by Natalie Greenwood, Partner, published on 30th October by The Lawyer Monthly
Often concealed from the public, cartel operations can imperil markets and pass significant fees on to consumers without their knowledge. The effective investigation of cartels – and organisations’ willingness to cooperate with these investigations – is therefore essential. Natalie Greenwood, partner at Euclid Law, takes a deeper look at cartel law in this article, outlining what is defined as a ‘cartel’ under EU law and how companies can best respond if they find themselves embroiled in an investigation.
To set a foundation for this discussion, what are the key principles governing cartel investigations in the EU?
The term ‘cartel’ is used to describe an agreement – typically secret – between two or more businesses not to compete with each other. Cartel participants will generally be involved in fixing prices, limiting production, sharing customers or markets or engaging in bid-rigging or other similar conduct.
However, it is even possible that the exchange of competitively sensitive information may be sufficient to be classed as cartel conduct. For example, the Commission fined a number of banana suppliers for exchanging quotation prices for bananas which they then quoted to customers, but which were not the actual prices charged to individual customers.
In the EU, the European Commission has extensive powers to investigate and enforce EU competition law against cartel participants. National competition authorities across Europe have similar powers to enforce both European (if in the EU) and domestic competition law.
How are these investigations carried out and how is information gathered?
Competition authorities can launch investigations based on information they receive from parties to the investigation (leniency applications in exchange for reduced fines), third-party complaints or their own data, including from data analysis teams that scour public information for specific patterns which may indicate anti-competitive behaviour.
A competition authority may carry out unannounced inspections (known as dawn raids) at the start of its investigation – often at various companies and locations at once. Competition authorities’ powers during a dawn raid are extensive and obstruction of inspections can result in significant fines. In 2019, the musical instruments company Fender was fined £25,000 by the UK’s competition authority because one of its employees removed 10 of his notebooks from the premises during the dawn raid, hiding them at the flat of a junior employee.1 The Dutch competition authority fined a company €1.8 million for obstruction as a number of employees left several WhatsApp groups and deleted chat conversations.2
In addition to dawn raids, competition authorities will gather information through extensive requests for information as well as interviews with relevant individuals.
If a competition authority decides to take the case forward, it will present the parties with a Statement of Objections and grant them with access to file, giving them an opportunity to defend themselves against the case and evidence put forward against them. Following the reply, the competition authority will issue its decision, including the fine.
It is also possible for the parties to seek a settlement to terminate the investigation, which will generally involve an admission of guilt in exchange for a reduction in fine.
In the context of EU competition law, what are the typical sanctions or penalties that companies may face if found to have participated in a cartel?
The potential sanctions are serious. The European Commission can impose fines of up to 10% of the previous year’s worldwide turnover. From 2020 to September 2023, the Commission imposed €2.224 billion in fines (down from over €8 billion in 2015-2019), with the largest single cartel fine against Daimler in 2016 for just over €1 billion for its role in the trucks cartel – a cartel between truck makers that were found to have colluded for 14 years on truck pricing and on passing on the costs of compliance with stricter emission rules.
However, there may be additional costs to participation in a cartel. These include individual criminal sanctions in countries including the US, Canada, the UK and Denmark, and director disqualifications in countries including the UK, Ireland or Sweden. In the UK, the Competition and Markets Authority can seek the disqualification of directors for a period of up to 15 years and it has been using its power regularly, securing 25 disqualifications since February 2019. Ignorance of competition law is generally not an excuse.