EU cartel enforcement is on the wane, but don’t blame Vestager

7 November 2018 1:09pm

5 November 2018. By Michael Acton.

As EU competition chief Margrethe Vestager enters the final 12 months of her mandate, it looks like she won’t be setting any new records when it comes to acting against cartels.

The total sum of cartel fines imposed during her term could fall short of that achieved by her two predecessors unless she manages to deal out a couple of very hefty fines.

And publicly at least, Vestager has shown quite limited interest in cartels, instead focusing her energy on landmark abuse-of-dominance and state-aid decisions against US tech giants.

Yet Vestager’s cartel record needs to be viewed with the bigger picture in mind, as global cartel enforcement has changed profoundly in recent years. As jurisdictions grate against each other and price-fixers get smarter, the EU’s top regulator faces the unenviable task of finding solutions to problems scarcely imaginable to her predecessors a decade ago.

The scoresheet

According to MLex calculations, the European Commission has handed out fewer and fewer cartel fines over the past decade.

Neelie Kroes, the competition commissioner from 2004 to 2010, represented the high-water mark for cartel fines. She dished out penalties in 31 cases across a diverse range of sectors, from bananas to wax to marine hoses.

So far, Vestager has handed down fines on 23 separate occasions, but six of these have related to the same broad sector: car parts. Several have also been follow-up fines to earlier rulings, some of which were linked to fines imposed by her predecessor, Joaquín Almunia.

Over his term from 2010 to 2014, Almunia handed down fines on 24 separate occasions, roughly similar to Vestager. But the value of those fines surpasses Vestager’s record to date.

Two trends appear to emerge: individual cartel fines are getting bigger, but the sum of all fines imposed by each commissioner is dwindling.

In 2016, for example, Vestager imposed a record fine of 2.9 billion euros ($3.3 billion today) on truck companies found to have participated in a cartel — a sum that accounts for more than 40 percent of all of her cartel fines.

But even with this eye-watering fine, Vestager’s total of 6.8 billion euros trails Almunia on 7.9 billion and is far behind Kroes on 9.4 billion.

That said, Kroes’ tenure was around six months longer than the two that have followed. And Vestager could still pass Almunia’s record if she can push a few more cases out of the door, such as her ongoing investigation into banks’ foreign-exchange markets and recently opened probe into German automakers’ emissions technologies.

All in all, the figures don’t support the idea that the current commissioner has been significantly softer on cartels.

Leniency applications

Three commissions make for a small sample, so what other evidence is there to bolster the idea that there is a long-term trend of less cartel enforcement?

Part of the answer could lie in companies becoming ever more reluctant to submit leniency requests, making it harder to detect cartels in the first place — a change that the EU regulator has acknowledged.

Enforcers worldwide are facing a challenge to ensure that “leniency carrots are sweet, and cartel sticks are heavy,” Eric Van Ginderachter, who heads the commission’s cartel unit, said last month.

Companies are now facing more uncertainty over the consequences of coming clean to the commission. The increasing activity of competition authorities worldwide means that cartelists operating globally know that they will need to file notifications across multiple jurisdictions, each carrying the threat of a fine.

Lawyers for companies will point to the fact that the incentive of a reduced fine for blowing the whistle on a cartel may be outweighed by the unpredictability they face across multiple jurisdictions.

And recent high-profile damages claims against participants in the 2016 truck cartel could be acting as a further disincentive.

The EU’s new anonymous whistleblower hotline, unveiled last year, is designed to address this, relying on individuals to come forward if companies won’t. It remains to be seen whether this will result in a significant uptick in the number of cases opened.

National enforcement

If the EU regulator is doing less on cartels, it could also be because national authorities are taking more responsibility in this area.

Several of the cartels fined by Kroes — such as beer, Italian raw tobacco, or road bitumen — were national in scale, and if they emerged again today they might be dealt with by national regulators instead.

National authorities in the EU are keen to point to their increased vigilance at dealing with localized cartels in recent years.

“Cartel enforcement has changed very substantially,” said Jacques Steenbergen, president of the Belgian Competition Authority.

“Before 2007, we had few resources and relatively low thresholds for merger control. And on average about 80 percent of our resources were absorbed by merger control because you had the deadlines,” he told a conference in Luxembourg recently.

“In 2007 we raised the thresholds, we organized a simplified procedure, and within one year we reduced the extent that resources were taken up by merger control to somewhat less than 20 percent. So that’s when, really, cartel enforcement started. Before, we didn’t have the resources.”

Portugal, too, has recently started a major campaign against cartels, sifting through new data sets and reportedly increasing eightfold in the past year the number of dawn raids it carries out.

New horizons

As Kroes said in a speech in October 2009, cartels have a habit of “adapting like viruses to fight our attempts to kill them off.” Her words remain relevant almost a decade on.

With appeals for leniency from “classic” cartelists dwindling, the commission is also thinking creatively about how cartels are evolving, including stretching their definition.

The investigation into German car manufacturers announced last month over suspected collusion in the release of new emissions control technologies is a sign of this.

“I think we are facing new challenges,” said Johannes Laitenberger, director of the commission’s competition department, at the Luxembourg conference. “Perhaps in the future, certain cases will be less ‘classic.’ For example, the commission has opened an investigation into a case of collusion which is not . . . on prices but on the restriction of innovation. This all leads us toward new horizons.”

Cartelists are also taking advantage of new technology, finding smarter ways to avoid leaving traces of collusion. Pricing algorithms, for example, are a challenge for regulators who have traditionally relied upon tangible evidence of meetings of cartelists in smoke-filled backrooms.

The legacy

Given these circumstances, Vestager will leave a respectable legacy in cartel enforcement, even if it hasn’t been a key theme of her mandate.

It’s also worth bearing in mind that each commissioner must deal with the cases their predecessor leaves for them. At the time of writing, around a dozen EU cartel investigations remain open on the public record, and it’s likely that several more are under way that haven't been publicly announced.

So we will only fully know how successful Vestager’s cartel record has been when her successor polishes off the work she has started.

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