Cartel Crimes: US, Europe & Australia View
CCI's cartelization order against 11 cement companies has been the subject of much debate. The 6600 crore rupee penalty was a headline grabber for sure. But equally important was the reliance on circumstantial evidence to establish the charge of cartelization. It is this lack of hard evidence that prompted us to look overseas….to examine how cartelization has been elsewhere in the world. As Payaswini Upadhyay toured USA, Europe & Australia, she discovered that successful prosecutions by competition regulators have often relied on hard evidence made available by insiders.
"The popular mind is agitated with problems that may disturb social order, and among them all none is more threatening than ... the concentration of capital into vast combinations. ... Congress alone can deal with them and if we are unwilling or unable there will soon be a trust for every product and a master to fix the price for every necessity of life."
- John Sherman, Senator, Ohio
And so, with the intention to curb monopolies and cartels that threatened free markets, the United States pioneered competition law in the form of the Sherman Anti-Trust Act in 1890.
Principal, Microeconomic Consulting & Research
Former Advisor, Competition Policy, World Bank Group
"The US is the leading jurisdiction with respect to cartel law enforcement. It dates back to 1890 when the Shearman Act was passed and very shortly after that in1892 was the first case relating to conspiracy or illegal agreement in restraint of trade. Since then, there have been numerous cases. But since the mid 90s, there has been a rapid increase in cartel prosecution mainly because of the changes in the law or policy with respect to the Leniency programme as it's described."
USA's Leniency Program dates back to 1978 under which cartel participants were given immunity from criminal prosecution. But this immunity was not automatic and the department of justice retained substantial discretion. The response was tepid. So in 1993, the department expanded this amnesty programme to incentivise companies to co-operate with investigations. The key changes included automatic amnesty for a company if there was no pre-existing investigation. The Anti-trust Division also extended the programme to those who co-operated after an investigation had started. Employees who agreed to co-operate also received automatic amnesty. The changes did wonders to USA's anti-cartel regime.
Partner, Paul, Weiss, Rifkind, Wharton & Garrison
"The government gives amnesty to any participant in a cartel other than the ring leader who voluntarily identifies the existence of the cartel to the Justice department. That means that there will be no criminal fine for the organization and it also means current executives and employees will not be subject to prison time- that's a major incentive for a company when it discovers it is a participant in a cartel- to self identify to the government and confess about its participation. The net result of that is many cartels are revealed by participants. The $6bn in fine that the government has collected in the last 15 years, about 90% of that is directly attributable to the amnesty programme or the participant of those programmes."
The Amnesty or Leniency programme has often allowed for the anti-trust division to collect enough evidence to prove the cartelization charge. In some cases dramatic evidence!
Partner, Paul, Weiss, Rifkind, Wharton & Garrison
"One of the most celebrated cartel investigations the government has done is of feed additive investigation which involved ADM many years ago where an executive from ADM agreed to wear a wire and agreed to advice the cartel meetings were occurring so that the government actually install cameras and videotaped meetings among cartel members. That video has been shown in any number of public foray – its very striking and very dramatic evidence of an active cartel."
Besides the leniency programme the Anti-trust division's work has been aided by other powers such as search and seizure or dawn raids. Powers shared by the European Competition Commission. And used to good effect in the gas market case.
In 2009, surprise inspections carried out by the Commission led to a fine of 1.1 billion euros in the energy sector. The case involved German utility E.ON and its French competitor- GDF Suez- who agreed not to sell imported natural gas to each other's home markets after jointly building a pipeline from Russia to Western Europe.
Partner, Slaughter & May
"The gas market case was a situation where the Commission was looking into the market anyway and it found evidence to suggest cartel activity. So it launched its own investigation. There were only 2 parties involved and neither of them applied for immunity. So in that situation, the Commission relied solely on its ability to launch dawn raids, turn up on premises unannounced and acquire documents from the relevant parties."
But the gas market case is among a handful in which the ECC had no help from the inside. Otherwise, just like in the U-S, most of Europe's successful cartel investigations have also been aided by a leniency programme. Take the 1.3 billion euro car glass case. An anonymous tip-off led to an investigation against 4 companies accused of discussing target prices, market sharing and customer allocation in a series of meetings. One of the 4 companies – Asahi – cooperated with the ECC and got a 50% reduction in penalty under the Leniency notice.
Similarly, the cartel investigation by the ECC against elevator and escalator manufacturers in Belgium, Germany, Luxembourg and the Netherlands was a success because KONE's subsidiaries took recourse to the immunity programme.
Partner, Slaughter & May
"We've had an amnesty programme in the EU for quite a long time now. The structure was changed in 2006 but it was available before that. It was hugely effective. Almost all cases involve a leniency applicant in some form and what tends to happen is you have the dawn raid and then you have quite a race for immunity because the first person who gets through the door gets a 100% immunity from fine."
The second applicant claiming immunity gets a 50% reduction in fine and the last band is 20%. The immunity programme has helped the ECC collect over 18 billion euros in cartelization fines over the last 20 years.
In 1990, United States was the only country that had a leniency programme. Today over 50 jurisdictions have amnesty provisions for cartelization cases. The Australian experience is similar to that of US and Europe- an effective leniency regime for disclosing cartel behavior. Sometimes that has meant one participant turning against the other when only two of them existed as a cartel.
Visy and Amcor shared 90% share of the $1.2 billion cardboard box market in Australia. Between 2000 to 2004, the two companies conspired to raise prices of their products while maintaining their respective market shares. But then, Amcor's management decided to share this information with the ACCC.
Partner, Johnson Winter & Slattery
"It's an interesting case because the lawyers for Amco at that time were looking at some documents relating to an employment dispute and looking at those documents, they came across this information about the cartel and they notified the client, the client went to ACCC and applied for immunity. Amco and Visy had 90% market share at that time and they were the two key competitors and the ACCC brought the case against Visy; it didn't bring the case against Amco because they had immunity and ultimately Visy was fined 36 million dollars in terms of the company engaging in cartel conduct."
India is only now recognizing the benefits a leniency programme can bring to establishing cartel. This week, as we were putting this story together, the CCI advertised, for the first time its leniency programme- promising both immunity and confidentiality. But will leniency work as well in India? Experts say the Competition Act does not mandate immunity to all informants. Unless the CCI clarifies this position, insiders may not be forthcoming with hard evidence….and CCI may have to rely upon its own investigation ability to collect direct evidence or pray that circumstantial evidence will pass muster
In Mumbai, Payaswini Upadhyay.