Between 1990 and 2016, cross-border cartels affected sales of over $51 trillion worldwide. Indicatively, more than 100,000 companies were found liable for international price-fixing, with estimated gross overcharges exceeding $1.5 trillion. In light of the data provided, it becomes apparent that international cartels have a great impact, not only on consumer welfare, but also on economies as they deprive the latter of the benefits from international trade. On Thursday, May 20th 2021, the Economic Crime Series: International Cartels – Recommendations for an overall proportional punishment and a realignment of competition law event was held online, organised by Dr. Branislav Hock and chaired by Penelope Giosa who are both lecturers at the University of Portsmouth. Given the context of the seminar, speakers Dr. Marek Martyniszyn and Dr. Pieter Huizing presented their research work to shed light on the ways that existing regulatory gaps could be narrowed and an overall proportional punishment could be achieved in the area of international cartels. The Risk & Compliance Platform Europe has also covered this seminar via its website. This is part two, which will focus on Dr. Huizing’s presentation.
Dr. Pieter Huizing works as a lawyer specialising in competition law at international law firm Allen & Overy in Amsterdam. His research considers the parallel punishment of international cartels.
The changing landscape of global cartel enforcement
Dr. Huizing began by talking about the landscape of international cartel enforcement and stated that there has been quite a remarkable development in this regard in the past two or three decades. Global cartel enforcement is characterised by more authorities being active in this area. There are now over 125 jurisdictions with a form of active cartel enforcement, although many of these mainly focus on domestic cartels. He continued by stating that we also see those authorities being more effective in combatting cartels, both because they have more experience, skills, tools, and more international cooperation.
Furthermore, we see these authorities embracing extraterritorial enforcement, so they are no longer bound to purely focusing on domestic cartels. Under their statutory powers, they are able to try and ‘grasp’ conduct taking place elsewhere. Finally, we see these authorities imposing higher fines, which is demonstrated by the increasing average fine levels that have been imposed for global cartels and also illustrated by the increasing fine levels of the European Commission . Most importantly, as Dr. Huizing claimed, these four factors all contribute to the parallel enforcement of international cartels. What he meant by this is that it is the same international cartel that is being targeting by multiple authorities around the world.
The trend of increasing extraterritorial enforcement
Dr. Huizing stated that there is now a gradual recognition that authorities need extraterritorial enforcement to be effective in targeting conduct that may well harm domestic economies while taking place territorially outside of their borders. The key takeaway here from his point of view is that the easier it is for states to ‘grasp’ foreign conduct under their domestic competition rules, the greater the risk of that same conduct being subject to multiple punishments.
He continued by stating that even if we were to solve all the issues, narrow down the gaps, and address all the challenges that Dr. Marek Martyniszyn identifies for effective cartel enforcement by developing countries, what it would result in is a situation where we have the same cartel being targeted by even more cartel enforcements around the world. If you have one global cartel and assuming that almost all affected territories were to impose their own sanctions, this could then lead to a situation where you have 50 or more parallel fines and parallel procedures targeting the same cartel for the same overall conduct. This is not sustainable nor an ideal outcome, as he explained.
National cartel fining practices
So, how are cartel fines determined on both a national and international level? Firstly, on a national level, there is still little international consensus on what the appropriate level of fines is. At the same time, you can also see quite some convergence in how fines are calculated. There are three standard elements of fine calculation methodologies:
- First you look at relevant turnover. Dr. Huizing explained that this is the turnover achieved in selling the cartelized products. You then take a certain percentage of that turnover to calculate a base fine, which often lies between 20-30%.
- In a second step, there can be adjustments to the base fine for mitigating or aggravating circumstances.
- Then at the end, he stated that there is an absolute fine limit, which is often linked to total worldwide turnover. Many countries say that a cartel fine, irrespective of relevant turnover or aggravating circumstances, cannot exceed 10% of total worldwide turnover.
Dr. Huizing continued by stating that this methodology clearly sets a very direct and linear link between relevant sales – which is taken as a proxy for the harm – and the overall level of the fine. This means that a cartel member having twice as much relevant turnover will, in principle, receive a fine that is twice as high.
International cartel fining practices
He then examined the international cartel fining practices. He stated that there is no international enforcement in the sense of an overarching authority that imposes fines. So, it’s just a combination of national cartel fines that are applied in an international case. For defendants in international cartel cases, they will say ‘I am being punished multiple times for the same conduct’. He carried on by saying that they will typically, especially in early cases, argue before the European courts that there would be disproportionality or double jeopardy because they already received a fine in the US, for example, which should have been taken into account by the European Commission in setting its own fine.
On the other hand, courts and authorities generally dismiss this argument and claim that there is no double punishment, because even if they may be looking at the same overall cartel conduct, they are narrowing down on specific national or European effects of that cartel. And as long as they are fining only those effects, there is no overlap. He also said that even though you have authorities generally looking at only domestic effects, and seeing no need to take into account what happens elsewhere, we do see some ad hoc efforts to take foreign fines into consideration:
- Firstly, that is related to avoiding double counting. Huizing said that this means double counting of the same relevant turnover. For example, in the air cargo cartel cases, the relevant turnover would be the turnover achieved in transporting goods from country A to country B. But if you have enforcement in both country A and B, they will both consider the same turnover achieved in the transport of goods between these countries. Authorities have adopted different approaches to avoid double counting in these cases.
- Secondly, you also see some cases where authorities are saying, ‘because of prosecution elsewhere, we decide not to take any action,’ which is known as deference of prosecution.
- And thirdly, you see a handful of cases where courts, in setting the relevant fines, are saying, ‘we will reduce the overall fines in light of prior fines imposed elsewhere.’
Proportionality of international cartel fines at the national level
Dr. Huizing then dove into discussing two legal theories on proportionate punishment of international cartels, which looks at national fine methodologies and at international fining practices. The two legal theories he discussed were the retributive theory and the consequentialist theory. He said that the distinction between these two theories is relevant when analysing proportionality. This is because the views on proportional punishment are very much linked to the question of what the justification of punishment is.
Retributive theory considers retribution to be the justification for punishment, which means that someone needs to be punished because they deserve to be punished. Taking into account retributive theory at the national level, you look at two factors: mainly culpability and harm. And proportionality in this sense means that a fine is not more severe than is justified on the basis of these two factors combined. Going back to culpability, Dr. Huizing stated that there is this shared base of culpability in engaging in cartel conduct at a national level. For example, say there are five companies all selling the same kinds of products. They then come together and decide to enter into a cartel agreement. So, from his point of view, irrespective of the size and relevant turnover of the companies, they have all made the same decision to enter into this illegal conduct, so there is this shared base level of culpability.
Alternatively, we have the consequentialist theory, which states that punishment is justified because of the future overall benefits to society. Taking this theory into account, if you look at the optimal fine levels by pursuing deterrence, you would need to look at two elements at the national level: expected gains by the cartelists and the likelihood of detection. Dr. Huizing stated here that these two elements hardly play any role in the setting of fines on a domestic level. He noted how you also see that reflected in other areas as well where authorities say that they are primarily looking at achieving deterrence rather than retribution. However, if you look at how they set their fines, the underlying principles serve retributive fines more than fines focused on deterrence.
Proportionality of international cartel fines at the international level
Dr. Huizing then moved on to examine these two legal theories at an international level. Starting with the retributive theory, he stated that even though the base culpability for entering into a cartel is not apparent in national fines, but that it nevertheless exists. For a global cartel, he argued that there is one single element of this base culpability that needs to be taken into account, rather than this factor being multiplied by the number of countries that the cartelists happen to be selling their products in. So, this means that if you have one global cartel and you make one decision to enter into the cartel, you should receive punishment with respect to that decision rather than each country imposing their own separate fine for you making this decision. Also, at an international level due to the piling on of national fines, he stated that – with the retributive theory – we also see a continued overemphasis on harm as opposed to culpability.
On the other hand, with the consequentialist theory, he pointed out that what we don’t see on an international level is anyone considering what the overall desired level of deterrence is, and when that is reached. We also don’t see anyone questioning how much is enough – there is no absolute fine limit applied at the international level. This is interesting, as Dr. Huizing stated, because in many countries you see that 10% of worldwide turnover is a maximum fine – irrespective of relevant turnover – that we still consider to be justifiable for cartel conduct. However, he made an important distinction with regard to this for international cartels.
For example, if you sell your products in four countries, each of these four would impose their own fine. And if each country applies a maximum of 10%, the overall maximum fine is not 10% but 40% of worldwide turnover, so he questioned: what is the justification here? Moreover, he said that if we look at this example in a European context, we have seen a case where both the Dutch and Belgian authorities impose their own fines. The Dutch fine was imposed first and for some of the defendants, it reached the maximum of 10%. The Belgian authorities then said that they didn’t consider it appropriate to impose a further fine. So, he said that we do see this taking place in a European context on an ad hoc level, but we don’t see this happening on an international level outside of Europe.
Conclusion – paving the way forward for international cartel sanctioning
Dr. Huizing stated that his conclusion is that the objective of better coordination of international cartel sanctioning should be pursued by as few distinct proceedings as possible, resulting in an effective but overall proportional punishment. So, how can we achieve this? He concluded his talk by examining a few approaches:
- Firstly, is it possible to have exclusive enforcement by one overarching authority that imposes one overall fine? He stated that this would be ideal, pointing towards Europe where the European Commission is taking on such a role. However, he doubted whether this could ever be achieved at an international level.
- Alternatively, another approach could be the horizontal allocation of a case to a ‘best placed’ authority who can act as a lead enforcer. Huizing stated that this is also quite challenging because it also calls into question whether one national authority could impose a fine on behalf of other national authorities.
- Next, is it possible for different authorities when looking at the same overall cartel, to look at separate elements of the conduct? He stated that this depends on the type of case.
- It is possible to reach coordination between different national authorities on the overall proportional punishment for the overall cartel conduct, and to then agree on the allocation of that overall penalty among either the affected or enforcing jurisdictions? It is interesting that this approach is now often adopted in international bribery cases. However, Dr. Huizing pointed out that it’s doubtful whether this is suitable for cartel cases for two reasons. One is the number of authorities that would need to agree, and the other is timing – it’s difficult to agree at one point in time on the overall proportional punishment.
- Finally, he argued that one approach that can be adopted on a domestic level without the need for international agreement is authorities unilaterally agreeing to the appropriate level of additional sentencing, taking into account prior fines imposed elsewhere.
