Enforcing ban on cartels: more carrot, but also more stick?

Competition authorities have two instruments in investigating and penalizing cartels: the stick of high fines and the carrot of leniency for parties that come forward and report their involvement in a cartel. With regard to the carrot, the Netherlands Authority for Consumers and Markets (Autoriteit Consument en Markt; “ACM”) made significant progress last year. In 2014 its leniency policy was broadened. Unlike in the past, immunity will be possible in future after ACM has already launched an investigation into the cartel.

The Chairman of the Board of ACM, Chris Fonteijn, stated that ACM hopes that this approach will increase the willingness to come forward to ACM with information about a cartel. Fonteijn considers the broadening of the leniency policy an important development, because in approximately half the cases ACM does not launch a cartel investigation after a leniency application. In these cases ACM has a pending ‘ex officio’ investigation into a suspected cartel. In the past a leniency applicant did not qualify for immunity from fines in these cases. That has changed, however. According to Fonteijn this means that if companies are confronted with an unannounced dawn raid by ACM, immunity from fines will still be available in approximately half the cases. Immunity from fines for the first applicant of a cartel into which ACM has already started an investigation is available as long as the application for a reduction of a fine contains information of sufficient added value.

Furthermore, with the ACM’s new leniency policy provides for higher reductions of fines for leniency applicants than in the past. The Dutch leniency policy has thereby been brought in line with the leniency policy of the European Commission, which should make mutual cooperation easier, according to Fonteijn. Schematically, ACM’s current leniency policy is as follows.

And now for the stick. Agreements made by the coalition government were reason for the Ministry of Economic Affairs to draw up a report on the legal and economic feasibility of measures to increase ACM’s income generated by fines. In a well-researched report the State Advocate (Pels Rijcken & Droogleever Fortuijn) and research agency Sirm (Strategies in regulated markets) found that various measures can be taken to increase ACM’s income generated by fines. We previously addressed the feasibility of these measures in this blog. It did not stop there, however. In July 2014 Minister Kamp of the Ministry of Economic Affairs presented a bill that considerable increased ACM’s fine ceilings. The consultation on the bill, which gave rise to various critical responses, was completed in September 2014. The bill that will lead to an increase of ACM’s fine ceilings will be presented to the Dutch Lower House this year.

Minister Kamp’s aim in presenting this bill is to increase the maximum fine for cartelisation from ten per cent of the annual revenue to ten per cent of the revenue generated during the years of the violation. The maximum fine for a repeated violation will furthermore be doubled. In other words, the appeal of the carrot is being enhanced while the threat of the stick is being increased at the same time.

By the same token ACM is demonstrating that it can tackle cartel cases with its current means. ACM’s approach in the past was to fine de facto directors with regard to cartels as well as the companies in question. The end of 2014 marked the first time ACM imposed fines on investments firms for their involvement in a violation of the cartel prohibition. ACM was of the opinion that the fined investment firms had decisive influence with regard to one of businesses involved in the ‘flour cartel’.

The administrative courts remain critical in their assessment of ACM’s penalty decisions. That is apparent from the ruling of the District Court of Rotterdam concerning ACM’s penalty decisions on bell peppers in the summer of 2014. At the end of 2014 the District Court of Rotterdam also lowered a fine of a penalty decision by as much as ten per cent on the grounds of the serious consequences of ACM’s fine. If parliament accepts the proposed increase of the stick, parties will urge judges to very critically assess penalty decisions even more than in the past.

A measure that appears to be missing from ACM’s toolbox is an effective settlement procedure. Out of the nine cartel cases that the European Commission managed to complete in 2014, no less than seven ended in the application of its settlement procedure. That might serve as a useful carrot for ACM as well.

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