UK: Commission Cracks Down On Cartels

Last Updated: 16 January 2002

In the last six weeks of last year, the EC Commission imposed fines for price fixing and market sharing cartels in seven different cases. In five of these cases, the fines are amongst the ten highest ever imposed by the Commission for cartel activity.

The message is clear: companies must by now be fully aware of the risks they are taking should they be tempted to collude. The effective investigation and punishment of hardcore cartels is one of the Commission’s key enforcement priorities, and one of the cornerstones in its drive to modernise competition law.

The recent cases also demonstrate the effect of the Commission’s Leniency Notice: in all seven cases companies co-operated with the Commission and three companies received full immunity for informing the Commission about the cartel and providingd ecisive evidence. A revised version of the Leniency Notice, expected to be adopted over the next few months, will increase transparency and certainty of the conditions on which any reduction of fines is to be granted, thereby further encouraging participants in cartels to blow the whistle.

20 December 2001

Commission fines ten companies in carbonless paper cartel

€ 313.7 million

11 December 2001

Commission fines six companies in zinc phosphate cartel

€ 11.95 million

11 December 2001

Commission fines five German banks for fixing the price for exchange of euro-zone currencies

€ 100.8 million

5 December 2001

Commission fines five companies in citric acid cartel

€ 135.22 million

5 December 2001

Commission fines Luxembourg brewers in market sharing cartel

€ 448,000

5 December 2001

Commission fines brewers in market sharing and price fixing cartels on the Belgian market

€ 91.655 million

21 November 2001

Commission imposes fines in vitaminc artels

€ 855.22 million

The Commission launched an investigation in the carbonless paper industry after one of the participants, Sappi, invoking the Leniency Notice, informed the Commission of the agreement. The Commission granted Sappi full immunity from fines as the company supplied information on the cartel before any investigation had started, and cooperated continuously and fully throughout the course of the investigation.

In the zinc phosphate cartel, the fines, although fairly small, nevertheless represent a significant percentage of the turnover of the companies concerned. Commissioner Monti made it clear that SMEs should be under no illusion thatb ecause of their size they will be granted preferential treatment when engaging in cartel behaviour. "Sadly enough, this decision shows that cartels are no longer the privilege of the big, multinational firms".

The record fines imposed in the vitamins cartel reflects the fact that this was the most damaging series of cartels the Commission has ever investigated, due to the sheer range of vitamins covered which are found in a multitude of products from cereals, biscuits and drinks to animal feed, pharmaceuticals and cosmetics.

Two weeks later, Hoffmann-La Roche was again fined in the citric acid cartel, as were Archer Daniels Midland and Jungbunzlauer who had also been fined in the Sodium Gluconate case earlier this year, illustrating how wide spread cartel activities used to be in this sector. Record fines were once again imposed, on the basis that the price of one of the most widely used additives in the food and drink industry was kept artificially high, thereby causing direct and irreparable damage to consumers.

High fines were imposed on the German banks, again due to the effect fixed exchange prices have had on the consumer.

In the beer sector, the Commission is still investigating suspected cartels in other European countries (France, Netherlands, Italy, Denmark and Portugal).

Meanwhile, proposals in the UK introducing criminal penalties for participants in cartels look set to move ahead. An independent report on how the proposed regime of criminal sanctions for cartel perpetrators could best operate in practice was recently published by the OFT. The report’s main recommendations include:

  • The criminal offence should be built on the concept of individuals dishonestly entering into cartel agreements with each other
  • The Serious Fraud Office should be the lead prosecutor,w orking closely with the OFT
  • Companies should continue to bes ubject to the existing civil law sanctions and should not additionally bes ubject to criminal sanctions
  • The maximum penalty for individuals found guilty of having committed this offence should be a custodial sentence of at least five years imprisonment
  • The courts should have the power to impose an unlimited fine either in addition to, or instead of, a custodial sentence, on conviction.

The OFT has also indicated that the first of several of its cartel-busting cases will be made public within the next few months. Since last year, the OFT has had seven cartel cases on its books, suggesting that cartels may also be widespread in the UK. It is not clear whether any of these cases are the same as those recently dealt with by the Commission.

"© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us."

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