United States: Cartel Regulations 2017: Introduction

Cartel regulation involves the enforcement of antitrust laws that prohibit horizontal agreements between competitors to fix prices, manipulate bidding processes and otherwise divide the market, as well as the enactment of legislative policies to further dissuade collusive behaviour among competitors that directly controls or affects price.

Beyond price-fixing and bid rigging, cartels encompass practices such as allocating customers, geographic territories or particular markets and agreeing to predetermined output restrictions. In most jurisdictions, naked agreements to fix prices or other elements of competition that directly affect price are illegal per se. In Brazil, South Africa, Canada, the United Kingdom and the United States, price-fixing and other "hard-core" cartel violations can carry criminal penalties, while in other jurisdictions, including the EU and some Latin American countries, cartels are prosecuted as civil violations. Regardless of whether the enforcement regime is criminal, civil or administrative, cartels are generally regarded as the most pernicious antitrust violations and accordingly carry with them the stiffest penalties in the antitrust context. As a result, corporations that are the subject of cartel investigations face the possibility of significant monetary fines, compliance monitors and other serious penalties, and in some jurisdictions (eg, the United States), individuals indicted for their participation in cartels also face the possibility of monetary fines and incarceration.

Over the past decade, antitrust authorities around the world have the investigation and prosecution of cartels. Enforcers in Brazil, Chile, Colombia, the EU, the US and other countries have publicly expressed their governments' intensified focus on combating cartels, and China, Japan and Mexico have recently garnered attention for their intensified cartel enforcement activity.

While enforcement efforts vary from country to country, two universal themes have emerged globally: first, the amount of monetary fines imposed on companies, particularly in smaller jurisdictions, continues to increase, with fines in the first half of 2017 outpacing fines imposed in the first half of 2016 in several countries; and second, more jurisdictions are criminalising cartel behaviour by individuals in an effort to deter violations of antitrust laws in the future.

For the past few years, global cartel cases have dominated the news, as UK, US and EU enforcers issued staggering fines against high-profile companies implicated in the cross-border banking and automotive parts conspiracies. In May 2015, six global banks agreed to pay more than US$5.8 billion combined to settle criminal charges levied by UK and US authorities for alleged LIBOR and Forex manipulation. At the same time, investigations and prosecutions swept the worldwide auto parts industry; in the US alone, the auto parts investigation grew into the largest antitrust enforcement matter in the country's history, totalling over US$2.9 billion in criminal fines from charges against 48 companies and 65 individuals. Together, these massive cases resulted in a record-breaking year for the Department of Justice Antitrust Division, which ultimately obtained more than US$3.6 billion in criminal fines in 2015. As the auto parts cartel matter wound down in 2016, the Division totalled US$399 million in criminal fines that year.

With the election of US President Donald J Trump, 2017 has brought a wave of transition at the Antitrust Division. Assistant Attorney General Makan Delrahim replaced Renata Hesse at the helm, and former deputy for criminal antitrust enforcement Brent Snyder stepped down to take a leadership role at the Hong Kong Competition Commission (and has been temporarily replaced by Marvin Price). It remains to be seen whether the change in administrations will result in any discernible shift in cartel enforcement priorities, although preliminary observations do not suggest any significant departure from recent Division practices in this area. Deputy Attorney General Rod Rosenstein did announce in October 2017 that he plans to review and reconsider the 2015 Yates Memo, which outlined an enhanced Department of Justice focus on holding individual executives personally accountable for company crimes, but it is not yet clear what changes, if any, will be made to DOJ policies in this regard and how any such changes will impact cartel enforcement. More significant than personnel changes however, is that for the first time in over a decade, the Antitrust Division does not have a major, publicly acknowledged cross-border cartel investigation dominating its agenda. Consequently, the Division has shifted its focus to pursuing domestic investigations that will likely result in more modest fines. Ongoing probes include price-fixing in each of the generic drug, packaged seafood and water treatment chemical industries, as well as bid-rigging of real estate foreclosure and municipal tax lien auctions.

Meanwhile, the European Commission has steadily and vigorously pursued cartelists, imposing nearly €3.5 billion in fines in 2015 and 2016 combined, 10 times the fines imposed from 1990–1994. In July 2016, the Commission imposed its single largest fine to date – €2.9 billion – against five truck makers that were accused of price-fixing and agreeing to delay the introduction of improved emissions technology in their trucks. One truck manufacturer opted not to settle the EC's charges in 2016, but after the Commission carried out its full investigation, the manufacturer was fined €880 million in 2017 for having participated in the pricing and emissions conspiracy for more than 14 years. Also noteworthy in 2017 was the Commission's re-adoption of a 2010 decision penalising 11 air cargo providers more than €776 million for an alleged price-fixing cartel. The EU General Court annulled the Commission's original decision based on a procedural error, but did not rule on the existence of the cartel, and the Commission stated that it has since addressed the procedural error and re-instated the fine. Overall, the Commission is slated to impose more than €1.9 billion in criminal fines in 2017 against companies in a variety of industries, including thermal systems, automotive light fixtures, air freight, trucking, and paper goods.

A trend towards increased cartel enforcement has also taken hold in Latin America, where, for example, fines for antitrust violations in Colombia have jumped 7,000 per cent since the enactment of new competition laws in 2009., Chile's Parliament and Senate have approved legislation criminalising cartels and removing the US$22.5 million cap on fines imposed on companies for cartel participation. The bill remains subject to approval by Chile's President and constitutional court, but is expected to pass. Brazil's Conselho Administrativo de Defesa Econômica (CADE) grabbed international headlines in 2015 when it announced an investigation of more than 20 companies and 59 individuals that participated in an alleged bid-rigging cartel for service contracts with state-run Petroleo Brasileiro worth approximately US$8.9 billion. CADE obtained information for its investigation in part through inking leniency agreements with several companies and individuals that confessed to participation in the cartel. In 2016, CADE levied fines of US$89 million against six orange juice producers and their trade association, a notable result of more than a decade of investigation related to collusive practices in that industry. Though its enforcement activity has slowed somewhat in 2017, CADE did approve four cease and desist agreements, two with members of an alleged cartel in the air and maritime international freight services market (where Brazil is the origin or destination) and two with participants in an alleged conspiracy in the national market for refractory ceramic rolls.

Mexico's antitrust enforcer, Comisión Federal de Competencia Económica (COFECE), has also ramped up cartel enforcement activity in 2017, imposing US$90 million in fines compared to just US$10.6 million in 2016. Finally, the Japan Fair Trade Commission (JFTC) in 2017 imposed two large fines against companies in the manufacturing and energy sectors, amounting to US$60 million.

An important feature of the increased attention to cartel activity has been the development of leniency programmes by antitrust enforcers around the world. Under a leniency programme, the government may grant leniency from prosecution to cartel members who report the conspiracy and assist the government in its investigation. In addition to the EU and US, more than four dozen jurisdictions globally have adopted leniency programmes, including several countries in Latin America. These leniency programmes, under which cartel participants have an overwhelming monetary incentive to be among the first in the door and avoid stiff penalties, have been publicly credited by global enforcers as being instrumental to their ability to uncover and dismantle cartel activity. In the European truck cartel referenced above, a major manufacturer revealed the existence of the cartel and therefore was not fined for its participation in the matter; in Chile, two recent cartels in the shipping and asphalt industries were dismantled because leniency applicants divulged information to the country's antitrust enforcer (Fiscalía Nacional Económica or FNE). In March 2017, the FNE published a new version of its Leniency Guidelines, under which the first and second applicants may obtain immunity and reduction of fines. The Guidelines also explicitly state that information in leniency applications will remain confidential, even in the face of requests from national and international authorities for information about applicants. In an effort to encourage similar participation, Brazil has expanded its leniency programme to capture more than just the first applicant to come forward.

As cartels become more sophisticated and globalised, enforcers are more likely to work together to bring extraterritorial actions against alleged participants for conduct that affects prices in several jurisdictions. In the same vein, multinational organisations – namely, the International Competition Network, which boasts a membership of 126 antitrust agencies and a cartel-focused working group, and the OECD Competition Committee – have hastened the development of antitrust regimes in emerging markets. This reference section serves as a practical guide to the basics of Latin American cartel regulation, including recent trends in enforcement, penalties and leniency opportunities.

Originally published by Latin Lawyer's Cartel Regulation Reference.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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