The European Commission today introduced a new settlement procedure for cartel cases. Under the new procedure, the parties in a cartel investigation may acknowledge their breach of European antitrust law and waive certain procedural rights in exchange for a 10% reduction of the fine. The procedure, adopted following a public consultation initiated in October last year, is aimed at making the Commission’s cartel enforcement more efficient; it applies as from the day when the package is published in the EU Official Journal.
Why has the Commission adopted a settlement procedure in cartel cases?
The Commission has every reason to speed up cartel proceedings. The Commission is on the verge of becoming a victim of its own, successful, leniency programme. Since the entry into force of the 2002 Leniency Regime, the Commission has received more than 100 leniency applications. Although, in the past few years, the number of cartel decisions – and the amount of fines – has increased (in 2007, the Commission adopted eight decisions; year to date, four decisions have been adopted), the Commission’s resources are being strained by a considerable backlog of cases.
The low output results (at least in part) from the current procedure: adopting cartel decisions requires a careful assembly of facts and a painstaking procedure including preparing a detailed Statement of Objections, access to the case file, an oral hearing, internal consultations and, finally, the drafting of a decision detailed and solid enough to withstand scrutiny on appeal.
By introducing a settlement process, the Commission hopes to speed up that process and to free up resources that can be used to take on the backlog and new cases.
What is the difference between leniency and settlement?
The Commission’s leniency system incentivises companies participating in cartels to come forward and voluntarily disclose the existence and evidence of a cartel to the Commission. The reduction of the ultimate fine differs vastly depending on the timing of the application and the value of the evidence provided.
Settlement is simply aimed at expediting the Commission’s administrative procedure. All parties settling in the same case will receive an equivalent reduction of their fine.
A discount for settlement will be available to a company regardless of whether or not it has also benefited from leniency. The Commission has apparently set the level of the settlement discount (10%) so as to preserve incentives companies may have to come forward and apply for leniency. If the company has benefited from leniency, the settlement discount will be added on top of that benefit.
What are the key features?
The settlement procedure in essence involves an abbreviated investigation with respect to those parties who are willing to settle.
Parties do not have a right or an obligation to settle, and the Commission retains full discretion to determine, for instance, whether a case is suitable for settlement, whether the evidence available with respect to a particular party is adequate for these purposes and whether the scope of a settlement is appropriate. In contrast to the US plea bargaining process, the Commission does not envisage the procedure to be a negotiated settlement procedure.
Parties proposing to settle will, however, be required to acknowledge “in unequivocal terms” their involvement in the cartel and their liability for it.
A settlement proposal will need to be made in writing. In assuming liability, parties proposing to settle will be required to describe the key facts of the cartel and the legal qualification of these facts, as well as the duration of their participation in the cartel. Moreover, parties are also required to waive certain procedural rights, such as full access to the Commission’s file or attending an oral hearing, unless the Commission renounces the settlement proposal. Parties’ right to appeal the Commission’s decision remains, however, unaffected, although their admission of cartel participation in the administrative proceedings is one factor which is relevant to consider in an appeal.
Engaging in a settlement entitles the parties to a fine reduction. The level of “discount” that the Commission envisages is 10%.
What is the importance of new procedure?
Unsurprisingly, it is a key priority for the Commission to simplify and shorten its cartel investigations. A Commission cartel investigation can last up to five years. On top of that, most Commission decisions in cartel cases are appealed to the Court of First Instance and, of course, appeals are also possible to the European Court of Justice. This means that questions of liability and fines can be left undetermined for up to ten years.
Jonas Koponen, a partner in the Competition/Antitrust group at Linklaters, commented:
“The Commission’s new settlement procedure can potentially shorten cartel proceedings and also reduce the number and scope of appeals brought against Commission decisions. But the procedure will only be a success if the Commission uses its substantial discretion transparently and consistently. The procedure must in addition offer companies strong incentives to settle. In some cases and for some companies, a fine reduction of 10% may be sufficient, but it is far from certain that this will generally be the case.”
Are there any drawbacks for companies to engage in settlement discussions?
The impact of the new settlement programme on Commission proceedings has yet to be determined. It is thought that the Commission will immediately pursue settlement in several ongoing investigations. This could provide companies with additional, much needed clarity on the operation of the system.
Unless such clarity is provided, the Commission’s substantial discretion in deciding whether or not to pursue and endorse a settlement will create uncertainty for settlement candidates. If the Commission eventually decides not to engage in a settlement process, it is provided that the acknowledgments would be deemed withdrawn. Nonetheless, the parties will have shown their hand. Since the “settlement team” is the same as the “case-team”, it cannot be excluded that settlement discussions will influence the remaining procedure even after they have been terminated.
Moreover, increasingly companies involved in Commission cartel proceedings are adopting defence strategies that not only take into account the Commission procedure: companies also consider possible knock-on effects that the Commission’s proceedings may have on related civil and criminal proceedings. For instance, the following dimensions are relevant:
- Follow-on damages claims raised in civil proceedings. Follow-on damages claims are increasingly a source of concern for companies under investigation. What the impact of a settlement will be on subsequent damages claims is not quite clear. On the one hand, the final decision will contain less detail than an ordinary decision and, accordingly, will be less useful for potential damages claimants’ efforts to establish the link between cartel activities and an alleged injury, as well as the magnitude of the injury. On the other hand, a settlement submission will contain an unequivocal admission of liability for the infringement of EC competition law. The Commission has however stated that it intends to afford settlement submissions the same level of protection from disclosure as submissions made under the leniency programme.
- Criminal proceedings. Infringements of EC competition law do not entail criminal penalties as a matter of Community law, but cartel participation is a criminal offence under national law in certain countries, such as the UK, Ireland and the US. It is not clear what the effect of a settlement decision, reached with a company, will be on the position of individuals in such criminal proceedings. Companies and individuals will have to navigate the demands of Commission cartel proceedings and national criminal laws.
- International investigations. International co-operation among competition authorities is an increasingly common feature in cartel cases. As a result, agencies are in the process of adopting co-operation agreements that will allow for more and more exchange of documents and other evidence. It seems inevitable that a decision to settle in one jurisdiction will have repercussions for strategy and, possibly, outcome in other jurisdictions. Moreover, it is not clear whether documents prepared as part of the Commission cartel settlement procedure, especially when a settlement is eventually not reached, are safe from disclosure demands in civil proceedings in other parts of the world.
For further information on this hot topic or to arrange an interview with Linklaters, please contact:
Sarah Peters on +44 (0)20 7456 2153 / sarah.peters@linklaters.com or
Rupert Winlaw on +44 (0)20 7456 3219 / rupert.winlaw@linklaters.com
