Price-fixing best deterred by threat of jail, says Lowe

By Peter Chapman

Date: 24/06/04

PUTTING cartel ringmasters in jail is the EU's best deterrent against price-fixing, according to Philip Lowe, director-general of the European Commission's competition department (DG Comp).

The verdict, which could signal the next stage in the Commission's campaign to turn the screw on the cartels, was delivered at a behind-closed-doors meeting of competition watchdogs in Paris.

He told the Organization for Economic Cooperation and Development meeting: "The Commission is of the view that sole reliance on corporate sanctions cannot ensure adequate deterrence.

"The deterrent effect of sanctions against individuals, including jail time, would be appropriate considering the level of harm to competitors and consumers.

"Ultimately," Lowe said, "the EU should be moving toward a system that provides for criminal sanctions, provided there is adequate certainty and protection of the rights of [the] individual."

Mike Pullen, a London-based competition lawyer with firm DLA, said Lowe "is absolutely right", adding that companies often factor the financial costs and benefits of cartels into their calculations.

"The only way to get them to take it seriously is to have jail time and disqualification of directors," added Pullen, who has acted for companies in several international cartel cases.

But Julian Joshua, a partner in the Brussels office of law firm Howrey, doubts whether member states could ever agree to EU-wide rules. "It is way down the line," he said, adding that many new EU states are still struggling to put a basic legal system in place, let alone agree on criminalization of cartels.

Lowe admitted that the onus is on member states to agree to criminalization.

Only six of the "old" 15 member states foresee criminal or civil sanctions against individual perpetrators in cartels. Of these, the UK is the only large member state to use jail. French and German laws allow prison sentences, but in practice this is not enforced.

Of the new member states, Slovakia leads the way with up to five years' imprisonment for the worst cartels.

Jonathan Faull, director-general of the Commission's justice and home affairs department, told European Voice that his team has no such initiative in preparation.

"This is really a matter for DG Comp. I understand that Philip Lowe expressed the personal view that the trend in the EU will be towards criminalization of cartels.

"It would, of course, be essential that the protection of individuals' rights goes hand in hand with tougher sanctions," added Faull, a former competition policy official.

But until the EU can agree uniform rules, experts point to dangers in going down the road to criminalization.

John Fingleton, head of the Irish competition authority, points out that small countries should be cautious about bringing in jail terms for perpetrators. Ireland has recently agreed a five-year maximum jail sentence.

He said the cost of running an investigation - not to mention the costs of putting company bosses in jail - could weigh heavily on the budgets of small competition enforcement units.

Moreover, he said this could lead to situations where perpetrators of relatively small national cartels could be put in prison, while those involved in some larger, European-wide cartels could escape with little more than a fine. "This issue needs to be dealt with," he said.

Lowe admitted to the OECD that the Union's recent overhaul of competition law - which entered into force on 1 May - could lead to legal problems.

"As of May 2004, national authorities will apply EU law in parallel with national laws. Criminal prosecution will be possible through the parallel application of national laws that provide for criminal sanctions.

"In this heterogeneous situation, where EU law and national laws can be applied in parallel, several challenges exist.

"First," he said, "the compatibility of leniency schemes and criminal sanctions must be ensured."

Leniency regimes reward whistleblowers who tell authorities about cartels in which they are involved.

But Lowe said differences between national leniency programmes "can cause significant problems". They could lead to criminal prosecution of employees or ex-employees by national authorities, "following information exchanges within the network of competition authorities or cooperation between the Commission and national courts".

He said that is one reason why the EU's new regulations stipulate that jail sentences can only be imposed under strict circumstances.

Report of speech by European Commission Director General for Competition, Philip Lowe, to an OECD meeting.