Spanish regulators are paying closer attention to anti-competitive behavior across several industries, demonstrated by record fines and enforcement actions reached in 2015. Multinationals with operations in Spain should heed the warning.

First, a bit of legislative history: Spain’s competition law is governed by Article 1 of the Spanish Competition Act, whose provisions closely follow Article 101 of the Treaty on the Functioning of the European Union. Unlike the European Union, however, the Spanish Competition Act establishes a clear-cut legal definition of a “cartel” to mean “any secret agreement between two or more competitors with the purpose of setting prices, production or sales quotas, market sharing, including bid rigging, or restricting imports or exports.”

The fines for participating in any anti-competitive activity in Spain can be significant—up to 10 percent of the company’s total turnover for serious infringements. Moreover, no sector or industry is exempt from enforcement.

The potential application of the law to U.S. companies is simple: Participation in any cartel activity that may affect all or part of the Spanish market could be subject to a civil enforcement action, even if the underlying conduct took place outside of Spain. A U.S. company that has sales in the Spanish market can also be held liable if it engages in anti-competitive behavior.

Although Spain’s competition law has been in place since September 2007, Spanish authorities hadn’t pursued many cases under the law until recently. This began to change in June 2013 with the establishment of Spain’s revamped competition authority, the National Markets and Competition Commission or, in Spanish, Comisión Nacional de los Mercados y la Competencia (CNMC).

“We are now seeing that the amount of total fines are getting higher and higher.”


Crisanto Perez-Abad, Partner, Eversheds Nicea, Madrid

The CNMC represented a merger of Spain’s former competition authority with the six supervisory sector regulators responsible for telecom, energy, railway, postal, audiovisual, and airports, creating a new “super regulator” in charge of both enforcing competition rules and regulating economic sectors. Two years into its establishment, the CNMC is now in full swing.

During 2015, the CNMC imposed a record €506 million ($554 million) in fines—the highest amount imposed since the introduction of Spain’s competition law, and a dramatic increase from the €53 million ($58 million) in fines issued in 2014, according to enforcement data published on the Commission’s website. “We are now seeing that the amount of total fines [is] getting higher and higher,” says Crisanto Perez-Abad, a partner in the Madrid office of law firm Eversheds Nicea.

Leniency program

In total, the CNMC issued more than 14 resolutions in cartel cases against 250 companies, resulting from illegal arrangements involving price-fixing, market sharing, exchanging commercially sensitive information, and other anti-competitive practices. “Spain is a hot spot for competition law enforcement,” says Alberto Escudero, head of the competition law practice in Madrid at law firm Baker & McKenzie.

Another significant reason for the heightened enforcement is that more companies are turning themselves in. This is because Spain—like the United States and the European Union—has a leniency program that offers full immunity to the first company that blows the whistle on cartel activity and provides evidence that, in the view of the CNMC, will enable it to carry out an inspection. Other entities providing additional evidence may have their fines reduced by up to 30 percent.

“It is important that the applicant cooperates fully, on a continuous basis and expeditiously through the investigation and ends its involvement in the alleged cartel immediately following its application,” says Ramón García-Gallardo, managing partner and head of the Brussels office of law firm King & Wood Mallesons.

For a company to reduce its level of liability, “the only measure is to apply for leniency,” says Perez-Abad. A leniency application may be submitted both to the national Competition Authority and to the regional competition authorities.

If applying for leniency sounds like a difficult decision to make, that’s because it is. But as the size of fines imposed continues to increase, the option of blowing the whistle via the leniency program becomes even more attractive.

SPAIN’S LENIENCY POLICY

Below are a few questions and answers about Spain’s leniency policy regarding anti-cartel enforcement.
Q: What is the official name of your leniency policy (if any)?
A: In the Spanish jurisdiction the term leniency refers collectively to the situations and the exemptions and reductions of fines provided for in Articles 65 and 66 of the Competition Act 15/2007 of July 3, 007, respectively.
Q: Does your jurisdiction offer full leniency, as well as partial leniency (i.e. reduction in the sanction / fine), depending on the case?
A: Yes, Spanish jurisdiction offers full leniency (Article 65 Competition Act) and partial leniency (Article 66 of the Competition Act). Articles 65 and 66 of the Competition Act, as developed and implemented by Articles 46 to 53 of the Competition Regulation, allow the CNMC to grant exemptions from payment of fines or reductions in the amount of fines to undertakings or individuals who inform the CNMC of the existence of a cartel and of their participation or responsibility in the cartel, accompanied by the substantive evidence at their disposal or which may be obtained through an internal investigation.
Q: Who is eligible for full leniency?
A: According to Article 65 of the Competition Act, in order to be exempted from paying the fine for which it might otherwise be liable, the applicant must be the first to provide the Competition Directorate with sufficient information and evidence to allow it to order an inspection in relation to a cartel or to establish the existence of a cartel infringement:
a) The first undertaking and/or individual who, in the opinion of the CNMC, provides the Competition Directorate with the necessary evidence to order an inspection in a cartel investigation may qualify for exemption from payment of the fine. This requirement will be deemed fulfilled if the applicant's contribution allows the Competition Directorate to order an inspection, irrespective of whether or not the inspection is successful or is even carried out, if the Competition Directorate chooses to employ other investigative instruments (Article 65.1(a) of the Competition Act).
(b) Alternatively, exemption from payment of the fine may be granted to the first undertaking and/or individual that submits evidence which, in the judgment of the CNMC, allows to legally verify the existence of an infringement of Article 1 of the Competition Act and, if applicable, of Article 101 of the TFEU, provided a conditional exemption has not been granted under the preceding point in relation to the same cartel (Article 65.1(b) of the Competition Act).
The exemption from payment of the fine granted to an undertaking shall also benefit its legal representatives, or the persons comprising the management bodies and who have taken part in the agreement or decision, providing they have collaborated with the CNMC (Article 65.3 of the Competition Act).
Source: CNMC

One circumstance in which a company may make this decision, for example, is in the event of a merger or acquisition, Perez-Abad adds. If a U.S. or U.K. company acquires a Spanish company, it may find documentation in the course of conducting its due diligence that points to a potential competition risk, he says.

Most cartel cases in Spain have originated from leniency applications, antitrust experts say. “Some of the cartel cases that we’ve had over the last few years originated from leniency applications by U.S. companies,” says Valeria Enrich, a partner and member of the competition law group in Baker & McKenzie’s Barcelona office.

Targeted industries

In 2015, automakers and auto dealers faced the bulk of fines for cartel activities, including the largest fine ever imposed by the CNMC. This action took place in July 2015, when the CNMC fined 21 of the world’s largest automakers and two dealers a record €171 million (U.S. $188 million) for engaging in anti-competitive practices.

The automakers that faced enforcement actions include, the Spanish subsidiaries of BMW, Chrysler, Chevrolet, Fiat, General Motors, Honda, Hyundai, Kia, Mazda, Mercedes Benz, Nissan, Toyota, and Volvo, among others. Among those enforcement actions, General Motors and Ford received the largest individual fines of €22.8 million ($25 million) and €20.2 million ($22 million), respectively. Volkswagen Audi, along with its Spanish brand SEAT, and Porsche were able to avoid fines by collaborating with CNMC and helping to uncover the cartel activity.

According to the CNMC, the automakers, which control 91 percent of the Spanish car market, secretly “exchanged commercially sensitive and strategic information in the Spanish vehicle distribution and after-sales market,” covering “practically all” activities from new and used vehicle sales to repair services. Such anti-competitive practices violated Article 1 of Spain’s Competition Act and Article 101 of the Treaty on the Functioning of the European Union.

The waste-management and agriculture industries also saw record fines in 2015. In the waste-management sector, 43 companies and three industry associations were fined a total of €98 million ($108 million), and nine dairy companies and two regional associations were fined €88 million ($97 million) for anti-competitive activities in their markets, according to the CNMC.

The CNMC has indicated that it’s only just warming up. Specifically, the Commission said it plans to devote additional resources to detect and deter cartel activity and expand its investigations into other industries, including financial services, telecommunications, and the digital economy (e-commerce and intermediary platforms) throughout 2016.

Upcoming priorities

The CNMC said another top priority in 2016 will be the detection 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 this end, the CNMC has created a task force specially designed to identify these kinds of activities. The agency also said it will conduct training to contract awarding bodies and create new screening systems and data analysis that improve the ability of public administrations to detect bid-rigging.

Complementing its pursuit of bid-rigging activities, the CNMC further stressed that it intends to revitalize a largely ignored provision in Spain’s Public Sector Contracts Act, establishing that companies that are sanctioned for participating in a competition law violation automatically will be banned from participating in public bids.

A ban from public bids potentially constitutes a greater deterrent than a fine in markets where the public administration awards the contract—such as healthcare, defense, public works, Escudero says. The provision is controversial, because it could result in dissolution of the company, so it’s imperative that companies “think twice” about participating in a competition law violation, he warns.

Preventing a competition law violation, however, may be easier said than done. “Most business people in Spain don’t know what is allowed and what is forbidden under competition law,” says Perez-Abad. It’s one of the areas of law that is least understood by companies, he says.

Thus, it’s important that companies implement training courses for employees at all levels of the company’s hierarchy. It’s also important to draft internal protocols spelling out clear rules on what information employees can and cannot share with competitors, antitrust experts say.

Employees should also be trained on what to do in the event of a dawn raid, or how to deal with red flags or suspicions about anti-competitive activities when they arise, says Perez-Abad. Case studies, posters, flashcards, and FAQs on a firm’s intranet are all ways in which compliance teams can help employees better understand what practices may be problematic.

It also never hurts to stress to executives the personal financial liability they face when they participate in these illegal agreements—up to €60,000 per individual. “This has happened only once, but it was annulled by the court,” says Enrich. Moving forward, however, the CNMC has warned that it intends to apply this provision in the law more aggressively than they have in the past, she says.

In case compliance and legal teams need one more incentive to review their antitrust compliance policies, a new Spanish law, incorporating the EU’s directive that took effective in October 2015, expands consumers’ right of redress for losses caused by anti-competitive behavior by advocating the use of private actions.

The EU directive requires the Spanish government to approve this legislation before the end of 2016. “This will increase the amount of antitrust private litigation,” says Enrich.

Spanish regulators are not the only ones cracking down with record fines. Cartel-busting is going global, with antitrust enforcement increasing not only among traditional antitrust enforcers—namely, the United States and Europe—but also in some of the world’s most desirable markets for overseas expansion, including Brazil, China, Hong Kong, India, and Mexico.

Given the close cooperation among international regulators, it is essential to understand thoroughly the geographic scope of a problem before reporting it and strategize on which regulators to notify first. If an organization happens to uncover issues in various jurisdictions while carrying out due diligence, “you have to file as soon as possible your leniency application in as many countries as you can,” says Perez-Abad. “Moving quickly is very important.”

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