Cartels are the supreme evil of antitrust, says Justice Scalia in Verizon v Trinko (2004) 540 US 398. It is beyond the scope of this session to consider all the legal ramifications of the policy choice to fight against cartels, we focus on three issues: is the policy working; is the policy working in a legitimate way; how does one solve the role of leniency documents in the context of public & private enforcement?
Readings
Pick a selection, no need to read everything.
The socio-legal approach
C. Parker ‘The War on Cartels and the Social meaning of Deterrence’ (2013) 7 Regulation & Governance 174
The economists
M. Mariniello ‘Do European Union Fines Deter Price Fixing?’ Bruegel Policy Brief 2013/04 (May 2013)
J.M. Connor and R.H. Lande ‘Cartels as ‘Rational Business Strategy: Crime Pays’ (2012) 34 Cardozo Law Review 427
The lawyers
I.S. Forrester ‘A Challenge for Europe’s Judges: The Review of Fines in Competition Cases’ (2011) 36 European Law review 185
S.B. Völker ‘Rough Justice? An Analysis of the European Commission’s New Fining Guidelines’ (2007) 44 Common Market Law Review 1285
And the Court
Case C-356/11 Bundeswettbewerbsbehörde v Donau Chemie AG and Others judgment of 6 June 2013
competitioncourses 
I will make three comments.
First, about the legality of the fines. Forrester indicates that the sanctioned infringements do not seem to be more serious now than they were before, but the fines are much higher . Than, one can ask if there is any disproportion of these measures, and whether they make a sufficient difference between the guilty leader and the imprudent participant.
Then, about the control of these fines. Forrester observes that the Court does not really use its unlimited jurisdiction competence. I do not understand why the Court reacts this way. This is all the more surprising considering that the courts which I studied law in my country had tend to do the opposite , that is to say, to extend their control when they only had a control of legality. But here , the Court already has an unlimited jurisdiction , and it is confined to a review of legality. It looks like the Court limits itself. Why?
Finally, about the effectiveness of these fines. Forrester wonders whether the increase in the fines is effective , without answering the question. Parker did . The idea behind the fines is that compliance can be achieved through deterrence. This logic implies that we consider that businessmen know the law and the associated risks , and calculate risks . Parker shows that this “logic” comes from an intuition which is not verified in practice , mainly because knowledge of the law is socially constructed . In any case, what is striking is the obscurity of the law for small entrepreneurs. In this respect, I suggest that the increase of fines may not be meaningless as long as it is effective, and it can be effective only if rules are simple and clear , and if the information is diffuse . If these rules cannot be simple, then the increase is useless , since it will have no deterrent effect, because individuals do not know the rule which is not violated . A solution could then be to provide that fines would be higher only for large companies. But then we should verify if this would be acceptable with regard to the principle of equality, because one would get a heavier punishment for the same misconduct according to the author and its economic weight. A justification could possibly be to say that the author should be more careful not to commit offenses because , according to Parker, he knows the law better . And then , the logic of increasing the level of fines would have a deterrent effect , since it would be targets people who know the law . But still, we should then check if these actors would adapt their behavior according to the of an infringement. According to Parker this is absolutely not obvious. Hence, this solution seems complex and uncertain. Thus, the ideal would be adopt simple, clear and well-communicated rules.
I would like to share some of my thoughts on the lawyers’ perspective, as presented by Forrester. I found myself in disagreement with many of the arguments presented in his article, even if the points regarding the role of the Court might be very valid. The article starts with a presentation of data which is meaningless or even positively misleading at places. For example, it would make much more sense to refer to the average value of a fine rather than to total fines in a given year if one wants to show that fines have increased, but even that does not reflect variations in gravity of cases discovered from year to year, which might be significant (he argues otherwise, but does not provide any data to support that finding). Sure, the numbers presented might be impressive, but are meaningless if taken in abstract without considering the scale at which cartelists are operating. In fact, the analysis performed by Mariniello, suggests that fines against cartelists are very small when compared to what cartelists are to gain and thus do not remove the incentive to collude. Similarly, the increased number of cases (a finding which in itself might be questioned – data presented by Mariniello shows that the number of cartels sanctioned by the Commission is on the decrease from 2007 onwards), does not support a conclusion that the policy fails at deterring cartels, since it is not known how many cartels remain undetected.
These apparent deficiencies affect Forrester’s later analysis of the human rights dimension of the fining policy. Although he discusses a number of elements, his conclusion that cartel cases are of a criminal nature seems to be hinging on the finding of the severity of fines. However, to say that fines are ‘huge’ in abstract does not automatically mean that they are severe. If one looks at the nature of the offence instead, the arguments become more balanced. In this context, Forrester relinquishes a comparison with tax cases, which I consider a pity, since to my mind these situations bear some similarities. It might be that the Court in Strasbourg will in the future find cartel cases to be of criminal nature, but Forrester fails to put a strong case for that.
Forrester also suggests that fines imposed by the Commission might be disproportionate. He claims that a marginal participant might be relatively severely treated in comparison to the leading conspirator. Unequal participation, however, is reflected in the fining guidelines which take into account turnover and include aggravating/mitigating circumstances, which might involve the degree of moral guilt. Also, I believe that it is worth noting that the largest fine so far has not been imposed in a cartel case, but in a refusal to supply (Microsoft). Perhaps, this is also suggestive in assessing proportionality.
One of the few points made by Forrester with which I actually agree is that managers of a company might be unaffected in their incentives to collude regardless of the value of a fine. Even if a fine is extremely high/severe, the incentive to collude is not removed if the individuals behind the decision are not held accountable. This problem is also recognised by Mariniello, who notes that the executive are not expected to be sanctioned for some 10 to 20 years after a cartel was concluded. By this time they will be able to reap the benefits of their unlawful conduct. Also, since sanctioning of individuals remains within the competence of the Member States, approaches vary from State to State. This, together with the question of possibility of a private follow-on action for damages, affects the ability of the system to deter cartels.
If the aim of this seminar is to show that competition law/policy/enforcement is one huge shot in the dark, I herewith announce that I got the point. After having read different perspectives on cartel fines this week, I am – as every week- confused. The only thing there seems to be consensus about is that cartels are evil and that appropriate sanctions are needed to deter companies to engage in collusion. Most literature in the reading list departs from the assumption that companies will actually go through a cost-benefit calculation before participating in a cartel, and that the function of participating in a cartel will depend on the expected profits from cartelizing minus the severity of sanctions times the probability of being caught.
The economists say that the level of the fines is too low to achieve deterrence. Connor and Lande suggest a detailed 9-step plan to increase both severity of sanctions and the probability of being caught. Marienello thinks that increasing sanctions for individuals would do the deterrence trick, but considering that such a regime cannot be implemented at EU level, the COM should at least speed up proceedings so that the person responsible still has to bear the consequences of the cartel behavior, and has not left already the company once the fine is imposed.
The lawyers both argue that deterrence will not be achieved, because the regime is not punishing “the right one”. Völckel argues that the high fines only cause damage to shareholders, leaving those responsible for the collusive behavior in the management unharmed. Forrester looks at the apparent unfairness of the COM fining regime from a criminal law perspective saying on the one hand that the principle of equality is violated, because cartel fines are not adapted to the level of guilt of the participating undertakings (which gets us into the whole discussion of how to apply criminal law to non-natural persons..), but that also important procedural safeguards of criminal law are not followed. I agree with Marita that Forrester tries but does not achieve to make the point that cartel enforcement at EU level has by now become a criminal law procedure, with all its judicial implications.
The CJEU is also struggling with the above equation in Donauchemie. On the one hand consumers who suffered from a cartel should be able to enforce their right to compensation and, therefore, have access to the files of competition authorities that have prosecuted the cartel. The economic rationale behind this could be that undertakings will face additional sanctions, which might result in a higher level of deterrence. On the other hand this might reduce the number of leniency application, because the applicant will not be sure whether secret documents will be subsequently made available to person wanting to sue him. Therefore the overall likelihood of discovering cartels might become lower, as leniency applications are probably the most frequent method through which cartels come to the knowledge of competition authorities. In the equation the overall probability of being caught might therefore become lower, reducing deterrence.
At the end of the day, the problem seems to be a deeper, sociological one as shown by Parker: cartels are not considered sufficiently immoral (i.e. sufficiently evil?) or damaging to ones image by the addressees of antitrust rules in our society in. Real deterrence could only be achieved by a collective conscience in the business world of the immorality of antitrust breaches, just the way in how we collectively perceive murders or corruption as morally wrong. Sever sanctions do not seem to be sufficient to create this conscience.
J.M. Connor and R.H. Lande conclude in their paper “Cartels as a Rational Business Strategy: Crime Pays” that it is necessary to increase sanctions and/or raise the probability of detection and conviction to improve the “deterrence power of antitrust enforcement against cartels” in the US. They suggest a number of measures such as quintupling or at least doubling the average sanction level, requiring convicted corporations not to compensate employees for time spent in prison/under house arrest or extending the “Wall of Shame” of the Antitrust Division to individuals for several years after their conviction (containing names and photos of people given sentences of at least 6 months in prison). For several reasons I would be rather skeptical when thinking about implementing such measures in EU competition law.
One reason is that even though according to Art. 23 (5) Regulation 1/2003 fines aren’t of “criminal law nature” and the EU does not have any competences in the field of criminal law, the fundamental principles of criminal procedures of the ECHR still apply. Therefore, deterrence is not the only aspect that has to be taken into account when adjusting the amount of fines and framing a system of sanctions but e.g. all these measures have to be proportionate with a view to the infringement and the individual level of guilt. J.M. Connor and R.H. Lande seem to limit their view to the (negative) general deterrence aspect. They seem to justify the grave interference in individual rights (e.g. in the case of the “Wall of Shame” the general right of personal freedom) with the public interest in efficient competition law enforcement. However, I am not sure they have found the right balance.
Another aspect – which is more a practical concern than a legal assessment – refers to the paper by C. Parker, “The war on cartels and the social meaning of deterrence”. Besides the general criticism of deterrence as a justification for the criminalization of infringements of competition law, the paper points to the interdependencies between, on the one hand, the deterrent effect of competition law enforcement and sanctions and, on the other hand, the attitude of business people towards the law. It argues that “non-elite” business people deny their knowledge of the law and question its legitimacy, whereas “elite” business people are more intimate with the law and “play” it in a way that acknowledges but avoids deterrence (p. 189). In both cases deterrence of competition law does not seem to work very well. In this regard it is interesting that J.M. Connor and R.H. Lande point out that the DOJ “tends to prosecute mid-level sales or marketing executives rather than the most senior responsible officers in the company” (p. 439). The question arises which benefits in terms of deterrence follow from higher fines and stricter sanctions if the enforcement of competition law aims at a group of people that does not realize that it is infringing the law or that questions the legitimacy of the law. J.M. Connor and R.H. Lande state that “[guessing] what goes on in the minds of would-be cartelists is hazardous” (p. 434/435). However, it appears to be worthwhile to think about these sociological implications to avoid false expectations regarding the effect of fines and sanctions.
I would like to make two comments.
First, as Mariniello pointed out, the guidelines of 2006 were issued to increase the predictability of the Commission’s assessment (p. 2). However, my feeling after the readings was that the situation is possibly clearer than before but the unpredictability remains for a big part of the analysis (Forrester p. 3). Indeed, the parameters of the fines and the method are detailed but the “wide margin of appreciation” of the Commission has still a place. This margin of appreciation can be problematic for the undertakings since the fines imposed by the Commission never stopped rising. The only remedy to this discretion would have been the judicial review performed by the Court of Justice; but the limits put by the ECJ to its judicial review undermine the remedy. It is true that it seems easier to rely on the Commission’s appreciation. However, the limitation of the judicial review in cases where the Commission has made a “manifest error” appears really extreme. Therefore, Forrester is right in saying that the Commission’s decisions should at least be subject to an effective judicial review in accordance with the ECHR.
In that sense, in Menarini v. Italy (27/09/11), the ECtHR decided that the Italian competition system was in accordance with the article 6(1). Indeed, even if the competition authority has a margin of discretion when exercising its powers, the judge should assess if the authority used this margin of discretion in an appropriate way (§§63-64).
Following this judgment, the ECJ established in two cases that “the Courts must carry out the review of legality incumbent upon them on the basis of the evidence adduced by the applicant in support of the pleas in law put forward. In carrying out such a review, the Courts cannot use the Commission’s margin of discretion – either as regards the choice of factors taken into account in the application of the criteria mentioned in the Guidelines or as regards the assessment of those factors – as a basis for dispensing with the conduct of an in-depth review of the law and of the facts.” (KME v. Commission, 8/12/2011, C-389/10 P, § 129 ; Chalkor v. Commission, 8/12/11, C 386/10 P, § 62). And the Court established therefore that “ The review provided for by the Treaties thus involves review by the Courts of the European Union of both the law and the facts, and means that they have the power to assess the evidence, to annul the contested decision and to alter the amount of a fine. The review of legality provided for under Article 263 TFEU, supplemented by the unlimited jurisdiction in respect of the amount of the fine, provided for under Article 31 of Regulation No 1/2003, is not therefore contrary to the requirements of the principle of effective judicial protection in Article 47 of the Charter.” (KME, § 133) But, the ECJ did not condemn the CFI judgment and stated instead that : “It must be noted in that regard that although the General Court repeatedly referred to the ‘discretion’, the ‘substantial margin of discretion’ or the ‘wide discretion’ of the Commission, including in paragraphs 52 to 54, 99, 114, 136 and 150 of the judgment under appeal, such references did not prevent the General Court from carrying out the full and unrestricted review, in law and in fact, required of it.” (KME, § 136). We can thus conclude that the ECJ warned the CFI against the deference to the Commission’s wide margin of discretion; but the last paragraph does not take away all uncertainty.
Second, the Donau Chemie AG case demonstrates the importance of private litigation in the effective application of competition rules (§ 23). In §31 The Court clearly states that a rigid rule, such as the Austrian rule at stake, can have a negative impact on the application of 101 TFEU. Even if the Court stated that private law suits contribute to the achievement of Competition rules, the courts are still able to limit their realization when they perform the weighing-up of interests on a case-by-case basis. In this analysis, the deterrence effect of the disclosure on the use of leniency programmes should be considered (§ 42). However, in my opinion, the argument of the impact of the disclosure on leniency programmes is minimized by the Court in § 48 and reduced to extreme cases. Therefore, we can conclude that the Court gives a high value to private enforcement and encourages it.
I found this week’s reading particularly interesting. Perhaps this is because I selected pieces that questioned the deterrence model of competition law punishment, and questions about appropriate punishment, criminal law, and why we punish in general are among the areas of law that I find most interesting. In particular, I really enjoyed Christine Parker’s article. I was not sure that I would agree entirely with the ways in which she drew her conclusions from the testing she used, however, in general, the point that she articulated seems to ring true. I took a course on corporate criminality last year and the same themes were evident, namely, that corporate higher-ups would install the proper mechanisms to comply with the law but not really provide the proper checks on them, or they would create a corporate climate where people lower down felt that their job security or advancement depending on bending the rules. The deterrence model of punishment assumes that people know the law and believe it applies to them, and can rationally assess and determine what they most value: following the law, their own advancement, seeming cool, whatever it is. When you think about the way the world works, it is evident that people are not always thinking so rationally. I personally do not break big laws, but I know that, for instance, I will speed on the highway but slow down when I see a cop car on the side of the road. And, when I am driving in the left lane above the speed limit with a pack of other cars going the same speed or faster than I am, I confidently feel like I can evade the speeding laws because either, it wouldn’t be right to single me out because everyone is doing it, or the cops should go after the guy going even faster. On top of that, though I do speed, I also do not drive more than a certain threshold over the speed limit at which I feel comfortable driving safely, for my sake and the sake of others on the highway. Finally, when there is no posted speed limit, I estimate and then hope that if I get pulled over I can note that there was no way for me to know. All of this of course is not the same as forming cartels in contravention of competition law, but it demonstrates the same rationales that I think people bring toward their compliance, or lack of compliance, with laws that don’t seem as inherently “bad” as, for example, murder. I do not kill because I do not think I even could and I think it is wrong, but this is different than what plays into decisions about other types of conduct.
All of this directly relates to the challenge of imposing fines if there is doubt as to whether the deterrence is working. True, larger fines may make people take note a bit more, or perhaps think a little harder before they act, but this still assumes some knowledge of the law and some sense that it would apply to them individually. I did, however, sympathize with Ian Forrester’s argument that it would seem contrary to the Treaty to have courts rarely reviewing Commission fining decisions when they proceedings are brought by the Commission and they are the ones benefitting from the money that is paid out.
The argument that if the Commission raises the amount of fines, the competitors will stop to collude or at least will less collude due to the deterrent effect is a bit weak for me. First of all, those really heavy fines are existing from at least two decades and still lots of cases are send to the CJEU. Secondly, companies know that before there will be a judgment some years will pass and then the profits they are doing during that period compared to the fine they will get is no more dissuasive. Above all with the 1998 Guidelines which requires the Commission to fine companies via a lump sum. Thirdly, voluntary withdrawal is possible. Thus if the company learns just before the Commission starts to investigate that it will do so, it can withdraw and then no fine will be held against that company.
The Court tends to follow the fining guideline, even if they are not binding on the Court. Furthermore, the Court most of the time verifies only the legality of the fine and does not go into the details of the case. One of the reasons might be the over workload of the Court, therefore it prefers following the Commission findings. This reason has not been advanced by Forrester when he referred to the tendency of the Court not to use its unlimited jurisdiction competence.
The problem of article 101 TFEU with regard to cartels is that the requirements to fulfill article 101 are taken in a very broad view. The term ‘agreement’ is broadly defined and can encompass lots of practices. For instance it encompasses ‘contact without contract’ practices, as was held in Polypropylene case. Therefore, it is really easy for the Commission to find that a cartel existed. This is maybe one of the reasons why in the 2006 Guidelines the Commission added the possibility for a fair hearing with regard to the amount of the fine.
I don’t totally agree that the cartel fining at EU level is a criminal proceeding now. I still see it as administrative in nature. Even if some elements of criminal law can be found in the procedure, that does not make it criminal per se. Yes we have the fair hearing part etc but on the other hand it is still administrative with regard to the level of fine.
Where the Commission failed in the Guideline 2006 is to enhance predictability. The Commission has still a wide margin of appreciation.
Generally, the global war on cartels consists of a policy of deterrence through either criminalizing conduct or imposing high sanctions on cartel conduct. Some readings this week show that studies regarding the effect of general deterrence on cartels conclude that deterrence is not a successful policy. Parker’s research on Australian business people faced with a deterrence regime centered around criminalizing cartel behavior indicates that either small businesses, or “innocents,” do not align themselves with the law because they feel distanced from it. Either they don’t know the details of antitrust law or they know something about the law, but feel it doesn’t apply to them. In contrast, in-house counsel and executives, the “players,” feel they know the law so well they can manipulate compliance or find a scapegoat within the corporation to blame.
Likewise, Forrester notes that even though the European Commission increased sanctions in the late 20th and early 21st centuries to promote deterrence, despite this policy objective more and more cartel cases were brought to the EU courts. Forrester suggests that individuals who are operating the cartels believe the penalties will actually be inflicted on their employers, leaving them unharmed. This corresponds to one of Parker’s points about the big business “players” who assume that someone else in the company will take the fall. Perhaps the failure of a policy of deterrence isn’t necessarily because businesses aren’t taking into account the costs of sanctions or criminal penalties, but because of who bears the punishment. Should antitrust law target executives who, although in a management position, may not be culpable for the offense to set an example for other business elites? Or should the law target the mid-level associates who engage in cartel behavior, even at the behest of management, to avoid a “scapegoat” effect?
Further, the perceived failure of a deterrence policy conflicts with Connor and Lande’s suggestion that higher sanctions can improve the deterrence power of antitrust enforcement in the United States. Only written one year before Parker’s research, but well after it was evident that the European Commission’s increase in sanctions were followed by an increase in cartel behavior, Connor and Lande nevertheless believe that deterrence is the best policy goal. I’m not sure if I completely agree with them after reading Parker’s article and seeing the effects, or lack thereof, of sanctions in the EU.
I consider that one of the most important aspects of the current session is the balance between deterrence and over deterrence and the difficulties the European Courts, the Commission and Policy makers face in order to achieve such a balance when they implement the fining policy against cartels. The above issues are analyzed by Mario Mariniello in his paper under the title: “Do European Union fines deter price fixing” in which he underlines the following:
-The objective of the Commission’s fining policy is to ensure the maximum level of deterrence while introducing the least possible market distortion. According to his view disproportionally high fines beyond what is strictly necessary for deterring legal action, could be ineffective because they would be deemed not credible or worse would discourage procompetitive behavior and innovation.
-The optimal fine, defined as the minimum payment that would ensure complete deterrence, should be enough to offset the expected additional profit accruing to cartel members as a result of their illegal action, if they are caught by antitrust authorities. Key parameters for calculating the optimal fine are therefore the price increase (cartel overcharge) and the probability of detection.
-Since the introduction of the Commission’s fining policy in 2006 total and average fines appear systematically higher. This seems to support the claim that the Commission’s fining policy has become tougher which may help explain the outburst of discontent from industry representatives. On the other hand, times of crisis often give the opportunity to call for a more lenient approach to fines. The 2006 fining guidelines explicitly recognize this by granting a degree of discretion in the calculation whenever the fine “would irretrievably jeopardize the economic viability of the undertaking”. As it is stated in the paper, in 2010 in the aftermath of the crisis, 45% of sanctioned undertakings asked for indulgence in view of their inability to pay and slightly less than a third of applications were ultimately successful.
-if we estimate the total additional profits realized because of the cartel and compare them with the size of the fines ultimately applied we will conclude that even in the most conservative scenario, in 27 cases out of 63 the fine is lower than the estimated extra profits. Taking account of this result, the writer reaches the conclusion that fines are very far from their optimal level, which would be 6.7 times the additional profits. I consider that such a conclusion questions the validity of lawyers’ perspective regarding the severity of the Commission’s fining policy.
Taking due account of the above it would be really interesting to examine what are the actual reasons the Commission’s current fining policy is not effective. I consider that if we combined the sociologist’s and the economist’s approach, we could draw the following conclusions:
-The Commission’s fining policy is not effective because fines do not fully match actual profits because of the reductions that are granted to companies for mitigating factors or because of other forms of contingent indulgence.
-The long duration of the Commission’s investigations have a considerable negative effect on the effectiveness of tis fining policy.
-The Commission’s fining policy is based on the assumption that business people know about the law, believe that they are likely to be caught and face enforcement action and jail if they break the law and calculate that they should comply. However, as it is argued by Christine Parker, such a policy assumption is less important than their relationship with the law. In this context, it is argued that corporate elites see themselves as intimate with the law and able to strategically “play” the law while small business people and managers see themselves as innocent of any knowledge of the law.
Taking into consideration the above it would be really interesting to examine the necessary amendments the Commission should propose in order to enhance the effectiveness of its fining policy. I consider that if we combine the above conclusions we will realize that the problem with the Commission’s fining policy is not that the fines are not high enough but that the cartelists believe that the chances of being accused and imprisoned are low. I take the view that if the writers’ findings reflect reality the Commission should alter its fining policy and instead of focusing on the amount of the fines imposed, it should implement policies which will increase pressure on individuals. In this context I consider that the Commission should implement policies which will increase the reputations costs for the individuals engaged in cartel activities and should reduce the duration of investigations by increasing its resources.
I consider that one of the most important aspects of the current session is the balance between deterrence and over deterrence and the difficulties the European Courts, the Commission and Policy makers face in order to achieve such a balance when they implement the fining policy against cartels. The above issues are analyzed by Mario Mariniello in his paper under the title: “Do European Union fines deter price fixing” in which he underlines the following:
-The objective of the Commission’s fining policy is to ensure the maximum level of deterrence while introducing the least possible market distortion. According to his view disproportionally high fines beyond what is strictly necessary for deterring legal action, could be ineffective because they would be deemed not credible or worse would discourage procompetitive behavior and innovation.
-The optimal fine, defined as the minimum payment that would ensure complete deterrence, should be enough to offset the expected additional profit accruing to cartel members as a result of their illegal action, if they are caught by antitrust authorities. Key parameters for calculating the optimal fine are therefore the price increase (cartel overcharge) and the probability of detection.
-Since the introduction of the Commission’s fining policy in 2006 total and average fines appear systematically higher. This seems to support the claim that the Commission’s fining policy has become tougher which may help explain the outburst of discontent from industry representatives. On the other hand, times of crisis often give the opportunity to call for a more lenient approach to fines. The 2006 fining guidelines explicitly recognize this by granting a degree of discretion in the calculation whenever the fine “would irretrievably jeopardize the economic viability of the undertaking”. As it is stated in the paper, in 2010 in the aftermath of the crisis, 45% of sanctioned undertakings asked for indulgence in view of their inability to pay and slightly less than a third of applications were ultimately successful.
-if we estimate the total additional profits realized because of the cartel and compare them with the size of the fines ultimately applied we will conclude that even in the most conservative scenario, in 27 cases out of 63 the fine is lower than the estimated extra profits. Taking account of this result, the writer reaches the conclusion that fines are very far from their optimal level, which would be 6.7 times the additional profits. I consider that such a conclusion questions the validity of lawyers’ perspective regarding the severity of the Commission’s fining policy.
Taking due account of the above it would be really interesting to examine what are the actual reasons the Commission’s current fining policy is not effective. I consider that if we combined the sociologist’s and the economist’s approach, we could draw the following conclusions:
-The Commission’s fining policy is not effective because fines do not fully match actual profits because of the reductions that are granted to companies for mitigating factors or because of other forms of contingent indulgence.
-The long duration of the Commission’s investigations have a considerable negative effect on the effectiveness of tis fining policy.
-The Commission’s fining policy is based on the assumption that business people know about the law, believe that they are likely to be caught and face enforcement action and jail if they break the law and calculate that they should comply. However, as it is argued by Christine Parker, such a policy assumption is less important than their relationship with the law. In this context, it is argued that corporate elites see themselves as intimate with the law and able to strategically “play” the law while small business people and managers see themselves as innocent of any knowledge of the law.
Taking into consideration the above it would be really interesting to examine the necessary amendments the Commission should propose in order to enhance the effectiveness of its fining policy. I consider that if we combine the above conclusions we will realize that the problem with the Commission’s fining policy is not that the fines are not high enough but that the cartelists believe that the chances of being accused and imprisoned are low. I take the view that if the writers’ findings reflect reality the Commission should alter its fining policy and instead of focusing on the amount of the fines imposed, it should implement policies which will increase pressure on individuals. In this context I consider that the Commission should implement policies which will increase the reputations costs for the individuals engaged in cartel activities and should reduce the duration of investigations by increasing its resources.
I have focused on the discussion of penalties and the procedural rights of the companies in our reading material. The article by Forrester makes it clear that he considers it important that competition cases ending with fines should be handled as criminal cases and not as purely administrative sanctions. In concurrence with this opinion he criticizes the Courts for relying too much on the discretion of the Competition authority. He rightly points out that the Competition authority is at the same time the prosecutor and the decision maker in clear contrast to the right to be convicted by an impartial tribunal.
Many important considerations come into play when deciding on the construction of a legal system being robust enough to ensure that the innocent is not punished and that the guilty is not punished in an excessive manner. There are questions of resources of efficiency of predictability and of deterrence to mention but a few. This whole debate also plays into the discussion in national legal systems on control of the administration not only in the field of competition law but also administrative sanctions in general.
I noticed an interesting contrast in how the economists approach the cartel policy question, compared with the lawyer’s approach. While the economist assume that the firm approaches the dilemma of whether to be in a cartel or not from a simple rational cost-benefit analysis, detached from any moral considerations regarding whether the laws should be obeyed or not. The legalistic approach of Forrester sees this quite differently. In his world the poor firms accidentally get tangled in a conspiracy and did, of course, not have any intention of doing any harm. These morally righteous firms are subsequently indiscriminately treated as thugs by the EU anti-cartel regime, with total disregard for their fundamental human rights.
This highlights a classic dilemma in how to design legislation: Is the subject that is being policed a moral person or a psychopath? The psychopath circumvents legislation that assumes moral righteousness, while legislation that assumes morally detached rationality can do injustice to those that truly act on moral motives. This dilemma regarding cartel enforcement is further highlighted by Parker’s description of the dual nature of deterrence function against different types of cartel actors.
You ask three questions:
1) I think that the current policy is certainly working in the same way as, for example, criminal sanctions against homicides. The policy deters but does of course not eliminate cartels for good. The main question is whether we want to increase the deterrence and what are we willing to do to achieve such effects.
2) I think the policy is more or less being executed in a legitimate way. We should not give to much weight to desires of corporate lawyers to complicate the enforcement procedures. That would mainly serve to handicap the enforcement agencies and reduce the chances of getting caught for cartel participation.
3) The best solution to the problems with private enforcement is to abolish the idea. The focus should rather be on properly designed public enforcement instead of privatising sanctions from criminal offences. That is just a lazy fairy-tale-liberalism idea. Why create dual enforcement systems that create incompatible incentives for offenders?