In addition to rising monetary fines against both companies and individuals, over the last ten years more than thirty countries have decided to criminalise cartel activities. At the same time, and despite the growing number of countries opting for a criminal enforcement, the implementation of such measures has been quite deficient outside the US. Many of these countries have encountered procedural and political obstacles to enforcing criminal provisions against anticompetitive conduct, including a lack of support from key players in the enforcement process. Among the main explanations for this state of affairs is a belief that criminalisation of cartels outside the US is often the product of a top-down process led by transnational enforcement interests rather than domestic bottom-up forces.
The aim of this article, available here, is to test this explanation by conducting an empirical study of criminalisation efforts in Chile. The study involved interviews with the main stakeholders who took part in the criminalisation process in Chile, such as law professionals, scholars, and the former National Economic Prosecutor.
The Chilean case is particularly valuable because Chile attempted to criminalise cartel activities on two (very different) occasions. The first Chilean experience with criminal sanctions dates back to the 1973 Competition Law, when the legislator sought to transplant the provisions of the US Sherman Act. Such criminal provisions remained dead letter for almost thirty years, and were repealed in 2003 when an administrative model of competition enforcement was adopted. As enforcement picked up and several serious cartels were discovered in the early 200s, the Chilean Congress passed a significant reform of the competition law in 2016, which, among other things, reintroduced criminal penalties for individuals responsible for cartel activity. This time, however, criminalisation was driven by popular support, with political parties acting as the principal supporters of criminalisation against the reticence of the main competition law stakeholders.
The paper is structured as follows:
Sections 2 to 5 review the institutional background for the criminalisation of competition law in Chile.
Chile adopted its first competition law in 1959. The statute’s provisions were very broad and provided the Antimonopoly Commission, which was transformed in 1963 into the current Fiscalía Nacional Económica (‘FNE’), the power to investigate and prosecute anticompetitive conducts. Nonetheless, between 1959 and 1973 the FNE did not adopt any infringement decisions. In 1973, Pinochet’s military dictatorship, inspired by the Chicago School in the US, carried out important deregulation and trade liberalisation reforms including the adoption of a new competition law. The 1973 Competition Law clearly resembled the US Sherman Act, including its criminal penalties’ provisions, and provided for criminal enforcement of the cartel prohibition.
Until 1993, however, few cartel cases were investigated. Between 1974 and 1993, the FNE started forty-five investigations into horizontal agreements among competitors. Only sixteen were found unlawful; moreover, it is not clear from the available data how many agreements amounted to hard-core cartels. During the same period, the Commission ruled on fifty-three cases involving vertical agreements and thirty-five monopolisation cases. According to a study, only 6.3% of the Commissions’ decisions related to collusion between 1973 and 2003.
One of the main obstacles to the criminal prosecution of cartels was the FNE’s reluctance to accept indirect evidence as proof of collusion, and the prosecutors’ inability to meet a higher standard of proof for criminal collusion. The weak prosecution of cartels resulted in total ineffectiveness of criminal sanctions, with no criminal sanction being imposed during this period.
The necessity to overcome these difficulties, as well as the international pressure for stronger enforcement, led the Chilean Congress to adopt a major structural reform in 2003. Surprisingly, rather than improve on the existing criminal system, the 2003 Competition Act adopted an administrative enforcement model, increased the amount of fines applicable for cartels and repealed the possibility to impose criminal sanctions. A specialised court, the Tribunal de Defensa de la Libre Competencia (‘TDLC’) was established as a counterbalance mechanism to the new FNE’s powers and to address concerns about due process and vagueness of the competition provisions.
Even after the 2003 reform, the FNE still struggled successfully to prosecute cartel cases. This time, the main obstacle derived from uncertainty related to the standard of proof that the FNE was required to meet before the Tribunal. Out of the six collusion cases reviewed by the Supreme Court between 2004 and 2009, only one conviction was partially affirmed.
Slowly, however, the effectiveness of enforcement increased, with a first significant success coming in 2009 against a ‘hub and spoke’ conspiracy affecting the price of many medicines. In 2009, a further reform to the competition law approved a further increase in pecuniary fines, provided the FNE with new powerful investigative powers such as dawn raids and wiretapping, and introduced a leniency program. The effects were immediate: between 2010 and 2018, the courts upheld fifteen of the sixteen cartel decisions submitted to them by the FNE.
Sections 6 and 7 look at the impact of public perceptions of cartels on renewing cartel criminalisation initiatives.
Starting in 2004, the FNE decided to strengthen its position as a fearsome enforcer by prosecuting only cases for which it had collected strong evidence, and by highlighting the social costs of these anti-competitive behaviours. However, this came with some unexpected downsides, the main one being to raise institutional and political frictions between enforcement authorities. Following the Supreme Court’s confirmation of the USD 20 million fine against participants in a pharmacies’ cartel, the Criminal Prosecutor’s Office unexpectedly decided to start a criminal investigation into the executives involved in the cartel. Since criminal sanctions for violations of the Competition Act were formally repealed in 2003, the Prosecutor applied an old and dormant criminal provision which had never applied in the antitrust context.
Amid various problems, the fact that leniency applicants were the subject of criminal enforcement created a big disincentive for executives willing to self-report to the competition authority. This was apparent in another case in 2015, when the Criminal Prosecutor requested the TDLC to disclose the materials submitted by the FNE in relation to a cartel, including the information provided by the leniency applicants, to support its criminal investigation. The TDLC refused to disclose the confidential version of those documents. The Supreme Court eventually upheld the TDLC decision.
An additional consequence from this increased public attention to the prosecution of cartels has been the widespread recognition of the weak punishment that companies and individuals involved in cartels receive. Despite the public outcry, the authorities did not punish any executives involved in the investigated cartels – because the FNE never requested such sanctions in the first place.
Public pressure eventually led to a political response. In 2015, administrative fines were increased, a per se illegality rule for hard-core cartels was adopted, and criminal liability for individuals engaging in cartel conduct was reinstated. According to the new rules, executives can be sanctioned with imprisonment from three to ten years and, if convicted, are required to spend at least one year in prison. Additionally, executives can be ‘disqualified’ for a maximum of ten years, meaning that they would be prohibited to act as director or manager of public companies, state-owned enterprises, or trade associations. In relation to the Leniency Program, the first applicant receives full immunity from criminal liability, whereas the following applicants benefit only from a penalty reduction and may be exempted from the minimum one year of prison rule. From a procedural perspective, criminal proceeding can only be initiated through a complaint filed by the FNE after a TDLC final decision in an infringement procedure.
The process for adoption of the 2015 law counted with the participation of all major internal stakeholders, and a number of external ones such as the American Bar Association’s (ABA). At this point, I would like to emphasise the author’s finding that ‘according to the official documents and the general perception, the criminalisation of cartels has not been particularly influenced by the OECD’s recommendations’. Based on my reading of this article, and my knowledge of the OECD’s work on the topic, I would venture that the OECD had no influence in these developments because the OECD has not yet identified a best practice regarding the criminalisation of cartel conduct.
Section 8 looks at the implications of the different methods adopted by Chile to criminalise cartel behaviour.
It is argued that the recent trend towards cartel criminalisation is often the result of a top-down process led by transnational enforcement interests, rather than domestic demand for criminalisation. The absence of a pre-existing enforcement culture and of support by decisive stakeholders is, according to this line of thought, an important reason why these measures often remain dead letter.
Chile, in its almost sixty years of competition law history, made two attempts to criminalise anticompetitive conduct. The main difference between the two was that while the first attempt was a top-down legal transplant of the US model, in the most recent instance of criminalisation foreign actors, including the OECD and the US, had little to no influence in the process. Instead, the 2015 decision to re-introduce criminal sanctions reflects bottom-up domestic developments, and amounts to a political response to public indignation caused by cartels unearthed by the antitrust authority. Public pressure for criminalisation was such as to override the opinion of enforcement authorities and competition professionals, who believed that adopting criminal sanctions was unlikely to be beneficial, as demonstrated by the FNE’s unwillingness to prosecute individuals for pecuniary fines or other individual sanctions, and by widespread concern regarding difficulties in meeting a criminal standard of proof in cartel cases.
This paper provides a comprehensive overview of competition enforcement against cartels (and more!) in Chile. It describes not only the process behind the decision to criminalise cartel, but also identifies and discusses a large number of cartels in some detail.
The main quibble I have with the article is that it does not really do what it purports to do – i.e. see whether different backgrounds for the criminalisation of cartels matter for the enforcement of those criminal provisions. The reason for this is that to pursue such an analysis is impossible so soon after the latest criminalisation reform took place. To compare whether the success of attempts to criminalise cartels is affected by the forces behind such reforms requires assessing actual enforcement practices. But, as the author acknowledges, ‘At this point, we are not in the position yet to assess the enforcement of the new law, since the FNE has not started any proceedings for facts posterior to the enactment of the law.’
I look forward to reading the sequel to this paper that actually reviews Chile’s track record in this are in a few years.