Brazilian watchdog meets targets, despite turmoil over cartel fines

31 January 2017 9:56am
Brazilian Real

30 December 2016. By Ana Paula Candil.

Pleading guilty in return for sentencing leniency is in increasingly popular option for Brazilian companies caught up in antitrust cases, despite ongoing differences of opinion among members of the country’s watchdog over how to calculate fines.

Brazilian competition authority figures from 2016 reveal an increase in the number of leniency agreements signed with companies, with the number of settlement agreements remaining steady, when compared to 2015.

CADE’s figures show the agency signed 11 leniency agreements this year, up from the 10 the previous year. What’s more, the overall number of antitrust decisions challenged in court this year remained stable, compared to the previous year — which amounts to a success for CADE.

The relatively strong performance of the agency is even more impressive when considering the uncertainty created by the very public disagreements among members of the CADE tribunal over how to deal with sentencing leniency for companies ready to report cartels and assist the agency.

The uncertainty was sparked earlier this year, when certain CADE officials publicly disagreed with the agency’s calculation of cartel fines.

The councilors argued that the agency’s practice of basing fines on a percentage of a company’s revenue from the year before the anticompetitive conduct began fails to account for the companies’ gains and the damage the behavior may have caused to the market.

Although a minority on the tribunal, the recalcitrant CADE members argue that current calculations can lead to smaller fines for companies that engaged in anticompetitive conduct for years, compared to companies whose anticompetitive conduct lasted for only months.

Of the 11 leniency agreements the tribunal signed in 2016, most are linked to a single case, that of the state-controlled Petróleo Brasileiro, or Petrobras.

Leniency and settlement accords have also emerged in probes involving: foreign exchange in the domestic market, public work to renovate slums, fruit, tubes and fittings, auto parts, maritime transportation, air and sea freight cargo, water measurement, electricity-transmission products, maintenance services, and drugs.

A delicate balance

The success of the current sentencing arrangements, and the discontent within CADE, are particularly topical as 2016 comes to an end. That’s because, depending on who assumes CADE’s presidency in 2017 and which officials are nominated, the policy of calculating fines might change.

And the uncertainty over the fining policy will continue until a new president takes control of the agency, MLex understands. That’s because, as things stand, the numbers on CADE’s tribunal are in favor of the current sentencing approach — but only just.

The tribunal is composed of five members: four councilors and an interim president. Three members accept the current method used by the regulator to calculate cartel fines, while two aren’t.

As the difference is small, the entry of two more members in the Tribunal could affect the balance of power. No nominations have yet been made.

The need for speed

CADE’s 2016 review has also revealed that the agency met its target of investigating cases more quickly — something demanded by companies keen to put an investigation behind them.

The competition law that came into force in 2012, along with new rules for settlement agreements in 2013, enabled members of the tribunal to speed up their case reviews. Currently, it takes about six months for CADE’s Tribunal to take a case to a decision-making session for a ruling, MLex understands.

But the agency’s Superintendence — the internal body that does most of the investigative work before the matter goes to the Tribunal — argues that its lack of staff has become an impediment for the agency to fast-track the review of a case.

So, although the Superintendence has built up a reputation for investigating cartels, this year the investigative unit was required to prioritize merger reviews, after being flooded by transaction notifications.

The reason for this flurry of merger activity was, in part, recent political instability which shook the Brazilian economy and affected companies’ profitability — prompting a rise in mergers and acquisitions.

In view of that, while overall the agency picked up the pace, it is understood that some settlement agreements took longer than expected to be completed. Ninety to 120 days is considered by lawyers in the field to be a “reasonable” period to negotiate a settlement, MLex understands.

International cases

CADE claimed several high-profile international cartel scalps in 2016. The watchdog fined several makers of dynamic random-access memory chips, or DRAM, for taking part in a cartel. It also fined glass manufacturers Nippon Electric Glass and Schott Glass for fixing prices for glass used in cathode-ray tubes in Brazil.

These successes were viewed as important because the regulator has shown that even when there is no mention of Brazil in a cartel case’s body of evidence, it can still impose sanctions if it finds evidence that the product of the cartels was imported to Brazil.

It can be hard for CADE to convict an international cartel if there is no evidence that companies intended to collude globally. In such cases, CADE needs to find explicit references made by the cartelists to the Brazilian market.

In the DRAM case, officials looked closely at the fact that DRAM chips aren’t produced in the country, suggesting the cartelists carved up markets.

But companies involved in two international plastics cartel investigations escaped fines because CADE couldn’t find explicit references made by the cartelists to the Brazilian market. It also found that the cartel had not been global, extending only to Asia.

Broader definitions

This year CADE also passed a resolution enabling it to create new market definitions that aren’t included in its list of business activities for fine-enforcement purposes.

It is understood that the watchdog’s previous list of business activities did not allow it to accurately calculate how much a cartel harmed a particular market. Under its new resolution, the agency will be able to impose fines that are more proportional to the damage caused in the market.

In 2016 the regulator also launched its guidelines on settlement agreements for anticompetitive conduct cases, to provide a clearer framework for the negotiation of those agreements. The guidelines provide transparency on matters such as why a certain discount was applied to one case and not another.

This year CADE also launched compliance guidelines for companies that wish to adopt measures to avoid engaging in anticompetitive practices.

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