Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360,...
Transcript of Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360,...
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CartelEnforcement’sNextWave
Law360,NewYork(February25,2011)‐‐Thesurgeofglobalcartelenforcementresultingfromtheadoptionofnewandenhancedleniencyprogramsworldwideandfromincreasedcommunicationsamongglobalenforcersiswellknown.
Therearenowover100jurisdictionsthatprohibitcartelbehavior,atleast35ofwhichhaveseenrecentenhancementtotheirleniencyprograms.[1]
Nonetheless,mostinvestigationsintheheadlinescontinuetoinvolvearelativelysmallandactivegroupofjurisdictionsbecausethewidespreadpassageofanti‐cartelpolicieshasnotnecessarilytranslatedintotheirvigorousimplementation.
Theswellofanewwaveofcartelenforcement,however,hasbeguntoriseinChina,IndiaandMexico,eachofwhichisripeforincreasedcartelenforcement. MichaelFanelli
ChinaandIndia,twooftheworld’smostrobusteconomies,bothhavenascentcompetitionlaws,whichonlyhavebeguntoseeenforcement.
However,recentclarificationstoChina’sleniencyprogrammayencourageself‐reporting,andrecentjudicialdecisionsinIndiahaveloweredproceduralhurdlesforenforcers.Mexico,whichhasan
establishedcompetitionlawregime,maybeonthebrinkofchange,asproposedlegislationwouldestablishmoreserioussanctionsandprovideenforcersmoreeffectiveinvestigatorytools.
ChinaTheChineseagencieswithcartel‐relatedenforcementpowersaretheStateAdministrationofIndustryandCommerce(SAIC),whichisunderstoodtoberesponsiblefornon‐price‐relatedconduct,andthe
NationalDevelopmentandReformCommission(NDRC),whichisunderstoodtoberesponsibleforprice‐relatedconduct.[2]
Bothenactedrules,effectiveFeb.1,2011,containingimportantclarificationstothepenaltiesthatmaybeimposedforcartelviolationsandthebenefitsthatwillbeextendedtoleniencyapplicants.
LeniencyProgram
TheAnti‐MonopolyLaw(AML)vaguelydefinedChina’sleniencyprogram,providingthat,“[w]hereanybusinessoperatorvoluntarilyreportstheconditionsofamonopolyagreementandprovidesimportantevidencetotheanti‐monopolyauthority,itmayreceiveamitigatedpunishmentorexemptionfrom
punishment.”[3]Theuseoftheword“may”suggestedthatsomediscretioncouldbeexercisedwithrespecttoadecision
tograntleniency,providingpotentialapplicantslittlecertaintyastothepossiblebenefitsofself‐reporting.Consequently,thoughtheleniencyprogramcameintoeffectin2008,ithasnotbeenperceivedtohavehadasignificanteffectonenforcement.
ThenewSAICrulesprovidegreaterclarityandpossibleincentivestoself‐report.Translationsofthenewruleshavebeenunderstoodtoprovidethatthefirstapplicanttoreportitscartelactivityonitsown
initiative“should,”ratherthan“may,”receiveanexemptionfromanypenaltyarisingfromanti‐competitiveconduct.Consequently,applicantsshouldhavegreaterconfidencethattheywillreceivethebenefitofbeingfirsttoreportandthatthedecisionwillnotbediscretionary.
Subsequentapplicants,however,continuetohavelesscertainty,astherulesprovidethatthey“may”
alsoreceiveawaivedorreducedpenaltyanddonotspecifytheamountofreductionorcriteriawhichwillbeusedbytheagency.[4]Also,althoughmonetarypenaltiesmaybewaived,theagencyisstillentitledtorecoupillegalmonopolyprofits.Thisissimilartotherestitutionobligationcontainedinother
leniencyprograms,includingtheU.S.program.[5]AlthoughtheSAICrulesprovidemorecertaintyregardingleniency,theNDRCrules,bycontrast,appear
tomaintainagencydiscretion.ThelanguageechoestheAML,statingthattheagency“may”grantexemptionsfrompenaltiestothefirstleniencyapplicantandtosubsequentapplicants.UnliketheSAICrules,theNRDCrulesfurtherdefinethebenefitsavailabletosubsequentapplicants:asecondapplicant
mayreduceitspenaltyby50percentormore,whileapplicantsthereaftermayreceiveareductionofpenaltiesbylessthan50percent.
ThenewruleshavetakenChina’sleniencyprogramseveralstepsclosertowhatmaybecomeaveryeffectiveenforcementtool.Nonetheless,thesignificantremaininguncertaintiesandlackofestablishedpracticeislikelytocontinuetodetermanyapplicantsfromparticipating.
India
LastyearwasthefirstfullyearinwhichtheprovisionsofIndia’sCompetitionActrelatingtoanti‐competitiveagreementswereineffect,buttheinvestigatoryactivityandenforcementactionsoftheCompetitionCommissionwerelimited.[6]Apairofrecentjudicialdecisions,however,havepavedthe
wayformorevigorousenforcement.AsstatedrecentlybyaformerchairmanoftheCCI,“the[Competition]Commissionisgettingover[its]earlyteethingtroubles.”[7]
TheCCImayinitiateacartelinvestigationbasedoneitheritsowninitiativeoronthird‐partyinformation,butitmusthaveprimafacieevidenceofaviolationtoproceed.Untilrecently,CCIinvestigationshadbeenhinderedbyuncertaintyovertherightofapartytonoticeandahearingatthe
inceptionofaninvestigationandtherighttoappealsuchdecisions.InSeptember,theSupremeCourtofIndiaissuedanopinioninCompetitionCommissionofIndiav.SteelAuthorityofIndiaLtd.,[8]whichclarifiedtheseissues.
Asathresholdmatter,thecourtheldthatpartieshavenorighttonoticeandahearingpriortotheissuanceofanopinionthatthereisaprimafaciecasewarrantingadirectiontothedirectorgeneralto
openaninvestigation.[9]Thecourtalsodecidedthatneitheracommissiondecisionthatthereisaprimafaciecasenoracommissionordertoopenaninvestigationareamongthedirections,decisionsorordersimmediatelyappealabletothetribunal.[10]
Thecourtexplainedthattheactdoesnotprovidethepartiesarighttoappealadecisiontoopenaninvestigationbecausetheactintends“expeditiousdisposalofmattersbeforethecommissionandthe
tribunal”andthat“prolongedlitigationmayharmtheinterestoffreeandfairmarketandeconomy.”[11]Furthertothisend,thecourtalsoruledthatthedirectorgeneral,oncedirectedtoopenaninvestigation,mustissueareportwithin45days.[12]
Separately,inJuly2010,theSupremeCourtofIndiaalsoeffectivelyincreasedthetemporalscopeofthemattersthatmaybeaddressedundertheCompetitionActbydecliningtohearanappealofadecision
bytheBombayHighCourt.InKingfisherAirlinesLtd.v.CompetitionCommissionofIndia,[13]thehighcourtdismissedKingfisher’swritpetition,whichaskedthecourttostayaninvestigationintoitsallegedcartelactivitiesbecausesuchactivitiesarosefromanagreementoccurringbeforeenactmentoftheact.
Thecourtheldthat,althoughthecompetitionlawdoesnotapplyretroactively,itmaybeenforcedwithrespecttoactionsoccurringaftertheenactmentofthelawinfurtheranceofagreementsreached
beforethelawwentintoeffect.Thus,illegalcartelactivityafterMay2009thatisbasedonagreementsenteredintobeforeMay2009willnotbejustifiable.
Thesetwodecisionsaresignificantvictoriesforthecommissionandlikelywillenableittoinitiateinvestigationswithgreatereaseandoverabroaderscopeofconduct.Infact,inNovember2010,thecommissionissueditsfirstfine,orderingKingfisherAirlinestopay10millionrupees(roughly$220,000)
asapenaltyforfailingtosupplyinformationrequestedbythecommissioninconnectionwithaninvestigation.[14]
Mexico
LegislativechangestoenhancetheenforcementpowersofMexico’sComisiónFederaldeCompetencia(CFC)appearimminent.SenatorEloyCantuofMexicorecentlysaidofhiscountry’sproposedantitrustreforms,“[t]hisiswhatiscolloquiallycalledgivingthe[CFC]moreteeth.”[15]
Mexico’slegislaturehasbeenconsideringthecurrentamendmentstoitscompetitionlawsinceearly2010.AlthoughmoreexpansivemeasuresthatpassedMexico’slowerhouseinAprilappeartobeoffthe
table,theSenatepassedamendmentsinDecemberthatwillbeimportantifenacted.Sanctions
TheSenatebillproposestostrengthenthecriminalpenaltiesavailabletotheCFCforanti‐competitiveconduct,includingcartel‐relatedactivities.Thebillforthefirsttimewouldmakeacompetitionlaw
violationsubjecttoincarceration—upto10yearsforindividuals.Theamendmentsalsoincreasethemaximumfine(currentlyatapproximately82millionpesosor$6.85
million)forviolationsofthelawtoasmuchas10percentoftherevenuereportedinMexicobythedivisionofthecompanyresponsiblefortheviolation.AsstatedbyCFCPresidentEduardoPerezMotta,“[h]ighersanctionsmean…companieswillthinktwicebeforecarryingon[withmonopolistic
practices].”[16]EnforcementPowers
TheSenatebillalsowouldempowertheCFCtosearchthepremisesofinvestigationtargets,thoughonlyafterprovidingnotice.Currently,theCFChasnopowertoperformdawnraids.Evidencefrom
investigationtargets,aswellasfromotherparties,isobtainedthroughrequestsbythecommissionorthroughon‐sitevisitstonon‐cooperatingparties.[17]
Thecommissionmayenforcetheserequestsbyimposingafineof1,500timesthedailywageperdayofnoncomplianceand/orafineof7,000timesthedailywageforprovidingfalseinformation.[18]Althoughtargetswouldbeprovidednoticeofthesearches,theamendmentsnonethelesswouldprovidetheCFC
animportantnewtoolingatheringevidenceagainstpotentialviolators.Theproposedreformsalsoprovideforthecreationofaspecialcompetitionlawcourt,whichisintended
tohavetheindependenceandexpertisetoquicklyandeffectivelyadjudicateappealsofCFCdecisions.Currently,violatorsmayconductprotractedappealsofnon‐monetarypenaltiesunderMexico’samparosystem,whichdelayspenaltyenforcement.[19]Thespecialcourtscreatedbythebillwillpotentially
enabletheCFCtoenforcepenaltiesmoreeasily.BeforetheSenatebillcancomeintoeffect,thelatestversionofthebillmustbeapprovedbythelower
houseandsignedbyPresidentFelipeCalderon,whooriginallyproposedthecompetitionlawamendmentinitiativetothelegislature.Approvalisnotexpectedforseveralmonths,attheearliest.
NotonlywillincreasedenforcementinChina,IndiaandMexicohaveimportantconsequencesforthosedoingbusinessinthesecountries,butnationalenforcementwilldrivefollow‐oninvestigationsglobally
inlightofthesecountries'importantrolesinexportinggoodsandtheglobaleconomymorebroadly.And,thosemakingadecisiontopursueleniencyorcooperateanywhereelseintheworldwillneedtoconsidertheseemergingenforcementregimesintheircalculus.
‐‐ByMichaelJ.Fanelli(pictured)andKatherineSauser,Covington&BurlingLLP
MichaelFanelli([email protected])isofcounselinCovington&Burling'sWashington,D.C.,officeandtheeditorialchairmanoftheABASectionofAntitrustLawpublicationCompetitionLawsOutsidetheUnitedStates(2d.ed.2011).KatherineSauser([email protected])isanassociateinthefirm's
Washingtonoffice.Theopinionsexpressedarethoseoftheauthorsanddonotnecessarilyreflecttheviewsofthefirm,its
clients,orPortfolioMedia,publisherofLaw360.Thisarticleisforgeneralinformationpurposesandisnotintendedtobeandshouldnotbetakenaslegaladvice.
[1]“TrendsandDevelopmentsinCartelEnforcement,”presentedatthe9thAnnualICNConferenceinIstanbul,Turkey(April,292010).AsurveyofICNCartelWorkingGroupMembersreported43jurisdictionswith“increasedpenalties”forcartelenforcementinthelastdecade.
[2]Forin‐depthtreatmentoftherolesoftheagencies,seegenerally,ABASectionofAntitrustLaw,
CompetitionLawsOutsidetheUnitedStates(Second)ch.4(2011)(hereinafterCLOUS).[3]Anti‐MonopolyLawart.46.
[4]TheSAICmayalsoreduceorwaivepenaltiesforcartelparticipantsthatvoluntarilyceasetheiranti‐competitiveconduct,eitherbeforeorafterthecommencementofaninvestigation.
[5]IntheU.S.,thisobligationisoftensatisfiedthroughdamagespaidinprivatelitigation.
[6]CLOUS,ch.8,p.7.[7]KianGanz,TakingAimatCartels,AmericanLawyer.com.Jan.1,2011(quotingVinodDhall).
[8]CompetitionCommissionofIndiav.SteelAuthorityofIndiaLtd.,CivilAppealNo.7779[D.No.12247of2010],SupremeCourtofIndia,decidedSept.9,2010.
[9]Id.at18‐19.
[10]Id.at18.[11]Id.at42.
[12]Id.at82.
[13]KingfisherAirlinesLtd.v.CompetitionCommissionofIndia,WritPet.No.1785of2009,HighCourtofJudicatureatBombay,decidedMarch31,2010.
[14]RosalindDonald,IndiaIssuesFirstFine,GlobalCompetitionReview,Nov.22,2010.$1=approximately45rupees.
[15]MiguelAngelGutierrezandMichaelO'Boyle,Update1‐Mexico'sSenateupsfinesforantitrustbreaches,ReutersLimited,Dec.7,2010,availableathttp://www.reuters.com/article/2010/12/08/mexico‐competition‐idUSN0710284220101208.
[16]CyntiaBarreraDiaz,Mexico'sCalderoneyestougherfinesonmonopolies,Reuters,Apr.5,2010.
[17]CLOUS,ch.12.[18]LeyFederaldeCompetenciaEconómica,arts.34‐35.
[19]ThewritofamparoisaproceduralmeasureusedtoensuredueprocessundertheMexicanConstitution.MonetarypenaltiesmaybeappealedbeforetheFederalTribunalforAdministrativeand
TaxJustice.
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