EU takeover of food-can probe shows risks of German fining loophole

4 May 2018 10:44am
German Flag in wind

27 April 2018. By Lewis Crofts and Matthew Newman.

Makers of food cans and metal packaging risk higher fines after the European Commission took over a German cartel probe into the industry.

The transfer shows that Europe’s network of antitrust watchdogs can pull strings to avoid the exploitation of a historic loophole in Germany’s competition law. That loophole is now closed, but can still apply to old cases.

The loophole carries the unglamorous moniker of the “sausage gap,” after sausage manufacturer Tönnies dodged German cartel fines by restructuring its corporation. In short, it transferred assets from the business units involved into other legal entities that ceased to exist.

This has long been a concern for German enforcers at the Bundeskartellamt, who pushed legislators to close the loophole last year.

As far back as 2012, Andreas Mundt, the authority’s president, was flagging the risk that cartel members would get away scot-free. And EU enforcers said at the time they were prepared to take over probes where there was a risk of impunity.

Mundt warned he "might reallocate these cases, at a very late stage, to the commission, which would not have problems in imposing fines in such cases."

The EU has come good on that promise this week, taking over a probe into makers of metal cans that has already been running for three years.

Bigger fines

That move could see any EU fines exceeding their German equivalent. That’s because EU enforcers will naturally take into account sales on more territories and perhaps more products. And they will also look at the sales of entire corporate groups, boosting the calculation.

Furthermore, companies that were set to win reductions in Germany for cooperating with investigators may feel apprehensive that those benefits won’t roll over for the new territories beyond Germany’s border that are part of the EU probe. There’s no guarantee that leniency applicants will preserve their place in line when EU enforcers take over.

An investigation into detergent-makers in 2011 showed that a company that was the whistleblower in one country — France — didn’t get the same protection when the EU ran a related case.

Today, the German authority said: “During the proceeding some of the companies concerned carried out restructuring measures. As the legal situation in place in Germany until mid-2017 still applies to old cases, the Bundeskartellamt might not be able to punish the offenses.”

Both Germany and the commission stressed they had worked through the European Competition Network, which brings together 29 watchdogs from around Europe to discuss problems and allocate probes. In this case, it appears to have worked well.

Given the legislative changes in Germany last year that closed the loophole, the fate of the canmakers may be a rarity. There are likely to be a small number of historic cases that qualify for a potential transfer.

But for lawyers who thought they were engineering a clever restructuring to avoid German fines, they may now think twice. There may be other cases that are ripe to be taken over by EU antitrust enforcers.

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