Multinationals that engage in anti-competitive behavior are playing a dangerous game. Not only are U.S. and European regulators cracking down with record fines this year, but authorities in other countries are entering the antitrust arena too.
Like many regulatory enforcement areas, Cartel-busting is going global. Antitrust enforcement activity is now increasing in some of the most desirable markets for overseas expansion, including China, Hong Kong, Japan, Korea, Brazil, and Mexico, to name just a few.
The globalization trend comes at a time when the traditional antitrust enforcers, the United States and Europe, are showing no lack of fervor for pursuing cases. Antitrust enforcement in the United States is running at a record pace this year. At more than $1 billion, the mid-year tally of criminal fines for such behaviors as price-fixing and bid-rigging has already surpassed full-year totals for every previous year except 2012, a recent report from law firm Gibson Dunn notes. European Union antitrust enforcers are also getting more aggressive, levying nearly $2 billion in fines in the first half—more than triple the amount in the same period last year.
“Antitrust enforcement efforts both in the U.S. and abroad have been steadily increasing,” says Kathleen Beasley, a litigation partner in the Dallas office of Haynes and Boone. “Now, U.S. companies not only need to be concerned about the penalties that could be assessed in the United States, but also in all these other jurisdictions that are anxious to enforce new laws—and have the ability to assess very significant penalties.”
Brazil, for example, levied a record $1.3 billion in fines when it cracked down on a cement cartel involving 6 companies it accused of running a cement cartel with a combined fine of $1.3 billion. According to the Gibson Dunn report, it was the largest antitrust penalty ever issued in the world. Mexico passed a new and stricter antitrust law in April that was powerful enough to spur billionaire Carlos Slim to plan to proactively divest parts of his mega-telecom company, America Movil. And in June, one of China’s three antitrust authorities, Mofcom, announced it would review companies in approximately 80 industries, including automobiles and pharmaceuticals, for potential anti-competitive behavior.
Now, U.S. companies not only need to be concerned about the penalties that could be assessed in the U.S., but also in all these other jurisdictions that are anxious to enforce new laws—and have the ability to assess very significant penalties.
Kathleen Beasley, Litigation Partner, Haynes and Boone
Meanwhile, these countries are applying more scrutiny to mergers and acquisitions that affect their markets. “The amount of paperwork to get an international merger through has gone up exponentially,” says James Langenfeld, head of the antitrust and competition practice for consulting firm Navigant Economics. The outcomes are not always what applicants desire, either. In June, China blocked a proposed alliance among three international shipping companies, known as the P3 Network, on the grounds that it could harm Chinese consumers.
In all of these countries, legislators have passed new antitrust laws and bolstered local enforcement authorities in recent years, a trend that continues to play out elsewhere. Hong Kong and India are both ramping up new antitrust regimes, portending further additions to the global enforcement push.
The Multiplier Effect
Increased cooperation among national regulators is also multiplying the costs for companies that face charges for anti-competitive behavior. “In these cartel cases, you have this piling-on effect, where there’s a case in one region and suddenly 10 regulators around the world are getting involved,” says Chong Park, a partner in the antitrust practice of the law firm Steptoe & Johnson. For multinationals, that often means “the danger of facing sizable penalties in multiple jurisdictions for essentially the same conduct,” notes Beasley, leading to “double, triple, or even quadruple counting.”
GLOBAL ANTI-TRUST
Below is a sampling of recent anti-trust developments around the globe from a recent Gibson Dunn report.
China
Newly announced regulatory policies by Chinese competition authorities may result in increased enforcement in the near future. In June, China’s Ministry of Commerce, one of the country’s three antitrust regulators, announced that it would be opening reviews across 80 major industries, including automobiles, pharmaceuticals, and alcoholic beverages. As part of these investigations, Mofcom sent notices to major industry associations requesting collection of information from their member companies.
In a “landmark move,” the National Development and Reform Commission has joined competition authorities from Japan and the United States in an ongoing global probe of certain capacitor manufacturers. In apparent coordination with other regulators, NDRC conducted dawn raids of Chinese companies earlier this year. Moreover, it is believed that this matter represents China’s first international matter triggered by leniency.
Hong Kong
In May 2014, Hong Kong’s Competition Commission released a report to prepare the public for implementation of the Competition Ordinance, which prohibits cartel activity, price fixing, and bid rigging, and details “severity factors” that will determine whether the Commission will investigate proscribed activity. Passed in 2012, the Ordinance is expected to enter into force by mid-2015. The Commission now seeks to obtain feedback on proposed guidelines, and the Commission plans to release draft guidelines in September 2014.
Mexico
This year has seen developments on both the enforcement and legislative fronts in Mexico. Mexico’s president, Enrique Peña Nieto, a long-time supporter of competition efforts, backed a new competition bill that Mexico's Congress recently enacted. The legislation is expected to give antitrust regulators heightened powers. The law follows closely behind last year’s constitutional amendments that bolstered Mexico’s competition policy, establishing the Federal Telecommunications Institute, a new authority designed to foster competition in the telecommunications market. The law also comes after a recent OECD study found that nearly one-third of all household spending in Mexico goes to industries laden with competition concerns, and that people spend on average forty percent more in those markets than they would if adequate competition existed. Notably, the law ratifies the fines companies face for anticompetitive practices, which were raised in 2011. The law is expected to become effective this month, in July 2014.
The Federal Competition Commission has also been active during 2014. Most notably, it followed several other jurisdictions in sanctioning ACC, Panasonic, Tecumseh Brasil, and Whirlpool for price fixing and other anticompetitive practices in the refrigeration compressors market. In connection with this investigation, COFECE imposed total fines of more than MXN 223 million ($17 million). This investigation is particularly significant because it marks the first time COFECE utilized its immunity program.
Source: Gibson Dunn.
Whirlpool, for example, faced enforcement actions in multiple jurisdictions, when in 2009 antitrust regulators in Brazil, the United States, and the European Union each opened investigations into sales of refrigerator compressors associated with the firm’s Brazil unit, Embraco. The appliance manufacturer was then fined by each of those countries: $56.5 million in Brazil, $91.8 million in the United States, and $73.7 million in the EU, according to press reports. Authorities in Chile even jumped into the fray, adding another $5 million in fines. Whirlpool disclosed in its most recent 10-Q that it has spent a total of $414 million since 2009 to deal with Embraco’s antitrust woes, a number that has steadily ticked upward each quarter. That tally includes a $30 million settlement with customers and other plaintiffs who sued the company through private litigation, another costly by-product of such government investigations.
While regulators may be getting smarter and tougher, one reason for the heightened enforcement is that more companies are turning themselves in. Attorneys say that the prevalence of leniency programs, in which a country will offer full immunity to the first cartel member to offer a detailed confession, is creating a race to the regulators’ offices. The practice started in the United States and has gained traction in the European Union; many more countries offer the option and are seeing the first tests of it. “My impression is that the vast majority of such cases these days are being triggered by immunity applications,” says Jens-Olrik Murach, a partner in the Brussels and Munich offices of Gibson Dunn.
Compliance Training for All
At issue in most antitrust cases is the allegation that groups of competitors purposely bid up prices across an industry by colluding to keep prices above a certain minimum. In other situations, trouble may arise in the form of bid-rigging, in which some competitors agree to impair their bids so that a certain company can win the contract at hand. This often occurs in exchange for an explicit pay-out, or the promise of winning a future contract at an inflated rate.
To protect themselves, companies should expand the reach of their antitrust compliance training to employees all around the globe, and spell out clear rules about what can and cannot be discussed with competitors, experts say. “Global antitrust enforcement underscores the need for a coordinated compliance effort,” says Park, noting that antitrust rules are reasonably similar from country to country, even if reporting and enforcement procedures might differ.
That’s easier said than done, though, in part because in some countries, collusion among competitors has long been a culturally accepted practice. Domestic authorities are taking steps to change these ideas—Brazil, for example, created a comic book using children’s lemonade stands to illustrate why cartels are bad—“but the education of the people on the ground is slow,” says Beasley.
Tools such as case studies, flashcards, and FAQs on a firm’s intranet can help employees better understand what practices may be problematic, but even more effective may be the reminder that jail time is a common part of the punishment for price-fixing, says Steptoe’s Park. Indeed, more than 200 individuals have been sentenced to jail time in the United States for antitrust violations since 2007, according to Gibson Dunn. It’s also important to create a process around what to do if employees think they spot a problem. “You need to give people some way to elevate an issue in a timely manner, and that’s the part that’s often missing,” says Park.
While no company wants to find trouble, investigating sooner rather than later carries a particular advantage in antitrust matters because of the incentive to be first to apply for immunity. Given the close cooperation among international regulators, it’s essential to get a thorough understanding of the geographic scope of a problem before reporting it and strategize on which regulators to notify first. (Although regulators in one country generally cannot open a case based on a confession in another, any immunity application may spur competitors into action.) “You have to do a very good compliance job before you apply,” says Murach. “If you fail to apply in one country and someone else does, you may lose immunity there,” even if your company has gained it elsewhere.
No comments yet