signed cease-and-desist agreements with CADE in order to suspend an inquiry regarding the practice of abusive price-parity clauses in contracts signed with hotel chains that use their internet sales platforms. According to the studies and evidence gathered, the parity clause causes two main effects:
• it sets limits to the competition among agencies, homogenizing the final price offered to the customer; and
• it turns the entrance of new players in the market more difficult, since strategies in that sense, such as low commission pricing, do not reflect in the final price as a result of parity.
As stated by the terms of the agreement signed, Booking.com, Decolar.com and Expedia must cease the use of the broad parity clause in their commercial relations with accommodation suppliers. Therefore, it is not permitted to apply it to forbid better offers made by these hotels, in their offline sales channels (check-in counters, physical travel agencies and call centres). Besides, they won’t be able to demand parity in relation to the prices charged by other online travel agencies. On the other hand, while negotiating the agreements, the General Superintendency understood that the maintenance of the possibility to require a parity regarding the offer of accommodation through the website of the hotels is reasonable. It is an action to mitigate the ‘free rider’ effect in the online hotel reservation market.
In addition to domestic cooperation, the cooperation between CADE and international institutions is also a relevant asset in the antitrust enforcement. 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 2017, CADE signed three new international cooperation agreements. These agreements were signed with the Ministry of Commerce and the National Development and Reform Commission of the People’s Republic of China and with the Federal Antimonopoly Service of Russia. Moreover, CADE has expressed its intention to form part of the COMPAL1 (a UNCTAD programme providing capacity building and institutional strengthening on competition and consumer protection to Latin American countries) and to become an associate member of the competition committee of the Organisation for Economic Co-operation and Development.2
CADE has cooperated with 36 foreign competition authorities regarding 21 merger cases and seven anticompetitive conducts cases. In a globalised economy, the existence of multi-jurisdictional transactions requires 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 AT&T/TimeWarner and Dow/DuPont 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.
Capacity building is also an important item on the cooperation agenda, targeting the development and embodiment of best practices in the antitrust field. In 2017, members of CADE’s staff have, for the third time, taken part in the economic and legal training programme offered by the Global Antitrust Institute of the George Mason University. Another good example of the profitable cooperation between agencies is CADE’s close cooperation with the US Federal Trade Commission, which, over the past five 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 2017, CADE participated in several competition fora, both acquiring knowledge and contributing to its peers by means of presentations, debates and roundtable discussions. In November 2017, CADE hosted in Brasília the Fifth BRICS International Competition Conference.
It should also be highlighted that CADE will host the Eighth Annual Meeting of the Working Group on Trade and Competition, in Brasília in October 2018. The Working Group is an opportunity for trade officials and competition authorities from Latin American countries to come together to share policy experiences, identify good practices, find solutions to common problems and collaborate on addressing global challenges in the area of trade and competition. It will be a good opportunity to strengthen CADE’s links with its regional counterparts.
CADE’s successful international engagement has been acknowledged on many occasions. It was elected for the fourth time as the best antitrust authority in the Americas by Global Competition Review. The authority has also received this prize in 2011, 2015 and 2016. In addition, the Concurrences 2018 Antitrust Writing Awards granted CADE’s Guidelines on Dawn Raid Proceedings 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 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 2017, some relevant study has been published, such as an empirical assessment of anti-dumping and competition in Brazil and market studies on port services and air transportation of passengers and cargo.
It is also worth mentioning CADE’s Journal of Competition Defense, which recently had its rank in the Ministry of Education’s ratings improved. 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 reached 19 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.
In conclusion, CADE’s institutional improvements has enabled the authority to enhance the quality of its services. There is a wide variety of objectives for the following years, which include assessing the effects of the digital economy on competition, strengthening cartel enforcement with an 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 2018 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.