Criminalization of Cartels

1
Criminalization of Cartels

• UHOS Conference
• 11th November 2008 Brno, Czech Republic
• Carolyn Galbreath
• Member and Director
• Cartels Division
• The Competition Authority

2
Cartels and Competition

• Cartels remain the supreme evil of antitrust.
• Verizon Communications v. Law Offices of Curtis
  V. Trinko, 540 U.S. 398, 408 (2004).

3
Cartels and Competition

• "This type of crime is a crime against a
  consumer and is not simply against one or more
  individuals. To that extent it is different from
  other types of crime and while society has an
  interest in preventing, detecting and prosecuting
  all crimes, those which involve a breach of the
  Competition Act are particularly pernicious. In
  effect every individual who wished to purchase,
  for cash, a vehicle from these dealers over the
  period which I've mentioned were liable to be
  defrauded and many surely were by the scheme and
  by the practices which unashamedly this cartel
  operated. These activities, in my view, have done
  a shocking disservice to the public at large.
• Mr. Justice Liam McKechnie, Sentencing of Denis
  Manning, 3 February 2007.

4
Cartel Enforcement Worldwide

• Recognition that cartels are anticompetitive
• Anti-cartel laws with substantial penalties
• Impressive track record by anti-cartel enforcers
• Increased cooperation between enforcers within
  the EU and around the world to uncover and
  prosecute cartels
• Use of a variety of tools to uncover cartels.

5
Cartel Enforcement Worldwide

• Secret nature of cartels require special tools to
  uncover illegal activities
• Cartels are insidious and require active
  participation by executives at the highest levels
  within companies
• Unique incentives in the form of leniency and
  immunity programmes have proved effective tools
  to crack cartels
• Successful enforcement requires penalties that
  take into account the difficulties of detection,
  the need to encourage defection and are
  calibrated to deter future cartels.

6
Cartel Enforcement Worldwide

• Successful anti-cartel enforcement depends upon
  creating a virtuous circle of
• Defection
• Detection
• Deterrence

7
Structuring Enforcement for Success

• Raising risks and creating incentives for
  DEFECTION
• Clear structure for acceptance of responsibility
  and providing incentives for DETECTION
• Transparent outcomes that promote DETERRENCE.

8
Tools for Enforcement Success

• Cartel Immunity and Leniency Programmes
• Sentencing Guidance
• Structured Means for Cooperation and Accepting
  Responsibility

9
Cartel Enforcement in the European Union

• Many approaches to cartel enforcement
• Most apply the EU Community Model
• Variety of criminal enforcement models used by
  Member States
• Imprisonment and fines (Ireland and Cyprus)
• Imprisonment and fines for specific offences (UK,
  Germany and Slovakia)
• Criminal Fines (Denmark, Estonia, Slovenia)

10
Benefits of Criminal Enforcement

• Criminal enforcement
• Ensures that individuals are made to take
  responsibility for their illegal activities
• Increases the risk profile for cartels and
  provides incentives for defection and detection
• Limits the propensity for companies to factor
  cartel fines into the cost of doing business
• Makes the cost of recidivism personal and adds a
  deterrent factor unattainable from fines alone.

11
Irelands Criminal Enforcement

• Criminal convictions on indictment of 12
  companies and 10 individuals.
• Custodial sentences imposed on five individuals
  since 2005, all suspended.
• Two convictions and custodial sentences against
  the cartel enforcers who aided and abetted the
  Connaught Oil Producers Association and the Irish
  Ford Dealers Association
• Fines of just over 181,000
• Cases pending against 6 companies and 7
  individuals
• Additional cases to be filed before year end.

12
Competition Act, 2002 Criminal Offence

• Sections 4 and 5 of the Competition Act, 2002,
  mirror Articles 81 and 82 of the EU Treaty
• Section 6 makes hard-core cartels under Section 4
  or Article 81 criminal offenses
• Applies to individuals completing undertakings
  or a decision made by an association of
  competing undertakings
• Hard core offenses are enumerated as (1)
  directly or indirectly fixing prices on goods or
  services by means of an agreement, decision or
  concerted practice (2) limiting output or sales
  or, (3) sharing markets or customers
• Section 6(6) Any act done by an officer or an
  employee of an undertaking . . . in connection
  with the business shall be regarded as an act
  done by the undertaking.

13
Penalties for Cartels

• For conviction upon indictment, fines on both
  individuals and undertakings of 4 million or 10
  percent of the turnover in the 12 months
  preceding the conviction
• Prison term of up to 5 years
• Individuals are subject to arrest for cartel
  offences
• Imputed liability on the undertaking for acts by
  an officer, director, manager or person who
  purports to act in such capacity
• Presumption that the undertaking has consented to
  acts by an officer, director or manager who
  engaged in cartel behaviour.

14
Irelands Criminal Enforcement Structure

• Investigations by Competition Authority
• Prosecution by the Director of Public
  Prosecutions
• Charges against the accused on indictment
• Trial by jury
• Right against self-incrimination
• Plea bargaining is prohibited
• Judicial discretion in imposition of sentences

15
Director of Public Prosecutions

• Cartel cases on indictment are investigated by
  the Competition Authority and prosecuted by the
  Director of Public Prosecutions (DPP)
• Competition Authority recommends prosecution
• DPP has sole discretion to prosecute cases and to
  determine charges to be brought against
  individuals and undertakings
• Ireland has a traditional solicitor/barrister
  split, cases tried by barristers engaged by the
  DPP
• Plea bargaining in Ireland is prohibited options
  for disposing of cases without a trial are
  circumscribed.

16
Limited Options for Disposition in Lieu of Trial

• Judicial plea bargaining between the prosecution
  and defense is not practiced and the DPPs
  Guidelines specifically prohibit prosecutors
  from participating. (DPP Guidelines, Section
  10.1)
• Prosecutorial charge-bargaining is used, but
  sentencing recommendations to the court are not
  permitted (DPP Guidelines, Section 8.20)
• Determination and imposition of sentence is
  within sole discretion of the Court. No
  sentencing guidelines, although DPP has endorsed
  Court developed Guidelines
• DPP has an obligation to present facts in
  mitigation or aggravation to the Court, which may
  include full facts (DPP Guidelines, Sections
  8.14 to 8.19).

17
Cartel Immunity Programme

• Competition Authority and DPP operate joint
  Programme
• First individual or company not ring leader may
  qualify full immunity for employees present and
  past and all officers and directors
• Ireland is a signatory to the EU Model Immunity
  Programme, with reservations, no leniency plus
• No second in leniency option that is the hallmark
  of EU Leniency Notice and other programmes
  worldwide
• While result may be more satisfactory in terms of
  public policy, ironically may be less
  satisfactory to co-conspirators.

18
Conclusions

• Success of criminal programme depends on
• Widespread acceptance that cartels are crimes
  that warrant stiff penalties
• Well integrated enforcement tools that support
  the virtuous circle
• Skilled use of criminal law enforcement tools
• Commitment by Courts, Prosecutors and Competition
  Authorities.