Criminal cartel prosecutions are at modern lows in the U.S. The authors of this paper, available here, offer three non-exclusive hypotheses for this decline: (1) increasingly large fines in multiple jurisdictions have lessened the incentive to apply for leniency in any one jurisdiction; (2) technology has caused the substitution of lawful tacit for unlawful express collusion; and (3) competition policy has succeeded in deterring cartel formation – at least among U.S. companies.

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Copyright: FT

While the available data is too limited to reach a definite conclusion, it seems to support the third hypothesis: since 2008, investigations have focused predominantly on foreign companies, while both the number and share of investigated U.S. companies have decreased. This is consistent with the hypothesis that U.S. competition policy has been effective in deterring anti-competitive conduct by US companies.

Section II describes the recent downward trend in cartel prosecutions.

The number of criminal cases filed annually by the DoJ decreased from 90 in 2011 to 18 in 2018, the lowest it has been since 1972. Further, whereas 27 corporations were charged with criminal antitrust violations in 2011, only five companies were charged in 2018. The total amounts collected by the DoJ in criminal fines have also fallen, from an average of more than USD 1 billion per year in 2012 through 2015, to USD 172 million in 2018. This marks the greatest reduction in criminal enforcement activity since the leniency program was reformed in 1993. Close observers have suggested that the number of leniency applications has also fallen in recent years, even if public data is not available on this.

In addition to the apparent decline in criminal cases over the last few years, there has been a change in the kinds of corporate defendants the DoJ has charged. The number of both privately-held and publicly-traded American companies accused of criminal violations has diminished – with the recent exception of the handful of U.S. banks involved in the London-based foreign exchange cartel –, while the number of foreign companies being indicted has increased.

Section III outlines three hypotheses for why the number of cartel cases has fallen in recent years.

The first hypothesis is that increased exposure to antitrust liability in other jurisdictions has reduced business incentives to apply for leniency. The number of cases brought, and the average fine per case in Europe began to increase as soon as 2003. By 2012, antitrust practitioners perceived the “EU [as] tougher, and the fines [as] much larger” than those of the U.S. Indeed, by 2018 fines levied in Europe accounted for more than half of all cartel fines worldwide. Competition jurisdictions in other parts of the world have also imposed increasingly large fines in recent years. Meanwhile, the U.S. share of all fines imposed globally has fallen dramatically, accounting for less than one-third of all fines prior to 2015, and an even smaller share thereafter.

This newly increased exposure to antitrust penalties in multiple jurisdictions outside the U.S. may understandably make a company more reluctant than in the past to apply for leniency in any of the various jurisdictions where it operates. Indeed, there is evidence that the number of leniency applicants has decreased across the world. The global spread of leniency policies “makes it difficult – if not impossible” for a corporation to be confident that it is the first leniency applicant in all relevant jurisdictions with lenience programmes (which currently exceed 80).  That there is no global “one-stop-shop” for leniency markers greatly complicates the decisions of a company considering whether to report its participation in a cartel.

A second possibility is that technological advances may have facilitated tacit collusion, also known as “conscious parallelism,” enabling companies more easily to realise the benefits of price fixing without having to enter into an unlawful agreement.

A third explanation is that the decrease in criminal cases simply reflects the success of the DoJ’s criminal enforcement program in deterring U.S. companies from engaging in antitrust conduct. After all, more severe sanctions – especially in the U.S., where individuals are liable to serve time in jail, but in other jurisdictions as well – are expected to lead to the formation of fewer cartels.

A 2009 paper showed that reform of the Division’s leniency program in 1993, which introduced a regime permitting the first informant to gain the most from leniency, led to an initial spike in the number of cartels discovered, reflecting better detection. However, this was followed by a drop in the number of cartels discovered to a level below that in the pre-leniency period, reflecting greater deterrence. One would expect recent legal reforms that increased sanctions in the US to lead to a similar outcome.

The authors find support for this in their analysis of enforcement actions undertaken in recent years. While the number of publicly-owned US companies investigated for cartels has always been relatively low, the number of non-public U.S. companies charged has steadily decreased over time – both absolutely and as a share of all companies charged. While the number of privately held companies charged by the Division was already declining prior to 2004, the rate of this decline increased after a legal reform that year which increased the severity of antitrust penalties. Further, while foreign companies are more difficult to investigate, the number of individual foreign defendants has risen – albeit with some volatility – since the mid-1990s, potentially reflecting the more limited deterrent effect of US sanctions on these companies.

 

Comment:

This paper provides an interesting overview of cartel enforcement trends in the US, while also outlining some plausible explanations for those trends. The authors strike me as being quite right when they say that the data does not allow for definite conclusions – and I would go further and say that potential explanations for these trends should be considered.

For example, I am somewhat surprised that the authors do not devote a bit more attention to the hypothesis that these trends are caused by reduced enforcement, since the paper itself notes that ‘Some of the decrease [ in enforcement] from 2013 onward, however, may also have been due to the Antitrust Division closing four of its seven regional offices.’ It would also be worthwhile to control whether the increase in the number and share of foreign defendants is correlated to an increase in ‘cooperation agreements between the Division and other jurisdictions, which permit the authorities to share information and to assist each other in obtaining evidence’.

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