Brazil: The Age Of Cartels

Last Updated: 16 December 2014
Article by Bruno De Luca Drago

The new Brazilian Competition Law (Law 12.529/2011), which came into force in May 2012, provided significant changes to the national legal system. The turnover criteria for the mandatory submission of concentration acts refers to a very important one, considering it is responsible for the reduction of cases often involving minor competition concerns. In view of such changes, the Administrative Council for Economic Defense (CADE), antitrust Brazilian watchdog, was able to shift a substantial part of its resources to investigations of anticompetitive conducts, which have been mostly focused on Cartel cases since 2003.

According to the Brazilian Antitrust Law, cartels concern any anti-competitive practices involving agreements, combinations, manipulations or arrangements among competitors for the purpose of: (i) fixing prices of goods or services; (ii) restricting or limiting the production or sale of goods or provision of amount or frequency of services; (iii) splitting parts of a current or potential market for goods or services, by means of allocation of clients, suppliers, regions or periods, among other actions; and (iv) fixing prices, conditions, advantages or non-participation in public procurement procedures.

Last year, for instance, CADE rendered decisions in 38 administrative procedures involving anticompetitive behavior: 22 out of 38 cases resulted in the conviction of the involved parties and 13 of them involved cartel cases. The amount of cases reviewed by CADE last year corresponds to twice the number of cases decided in the previous year. In 2012, the Brazilian antitrust watchdog convicted the involved parties only in 2 cases (one of them a cartel case), since this year represented the implementation of the new pre-merger system and resources were focused on these efforts. Even after the effectiveness of the new Competition law, an expressive amount of concentration acts notified under the old rules were pending before the antitrust authority. This temporarily barred Cade efforts for opening new investigations and, especially, to conclude the pending ones, during this transitional scenario.

The greater effectiveness recently assigned to Cade in conducting new investigations becomes more evident with the verification of other years' figures: In 2011, there were just one conviction (a cartel case); in 2010, four convictions (two of them cartel cases); and in 2009, two convictions (one of them a cartel case). The number of convictions in 2013 alone outnumbered the total amount of decisions of the past five years. Specifically regarding cartel cases, a clear evidence of CADE's efforts consists on seven dawn raids to gather evidences of infringements since the new Antitrust Law came into force.

Besides the dawn raids, another powerful instrument consists on the leniency agreements1, a mechanism which have been increasingly used by CADE to detect cartels. In view of the rise of the amount of fines imposed by CADE and the agency's focus on cartels, companies involved in anti-competitive concerns are frequently seeking the authorities to blow the whistle on the existence of cartels in exchange for immunity. Leniency agreements have also been recently negotiated in Brazil simultaneously with other jurisdictions such as the Unites States, the European Commission, Canada, Japan and Korea. This is the result of increasing cooperation and information exchange between international authorities, especially with respect to international cartels.

The cease-and-desist commitment (TCC) has also been a very important mechanism to settle antitrust investigations. CADE may negotiate commitments with defendants whenever the authority believes – based on its own circumstantiated judgment about the advisability and opportunity of such commitment – that the commitment meets the public interests protected by the Brazilian Antitrust Law. Besides pleading guilty for participating in anticompetitive practices and ceasing its conduct or the production of its related effects, the Defendant must also pay a contribution to the Fund for the Defense of Diffuse Rights.

Under these circumstances, in 2013 CADE implemented a rule2 changing and regulating the execution of TCCs. An important modification involves the establishment of parameters for calculating the pecuniary contribution, which vary according to the level of cooperation and the occasion when the defendant submitted the proposal. Thus, the sooner the defendant submits its proposal for a TCC and the more it cooperates, the lower the pecuniary contribution is likely to be.3

As verified on Cade's figures provided, the prosecution of cartels is evidently a priority for the Brazilian Competition Authorities. In this sense, CADE's efforts to open new investigations clearly demonstrate that this is the main item in CADE's agenda for the next years.

CADE is also imposing harsher fines, not only in view of the severe damages caused by cartels to the country's economic scenario, but also with the aim of demonstrating to companies that anti-competitive conducts will be severely punished, therefore dissuading them from adopting illegal practices. With respect to this, it shall be mentioned a statement made by Cade's President on December 2nd, 2014 in the interview held with the Brazilian Journal Folha de São Paulo: "During the 2008 financial crisis, the "too big to fail" speech became known. Nowadays, I have the impression that this speech refers to the expression 'too big to be punished".

In view of Cade's position, it is expected that more companies will seek the authorities for the execution of leniency agreements, thus increasing the opening of investigations. It is to be noted that a substantial part of the recent investigations - almost all - have been implemented pursuant to leniency agreement. However, the proper incentives for its execution must be observed, considering the necessary confession of the Defendant.

Footnotes

1 The Brazilian leniency programm was first introduced in our legal system in 2000, and was regulated by Law 8,884/94, section 35-B and Ordinance MJ No. 456/2010. Since May 2012, the Brazilian leniency programme is regulated by the new Brazilian Competition Law, Law 12,529/11, section 86 and 87.

2 In a trial session held on 6 March 2013, the Tribunal of the Administrative Council of Economic Defense – CADE approved Resolution No. 5, of 6 March 2013, which set forth CADE's policy regarding the execution of agreements in investigations of anti- competitive conducts.

3 According to the rule, the first defendant to come forward and execute a CDC will have a reduction between 30 and 50 per cent of the fine that could be imposed in the event of a condemnation; for the second defendant, a reduction between 25 and 40 per cent; and from the third defendant on, a reduction up to 25 per cent. For the agreements executed at the moment the cases are already pending before the Tribunal , the maximum reduction shall be of 15 per cent of the expected fine.

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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