Cartel busting made easier by whistle-blowing

Date: 21/12/1995

By Ian S. Forrester QC

In the bad old days, cartels among European producers were rarely challenged by the European Commission. Member state governments would intervene to protect national champions against the indignity and financial pain of a fine.

Times have changed. Competition Commissioners have discovered that zapping cartels brings good press coverage. Gigantic fines are regularly imposed upon cartels making products such as cartonboard and cement. The total amount of the fines on producers of paper cartonboard was 132 million ecu, and on cement it was 284 million ecu.

The Commission has set up a special cartel-busting unit to seek and seize evidence of cartel operations. Investigation teams may consist of ten people, including DGIV caseworkers, national officials, interpreters and computer specialists. The eruption into a company's premises of such a group causes turmoil at best, and consternation at worst.

The investigators may often know something, but never everything. They may have been told about a meeting in a particular city, or that two competitors have raised prices simultaneously. Sometimes they are 'lucky' and ask the right person the right questions. Sometimes simultaneous raids at several companies can provide corroboration. They may even turn up traces of a company's efforts to cover its traces: in one case, the company - fearing a raid - organised a dummy run to test its personnel's reactions. Unfortunately for the company, the records of the rehearsal were found during the real raid.

What should a company do when DGIV officials attack? Should the company say, very frankly, that its personnel have - regrettably and of course without the approval of senior management - engaged in conduct which constituted an infringement of the competition rules? Some lawyers would say that a cooperative attitude must make things better than stonewalling. Others would observe that the Commission's resources are limited and, if proof is difficult, a decision and a fine may never materialise. Worse still, they would point out that frankness has recently yielded painfully expensive consequences. In one case, a company was asked by letter to provide information. It complied in full detail, giving a comprehensive account of the facts, which revealed the existence of what lawyers call 'technical infringements' - breaches of the rules, but not very unusual or grave ones. No raid was necessary and the Commission was, indeed, able to frame its condemnation of the company on the basis of the company's own replies. A fine of 2 million ecu was imposed.

Commissioner Van Miert has now announced two steps to encourage whistle-blowing by companies with a guilty conscience. First, there will be total immunity from a fine when a company comes to the Commission to describe a cartel, before the Commission has conducted an investigation to gather data about it. The confessing company will have to furnish all the embarrassing documents and maintain a “permanent and totally” cooperative stance. It will be interesting to see whether the rumour of an investigation will spark off a rush to be first in the confessional. (The immunity is available only to the first party to confess, not to those that follow.)

Second, there will be a halving of the otherwise applicable fine if, after a raid, a company is the first to cooperate fully with the Commission. This concession is probably less attractive, since there can be no certainty for the company that a decision will actually be taken without its cooperation. And, more importantly, the Commission never reveals in its decisions how it has reached a particular fine. Rumour has it that a percentage is applied to European turnover of the product concerned. The Commission sometimes reveals the percentage during a court appeal, but not always, and so far the courts have not insisted. The matter is so clouded in uncertainty that being promised “only” half of a possible huge sum may well represent only a very modest incentive.

To that, the Commission would doubtless retort that the guilty have no legal right to rest easy.

This article reflects the personal views of the author.