In the following post, he considers the nature of penalties that competition authorities worldwide have imposed under their respective laws, which may serve as an indication as to what might be expected from India’s Competition Commission)
“The bringing into operation of the Competition Act, 2002 brings with it not only extensive merger and acquisition scrutiny and the investigation of abusive practices by a dominant undertakings, but also a slew of wide-ranging controls, checks and potential investigations into inter-corporate agreements.
Agreements subjected to scrutiny in competition law fall into two broad divisions:
(i) Horizontal agreements, which would include agreements between independent undertakings operating and supplying to the same market to fix prices or apportion markets (by class or geographical region, for example), or restrict output with a view to controlling prices in a market. Perhaps the most striking example of an international cartel mechanism is the Organisation of Petroleum Exporting Countries, commonly known as OPEC, but that is another story.It is significant that it has repeatedly been stated that cartel restriction and chastisement is a fundamental duty of any competition authority. A leading authority on the law and enforcement of competition states that “… if competition policy is about one thing, it is surely about the condemnation of horizontal price fixing, market sharing and analogous practices: on both a moral and practical level. There is not a great deal of difference between price-fixing and theft…” (Richard Whish: Competition Law, 5th Edn). And again, “… (the) pursuit of the…cartel ought to lie at the heart of any competition authority’s agenda ”. The EU Commissioner while addressing a conference on competition policy referred to cartels as cancers on the open market economy.
(ii) Vertical agreements, which would include agreements between independent undertakings at different stages of the production and distribution chain: between manufacturer, wholesaler, retailer and consumer, or agents or third parties standing in their shoes as such.
Indications emanating from the Competition Commission, and indeed its website in itself, clearly suggest that the commission has already initiated inquiries and obtained reports regarding certain sectors of industry, both manufacturing and services, which are reputedly prone to the existence of cartels and price-fixing and bid-rigging.
The treatment of cartels has been harsh and punitive worldwide. Fines imposed in cases of cartel activity have been colossal. In the Vitamins cartel case, fines imposed by the EU Commission totalled € 855.23 million. Fines in the US on the major participants amounted to US $ 462 million, in Canada, Canadian $ 84.5 million and in Australia, Australian $ 26 million. In Graphite Electrodes the total fines imposed amounted to US $ 434 million (the criminal proceedings are reported in United States v. UCAR International Inc; Criminal No. 98-177). The European Union itself imposed fines totalling close to €2 billion in 2001.
Under section 27 of the Competition Act, the competition commission may levy a penalty of up to 10% of the average of the turnover for the last three preceding financial years upon each of such person or enterprises which are parties to such agreements. In case any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover for each year of the continuance of such agreement, whichever is higher.
A further facet of the dangers involved is the possibility of affected parties approaching the common law courts and criminal courts for recovery of individual damages or criminal prosecution of employees and executives.
In the US, in the case of the Lysine cartel, three jail sentences and fines of $120 million were imposed (United States v. Michael D. Andreas, Mark E. Whitacre, Terrance S. Wilson and Kazutoshi Yamada 1999 WL 51806 (N.D. Ill.); Criminal No.: 96-CR-00762). In the Sotheby's/Christies price-fixing cartel case, Alfred Taubmann, the chairman of Sotheby's was sentenced to one year’s imprisonment (2002-1Trade Cases P 73, 645, upheld 297F 3d 161 (2nd Cir, 2002)). In the landmark Vitamins cartels case ( CMLR 1030; OJ  L 6/1), senior executives of Roche and BASF also served terms of imprisonment in the US for their roles in this cartel. Only a few days ago, four British Airways executives (past and present) have been charged with dishonestly agreeing to fix the price of air transport passenger services between British Airways and Virgin Atlantic Airways. They could face up to five years in jail and an unlimited fine. Incidentally, Virgin is the whistleblower seeking leniency in the case.
The Competition Commission in India has drafted ‘Lesser Penalty’ regulations to allow for whistleblowers, which provides for 100% waiver if the applicant is the first to make a disclosure by submitting evidence which in the opinion of the Commission may enable it to (i) form an opinion that there exists a prima facie case and (ii) it did not have at the time of the submission of evidence by the applicant sufficient evidence to form an opinion
Agreements to not raise prices, the geographical division of markets between colluding undertakings, agreements to restrict credit to customers or to offer discounts, notify each other of price changes, fail to maintain price lists, make recommendations to distributors, restrict production, fix quotas for the market, would all be anti-competitive in nature.
In the case of bidding and tendering, impermissible practices would include level tendering (all bidders bidding at the same level to offset the power of the tenderee), and rotation bidding (where members rotate the lowest bid between themselves, the rest bidding higher deliberately).”
© Farhad Sorabjee