Is Antitrust Enforcement On the Cusp of a Sea Change?

This year, around the world, antitrust fines for cartels engaged in price-fixing are way down.

A report released this week by Morgan Lewis & Bockius projected fines could drop by 70 percent: Through the first half of 2017, global cartel fines stood at $1.2 billion compared to $7.8 billion for all of 2016, the report found.

It left open why exactly fines are dropping. Is it a temporary pause while enforcement authorities invest resources in building new cases? Or are cartel members not self-disclosing their price fixing schemes under amnesty programs that offer immunity from prosecution? The latter, so-called “leniency” application has been the main source of new cases during the past 15 to 20 years, according to Clay Everett, an antitrust partner at Morgan Lewis & Bockius in Washington, D.C.

There’s an open question about whether there may be a change with the way enforcement cases are generated,” said Everett.

Everett explained that during the past 15 years, cartel enforcement has ramped up around the world: Dozens of new countries poured resources into investigating and prosecuting cases, and increased the penalties and consequences for violations. Besides the U.S., there are at least 36 countries, from Argentina to Zambia, that have criminal penalties for cartel violations or convictions, according to the report released by his firm.

Even more countries, approximately 66 including smaller countries such as Albania and Kazakhstan, according to the report, have adopted the type of “leniency” programs pioneered by the U.S., according to Everett.  These programs offer companies that participated in cartel price-fixing, which self-report the violation and hand over evidence, to receive full immunity from fines and prosecution.

But the catch is they must be the first to self-report.

There’s been a real surge in enforcement in those types of cases,” said Everett, adding that “a very high percentage of international cartel cases, in the past fifteen years, have been generated through the leniency programs.”

But he said the proliferation of “leniency” programs, and the increased penalties around the world for price-fixing, means that coming forward to self-report a violation now requires a more complicated calculus: There are so many authorities with overlapping jurisdictions, and many cartel members are skeptical that they will receive global credit for being first to self-disclose.

Thus, cartel members must make a strategic calculation about whether self-disclosing and receiving only partial credit is better than staying quiet and hoping authorities never learn about their cartel, Everett said.

Thus, unintentionally, raising the stakes for violators may have deterred them from coming forward under leniency programs, Everett said.

“My sense is we’re at a focal point in history, due to the increasingly complexity, there’s at least a question about whether to go in and seek leniency,” Everett said.

He pointed to the declining number of “leniency” cases, in which a violation was self-disclosed, and a new emphasis by some authorities on using other methods to find cases.

For example, in March, the European Commission launched a new whistleblower program to generate new cartel investigations, similar to one launched in Germany in 2012, according to his firm’s report. That same month, the U.K’s Competition and Market Authority launched its first advertising campaign for its whistleblower program, and in April, Poland introduced a whistleblower program too, the report said.

If these methods prove as effective as leniency programs, the projected drop in global cartel fines this year may only be a blip: The report identified price-fixing investigations in several markets including generic drugs, packaged seafood, the shipping industry and real estate.

Write to the reporter at gabefriedman@outlook.com.

Write to the editor at csullivan@bloomberglaw.com.

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