Companies can often slip into behaviour that quickly escalates into becoming anti-competitive and cartel-like, and compliance functions need to be alive to the risk—particularly as regulatory enforcement continues to ramp up, and especially in Europe.

While the European Commission may have had a slow start imposing fines for cartel-like behaviour at the beginning of 2016, the EU’s executive body soon made up for it by the second half of the year.

At the start of 2016, the Commission imposed just three fines totalling U.S.$162.7m for cartel activity; by the end of the year it had racked up penalties of over U.S.$4.09bn—its largest-ever fine total. For the previous year, the Commission only issued U.S.$410m in fines—its lowest tally for five years, and one-tenth of the total for 2016.

According to law firm Allen & Overy’s 2016 Global Cartel Enforcement report, last year’s record-breaking total is due to a number of long-tail investigations concluding in 2016. And the scale of the fines—while unprecedented—is not entirely unexpected. John Terzaken, head of A&O’s cartel practice in the United States and co-head of the firm’s global competition practice, says that “the European Commission has always been among the most aggressive of regulators in terms of fine totals for cartel activity,” adding that “it is not surprising that the Commission has been the world’s strongest enforcer in 2016 regarding financial penalties.”

The largest fine levied by the Commission last year (and ever) was for cartel activity in the auto parts sector. The €2.93bn (U.S.$3.2bn) fine was issued in July against five truck producers—MAN, Daimler, DAF, Iveco, and Volvo/Renault—that admitted colluding for 14 years in setting truck prices and passing the cost of environmental compliance on to consumers. Together, the five companies account for nine out of every ten trucks sold throughout the European Union. Another truck company allegedly involved in the cartel, Scania, is not covered by the settlement and is still under investigation.

Under the Commission’s 2006 Leniency Notice, which grants companies immunity from fines and prosecution if they are the first to inform of the existence of a cartel, MAN received no financial penalty, escaping a €1.2bn (U.S.$1.29bn) fine. As Volvo/Renault, Daimler, and Iveco also cooperated with the investigation, they also benefited from reduced fines (the amount of discount dependent on when they informed the Commission and the level of evidence they presented).

The second largest fine of last year came in December when the Commission fined banks Cre´dit Agricole, HSBC, and JPMorgan Chase a total of €485m (U.S.$521m) for manipulating the EURIBOR interest rate benchmark. The three banks chose not to settle the case early with the Commission, unlike Barclays (which avoided a fine), Deutsche Bank, RBS, and Socie´te´ Ge´ne´rale, with whom the Commission reached a collective €824.6m (U.S.$886.5m) settlement concerning the same cartel in December 2013.

The third largest fine of the year, again in the automotive (auto parts) sector, was issued last January against Mitsubishi Electric and Hitachi for a combined total of €137.8m (U.S.$149.8m). For more than five years, the two companies, along with another car parts supplier Denso (which was not fined because it alerted the Commission to the cartel), were found to have coordinated prices and allocated customers or projects related to alternators and starters in car engines as a way of limiting competition between themselves.

The case is also of interest because, although contacts associated with forming and running the cartel took place outside the European Economic Area (EEA), the Commission was keen to pursue those companies involved since the products were also sold directly to car manufacturers in the EEA, thereby adversely affecting European consumers.

“The European Commission has always been among the most aggressive of regulators in terms of fine totals for cartel activity. It is not surprising that the Commission has been the world’s strongest enforcer in 2016 regarding financial penalties.”

John Terzaken, Head of Cartel Practice, A&O

The European Union has continued to take a tough stance against anti-competitive practices and Terzaken believes that there is “no reason” to suppose that the Commission will be any less aggressive in 2017. “The EU is regarded as a very stringent enforcer, and anti-competitive behaviour is not tolerated. We are set to see additional large fines being handed out this year as cases involving financial services firms are resolved, and these penalties could be as high as last year depending on the degree of harm these activities have had on consumers and competition,” he says.

According to the latest official cartel statistics released by the Commission in December, all but one of the ten largest cartel fines it has ever imposed occurred in the past decade (a cartel involving vitamin supplements was fined in 2001 for €791m, or U.S.$850.3m). Furthermore, the automotive sector has been at the forefront of cartel fines—trucks have been hit by four of the largest EU cartel fines ever, while a car glass cartel rounds up the number to five.

A&O believes that the construction and transportation sectors accounted for about one-third of the fines imposed by member states’ national authorities in 2016 and suggests that bid-rigging in the construction and IT sectors will be a key area of regulatory focus in 2017.

Yet apart from fines, companies need to be aware that cartel-like behaviour can now result in damages claims. Under the Antitrust Damages Directive, which EU member states had to implement in their legal systems by 27 December 2016, victims of anti-competitive practices now have suitable legal mechanisms to obtain damages.

The latest round of cartel cases and settlements reveal some telling details that all compliance officers should take note of: firstly, that the Commission is prepared to pursue complex cases that can take years to settle (its investigation into the trucks cartel started in 2011); it is prepared to hand down eye-watering financial penalties for market abuses violations; and it is also ready to do deals in return for cooperation—with the biggest incentive being for companies to cough up details before any of their co-conspirators do.


Below are some tips from Gov. uk on how to spot cartel activity in your organisation.
Organisations can easily slip into a cartel situation without realising what is happening. As a result, the latest risk guide from the United Kingdom’s Institute of Risk Management (IRM) and the Competition and Markets Authority (CMA) may prove useful for compliance experts.
Released on 24 January, Competition Law Risk: A short guide features up-to-date case studies with examples of best practice to help organisations navigate UK competition law. It also promotes a culture of compliance led from the top down.
While the guide is primarily focused on U.K. law, the publication does provide some handy checklists that all compliance professionals can use to assess whether their own organisations are engaged in anti-competitive practices, irrespective of where they are operating.
For example, to identify if a dominant business is at risk of abusing its position, compliance officers should consider the following questions:
Has the business refused to supply an existing customer without objective justification?
Has the business offered different prices or terms to similar customers without objective justification?
Has the business granted non-cost- justified rebates or discounts to customers that reward them for a particular form of purchasing behaviour, or accepting exclusivity provisions?
Does the business require customers wishing to purchase one product to purchase a different one in addition (tying or bundling)?
Is the business charging prices so low that they do not cover the costs of the product or service sold?
Is the business refusing to grant access to facilities that a business owns which may be essential for other competitors to operate in a market?

In the cases cited above, MAN, Barclays, and Denso escaped massive fines for blowing the whistle (on themselves—and potentially after earning substantial sums from their involvement, which in the case of MAN lasted over a decade), while Mitsubishi Electric and Hitachi had their fines reduced by nearly a third for their co-operation. Consequently, by being the first to inform, MAN saved itself a fine of €1.2bn (U.S.$1.29bn), Barclays a fine of €650m (U.S.$699m), and Denso a €157m (U.S.$168.8m) fine.

More depressingly, these cases also reveal a series of tell-tale signs and behaviours that compliance functions were either unaware of or were unable to change or guard against. For example, representatives of seemingly rival companies regularly met at each other’s offices, at trade fairs, and in restaurants and were in contact over the phone, via e-mail or on internet chatrooms on a regular basis. This means that there should have been an audit trail available. In the case of the trucks cartel investigation, meetings were held at senior management level—meaning that those within the organisation who are supposed to set the “ethical” and “cultural” tone were personally involved. And lastly, the anti-competitive behaviour went on for years without detection.

According to A&O’s research, the Commission is not alone in taking a tougher stance on competition abuses. EU member states have also continued to pursue an aggressive approach in the past year in their pursuit of domestic cartel activity. For example, Italy and Germany have imposed large fines, and cartel enforcement has been high on the agenda across Central and Eastern Europe, where there has been an increasing number of dawn raids and leniency procedures. Some countries have even taken greater efforts to encourage earlier disclosure: Slovakia and Hungary have introduced cash bounties for cartel whistleblowers as a way of tempting people to come forward, for instance.

Spain closed more cartel cases than any other EU country last year and issued the largest fine by any member state in 2016: a collective penalty of €60m (U.S.$64.4m) for price-fixing by eight producers of adult diapers (Procter & Gamble affiliate Arbora & Ausonia had its planned fine of €68.5m—or U.S.$73.6m—dropped under the regulator’s leniency programme for reporting the activity). The Spanish regulator, the National Commission on Markets and Competition (CNMC), also sanctioned executives involved in the scheme for the first time in its history, though the fines were largely token (the biggest was just €6,000, or U.S.$6,440).

Meanwhile, in December the United Kingdom’s Competition and Markets Authority (CMA) used its disqualification powers against a director for the first time ever for price-fixing. Under a disqualification undertaking, a director agrees to not hold an executive role for a specified period rather than risk being formally disqualified in court. The mechanism allows cases to be settled out of court and hence resolved more quickly.

The CMA is able to impose disqualification on directors where their conduct directly contributed to the anti-competitive conduct or had reasonable grounds to suspect a breach in compliance but took no steps to prevent it. The CMA can also impose disqualification even if the director was not involved in the breach but “ought to have known” about it, which lawyers suggest should ring alarm bells for compliance officers and their organisations, as such phrasing ensures that the net is widened considerably.

In fact, out-of-court director disqualifications could become a very popular option in the United Kingdom. “Like all other EU member states, the United Kingdom benefits from the Commission carrying out major investigations and enforcing them,” says Terzaken.

“However, following Brexit, the United Kingdom will no longer be able to rely on the Commission to take action, so the CMA will need to act alone. This could result in a terrific strain on resources, which could mean that it can only investigate a limited number of cases, and therefore look for early resolution settlements,” he says.