Cartel Criminalization in Europe: Addressing Deterrence and Institutional Challenges.

Author:Ducci, Francesco

TABLE OF CONTENTS I. INTRODUCTION 2 II. CRIMINALIZING CARTELS 5 A. Retribution 6 B. Deterrence 7 C. Empirical Data 10 D. Deterrence and Calculation of Fines 11 III. ANTITRUST SANCTIONS AGAINST CARTELS 14 A. Corporate Liability 14 B. Sanctions on Individuals 19 C. In Search of an Optimal Regime 24 IV. CRIMINALIZATION, DUE PROCESS, AND INSTITUTIONAL DESIGN 25 A. De Facto Criminal Fines 26 1. The ECHR's "Composite 26 Approach" to Article 6 2. The Constitutionality of Administrative Monetary Penalties 31 (AMPs) in Canada B. Trade-Offs and 34 Institutional Models of Enforcement C. Institutional Priorities 36 V. CONCLUSION 37 I. INTRODUCTION

The global trend against cartels, driven by the widespread consensus about the harmfulness of such practices for economies and consumers, has resulted in the introduction of criminal offenses in many competition law regimes around the world. (1)

In many jurisdictions, like Canada and the United States, a number of antitrust provisions fall within a criminal law regime. In Canada, by virtue of Sections 45 and 47 of the Competition Act, hardcore cartels and bid rigging are subject to criminal sanctions and considered per se illegal, unless the parties accused can prove that the agreement in question is ancillary to a broader or separate principal agreement that includes the same parties and is reasonably necessary for the implementation of the principal agreement. (2) Following a bifurcated judicial model for criminal violations, the Competition Bureau investigates criminal offenses and remits the prosecution of criminal cases to the Federal Director of Public Prosecution. Cases are heard in ordinary criminal courts. (3)

In the United States, violation of the Sherman Act is a felony. Both corporations and individuals can be sanctioned and individuals can be sentenced to prison. (4) The Antitrust Division of the Department of Justice is in charge of prosecuting criminal actions in the federal courts of general jurisdiction.

On the other side of the Atlantic, the European antitrust regime does not contain criminal sanctions. The European Commission can impose only administrative fines on undertakings but cannot impose criminal punishment on individuals. (5) However, in line with international trends, the Commission has recognized anti-cartel policies as one of its priorities, leading to a significant increase in the level of fines imposed on undertakings, wider use of leniency regimes, and settlement procedures. (6)

At the same time, there has been a significant debate over whether competition law fines should be treated as de facto criminal under the autonomous definition contained in Article 6(1) of the European Convention for the Protection of Human Rights (ECHR). (7) Many concerns have been raised as to whether the current enforcement model with an administrative body in charge of investigative, adjudicative, and enforcement functions is adequate to ensure a right to a fair trial. (8) To date, the European Court of Human Rights (ECtHR) has confirmed the compatibility of the current integrated agency model with due process requirements, indicating that an integrated agency model is compatible with Article 6 as long as strong procedural guarantees are in place and a body with "full jurisdiction" exercises sufficient judicial control. (9) Despite the numerous criticisms surrounding the margin of appreciation that the EU courts extend to the Commission's "complex and factual economic assessments," the standards of judicial review have been recognized as ECHR standards compliant. (10)

This Article addresses the question of cartel criminalization on two interrelated levels. First, it analyzes the deficiencies of a sanction regime based solely on administrative fines on corporations as a policy instrument to effectively deter collusive behavior. In doing so, it discusses possible theoretical justifications for introducing criminal sanctions, and it evaluates a variety of antitrust sanctions that a jurisdiction may impose on firms and individuals. Second, it addresses the institutional design aspect of criminalization. In particular, it asks whether an administrative integrated agency model is compatible with current high levels of administrative monetary fines, which have been categorized as de facto criminal in nature. Finally, it analyzes the trade-offs entailed in switching from an administrative to a criminal system of enforcement.

This Article argues that despite the high desirability of introducing sanctions against both firms and individuals at the European level in order to ensure sufficient deterrence of cartels, such policy is unlikely to be acceptable as a stand-alone reform. Conversely, the focus should be on current shortcomings and possible reforms to the current institutional system of enforcement. Although changes in institutional design may also prove politically and legally daunting and subject to issues of path dependence, (11) the present shortfalls in terms of procedural fairness and the potential improvement of the efficiency-due process trade-off that could arise from switching to a bifurcated judicial model (12) may provide strong justifications for a deeper institutional change. As it is argued below, only the desirability of such broader reform at the institutional level (13) could bring about the possibility of introducing individual sanctions against cartels.

Part II begins by discussing the two main rationales for criminalization of cartels (14)--retribution and deterrence. (15) Starting from the recognition that it would be virtually impossible to increase monetary fines to a high enough level to match the marginal benefits of entering into a cartel agreement, Part III analyses the potential deterrent effect of various civil and criminal sanctions on both corporations and individuals. Part IV discusses the potential de facto nature of monetary fines in antitrust cases, the institutional reforms required to comply with a criminal law system by identifying the advantages and disadvantages of a bifurcated judicial model compared to an integrated agency model, and the trade-off between administrative efficiency and due process. Part V concludes.


    Two main justifications are relevant for antitrust criminalization--retribution theory and deterrence theory. (16) Retribution theory generally justifies criminal sanctions on the basis of the moral wrong committed by individuals. Deterrence theory, on the other hand, has been widely used to justify criminal sanctions in order to achieve optimal deterrence and prevention of future criminal activities. (17)

    Most of the academic debate justifying criminalization of hardcore antitrust offenses has generally been based on deterrence. (18) Nonetheless, the two rationales are not mutually exclusive. In fact, the identification of cartel activity with a "morally wrongful" behavior and the wider public's awareness of the inherent harmfulness of price-fixing and similar practices would strongly increase the argument in favor of criminalization. Further, finding some grounds for criminalization of cartels on the basis of retribution may, at the same time, enhance the deterrent effect of antitrust criminal sanctions by enhancing the moral stigma associated with cartels. Finally, aligning cartel activity with fraud, cheating, or stealing would also increase the argument for a criminal rather than an administrative model of enforcement. This Part discusses these theories, the validity and limitations of their application to cartel activity, and the efficacy of antitrust fines for deterrent purposes.

    1. Retribution

      Theories of criminal law based on retribution, rather than prevention of crimes, adopt a backward-looking approach, which focuses on the moral wrongs committed by individuals, irrespective of the impact of sanctions upon future level of crimes. (19) Retribution theories see human beings as responsible for their actions and require offenders to receive what they deserve when engaging in wrongful behavior. (20) The moral content is composed by elements of culpability, social harmfulness, and moral wrongfulness. (21) Retribution requires that punishment should be proportional to the offense and to the culpability of the offender. (22) Criminalization based on retribution theories would start from a recognition that cartels are different and more harmful compared to other anti-competitive practices. Of all behaviors that may negatively affect competition, cartels strongly contradict the principles of free market economy and create harmful consequences for consumers and society. In contrast to many unilateral practices and to mergers, cartels are "naked" restraints of trade: they restrict competition without producing any objective countervailing positive effect. Accordingly, it may be argued that they deserve the same moral condemnation associated with other fraudulent practices. Retribution theory could therefore justify cartel criminalization by association with some form of culpability, social harmfulness, and moral wrongfulness. (23) Cartels may be considered to create a social harm stemming from undermining the operation of competitive markets; cartels may be thought of as a form of criminal behavior analogous to theft, fraud, or cheating.

      Although valid in their own terms, these are somewhat problematic interpretations. For instance, the harm of collusion is usually diluted among many victims, as each affected party bears only a fraction of the harm, which in some cases may be very small. Cartel activity may therefore be considered similar to a "victimless crime," where the aggregate harm is significant but the impact on individual victims may be minimal and victims may not even be aware of the crime. In addition, the viability of a retributive justification for criminalization depends also on the social perception of these collusive interferences with competitive market...

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