Over the past few years, the fact that any “hardcore” cartel activity poses a real threat to the economy and to consumers in the EU has become ever more accepted. However, how to reflect the serious nature of these activities and to ensure that they are detected, deterred, and punished is still being debated. Across the Atlantic and even within the EU, varying opinions exist as to which enforcement approaches enhance the deterrent effect the most. What is definitely happening, however, is increases in fines for violations and the extension of potential liability to facilitators of cartels who are not actually operating in a cartelized market (as discussed in the Article preceding this one), parents of companies participating in a cartel, and the extradition to the U.S. of indicted participants in cartels involving U.S. conduct.
Increasing trend of higher fines for EU competition law infringements
As first discussed below, the level of recent fines implemented in the EU has been increasing in order to heighten their deterrent effect. Actions in the Netherlands also reflect this trend. For example, the Dutch Minister of Affairs recently announced plans to strengthen the fining policy of the Dutch competition authority (Authority for Consumers and Markets, ACM).
Specifically, in March 2014, the European Commission (the Commission) fined cartel participants active in the market for automotive ball-bearings a total of EUR 953 million. The initial fines were even higher, but were reduced due to the willingness of the companies to settle and to cooperate in the ongoing investigation. The companies were accused of secretly coordinating their pricing strategy vis-á-vis customers for more than seven years throughout the European Economic Area. Ball-bearings are just one of about a hundred automotive components, and this decision was only a “small” part of a larger effort to investigate cartels in the automotive parts industries. More high fines can be expected. The Commission’s Vice President Joaquín Almunia expressed the hope that “the fines imposed will deter companies from engaging in such illegal behavior and help restore competition in this industry.”1
As previously noted, the Dutch Minister of Economic Affairs announced plans to amend the fining policy of the ACM. After research conducted by a third party agency indicated the low deterrent effect of the current fines, the Minister proposed to increase the absolute fine from EUR 450.000 to EUR 900.000, and to change the base of the relative fine from the yearly turnover of a wrongdoer involved in a cartel to its combined turnover during the years that the cartel took place (limited to a maximum of four years). Additionally, in case of recidivism, the ACM will be able to double the legally permitted maximum amount.
Whether the imposition of higher fines is the most effective way to improve compliance with competition law is arguable. The tendency of EU member states to adopt laws enabling the criminalization of cartel activities suggests that monetary penalties may not be sufficient.
Liability for the cartel conduct of a subsidiary or facilitator
Under EU law, liability for a competition law breach by a particular company attaches to the entire economic entity of which that company forms part. As a result, a parent company can be held liable for the infringement of a subsidiary when it exerted influence over the subsidiary. Influence is presumed, however, when the parent holds (nearly) all of the subsidiary's shares.
On April 2, 2014, the Commission related that a private equity firm exercised decisive influence over a wrongdoing portfolio company solely because of the parent’s voting rights and board representation.2 This was the first time that liability has been extended to private equity firms for the competition law infringement of a portfolio company.
Additionally, as noted in the preceding Article, facilitators of cartels are subject to all of the potential liability of those companies that actually carried the cartel forward through their direct business operations. The fact that the facilitator did not in fact participate directly in the cartelized market is of no matter.
The prosecution of international cartels—extradition
On April 4, 2014, the U.S. Department of Justice announced the first successful extradition of a foreign national to face a prison sentence in the U.S. for an antitrust violation. This could mark the start of an aggressive pursuit to prosecute foreign nationals who have infringed U.S. competition rules, thereby increasing the level of deterrence by means other than high administrative fines.
Romano Pisciotti, an Italian national and former executive of Parker ITR Srl, was indicted in 2010 for participating in a conspiracy to fix prices, rig bids and allocate market shares for marine hose products. In 2013, he was arrested in Germany while on a layover at the Frankfurt airport on his return to Italy from Africa. Because he was not a German citizen, he was extradited to the U.S. this year pursuant to a German treaty with the U.S. Last month, he pleaded guilty to one count of conspiracy in the U.S. District Court in Miami and was sentenced to two years imprisonment (with credit for the time he was held in German custody pending extradition).
Successful extradition to the U.S. requires: (i) an extradition treaty with the country in which the individual is located, (ii) an existing law in the relevant jurisdictions criminalizing the same conduct, and (iii) the permissibility of extradition in both countries. German law has criminalized bid-rigging, and the country had an extradition treaty with the U.S. Pisciotti, as an Italian national, was not given the same protections to extraditions as German nationals, and the extradition application was successful. The U.S. Department of Justice views extradition as “a significant step forward in our ongoing efforts to work with our international antitrust colleagues to ensure that those who seek to subvert U.S. law are brought to justice.”3
However, more successful U.S. extraditions in the future will depend on the ‘criminalization’ of cartel activities. EU member states do not see eye to eye regarding such criminalization. For example, while the Netherlands intends to increase its administrative fines, the UK has already adopted criminal sanctions for cartel activities. Accordingly, it is unclear how much of a trend was started with the recent extradition of an Italian national.
The implementation of higher fines, extension of liability to parent companies and facilitators of antitrust conspiracies, and the use of extradition of foreign nationals should deter companies and individuals from participating in cartel activities. However, this increasing trend to capture and punish cartel activities should not overshadow the main goal of EU competition law: to promote and maintain competition in the marketplace.