Over the past decade, the European Union has ramped up its efforts to investigate companies that flout competition law, and has been more prepared to hand out stiffer penalties for corporate actions that amount to ripping off consumers. And, true to form, the EU’s executive body has imposed another eye-watering fine that has turned out to be double the amount the company thought it would be.
At the end of September Swedish truck manufacturer Scania was fined €880m (US$1.04bn) by the European Commission for its involvement in a 14-year price-fixing cartel with five other companies.
The truck makers—Scania, Daimler, DAF, Volvo/Renault, MAN and Iveco—were found to have co-ordinated “gross list” prices (effectively, the price that the trucks are worth when coming out of the factory before sale) and also colluded on passing on to customers the costs of new technologies to meet stricter emission rules (though the Commission said its investigation did not reveal any links between this cartel and the use of defeat devices to cheat emissions tests).
Five of the six companies admitted liability. But Scania refused to be part of a settlement agreement in July 2016 that saw the Commission hand out the largest fines for anti-competitive activity to date (€3.8bn, or U.S.$4.48bn, in total). Daimler was given a €1bn (U.S.$1.18bn) fine for admitting its involvement in the scheme, while DAF, Volvo/Renault, and Iveco were hit with penalties of €753m, €670m, and €495m respectively (U.S.$889m, U.S.$791m, and U.S.$584m)—all of which had been reduced under the Commission’s leniency and settlement notices. MAN, which blew the whistle on the cartel, gained 100 percent leniency under the Commission’s rules, and so escaped a €1.2bn (U.S.$1.41bn) fine.
Scania, which does not admit any participation in any cartel, made a provision of SEK 3.8bn (around €398m, or U.S.$470m) last July to pay any subsequent penalty. However, this amounts to less than half the fine total imposed last month. The company was ineligible to receive any discount because it did not co-operate with the Commission’s investigation—a point Scania disputes. The company plans to appeal the Commission’s decision.
In a written statement released on 27 September, Scania says that it “strongly contests all the findings and allegations made by the European Commission, and will appeal against the decision in its entirety. Scania also emphasises that it has co-operated fully with the European Commission by providing it with requested information and explanations throughout the entire investigation period.”
A company spokesperson also told Compliance Week that “from the beginning, Scania has contested the view of the European Commission that the company has acted in breach of the competition regulation. Scania has not entered into an agreement with other manufacturers with regard to pricing. Scania also has not delayed the introduction of new engines compliant with EU legislation for exhaust emissions.”
“These trucks account for around three quarters of inland transport of goods in Europe and play a vital role in the European economy. Instead of colluding on pricing, the truck manufacturers should have been competing against each other—also on environmental improvements.”
Margrethe Vestager, Commissioner for Competition
She added that “Scania has fully cooperated with the European Commission during the entire investigation and provided information, explanations, and clarifications. Our view is that no new information has emerged in the investigation. Therefore, we will appeal against the European Commission’s decision in its entirety on the same grounds as before.”
The spokesperson also said that Scania will file an appeal before mid-December, but did not want to speculate on how long the process will take once the appeal has been filed.
The cartel covered the entire European Economic Area (EEA) and lasted 14 years. According to the Commission, the collusion began at a meeting at a hotel in Brussels in January 1997, and came to an end in 2011 when the Commission carried out surprise inspections of the firms. At first, senior managers colluded at meetings on the fringes of trade fairs and other events, and also discussed price-fixing by phone. From 2004, however, lower-level managers ran the cartel through the companies’ German subsidiaries, and information was exchanged largely by e-mail.
The Commission believes that Scania was an active and long-standing participant in the cartel, and that the company organised some of the meetings. One invitation it sent out read: “An exchange of information should always be the basis of our meeting and therefore I expect from every member of our group a proper preparation.”
More information about Scania’s involvement will be available on the Commission’s competition website (in the public case register under case number 39824) “once confidentiality issues have been resolved”).
Margrethe Vestager, Commissioner for Competition, said: “This cartel affected very substantial numbers of road hauliers in Europe, since Scania and the other truck manufacturers in the cartel produce more than 9 out of every 10 medium and heavy trucks sold in Europe. These trucks account for around three quarters of inland transport of goods in Europe and play a vital role in the European economy. Instead of colluding on pricing, the truck manufacturers should have been competing against each other—also on environmental improvements.”
UNCOVERING POSSIBLE CARTEL-LIKE BEHAVIOR
Below are some warning signs of cartel-like behavior.
Uncovering cartel-like behaviour and collusion is difficult, and the fact that the anti-competitive practices can go on for so many years without detection is testament to hard it is to find concrete evidence—why else does the European Commission have its whistleblowing and leniency programmes?
But there are some warning signs that companies and their compliance functions should consider that might lead to further investigation, says Tim Parkman, managing director of Lessons Learned, a compliance and training consultancy.
On the transactional side, look for:
Bid prices that are multiples of other bids’ prices by a constant percentage (such as 1, 2, 3 percent and so on).
Bids that are inexplicably too close or too far apart—there is less than 1% or more than 10 percent between the lowest bid and the subsequent lowest bid.
Losing bid prices that are round or unnatural numbers.
Unexplained inflated bid prices.
Contracts were losing bidders become subcontractors.
Apparent rotation of winning bidders.
Unexplained withdrawal or non-participation of companies.
On the behavioural side within companies, too, the following may be indicative:
Avoidance of formal channels of communication (no records of key decision-making processes).
Overriding or subversion of reporting lines (junior people engaged in the scheme by-passing middle managers who may be unaware of it, and going straight to senior managers).
Unexpected staff departures and appointments (such as when an “uncooperative” manager is replaced).
Lack of involvement by senior decision-makers (incidences of when a business head is absent at key moments in a business process may mean that she/he is able to use “plausible deniability” as a defence.
In terms of the actions organisations should take if they suspect or uncover possible examples of cartel-like behaviour in their own operations, experts recommend the following:
Get external lawyers in to review the suspect areas and to explain the company’s options and possible legal exposure.
Reveal the issues to the regulator (the U.K. Competition and Markets Authority, and/or the European Commission). Try to get guaranteed leniency.
Look at where there might be other problem areas. Cartel behaviour is usually not limited to just one area of the business. If an engines manufacturer is involved in a cartel, for example, the activity could involve manufacturers that supply lots of different parts to the company and not just one component.
Consider how the company should inform customers, suppliers, and consumers. Assess what the impact of any investigation could have on these groups, and plan contingencies (as well as adequate financial provision for any likely impending fines and legal costs).
Conduct a “cartel audit” and use data mining tools to extract information that might provide possible evidence of price-fixing, collusion or other anti-competitive practices. In the LIBOR/FOREX scandals, the regulator uncovered emails and chatroom messages where those involved used such obvious words as “cartel” and “mafia” that would have flagged up the illegal activity if the banks had carried out such analysis themselves.
The U.K.’s Competition and Markets Authority (CMA) launched a “Screening for Cartels” tool in July to help procurers screen their tender data for signs of cartel behaviour, which may prove useful.
Source: Neil Hodge
Over the past 10 years, the Commission has uncovered nine cartels in the automotive sector and fined companies more than €6bn for breaking the law. Investigations into other alleged cartels involving the automotive sector are ongoing.
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 (both individuals and companies) now have suitable legal mechanisms to obtain damages.
Lawyers say that large corporates are becoming increasingly likely to take legal action to claim damages if they feel that they may have overpaid for goods and services as a result of anti-competitive activity.
Marc Israel, partner in the anti-trust practice at law firm White & Case, says that “corporations are becoming increasingly active about taking legal action if they feel they are a victim of cartel-like behaviour and there are two questions that compliance functions need to ask: how much have we been cheated out of, and how do we go about getting financial recompense and damages?”
He adds that “companies that have been involved in cartels can expect their customers to seek redress, and this could well add significantly to the costs of any fines that they receive.”
Israel also warns that regulators are getting tougher on cartel activity generally—and that it’s important to remember that companies can be sanctioned even if the cartel makes no money. “A cartel does not need to be financially successful before its members are fined by a regulator. In the eyes of a regulator, it is the fact that these companies colluded that is the problem—not necessarily how much money they made from the deal. Also, they can be caught by attending just one meeting, even if they didn’t participate in the cartel.”
A recent case in the United Kingdom proves his point. On 6 October, the Competition Appeal Tribunal—the U.K. body that enables companies to challenge the decisions of the Competition and Markets Authority (CMA), the U.K. regulator—found that the CMA was correct in imposing a £130,000 (U.S.$171,500) fine on Balmoral Tanks for taking part in an unlawful information exchange.
The exchange took place at a single meeting in July 2012 at which the company, which supplies steel water-tanks, was invited to join a long-running price-fixing cartel. Balmoral refused to take part, but exchanged “competitively-sensitive” information with its competitors—while being secretly recorded by the CMA.
Michael Grenfell, the CMA’s executive director for enforcement, said that regulator brought the case “to send a strong signal to companies about these critical compliance obligations.” He added that “the CMA is aware that Balmoral did not participate in the main price-fixing cartel, and this is reflected in the relatively low fine imposed on it. But exchanging competitively sensitive confidential information, even at just one meeting, is itself a breach of competition law.”