The entry into force on July 1, 2016 of amendments to the Dutch Competition Act (Mededingingswet) and the Establishment Act ACM (Instellingswet ACM) significantly increases the statutory fine limits for cartels and a number of other competition law infringements in the Netherlands, up to eight times the limit that applied before that date.
The amendment was triggered by two studies commissioned by the Minister of Economic Affairs in 2013 and 2014 into the effectiveness of cartel fines and their deterrent effect on potential infringers. The outcome of these studies was that the previous maximum fine for violations of the cartel prohibition at 10 percent of the annual global group turnover of the infringer – the same fine limit that applies in EU competition law (article 23(2) Regulation 1/2003) and in many other EU member states – might not have sufficient deterrent effect, in particular in two situations.
First, the studies found that for cartels of long duration, the benefit for the cartelists continues to increase the longer the cartel is in existence, whereas the maximum fine they can incur stops growing when it hits the 10 percent maximum. It was observed that such perseverance creates an incentive for cartelists to remain in the cartel and to keep the cartel running for as long as possible. The result is that while costs to society keep increasing, the cartel participants do not face any increased risk.
Second, it followed from the studies that the statutory maximum limit for fines could reduce the effectiveness of a previous measure designed to discourage cartel participation by repeat players. In 2009/2010, the Dutch government started applying a so-called high trust, high penalty approach, aimed on the one hand at providing guidance rather than sanctions and giving companies the benefit of the doubt in case of non-intentional violations (for instance by taking commitments from companies aimed at ending violations and preventing future infringements, instead of imposing fines), but on the other hand at imposing harsher sanctions for intentional violations, including cases of recidivism (i.e. committing an infringement a second or further time after having been fined for it). As one exponent of this policy, the policy rules for the calculation of cartel fines were changed, with the result that in a case of recidivism, the fine as calculated on the basis of the policy rules could be doubled. Because the statutory limit was not changed, however, it was observed that the amendment to the calculation mechanism would not be effective in cases where the fine as calculated would subsequently have to be reduced for exceeding the statutory maximum.
In the preparatory documents of the draft amendment act, citing statistics on cartel fines over the period 2010 – 2014, the Minister of Economic Affairs illustrated that such effects of the 10 percent fine limit were not just imaginary. During those five years, a total of 32 cartel fines imposed on undertakings had to be cut off at the 10 percent limit.
The newly amended article 57(2) and (3) Dutch Competition Act (DCA) provide that for cartel fines, the statutory limit of 10 percent of the undertaking’s annual global turnover is to be multiplied by the number of years that the infringement lasted, with a maximum of four years. This effectively raises the statutory fine limit to 40 percent of annual global group turnover if an undertaking participated for four years or longer in a cartel. Furthermore, according to new article 57(4) DCA, in case of recidivism (defined essentially as committing an infringement within five years from a previous similar infringement), the statutory limit is doubled, potentially raising the limit to 80 percent of the undertaking’s annual global group turnover. The maximum fines for violating the abuse of dominance provision and for failure to notify a concentration are not amended and remain at 10 percent of the undertaking’s global annual group turnover.
With the same amendment act, the absolute fine limits for several other violations of the DCA and the Esablishment Act ACM are doubled from €450,000 to €900,000. This new limit applies to fines imposed on natural persons and to certain technical violations, such as a failure to cooperate with an ACM investigation. This increase is partially based on the same considerations relating to the effectiveness of the DCA and partially should be considered as an inflation correction – the absolute fine limits have been the same since the introduction of the euro in 2002.
While the new fine maxima are law from July 1, 2016, they will only be applied with respect to infringements of the DCA starting on or after that date. For past violations or violations already in existence on the date of entry into force, the previous lower fine limits will continue to apply on the basis of article 7(1) ECHR. This means that it will probably take some years before the new statutory maximum fines will be applied in practice. It also remains to be seen to what extent the Dutch Competition Authority will make use of its ability to impose higher fines, since only the statutory limit is increased but not the way in which fines are calculated, nor the Authority’s considerable discretion in the process. In reviewing competition fines, moreover, the Dutch courts have made extensive use of their full jurisdiction to review the proportionality of competition fines and have lowered fines by up to 90 percent (in the case of Wegener and individuals/ ACM, Rotterdam District Court 27 September 2012, ECLI:NL:RBROT:2012:BX8528). It therefore remains to be seen whether the prediction of the Minister of Economic Affairs in answer to Parliamentary questions – that in a number of years the total amount of fines annually imposed by the Dutch Competition Authority may increase by some 50 percent – will come true. It nevertheless is certain that after July 1, 2016, the regulatory risk attached to entering into a cartel in the Netherlands has significantly increased.