Cartel operations are often hidden from the public and can have a negative impact on markets. They may also pass along significant fees to consumers, without their knowledge. It is important to investigate cartels and ensure that organisations are willing to cooperate. In this article, Natalie Greenwood, partner of Euclid Law examines cartel law, defining what a “cartel” is under EU law, and how businesses can respond to an investigation.
What are the main principles that govern cartel investigations within the EU to set the foundation for the discussion?
Cartel is a term used to describe a secret agreement between two or more companies to not compete against each other. Cartel participants are usually involved in fixing the price, limiting production or sharing markets, or in engaging in bid-rigging and other similar conduct.
It is possible, however, that even the exchange of information that could be deemed competitively sensitive may be enough to qualify as cartel behavior. The Commission, for example, fined banana suppliers who exchanged quotation prices that they then quoted customers but were not the prices actually charged.
The European Commission is empowered to investigate cartels and enforce EU law. The national competition authorities in Europe all have the same powers to enforce European competition law (if they are part of the EU).
How do these investigations work and what information is gathered?
The competition authorities can initiate investigations using information from the parties involved in the investigation, third-party complaints, or their own data. This includes data from teams of data analysts who scour information to find patterns that may indicate anticompetitive behavior.
At the beginning of an investigation, a competition authority can conduct unannounced (or dawn raids) inspections – usually at multiple companies and locations. The competition authorities have extensive powers when conducting dawn raids. Obstruction of inspections may result in heavy fines. In 2019, Fender, a musical instruments company in the UK, was fined PS25,000 for an employee who removed 10 notebooks during a dawn raid and hid them at a junior employees flat.
The authorities will also collect information by contacting individuals and conducting interviews.
In the event that a competition authority decides it wants to pursue the case, they will give the parties a Statement Of Objections, and allow them access to the file. This gives them the opportunity to defend themselves and the evidence presented against them. The competition authority will then issue its decision including the fine following the response.
The parties can also seek a settlement in order to end the investigation. This will usually involve an admission to guilt in exchange of a reduced fine.
What are the typical penalties or sanctions that companies can face in the context of EU Competition Law if they have been found to be involved in a cartel.
Sanctions are possible. The European Commission has the power to impose fines up to 10% of a company’s global turnover for the year prior. The Commission fined EUR2.224 billion between 2020 and September 2023 (down from EUR8 billion during 2015-2019). Daimler was the biggest cartel to be fined, with just over EUR1billion in 2016.
There may be extra costs associated with participating in a cartel. There are also individual criminal sanctions, such as in the US, Canada and the UK. Director disqualifications can be imposed in the UK, Ireland and Sweden. The Competition and Markets Authority in the UK can disqualify directors for up to 15-year periods. It has used this power frequently, and 25 disqualifications have been obtained since February 2019. In general, ignorance of competition law does not excuse a person from committing a crime.
A cartel may also prevent companies from participating in public procurement or bidding. The European Commission wanted to ban 10 banks in 2021 from participating in the bond sales of the EUR800billion recovery fund because they had been involved in competition law violations.
In addition to the costs and time required for a company to respond to a competition law investigation, companies also suffer significant reputational damage.
Customers may also choose to file civil lawsuits for damages against cartel participants. These are now often collective actions, which aggregate damages claims from affected parties against an individual business that has been found to have violated competition laws. In an increasing number of European nations, collective actions are being introduced to make it easier to bring these claims. In addition to the almost EUR3 billion fines imposed by the Commission on the truck manufacturers in the trucks cartel these manufacturers now face damages claims in the millions brought by their clients who seek money back from any overcharges resulting from this cartel in several European countries including the UK.
Can You explain the role of leniency programmes in EU cartel investigations?
It is often difficult for the competition authorities to detect cartels because they are secret agreements. In order to combat this problem, leniency programs offer companies that are involved in cartels and provide evidence to authorities either immunity from fines or a reduction of fines.
Due to the increase in private damages suits, which could result in leniency applicants paying large sums of money to their customers as compensation for cartel involvement, and the increased enforcement of cartels worldwide, the incentives for leniency may not be as clear for firms as previously appeared.
How would you advise a company facing a newly initiated cartel investigation?
First, I would say to take this seriously and hire good lawyers. The attention and support of senior management is essential, as well as a small group that can make decisions about day-today issues and escalate strategic matters quickly and appropriately.
Early on, you will need to make many strategic decisions. It is possible that a leniency candidate has already been granted immunity. You may be able apply for leniency to receive significant fine reductions if you are willing to admit your guilt and provide’significant additional value’ to the competition authority. You will be more likely to get leniency if you submit this information earlier. To make early strategic decisions, you will need to quickly understand the role of your business in any potential violation.
Prevention is always better than cure. Regular training is essential to ensure your company is familiar with competition law, especially in high-risk areas with frequent contact with competitors. Also, make sure that you know how to respond in the case of a dawn-raid.
About Natalie Greenwood
Natalie Greenwood, a partner with Euclid law, has over 18 years of experience in advising clients on all aspects EU and UK Competition Law. Natalie Greenwood is a partner at Euclid Law with over 18 years’ experience advising on all aspects of EU and UK competition law. She has dual qualifications in England & Wales as well as Spain. Natalie advises clients on a wide range of issues including cartels and mergers, joint-ventures, distribution, behavioural antitrust and foreign direct investment. Natalie joined Euclid Law at the beginning of 2019 after working for 5 years in an internal competition team. She also worked previously for a Magic Circle firm.
About Euclid Law
Euclid Law, a boutique firm, focuses exclusively on competition law and direct foreign investment. Euclid law has offices in London, Brussels and other key jurisdictions in the world. With its in-depth knowledge and contacts in these jurisdictions, Euclid can advise clients in Europe and abroad on all aspects of foreign direct investment and competition law.
Natalie Greenwood
Partner, Euclid Law
34 Settles Street, London, E1 1JP, UK
Tel: Tel: + 44 20 3816 3913
www.euclid-law.eu