REPORT A CARTEL – GET 1% OF THE FINE

Representatives of the competition authorities of OECD member-states described the system of working with cartel informers and leniency programs at the workshop in St Petersburg

On 2 October 2018, the “Efficient anti-cartel enforcement practices” international workshop opened in St Petersburg. OECD experts together with FAS officers shared anti-cartel experiences and approaches use in practice.

Opening the workshop, Head of St Petersburg OFAS Vadim Vladimirov pointed out that “the cartel problem is especially acute. It is supported by the fact that the only Article in the Criminal Code of the Russian Federation for violating the antimonopoly law, that specifies up to 7 years imprisonment, concerns violations related to cartels. All cartels in the world are similar, and experience of countering the evil is important for all of us.  Therefore we pay enormous attention to international experience of the countries that have accumulated solid enforcement practice against cartels”.

OECD Senior Competition Expert, Sabine Zigelski (OECD, Paris) pointed out that according to various conservative estimates adverse consequences of cartels, particular their impact upon price is on average 10-15%.¹

“Price collusion at tenders is a cartel agreement adversely affecting tendering. Victims of such fraudulent actions are the state and the society in the person of tax payers”, emphasized the speaker.

That is why, according to Sabine Zigelski, OECD states must undertake measures to prevent participation of companies and physical persons in cartels and provide for institutions that would have powers sufficient to eliminate the consequences of cartel operations, including the powers to obtain documents and information and impose punishments for violating the law.

She stressed that only if “the amount of fines is sufficiently high, cartels stop representing a good “business idea”.

Head of Legal Division, Austrian Federal Competition Protection Agency, Natalie Harsdorf, presented Austrian experience of leniency programme².

The leniency programme is formalized in the Competition Act. Practical aspects of applying the leniency programmes are given in the manual published on the web-site of Federal Competition Protection Agency.

86 leniency applications were filed since 2006. The total fines on those cases were € 105 millions.

Accordion to Ms. Harsdorf, members-state of the European Competition Network (ECN) should make their leniency programmes compatible and at the same time each country can be more loyal in terms of treating the applicants.

Member of Competition Board, Hungarian Competition Authority, David Kuritar, presented Hungarian experience of exposing cartel signs.

According to David Kuritar, although Hungarian leniency programme was devised in line with the international standards, it is no successful enough. The reason is its unpopularity among cartel members in spite of the fact that participation in the programme gives a lot of advantages. For example, a leniency applicant keeps the right to take part in public procurement of goods, works and services, the principle of joint or collective liability for violating the cartel law does not apply to applicants. At the same time, David Kuritar, in 2017 Hungarian Competition Authority received on 7 leniency applications.

The speaker sees the reasons underlying such insignificant number of leniency applications in the established cultural traditions in Hungary (companies do not want to report about their actions), lack of knowledge in competition law (especially when it comes to small and medium companies) and feat of criminal prosecution (although the applicants are relieved from criminal liability).

To solve the issue, in 2010 Hungarian Competition Authority introduced an informant remuneration system. People who were fired more often became participants of the leniency programme. According to the speaker, “using revenge as the motivation, they willingly report in detail about cartel operations and the role played by their former employees in cartels”.

Under the current Hungarian Competition Act, Hungarian Competition Authority pays remuneration to a physical person if this person gives evidence to Hungarian Competition Authority that are necessary for the Authority to perform its functions. Remuneration is 1% of the fine imposed upon a decision made by Hungarian Competition Authority, but no more than 160.000 EUR.

“Successful leniency programmes help prevent cartel formation, facilitate cartel exposure and force companies to approach Hungarian Competition Authority with their leniency applications”, concluded David Kuritar.

Renato Ferrandi, a senior inspector of the International Competition Department, Italy’s Competition Agency (ICA) described preventative tools used exposing cartel signs.

He said that based on their powers, Italy’s Competition Agency (ICA) conducts investigations rather rarely; it also does not have a Division to deal with cartels or perform operational and search activities. At the same time, ICA actively collaborates with other governmental bodies in Italy: Corruption Agency, bodies regulating procurement of goods, works, services, judicial bodies and the prosecutor’s offices (if there is a parallel investigation on criminal offences).

“Cooperation with other government bodies in Italy ensures supply of vast and useful information, corroborated by clearly drawn documentation. Knowledge of the agency’s staff in the field of competition and consumer protection helps build up an integrated approach to new phenomena. Cooperation with national competition agencies of other countries can give important information how to behave in the same or similar situations. Such cooperation is especially important when it concerns new phenomena in countering monopolization and new tools of exposing violations of the law”, summed up Renato Ferrandi.

Assistant Director of the Cartel and Criminal Group, UK Competition and Markets Authority, Kwadjo Adjepong, described a market screening tool for exposure of cartel signs in the UK when determining price collusions in public procurement of goods, works, and services.

To expose violations of the antimonopoly law, the UK developed a model for processing data from applications on public procurement of goods, works, and services.

“Our tool for data screening is designed to search suspicious cartel signs”, said Kwadjo Adjepong. “Data are systematized by folders, which is customary for procurement organizations. The tool is tuned to read information distributed by levels. Threshold values and individual factors can be adjusted depending on the circumstances. The results show which tenders raise the most suspicions”.

According to Mr. Adjepong, competition authorities of 37 countries are currently considering using the tool.

“The project advantages are a growing understanding of the risk of fraudulent actions during tenders, building up relationship with stakeholders, assisting procurement entities in exposing and suppressing cartels. All these are derived form the process and the end results of applying the tool”, concluded the representatives of the UK Competition and Markets Authority.

¹ Data supplied by the European Commission – Directorate General of Competition, US Department of Justice, UK Fair Competition Office, (currently UK Competition and Markets Authority), Holland Compton Agency Authority (currently Competition and Markets Authority).

²  Austria introduced its leniency programme in 2005 after making changes and amendments to the Competition Act. Came into force in 2006.

Background:

The workshop is organized by organized by FAS and OECD-Hungary Regional Competition Centre. Collaboration with OECD-Hungary Regional Competition Centre (OECD-Hungary RCC) is one of important areas of FAS work. Since 2010 FAS and OECD-Hungary Regional Competition Centre have been organizing workshops together in Russian cities. The workshop themes are quite diverse: competition on the market of payment cards, the electric power industry, retail and airport services. In2013 and 2014 the workshops took place at FAS Centre for Education and Methodics in Kazan. In 2015 the workshop was in Nizhny Novgorod, in 2016 – Suzdal and in 2017 – Moscow. Joint workshop with ECC have become a tradition allowing to not only obtain expert assessments and exchange experiences but also establish business contacts between representatives of different competition authorities.