Guest blog: Crackdown on cartels, do fines tell the full story?
The ICC/IBA Pre-International Competition Network Forum, which took place earlier this month, focused on the digital technology sector, cartels and private information, and merger control. Tasneem Azad, Managing Director, Expert Services at Kroll, and Marzena Meeson, Director, Expert Services at Kroll, explore what the sharp increase in global cartel fines means for the crackdown on cartels.
Global cartel fines stood at $4.6 billion (bn) in 2021, up by 229% compared to 2020, according to the latest report published by the law firm, Morgan Lewis.1 Does this mean that, despite some temporary loosening and amendments to competition law due to the COVID-19 pandemic, there was a marked crackdown on cartels in 2021?2
Interpreting cartel fines
The annual totals of cartel fines at global and national levels vary a lot. Identifying and proving illegal cartel activities remain challenging despite authorities utilising increasingly more effective and sophisticated tools to detect cartels.3 Once identified and investigated, one of the significant factors influencing the timing of any enforcement decision is the time taken to complete the investigation, which in turn is related to the amount of data and evidence available and the level of cooperation from alleged cartelists.4 According to the OECD, cartel investigations lasted on average two years during the period 2010-2016.5
Penalties applied in individual cases may also prove to be erratic and not always reflective of the full extent of the harm caused by the cartel. While individual authorities have well-established rules and processes for the calculation of fines and the starting position for the calculations is often the value of trade affected, there may be a number of additional limitations, considerations and policies that may affect the final value of fines.
For example, in the drainage products cartel enforcement decision, the UK’s Competition and Markets Authority (CMA) had to reduce the fine imposed on one of the cartelists from £28m to £25.4m due to the CMA’s statutory fine limit of 10% of the worldwide turnover. The other two cartelists did not benefit from similar reductions as their fines were below the 10% threshold.6
Moreover, leniency programmes often mean that the whistle-blower is granted immunity from fines.7] Daimler received full immunity from fines in the diesel emissions cleaning cartel investigation by the European Commission (EC), thereby avoiding an aggregate fine of ca. €727m.8 In comparison, the other two cartelists were fined €502m and €373m. In the absence of immunity arrangements for Daimler, the total fines imposed in this case would have been over 80% higher; at the EU level, the total fines would have been up by 41% in 2021, and at a global level, up by 18%.9
Even if a cartelist does not qualify for immunity, they might still be eligible for significant discounts if they cooperate with the authorities. Similarly, fines might be increased if the authorities identify any aggravating factors as part of their investigations, for example, if senior management was aware or actively participated in the illegal conduct or actions or if an infringement was committed intentionally rather than negligently.10
Is the value of pass-on damages a better indicator of the “harm” caused by cartels?
Whilst leniency programmes might provide a cartelist protection from penalties imposed by the authorities, prosecution by authorities does not give them immunity from being sued for follow-on damages by affected individuals and businesses. In addition, the damages are not restricted by statutory limits such as proportions of turnover. In Europe, the level of damages is typically reflective of the likely level of price increases faced by customers as a result of the cartel infringement (generally taken to be in the form of an “overcharge”). However, in the US, claimants can sue for three times the value of overcharge.
Surprisingly, few cartels follow-on damages cases have so far been considered by courts in the UK, and remarkably, the first cartel damages judgement awarded by a UK court was made in 2019.11 The likely reason for the scarcity of cases ruled on by the courts is that most follow-on damages cases are settled out of court and remain confidential.
Furthermore, it is possible that some cases were not taken to court, in part as the level of purported overcharge may not have been deemed sufficient to support individual lawsuits by affected customers or businesses. This might change going forward as a result of the relatively recent changes to the collective actions regime in the UK, and there is already some evidence that some claims that would likely not have been worth pursuing at individual levels have recently been brought in through collective actions.12 For example, individual claims against the shipping cartel in UK, if successful, are estimated at around £60 per shipped car, but the total claim brought in is valued at £150m.13
Overall, whilst fines imposed by authorities may never fully encapsulate the true harm caused by cartels, one may expect—and hope at least—that appropriately examined cartel damages claims may reflect better the levels of harm. Of course, data to corroborate this may ultimately never be made available publicly, given the confidentiality of settlements.
*Disclaimer: The content of this interview does not reflect the official views of the International Chamber of Commerce. The opinions expressed are solely those of the authors and other contributors. The above does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Readers obtain advice with respect to any particular legal matter.
[1] https://www.morganlewis.com/pubs/2022/01/global-cartel-enforcement-report-2021
[2] For example, see https://www.oecd.org/competition/Co-operation-between-competitors-in-the-time-of-COVID-19.pdf
[3] https://www.oecd.org/competition/exofficio-cartel-investigations.htm
[4] For example, the CMA’s ongoing investigation into suspected anticompetitive arrangements in the financial services sector began in November 2018, with no findings released over the last 3 years: https://www.gov.uk/cma-cases/financial-services-sector-suspected-anti-competitive-practices
[5] https://www.oecd.org/daf/competition/OECD-Competition-Trends-2020.pdf
[7] For example, UK (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/284417/OFT1495.pdf), EU (https://ec.europa.eu/competition-policy/cartels/leniency_en), South Korea (https://www.ftc.go.kr/DATA/download/eng/Quick_Link/Leniency%20Program%20of%20Korea.pdf) and Australia (https://www.accc.gov.au/system/files/Immunity%20policy%20for%20cartel%20conduct%20and%20interpretation%20guidelines.pdf) all offer full immunity to the first applicant that comes forward with information on cartel activity.
[8] https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3581
[9] Estimated using the value of fine avoided by Daimler (€727m) and EU cartel fines ($2bn) and global cartel fines ($4.6bn) in 2021 estimated by Morgan Lewis.
[10] ‘CMA’s guidance as to the appropriate amount of a penalty’, December 2021, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1041018/CMA73-_1.PDF
[11] https://www.bailii.org/ew/cases/EWCA/Civ/2019/1840.html
