Criminal Sanctions in case of Cartels
From Advocatespedia, The Law Encyclopedia
Criminal sanctions include capital punishment, imprisonment, corporal punishment, banishment, house arrest, community supervision, fines, restitution, and community service. The type and severity of criminal sanctions are prescribed by criminal law (Walker 1980). The quality and quantity of criminal penalties are determined by both the perceived seriousness of the offense and the underlying philosophy of punishment. Punishment by the state on behalf of society has traditionally been justified on either consequential or nonconsequential grounds (Garland 1994). Consequentialism justifies punishment as a means to the prevention of future crime. The utilitarian approach, for example, allows society to inflict harm (by punishment) in order to prevent greater harms that would be caused by future crimes. The utilitarian approach to criminal sanctions is governed by a set of limiting principles (Beccaria 1980). According to utilitarianism criminal sanctions should not be used to penalize behavior that does not harm, the severity of the penalty should only slightly outweigh the benefit derived from the criminal behavior, and alternatives to punishment should be utilized when they prove to be as effective (Bentham 1995).
Cartel is a group of independent producers or sellers in a particular industry, or a group of businesses with a common interest, who have joined together to reduce competition between themselves by allocating markets, sharing knowledge, or controlling the price and production of a product or service.
In recent years there has been a greater focus on the criminalisation of competition law, in particular in respect of cartels, in numerous jurisdictions around the world. The US has long advocated criminalisation and regularly sends individuals to jail for cartel conduct. Moreover, the majority of the twenty eight EU Member States currently have the ability to impose criminal penalties for some types of antitrust violations. While actual enforcement of these powers has to date been thin on the ground, this does not exclude the possibility that enforcement could become more active in the future - after all, actual criminal enforcement did not become commonplace in the US until many years after the criminal legislation was enacted. Some EU countries are clearly putting criminalisation high on their agenda as an enforcement tool against cartels. For example, the UK has changed its legislation with respect to the ’criminal cartel offence’ with the express purpose of increasing the number of criminal prosecutions.
The modern proliferation of criminal sanctions for antitrust infringements was instigated by the US many years ago. Section 1 of the Sherman Act 1890, 15 U.S.C, criminalises agreements in restraint of trade. Both corporations and individuals are subject to criminal prosecution for cartel conduct including price fixing, bid rigging, and horizontal market allocation. However, though cartels were criminalised in the US in 1890, it was not until over seventy years later that jail time for offenders started to become common, largely triggered by the Electrical Equipment (GE/Westinghouse/Bradley et al) indictments. This case exposed a broad range of conspiracies in the US that resulted in electrical utilities overpaying for equipment and hence customers paying too much for electricity from rate-based regulated utilities. Additionally, as the years passed, the maximum penalties increased - the Antitrust Criminal Penalty Enhancement and Reform Act 2004 increased the maximum individual fine from USD 350,000 to USD 1 million, and increased the maximum prison sentence from three to ten years. In recent years the individuals prosecuted by the DoJ are being sent to prison with increasing frequency and for longer periods of time - in fiscal year 2012 the US courts imposed 45 prison terms with an average sentence of just over two years per defendant as punishment for cartel involvement. The former Deputy Assistant Attorney General of the US Department of Justice Scott Hammond summed up the US view as follows : "Cartels have no legitimate purpose and serve only to rob consumers of the tangible blessings of competition… participation in a cartel is viewed in the United States as a property crime, akin to burglary or larceny, and it is properly treated accordingly". Cartels have therefore long been viewed as a serious crime in the US. However, a similar mind set has not been prevalent in other jurisdictions where cartel conduct has not historically been perceived as problematic or harmful. In the early part of the twentieth century, cartels were widespread and even encouraged by some governments as is evident, for example, by the international steel cartel agreement of 1926 signed by major steel producers in Germany, France, Belgium and Luxembourg (Entente Internationale de l’Acier). A similar tolerance of cartels was seen in the UK.
A cartel provision is one relating to price fixing, restricting outputs in the production or supply chain, allocating customers, suppliers or territories, or bid rigging, by parties that are, or otherwise would be, in competition with one another. A cartel provision must contain both (a) a purpose/effect condition in relation to prices, restriction of supply, customer allocation or bid rigging; and (b) a competition provision, in that at least two of the parties to the contract, arrangement or understanding are or are likely to be, or but for the contract etc would be, in competition with one another. An offence committed by an individual is punishable on conviction by a maximum gaol term of five years, or a fine of $220 000, or both.16 The penalty for a breach of cl 44ZZRF or cl 44ZZRG by a corporation is a fine not exceeding the greatest of the following: (a) $10 million; (b) if the court can determine the benefits obtained by one or more persons and are reasonably attributable to the offence, three times that value; (c) if the court cannot make the assessment referred to in (b), 10% of the corporation’s annual turnover.17 The proposed criminalisation of cartel conduct in Australia mirrors developments in other countries. Since 1890, the Sherman Act (United States) has provided for gaol terms for those individuals involved in price fixing. Originally the maximum punishment was a one year gaol term and a fine of $5000. Today the individual can be gaoled for up to 10 years, and can be personally fined up to $1 million; a corporation can be fined up to $100 million. The average prison sentence for a United States citizen convicted of an antitrust violation is 22 months. The United Kingdom has also recently criminalised cartel behaviour. Here different theories compete in providing justification.
These theories include:
(a) utilitarianism – punishment is only justified to the extent that its costs are outweighed by its benefits, in terms of deterrence of this offender or other would-be offenders, or community education and awareness or other more general benefits.
(b) retribution – the idea that a person should suffer because of, and in proportion to, his/her moral wrongdoing.
Under World Common Law
A number of competition regimes around the world include criminal sanctions, such as Brazil, Mexico, Canada, Australia, Israel and India. There are a number of reasons why there is some momentum behind the geographic expansion of criminal antitrust. The driving force behind criminalisation is a recognition (or belief) that the threat of sanctions against an individual could be a more effective deterrent than the threat of corporate sanctions. The risk of personal punishment (especially jail time) could also encourage individuals to resist corporate pressure to enter into unlawful activity. Criminal penalties also make, perhaps, greater headlines in the media, and so may be viewed as a good way to publicise the fact that cartels harm consumers and have severe consequences for the individuals involved. Furthermore, the threat of personal liability may make it easier for competition authorities to detect cartels, particularly as most countries which have personal criminal penalties also allow individuals to utilise leniency programmes for their own benefit. Criminal sanctions have also gradually crept into the antitrust enforcement regimes of many European countries. A number of EU Member States are increasingly focussing on individual liability for competition law infringements, particularly cartels. In Austria and Germany, individuals can be sent to prison for entering into bid-rigging arrangements and in France, individuals can face fines of up to EUR 75,000 and prison for up to four years. Some regimes also create incentives on the individuals to whistleblow, or at least cooperate. For example, in the UK it is possible for an individual to obtain a no-action letter from the competition authority as part of the leniency system. This means that the authority will not criminally prosecute that individual provided that the conditions for leniency are satisfied. Similar systems also apply in other jurisdictions, such as Austria and the Slovak Republic. However, a closer look at the various EU jurisdictions reveals that criminalisation is not necessarily a clear cut enforcement tool. A number of countries criminalise cartels in a tenuous manner such that the offence relates more to fraud alone than a cartel offence and hence is much narrower than a true notion of criminal antitrust. Examples of such regimes include France, Greece, Romania, and those countries which apply criminal penalties to bid-rigging offences only (Austria, Germany, Hungary, Poland, Italy). In practice, criminal sanctions are imposed on individuals relatively rarely in all Member States. This is possibly due to the fact that many authorities/courts are still reluctant to punish an individual for a crime that ultimately benefits the company, which can be subject to heavy financial penalties - or that the relevant authorities still display some reluctance to bring charges. This may be due to lack of experience or a cultural factor. An alternative explanation could be that the mental element to the offence, be it fraud or dishonesty, represents an additional hurdle on enforcers, that is, it requires evidence of more than the mere violation of competition law. (This was the view repeatedly stated by OFT officials when lobbying for changes to the UK criminal regime.) Nonetheless, it is possible that criminal enforcement at the Member State level could take off in the future. In the past year, a number of Member States have ramped up their criminal antitrust regimes. For example, the UK has recently taken steps to reform its criminal cartel offence in order to make it easier to successfully prosecute individuals by removing the requirement for the competition authority to show dishonesty. Individuals guilty of the criminal cartel offence in the UK can face up to five years in prison, unlimited fines and be disqualified as directors for up to fifteen years. Furthermore, notwithstanding the rationale behind the changes to the UK regime, a criminal prosecution has been brought in relation to a galvanised steel tanks cartel. In Ireland, since July 2012, individuals that enter into cartels can be jailed for up to ten years (previously it was five years). This amendment was a result of the EU and IMF requiring Ireland to "introduce reforms to legislation to empower judges to improve fines and other sanctions in competition cases in order to generate more credible deterrence". It has been said that the fact that the maximum penalty was doubled, rather than increased by two to three years, could be interpreted as an acknowledgment by the legislature of the harmfulness of cartels and of the need for a very serious legal response to their occurrence. In March 2013, the new Danish Competition Act came into force which enables individuals to be imprisoned for up to 18 months for participating in serious cartel infringements. The object of the new legislation was to increase the fines for companies and individuals and to introduce custodial sentences in cartel cases.
Related case summaries
IB v R Court of Appeal - Criminal Division  EWCA Crim 2575
A. Menarini Diagnostics S.R.L. v. Italy, no. 43509/08, 27 September 2011.
United States v. General Electric Company et al (Cr. No. 20401) and ultimately upheld : In re GRAND JURY PROCEEDINGS United States of America, 309 F.2d 440, 1 November 1962
Attorney General of the Commonwealth of Australia v Adelaide Steamship Co Ltd  AC 781, at 797.
Norris v Government of the United States of America and others  UKHL 16