Corporate Sanctions and Individual Penalties
Christian Bulzomí
April 24, 2008
The discussion about the enforcement of EC competition law in Europe has been revitalized by the publication of the Commission White Paper on Damages actions for breach of EC antitrust rules (on which you can find our previous post here).
In my personal view, private enforcement of competition law is part of a complex policy which aims first and foremost at avoiding infringements of competition law and secondly to correct anti-competitive behaviour through the compensation of the losses caused, whereas the sanctioning of the companies infringing the rules on competition constitutes an instrument for the obtainment of the two mentioned goals.
Similarly, policy instruments facilitating damages claims and awarding damages – whether single damages or punitive damages – pursue both objectives. Now the Commission has chosen to focus just on effective compensation and affirmed that the improvement of corrective justice would “inherently also produce beneficial effects in term of deterrence”. However, Wouter Wils has argued that the amount of the sanction imposed upon undertakings would have to be drastically increased through private actions for them to constitute an effective deterrence or to increase the deterrent effect of public enforcement.
Independently of the correctness of Wils’ affirmation, I am convinced that a more general approach to the reform of the enforcement of competition law should be adopted in European competition law, which would not only include the improvement of private enforcement. Concretely, (the exclusivity of) corporate sanctions, independently whether the enforcement is private or public, relies on the ability of the companies of dissuading their managers or agents from breaching the competition rules and afterwards prosecuting them. In several cases, especially in complicated cartel cases, the detection as well as the investigation of which can take several years, the persons liable for the company’s involvement in the anticompetitive behaviour may have left the company and its former employer may have no possibility to sanction their decisions. Therefore, and deterrence being the first and most important aim of competition law enforcement, a combination of corporate sanctions and individual penalties, as already existing in the United States of America, should be considered.
The inclusion of individual penalties – whether administrative or criminal – might significantly increase the deterrent effect of competition law enforcement. In addition, individual penalties might contribute to people’s awareness of and their moral commitment to the respect of competition law.
It is not clear whether administrative or criminal sanctions should be adopted. If criminal sanctions were to be chosen, the fundamental question is which infringements should be sanctioned with imprisonment and for which infringements a different type of sanction should be imposed.Undeniably, the threat of imprisonment constitutes a significant deterrent. The American experience shows the powerful deterrence of imprisonment. A.L. Liman argued that “For the purse snatcher, a term in the penitentiary may be little more unsettling than basic training in the army. To the business man, however, prison is the inferno, and conventional risk-reward analysis breaks down when the risk is jail. The threat of imprisonment, therefore, remains the most meaningful deterrent to antitrust violations”.
Furthermore, an added value of imprisonment is its power to change the cultural perception concerning antitrust law violations. Indeed, there is a substantial difference in Europe in comparison to the United States of America in relation to the impact on public opinion. While in the United States “price fixing is considered to be immoral, like theft” in most European countries the general public’s awareness about the illegality of price fixing or market sharing is extremely limited.
I am personally in favour of the introduction of imprisonment as an efficient deterrent against antitrust law violations only for the most pernicious, clear cut violations which have been purposely committed such as price fixing or market sharing. The imposition of jail sentences for antitrust violations where the line between anti-competitive and pro-competitive is not so clear cannot be an option. Although the decision to adopt criminal penalties for some infringements advocates for procedural unity, this cannot be a decisive criterion for the introduction of sanctions of a criminal nature for each and every competition law violation.
Thus, it will be necessary to distinguish between different types of infringements. On the one hand, for very serious infringements, for which the economic benefit might be so high and the likelihood of being discovered relatively low, the only real and efficient means of deterrence could be the imposition of jail sentences on the persons responsible for the company’s involvement in the violation. On the other hand, all remaining infringements could be deterred through the imposition of corporate sanctions and individual sanctions other than imprisonment.
In this context, the question of competence within the EU for the introduction of criminal penalties for the enforcement of EC competition law might be an interesting one: the famous judgment of the ECJ in case 176/03 gives room for speculation about a first pillar competence (you can find the judgment here).
** Opinions expressed are purely personal and do not necessarily reflect those of the European Commission **
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I agree with you that criminal sanctions might be the only really efficient deterrent against antitrust violations and that it would seem justified sanctioning hard-core cartels with imprisonment because of their harmfulness to the economy. However, there is a risk that the introduction of criminal sanctions could negatively affect leniency programs, at least in cases where the leniency applicants are the same persons that are responsible for the infringement. In countries where the leniency applicant only has to pay full compensation to the victims (i.e. where there are no punitive or double or treble damages available), the threat of being exposed to criminal sanctions as well would probably deter the infringers from applying for leniency since they would only be exempt from the fine but would still have to pay full compensation to the victims and, on top of that, the persons responsible for the antitrust violation would face jail sentences. The introduction of criminal sanctions would thus probably also require the introduction for some kind of significant punitive damages which the successful leniency applicants would not have to pay so that there would still be some kind of incentive to apply for leniency.
But I’m not sure if even that would be enough when we are talking about the risk of imprisonment – maybe some kind of US style plea bargaining to reduce the prison sentence for the successful leniency applicants would also be necessary. In the United States, the government and the defendants’ counsel often negotiate the nature of the plea and the terms of the penalties for companies or individuals. Moreover, under the US Corporate Leniency Policy and Leniency Policy for Individuals, the successful leniency applicants are not charged criminally for their participation in the antitrust violations.
However, it seems very unlikely that criminal sanctions will be introduced at the EU level but it is up to each Member State to decide the nature of the sanctions for infringements of the competition rules.
Comment by Charlotte Leskinen — April 25, 2008 @ 10:43 am
Dear Charlotte,
Thank you for your enlightening comment.
I agree with your analysis. The introduction of criminal penalties should not affect the extremely successful leniency programs. However, I do not think that the introduction of significant punitive damages would be an incentive for a potential leniency applicant if he could face criminal charges for the infringement of the rules on competition. Personally, I believe that the introduction of criminal penalties should be coordinated with the leniency program and successful leniency applicants should not be prosecuted for their violation of competition law. This is also the approach taken in the UK where individuals providing information about cartels are issued a so called “no-action letter” which prevents from being prosecuted in England, Wales and Northern Ireland (but not in Scotland).
A different solution could be the prohibition to use the statements and documents obtained through leniency applications for the purpose of pursuing criminal offences. This would be more than obvious for most of the European countries as it is aimed at protecting against self-incrimination.
I also agree with you that the likeliness that criminal sanctions will be introduced at EU level is extremely low, at least in the medium term. Nonetheless, in the future I can imagine the necessity for an action at supra-national level in at least two cases if a number of EU Member States were to introduce criminal sanctions:
1. Even if the UK’s “no-action letter” approach was adopted by all the Member State, a one-stop shop would be necessary to get an EU–wide immunity “marker”. It would be a huge disincentive for leniency applicants if there was no possibility to file an immunity application for all the Member States at the same time. Imagine an immunity applicant who is granted a “no-action letter” in three countries but is than prosecuted in the fourth country affected by the cartel.
2. If some Member States did not coordinate criminal prosecution with their leniency program it would have a negative impact on the leniency programs of other Member States and on the European leniency program. In such a situation a coordinated approach at EU level would be indispensable.
Comment by Christian Bulzomí — April 25, 2008 @ 6:48 pm
Dear Christian,
Just a few more comments. If criminal sanctions were introduced at the EU level, it would, as you correctly pointed out, probably indeed be necessary to grant successful leniency applicants “leniency” also from criminal sanctions.
As regards infringements of Articles 81 and 82 EC, it is already today only possible to transfer the statements and documents obtained through leniency applications to another competition authority with the consent of the leniency applicant. Similarly, the exchange of evidence for the purpose of applying Articles 81 and 82 EC within the ECN network is only possible if the sanctions that could be imposed in the receiving country are of a similar kind as those foreseen by the law of the country transmitting the information. Probably the fact that some Member States have adopted criminal sanctions whereas the majority has not is the reason why a one-stop shop for leniency does not exist at the moment. But it will be interesting to see if the policy will change in the future once the Commission has decided what to do in order to foster private enforcement, since the same concern exists that increased private enforcement could have negative effects on leniency programs as the obligation to compensate victims may serve as a deterrent to applying for leniency. In this context I insist that punitive damages could play a role since they would make it possible to offer the successful leniency applicants an additional rebate (from punitive damages) by limiting their civil liability to the payment of full compensation to the victims. So interesting times are ahead.
Comment by Charlotte Leskinen — April 28, 2008 @ 1:48 pm