Cartel fines ‘chiefly’ based on gains made are ‘inaccurate,’ Brazil’s top antitrust investigator says

31 January 2017 9:54am

20th October 2016. By Ana Rita Rego, Ana Paula Candil & Carolina Guerra

Calculating fines based chiefly on how much a cartelist gained from the illegal conduct would be “costly,” and the end result would be “inaccurate,” Brazil’s top antitrust investigator said today.

Antitrust officials should also take into account fines levied by other authorities, in the country and abroad, to check whether fines are “adequate,” Eduardo Frade, from the Administrative Council for Economic Defense, or CADE, said at an event in Campos do Jordão, in São Paulo state today.

The debate on calculating fines based on how much cartelists earned from the conduct has gained traction in recent months, with some CADE decision-makers keen to estimate this amount to quantify penalties.

Brazilian antitrust law states only that the penalty shouldn’t be lower than the gain made from the illegal conduct, when it is possible to calculate this amount.

“Applying fines based chiefly on this element…would be very inaccurate, very costly,” Frade said. The regulator would be opening itself up for lengthy legal battles and risk seeing its fines overturned by the courts, he said.

Frade acknowledged that the authority should continue to perfect the way it calculates fines, and explore how it can take the gains made from a cartel into account. But this provision in the law should be seen as a “qualitative guide” to determine that fines are sufficiently high to deter executives and companies from entering a cartel again.

The authority already has other, more effective means to achieve this objective, Frade said. Reports about high penalties, dawn raids and prison sentences for executives work well at dissuading wrongdoing, he pointed out.

“If CADE wants to calculate the gain…I ask whether it isn’t dangerous…not to look at the whole apparatus,” Frade said.

He suggested officials should also take into account “reputational costs,” “the cost of other penalties,” including damages actions by cartel victims to recover losses, and the loss of the right to sign contracts with public authorities.

“Shouldn’t we be looking at all of this when talking about gains made [from a cartel],” Frade said.

“I don’t want to seem too lenient. I am in favor of high fines and penalties,” but “let’s do it correctly.”

Frade also suggested the authority should carry out studies to review whether fines it levied were high enough or too high.

CADE’s interim President Marcio de Oliveira Junior said there were “limits” to calculating how much a cartelist gained from the wrongdoing and using that amount. Officials can’t go over the legal ceiling for fines, which is set at 20 percent of a company’s yearly gross sales in the market at issue.

Explaining the role each cartelist played in the illegal scheme would go further to encourage damages actions in Brazil than calculating how much companies gained from the conduct, Oliveira suggested.

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