Andreas Stephan

Cartel Laws Undermined: Corruption, Social Norms, and Collectivist Business Cultures

The combination of leniency programmes, high sanctions, complaints from customers and private actions for damages, has proven very successful at uncovering and punishing cartel agreements in United States Antitrust Law. Countless jurisdictions are being encouraged to adopt these ‘conventional’ enforcement tools, in the absence of an international competition authority. This paper identifies three issues which may undermine the universal efficacy of these cartel laws: (i) corruption and organized crime; (ii) social norms that are sympathetic to collusive practices; (iii) collectivist business cultures built on personal relationships.

THE DIRECT SETTLEMENT OF EC CARTEL CASES

In June 2008 the European Commission adopted a system of direct settlement for cartel cases, inspired by a comparative glance across the Atlantic where the majority of antitrust defendants enter negotiated guilty pleas. Whereas settlements in Europe are viewed as a method for expediting the conclusion of cases (distinct from the leniency notice), in the US they complement the offer of immunity as a device for encouraging cooperation. In both jurisdictions they have the effect of reducing the levels of fines imposed. This paper compares how well the two systems fare at enhancing administrative efficiency and deterrence, while maintaining transparency.

Cases in European Competition Policy: The graphite electrodes cartel: fines which deter?

Introduction Agreements between undertakings aimed at fixing prices, limiting output or sharing markets without any expectation of offsetting benefits to consumers are prohibited under Article 81 of the EC Treaty. Cartels are obviously included in this. A violation of this prohibition can for each violator attract a fine up to 10 per cent of its worldwide turnover. This fine will in the first instance be levied by the Directorate General for Competition following their investigation and is formally an administrative rather than a criminal fine. Their decision can be appealed to the Court of First Instance (CFI) and subsequently to the European Court of Justice (ECJ). In order to overcome the information problems in detecting and prosecuting cartel agreements, the EU has introduced a leniency programme which rewards cooperation by cartel members through a reduction in the fine. The law on cartels, like other areas of competition policy, is founded on principles of economics, but economists are rarely involved in its application against explicit hard-core collusive agreements. In part, this is due to the absence of evidentiary problems – direct evidence may be found from a whistleblower or in dawn raids (e.g. e-mails) – and thanks to leniency programmes, cartel members may either reveal details of their infringement in return for immunity from fines or start cooperating and providing evidence in return for a leniency discount once an investigation into their industry has been opened.

Why Morality Should Be Excluded from the Cartel Criminalisation Debate

This paper argues that the use of criminal sanctions against hard core cartels is justifiable on the grounds of preventing harm alone, and that the question of whether price fixing is also morally wrong provides an unhelpful distraction. The criminal law has evolved beyond protecting common morality by only engaging with a small number of the most objectionable acts perpetrated in society. Its traditional links with morality in a religious context are also less relevant today and in some areas the breakdown of these links has resulted in decriminalisation. Although it is true that cartel criminalisation is an extreme form of regulatory control, it is justifiable given the potential harm caused by cartels and the difficulty in identifying the target for direct regulation. Price fixing may occur anywhere in the economy and is not restricted to a small number of identifiable actors. Criminal cartel offences should therefore simply be accepted as a necessary tool with which to punish and (more importantly) deter harmful cartel conduct. Yet, those involved in designing and enforcing cartel offences – principally politicians and competition authority officials – have felt the need to draw parallels between price fixing and theft or fraud. In the UK, legislators went as far as to include the moral marker employed in theft and fraud cases – the standard of dishonesty. However, the acts of price fixing, theft and fraud are not morally equivalent. Price fixing does not require physical interference or violence, nor does it necessarily involve a positive deception. The harm caused by the act of price fixing is often remote (in terms of perpetrator and victim) and widely dispersed, yet it is very significant in its entirety – potentially exceeding the monetary cost of both theft and fraud combined. This paper first discusses why the question of morality is problematic in the context of price fixing and why it is an unnecessary prerequisite to legitimate criminalisation in this context. It then sets out the justification for criminalising cartel conduct on the grounds of preventing harm. It concludes by discussing the implications of a harm only justification for deterrence. Once we accept that the criminalisation of cartel conduct is a necessary incentive to encourage compliance with cartel laws, our focus should turn to the credible threat of enforcement. This is the biggest challenge for cartel criminalisation.

Beyond the Cartel Law Handbook: How Corruption, Social Norms and Collectivist Business Cultures can Undermine Conventional Enforcement Tools

The combination of leniency programmes, high sanctions, complaints from customers and private actions for damages, has proven very successful at uncovering and punishing cartel agreements in the US. Countless jurisdictions are being encouraged to adopt these ‘conventional’ enforcement tools, in the absence of an international competition authority. The purpose of this paper is to widen the debate on cartel enforcement by identifying three issues which can undermine their effectiveness in some jurisdictions: (1) Corruption and organised crime; (2) Social norms that are sympathetic to collusive practices; (3) Collectivist business cultures built on personal relationships.