(by Andreas Stephan) It has been reported by Bloomberg Businessweek that the President of the German Federal Cartel Office recently expressed doubts as to whether criminal sanctions were necessary in the fight against cartels. His comments are indicative of the diverging approaches taken by cartel enforcement regimes. They are made all the more interesting by the fact Germany is one of the most active European enforcers of criminal law against bid-rigging arrangements and a suggestion by another Bundeskartellamt official that individual sanctions should be abandoned altogether.
Andreas Mundt was speaking at an industry event held in Munich. He is reported to have said that the German competition authority already has enough fining powers to deter cartels and that criminal sanctions were unnecessary. He apparently suggested that only a handful of European countries treat cartel conduct as a crime and that prison terms are rare. He is quoted as saying,
“In Europe, there’s simply no consensus that something like this should be punished as a crime. […] A cartel violation is rarely a crystal clear matter like a theft – the lines are often blurred, so that’s not something where we should use the severe weapons of criminal law”
The Bundeskartellamt’s Director of General Policy, Konrad Ost, has also openly argued against cartel criminalisation.
Mr Mundt is right to question how successfully criminal sanctions can be employed against cartels. As I argue in a recent paper, there are a number of very significant challenges to this – especially where there is no US style system of plea-bargaining available in lieu of a full trial. The UK experience has shown that criminal trials are costly, time consuming and carry far greater risks than the administrative enforcement process against the firm. Other issues include the relationship with EU competition law, where to draw the line between hard-core infringements and less serious violations that arguably should not attract criminal sanctions and the possible lack of clear moral basis for criminalisation. Mr Mundt is also correct in suggesting that very few individuals outside of the US have actually been sent to jail. Indeed, despite some 24 other countries having adopted criminal cartel sanctions (excluding bid-rigging) the number of individuals who have actually served jail time is practically negligible.
However, Mr Mundt’s inference that cartel conduct can rarely be identified as being as severe as theft is somewhat surprising given how accustomed we have become to competition officials employing language to suggest precisely the opposite. Indeed, the German Monopolies Commission (Monopolkommission) has come out in favour of criminalisation. Even in jurisdictions where there are no criminal sanctions, very significant corporate cartel fines are imposed to serve a punitive function in recognition of the very significant harm caused by price fixing practices. If cartel practices are rarely as crystal clear as theft, then one would also need to question the legitimacy of punitive fines and the way in which cartel laws are not concerned with whether the infringement actually had an anticompetitive effect; attempted price fixing is broadly treated with the same severity as successful price fixing.
In addition, the lines are not so blurred that buyers are unable to recover substantial levels of damages through private enforcement – something that is being encouraged by the European Commission through its recent damages directive. Indeed even if we were to assume cartels on average only succeed in raising prices by 5% (and academic studies estimate it may be many times greater), cartel harm would probably still outweigh the economic cost of all ‘physical’ theft in a given jurisdiction.
The main motivation for criminal cartel sanctions is the gap that exists between corporate fines and the individual decision makers responsible for the cartel. These mainly impact shareholders and tend to be imposed a number of years after the cartel actually occurred, by which time those responsible may have left the firm or retired. There are a number of alternative sanctions against individuals. These include fines against individuals, the disqualification of company directors (available in the UK) and the possibility of derivative actions allowing shareholders to pursue former employees.
The Bundeskartellamt does recognise this problem and deals with it by imposing civil fines on both firms and individuals. Indeed a growing number of EU Member States have adopted individual sanctions. Fines against natural persons are also available in Belgium, Netherlands, Spain, Portugal, and most recently Poland. This is in addition to the jurisdictions with criminal sanctions (UK, France, Ireland, Denmark, Greece, Cyprus, Slovak Republic, Estonia, Latvia and Slovenia). The Bundeskartellamt’s Director of General Policy has gone as far as to suggest Germany should ‘abandon the punishment of individuals altogether in order to streamline the antitrust procedure against individuals’, bringing it closer in line with that of the European Commission. This view places extraordinary confidence in the deterrent effect of corporate fines and the ability of firms to prevent even rogue employees from engaging in cartel conduct.
What makes these views all the more interesting is that Germany is actually one of the most active European enforcers of criminal law when it comes to bid-rigging. Florian Wagner-Von Papp finds that between 1998 and 2008, there were a total of 264 prosecutions and 184 convictions for bid rigging in Germany. While these usually resulted in suspended prison sentences or fines, they represent an impressive level of successful criminal enforcement. Interestingly, these cases largely go unreported because they usually concern small-scale bid rigging and are dealt with by local prosecutors in a decentralised criminal enforcement system, rather than by the Bundeskartellamt.
What is unclear is why local bid-rigging might be severe enough to attract criminal sanctions while international cartel infringements are not. One might suggest they are more likely to be a ‘crystal clear’ matter (to use Mr Mundt’s terminology), but this does not necessarily hold true. The UK’s Construction Bid-Rigging Case demonstrated how bid-rigging arrangements can range from blatant contract sharing, to sophisticated compensation mechanisms and more ambivalent practices like cover pricing. As Wagner-Von Papp alludes to in his paper, arguments that it is not possible to adequately define hard-core cartel behaviour in criminal law are largely unfounded; indeed the Bundeskartellamt’s administrative fines procedure applies a standard of proof that is virtually equivalent to criminal law.
To sum up, cartel criminalisation comes with a number of challenges but these largely relate to the higher procedural safeguards afforded to defendants and the fact the prosecutor is not able to act as investigator, judge and jury in the way that competition authorities are able to in administrative procedures. The question of whether convicted cartelists actually serve a custodial sentence is quite separate to the issue of whether criminalisation is possible. In any case, a criminal conviction can itself be a powerful sanction. Criminalisation aside, there is a clear movement towards complementing corporate fines with sanctions against individuals. Germany’s enforcement regime would be significantly weakened if the threat of individual fines were abandoned. The European Commission’s corporate fines-only approach to cartel enforcement is not one to be followed.
I am very grateful to Florian Wagner-von Papp for allowing me to incorporate into this blog post a couple of points from his forthcoming editorial: Kriminalisierung von Kartellabsprachen – tut sich da was? WuW 0666947.
 K Ost, ‘From Regulation 1 to Regulation 2: National Enforcement of EU Cartel Prohibition and the Need for Further Convergence’ (2014) Journal of European Competition Law & Practice, 5(3) pp. 125-136.
 F Wagner-Von Papp, ‘What if all Bid Riggers Went to Prison and Nobody Noticed? Criminal Antitrust Law Enforcement in Germany’ in C Beaton-Wells and A Ezrachi (eds), Criminalising Cartels (Hart 2011).