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Neelie Kroes

European Commissioner for Competition Policy

Tackling cartels – a never-ending task

Figures and graphics available in PDF and WORD PROCESSED

Anti-Cartel Enforcement: Criminal and Administrative Policy – Panel session

Brasilia, 8 th October 2009

Ladies and gentlemen,

It is indeed a pleasure to speak to you about progress in prosecuting cartels globally and in Europe. I feel myself come alive when I speak about our cartel work. Nothing is more fundamentally wrong in our field than a cartel, and nothing requires more energy and creativity to combat.

I am not a shy person, so you will be aware that I am happy to speak about both the successes and the difficulties in our efforts. Let me say at the outset that we are making excellent progress. But let me balance that message with a warning: we must approach our collective achievements with a sense of humility.

We are prosecuting more cartels and preventing more consumer harm than ever before. Some say, however, we are only witnessing the tip of the iceberg. Clearly, there is so much more to do. Tackling cartels is – quite literally - a never-ending task.

The nature of the global fight

Our task is made harder because cartels are always changing shape - adapting like viruses to fight our attempts to kill them off. Always building up resistance, always trying to outsmart us. Our investigations show that cartels try to cover their tracks using encrypted e-mail, attributing code names, using fake or misleading e-mail accounts, pre-paid mobile phones … it is a long list of deceptions.

Today’s fight is nothing new – cartels have plagued capitalism since industrialisation began. From the “conspiracies to raise prices” noted by Adam Smith and onwards, cartelists have had a long time to perfect their tactics.

The importance of co-operation

Combine that reality with the huge potential damage from a cartel in the global economy and it tells us one simple thing: as competition authorities we need to work closer and closer together if we want to stop cartels.

At the European Commission - a clear choice is made to focus on EU-wide and international cartels. This is because nationally oriented cartels are now –successfully – prosecuted by our Member States authorities. Our international focus therefore makes co-operation imperative for us, so that the best cartel evidence can be uncovered and secured.

In my view, coordinated searches and inspections and confidential exchanges of information are essential for a meaningful co-operative relationship.

The sorts of discussions on general strategy and techniques that we have seen through the ICN are also useful; as are the advice and studies of the OECD.

Yet I wonder if we could be doing more.

Achievements of the Brazilian competition agencies

In this context, the rapid development of Brazil's competition enforcement is a beacon of hope. What an amazing first fifteen years for your system – the acceleration over the past three years is especially impressive!

With the combined competencies of SDE and CADE, Brazil has a competition enforcement power to match its place in the world’s Top 10 economies. I have taken close note of your recent achievements, including, the consolidation of the Leniency Program, and of specialised anti-cartel efforts within the public prosecutor’s offices and Federal Police.

I think leniency progress is especially important. Now that companies and their managers have increased incentives to denounce their cartel activities in multiple jurisdictions at the same time, enforcement action can be simpler and quicker. Making sure we keep these incentives correctly calibrated will help us to destabilise and break up cartels over the long-term. Brazil is a leading example of how to put these incentives in place. Brazil shows that having relatively young competition authorities is no barrier to leadership in this field.

Closer to home, we in Brussels have been very pleased with the first joint dawn raid among Brazilian, EU and US authorities in February 2009. This work in the refrigeration equipment sector goes beyond, for example, the notable efforts in the Vitamins cartel that ran through the 1990s.

Co-operation – compressors example

Thinking more about enforcement co-operation... You might wonder if Brazil and the US having criminal enforcement is a barrier to co-operation with Europe. I think not. It is certainly not a fundamental obstacle for a fruitful level of cooperation at the early stage of an investigation - where it matters most.

The fact that we can continue to improve our co-operation in a crisis environment is an excellent sign. We could have spent our time accepting crisis cartel requests, for example, instead we are making sure that important evidence is available to the authorities that need it for additional enforcement.

The ongoing investigation in the refrigeration compressor industry is an excellent case study. These compressors, as you may know, ensure cooling devices can do their job. My people in Brussels coordinated the inspections in this industry, together with colleagues of the SDE, and following the appropriate internal coordination in Brazil between CADE and the SDE. We both worked also with the US Department of Justice.

The fully synchronized investigations across three continents starting on 17 February (2009) must have had quite an impact on all parties involved. Such efforts show that we are jointly committed to breaking possible cartels, rather than playing on separate chess boards, and that we can do it globally. I understand that one company already came forward to settle its case in Brazil and that this was decided by CADE last week. I hope we can see more of this sort of co-operation work in the future. We will pursue that of course while respecting confidentiality requirements resting upon us.

Cooperation is further fostered by creating an atmosphere of trust between agencies and close day-to-day relationships between staff. That is the real point of bilateral arrangements such as the EU’s Memorandum of Understanding with Brazil, and the ICN’s working groups: to create the relationships that create trust.

The artificial divide between criminal and administrative systems

Given this proof that co-operation is working; I don't believe we need an artificial debate about criminal versus administrative cartel systems.

The reality is there will always be both, and it is more important to determine how best they can complement each other. The European Competition Network is another living example of how criminal and non-criminal systems can work together. We have no choice. We are bound to implement the same EU laws, and yet some Member States work additionally with criminal penalties and others not. Intense collaboration is still the order of the day, and indeed has allowed the ECN as a whole to successfully prosecute around 60 cartels in the last five years.

Personally I have sympathy for the view that jail terms are a good deterrent. But that does not imply that an administrative system is somehow soft. Deterrent fines absolutely do focus the boardroom and senior managers on the need to comply with competition rules.

In fact, I would argue that while the need for jail terms – and their level - is contested by some, the need for corporate fines is virtually uncontested. And we have seen these fines strengthened in all jurisdictions. So in recognising that fines are an essential part of any deterrence effort, we have plenty of common ground for co-operation between different systems.

The European Way

Perhaps now I should reflect on what we have built up over the last decade or so in Europe.

Of course I am best qualified to speak about my own mandate; but as I said at the moment of Karel Van Miert’s untimely passing this year – ‘we stand on the shoulders of giants.’ Karel was this giant in European policy – creating the first cartel unit, first leniency program and first guidelines on fines. When Mario Monti carried this through we started to see more cartel decisions, more regularly and higher fines.

But the job was not complete when I arrived in office, and I was determined to put cartels at the top of my list. I was especially concerned about the consumer harm involved.

Our cartel strategy had several building blocks. It was ambitious but highly practical. As the European Commission nears the end of this five-year term, we have delivered. And this is the list:

  • A dedicated cartels Directorate – delivered in 2005

  • Renewed leniency notice to increase detection – delivered in 2006

  • New fining guidelines to achieve effective deterrence - delivered in 2006

  • A settlement tool to increase efficiency – delivered in 2008

We also have some interesting tales to tell about the journey.

Cartel Harm

While it can be useful to show the public the lengths cartelists will go to in order to hide their behaviours and rip-off consumers, I think it is also crucial that we build up the evidence base on cartel harm. We need solid, comprehensive and up to date figures about the damage cartels can wreak, and how they harm us all.

To that end, the Commission services this year looked at the 18 cartels subject to Commission Decisions between 2005 and 2007. Using very conservative assumptions – an over-charge of just 10% - the harm suffered was 7.6 billion euros for these 18 cartels. The real figure could well be much higher given that most studies establish a median price increase of private cartels of around 20-25% on average.

Of course, these rough estimates do not include deterrence effects. A successful cartel policy is, above all, one that discourages cartels. It is very difficult to establish how many cartels competition authorities prevent. The OFT has recently carried out a wide ranging study in this area that estimated that for every cartel discovered there were at least five others that were abandoned or which stalled before they could do real damage. If we apply the OFT's findings to our 18 decisions, the deterrence effect means we avoided 60 billion euros of consumer harm for the period 2005-2007. In other words: the deterrence effect of our policies may be in the order of 20 billion euros each year.

When considered against a total cost of running the Commission’s competition system - less than 100 million euros per year – the harm prevented makes our work clearly worth the effort and resources involved.

Factors in success

No single reform stands out. Our success can be explained mostly by intensive work to streamline interaction between: ex-officio own detection; leniency; fine policy and practice and internal efficiency.

Looking at enforcement …

Since 2005 the Commission adopted decisions in 30 cartel cases and addressed these decisions to 184 different groups of companies. Inspections have been carried out in 28 cases on some 200 sites.

If the clock is started from when dawn raids take place, the average duration of each case is 3.5 years, with all companies covered in one final decision. We’ve done it in less than two years, and we have become faster since the creation of the cartels directorate. For the stages between issuing the statement of objections to adoption of the decision, we are down to an average of 13 months.

Looking at leniency …

Leniency clearly assists enforcement. We have had more applications for full immunity in three years since the 2006 leniency notice compared to the five year period under the previous system (24 to 22).

Turning to fines …

Fines are only a means to an end. The real goal is changed behaviour.

I sometimes hear the argument that high fines are pro-consumer but anti-business. I don’t agree with that. Firms also suffer from the higher costs if their suppliers form a cartel. So deterrence is also in the interest of all businesses that stick to the law – the vast majority of businesses.

And yes, fines were not deterrent in recent decades. We would go after a company, fine them and the impact would be minimal. Not any longer.

Compared to just 271 million euros in the period covering 1995-1999, cartel fines totalled a little over 1 billion euros in 2004 and 2005. Moving to the two years of 2007 and 2008 the fines totalled about 5.5 billion euros.

That increase has come about also because we are indeed focusing on larger international cartels with high turnovers, hence attracting stronger sanctions. Our decisions are not arbitrary.

Each fine must always relate to a company's turnover in the affected product or services and the severity and duration of the offence. And indeed, while the revised guidelines clarify our fining calculations, they do not affect the maximum level of fines that can be imposed on companies. This ceiling remains fixed under Article 23(2) of Regulation 1/2003 at 10% of the company's total turnover. In fact only 10 companies have been fined more than 5% of turnover during my mandate.

So I think that overall we are fair and the combined effect of leniency and robust fines is to deliver more effective deterrence all-round.

Settlements: foreseen efficiencies

Settlements are a commonly recognized and efficient way of handling cartel cases faster, thereby allowing precious resources to go to additional cases. The compressor settlement here in Brazil is a case in point.

You will know about our recent initiatives, and I hope that soon we can see the first cases being finalised in that manner. Our system has a different application compared to the Brazilian programme, in that the discount we offer for settlement relates to procedural efficiencies only. Discounts for leniency are separate and potentially cumulative with settlement discounts.

In international cartel cases, the incentives of settlement, combined with the separate incentives offered by leniency are an attractive package for companies thinking of cooperating with the authorities across the board, in all jurisdictions concerned.

Internal efficiencies

Efficiency is not another word for cost-cutting. In my view efficiencies are not real unless they add value to an organization, and I want to share two examples with you where we are adding real value to our work.

You may be familiar with the European Competition Network. Of the 55 cartel decisions based on Article 81 of the EC Treaty that were adopted between 2004 and 2008, 30 were by the Commission and 25 by the National Competition Authorities. In other words, more upstream and deep co-operation meant we doubled enforcement in Europe. Quite efficient!

If we continue teaching and learning from each other, there will be further efficiencies.

Use of what we call forensic IT is also leading to efficiencies in evidence gathering. Today we need to dig through computers in the same way that we once focused on digging through filing cabinets. But competition experts are not often IT experts – so to overcome this skill shortage we are training our staff accordingly to use these forensic technologies. The build-up of that capacity takes time and money, but is paying dividends already. Much to the surprise of the cartelists, our inspectors have come home with incriminating documents the users had thought deleted from their laptop. Thanks to our dedicated software these documents were traceable. We are also exchanging best practices and tips with our IT counterparts of the national competition authorities within the European Competition Network.

Crisis cartels

If I may quickly mention the issue of so-called 'crisis cartels'… There may be many temptations in 2009 to cut corners, but encouraging cartelists and others would be guaranteeing disaster. It would drag down recovery, increase consumer harm and create more cartel and cartel cases into the future.

No-one wins - today's softness is tomorrow's nightmare.


I don't want to merely destabilise cartels. I want to tear the ground from under them. This requires effective deterrence across a range of competition systems appropriate to the legal traditions of each country.

We can't turn that deterrence on and off according to the economic cycle. And we can't believe that we can have a deep impact against cartels if we simply focus on our own backyards.

Effective deterrence is only possible when there is deep co-operation and trust amongst competition authorities. Today’s exchanges are another significant step in that long journey .

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