This paper – which can be found here – takes a quantitative approach to analysing the factors considered by the Commission when establishing the amount of fines imposed on infringing undertakings in 110 cartel decisions, as well as on 11 abuse of dominance decisions adopted between January 2000 and March 2017. The analysis shows that the Commission has made significant use of the aggravating and mitigating circumstances listed in the Fining Guidelines to adjust the basic amount of the fine.
The article is structured as follows:
- Part II examines the methodology applied by the Commission when determining fine amounts.
Article 23(2) of Regulation 1/2003 is the sole legal basis for the imposition of fines by the Commission for anti-competitive conduct. This Article provides that “the fine shall not exceed 10% of [the undertaking’s] total turnover in the preceding business year’. To make its method for setting fines clearer and more transparent, the Commission had published Fining Guidelines in 1998, which were replaced by an updated set of Guidelines in 2006. While the Guidelines are not binding legal rules, the Commission must follow them under pain of being found, where appropriate, to be in breach of general principles of law such as equal treatment or the protection of legitimate expectations.
The 2006 Fining Guidelines set out a two-step methodology. First, the Commission defines the basic amount of the fine as a percentage of the volume of sales in the affected market. This percentage depends on the gravity of infringement – to which an ‘entry fee’ may be added in the context of cartels – and is then multiplied by the number of years that the infringement lasted.
At a second stage, a number of adjustment factors are taken into account. Most factors are related to the type and seriousness of the infringement. However, a number of factors look at other criteria, such as ensuring that fining maxima are not exceeded, ensuring deterrence (particularly when the companies have a particularly large turnover beyond the sale of goods or services to which the infringement relates), and taking into account whether the firm is able to pay the fine.
The most common aggravating factors are recidivism, ring-leading / coercion, and refusal to cooperate with the investigation. The most common mitigating circumstances are cooperation with the investigation, limited involvement in / no implementation of an infringement, immediate termination of the infringement, and the existence of a public body involvement / a special regulatory regime.
- Part III looks at the Leniency Notice and its application by the Commission.
With a view to incentivise companies to report cartels in which they are involved, the Commission adopted a Leniency Notice in 1996, which was reviewed and amended twice, first in 2002 and then in 2006. Under this notice, the Commission grants immunity from fines to an undertaking that discloses its participation in an alleged cartel when the undertaking is the first to submit information or evidence which allows the Commission to carry out a targeted inspection in connection with the alleged cartel. If a subsequent undertaking is the first to provide evidence with significant added value to the investigation, it will benefit from a reduction of 30 to 50% of the fine. The second undertaking to submit such evidence will enjoy a reduction of 20 to 30%, while subsequent undertakings will profit from a reduction of up to 20%.
Leniency in some form has been granted in 86 cartel decisions (out of 98 published decisions) since 2000. These numbers also include settlement decisions, in which leniency reductions have been frequently granted. Leniency has been granted in 17 settlement decisions (out of 19 published decisions). In total, the Leniency Notice has been applied in 88% of the Commission’s cartel decisions since 2000.
- Part IV examines the Cartel Settlement Procedure and its application by the Commission in a growing number of cases.
The cartel settlement procedure allows the European Commission to settle a cartel case if the cartel participants are willing to admit liability and waive certain procedural rights. In exchange for settling, cartel participants are offered a reduction of 10% in the amount of the fine and expedited proceedings. The aim of the settlement procedure is to allow the Commission to handle cartel cases faster and more efficiently, thereby freeing up resources to deal with other cases.
The Commission has adopted 22 cartel settlement decisions since 2010, as compared to 21 infringement decisions adopted during the same timeframe. Recent years have seen a particularly high ratio of settlements – e.g. 80% in 2014 and 60% in 2016. These are striking numbers, especially considering that the fine reduction is limited to 10%.
However, settlements confer other benefits to undertakings, such as faster proceedings, lower legal costs and reputational damage, and fewer distractions from conducting their business. Cartel participants also benefit from the fact that the settlement procedure reduces the amount of publicly available information which could be used by potential damage claimants in follow-on claims. The key advantage of the settlement procedure for cartel participants may nonetheless be that it allows for dialogue with the Commission in the context of settlement discussions which may allow the parties to influence the scope and duration of the infringement – and hence the amount of the fine.
- Part V looks at the overall level of fines adopted by the Commission in cartel and abuse of dominance cases, and discusses whether fines are an effective means to deter infringement of EU competition law.
In particular, it is noticeable that despite the deployment of leniency and settlement mechanisms, fine amounts have been increasing significantly in recent times. This increase in the level of the fines may be explained by a variety of factors (leniency allowing the detection of bigger cartels, cartels lasting for longer periods, etc.), but it can also be explained by the fact that the Commission retains wide discretionary powers over the calculation of the basic amount of the fines, as well as the various factors that can be used to adjust such amounts.
- Part VI concludes.
The optimal level of fines is generally measured by reference to their deterrent effect. To increase deterrence, the Commission has gradually (but significantly) stepped up the level of corporate fines. An important question is whether the steep growth in the level of corporate fines that has been observed during the last decades has resulted in increased deterrence.
Measuring the effects of sanctions on deterrence is not an easy matter as their apparent lack of impact on the level of cartel activity may be due to greater detection and enforcement. Even so, the high level of recidivism in cartel activities seems to suggest that increased corporate fines did little to deter firms from infringing EU competition law. A recent study shows that 24 per cent of the cartel decisions adopted by the Commission between 1969 and 2009 condemned at least one repeat offender. From 2006 to June 2011, the rate of cartel recidivism is even higher, at more than 40%.
Of course, it is possible that the high percentage of repeat offenders results from the fact that fines remain below the optimal level to achieve effective deterrence. It is generally considered that, to achieve effective deterrence, the corporate fine multiplied by the risk of detection and punishment must exceed the gain resulting from the infringement. Applying this formula, some authors argue that the actual level of fines imposed is around 10 times lower than the level required to achieve effective deterrence.
However, there is no evidence that increasing the level of fines will necessarily deter infringements of competition rules, given that infringements are often committed by individuals whose interest may not necessarily be aligned with the interest of their employer and whose behaviour may be hard to detect by their employer. Further, imposing even higher corporate fines may not be appropriate because this would entail substantial social costs which will often be felt by three groups of stakeholders which are not involved in the infringing behaviour at all: the undertaking’s employees, shareholders, and even the undertaking’s customers. In other words, corporate fines may not be sufficient to ensure the effective enforcement of antitrust rules. Effective deterrence requires a combination of corporate sanctions and individual penalties.
Comment: This is a very well-researched paper. In the Report on Pecuniary Sanctions that we prepared for Australia – and which can be found here – the way that fines are calculated was characterised differently. That report identifies a three-step instead of a two-step analysis; some authors identify as many as four-steps. Nonetheless, these analytical distinctions reflect the same underlying reality. The advantage of this paper over that Report is that it provides an extremely detailed overview of EU practice as regards the setting of fines – including two tables that list all fining decisions adopted since 2000, and the aggravating and mitigating factors that were applied in each of them.