The European Union’s promised crackdown on corporations for ethical missteps of all sorts is advancing, and first up is a dramatically invigorated enforcement of anti-trust rules.
Since last fall, the European Union has hit at least seven companies with fines totaling in the billions, a stunning increase from past actions. Intel Corp. was fined $1.5 billion in May for anti-competitive practices in the market for computer chips; four companies were whacked with a $1.7 billion fine last November for rigging the price of glass supplied to the auto industry. Two European utilities were recently fined $1.5 billion for collusion in Europe’s gas markets.
Kroes
All the companies involved in those cases—which hail from across Europe, the United States, Japan, and Britain—have vowed to appeal those fines in the courts. But the enforcement actions show how seriously Neelie Kroes, the EU competition commissioner, is taking her job.
The European Commission (the executive branch of the European Union) enforces anti-trust law under two provisions. Article 81 of the treaty establishing the European Community bans collusion among companies to fix prices or allocate markets; the glass manufacturers were fined under that clause. Article 82 of the treaty bans abuse of a dominant market position; Intel was punished under that rule.
Schulz
Axel Schulz, a partner in the Brussels office of the White & Case law firm, says Kroes has escalated the size of fines dramatically since arriving in her job in 2004. In the 1990s a typical fine might have been only a few million dollars; even at that level, companies would appeal, he says. Now a typical fine is on the order of $60 million.
The actual volume of cartel activity in Europe has always been difficult to determine precisely; most law firms and even the European Commission itself don’t offer more than their best guess. A spokesman for the Commission’s Competition Division will only say: “We ensure that we investigate all anticompetitive behavior that we are aware of, and the leniency program has been very successful at encouraging companies to come forward to denounce cartels in return for immunity.”
“We ensure that we investigate all anticompetitive behavior that we are aware of, and the leniency program has been very successful at encouraging companies to come forward to denounce cartels in return for immunity.”
—Anonymous Spokesman,
Competition Division,
European Commission
And aside from the European Commission, companies are facing more aggressive enforcement by national regulators in Europe as well. The Greek Competition Authority recently nicked three Greek shipping companies for abuse of dominant position; Italian authorities have started an investigation over concentration in banking; the Serbian Competition Authority is even prosecuting a sports league for ordering its athletes to use a single brand of protective wear.
Thankfully, fines by national institutions are much lower. Schulz says that is because Brussels’ fines are based on infringements applying to the whole EU market, as opposed to national markets. “It is certainly the case that the European Commission is leading the pack in Europe,” he says.
Schulz adds that the amount of the fine is not set to recoup the amount that the offenders might have gained illicitly; it is only intended as a deterrent—which, in Kroes’ case, can be quite significant.
Other Changes Coming
Aside from regulatory enforcement over anti-trust concerns, corporations now have another worry: private lawsuits filed by victims of price-fixing schemes or other fraud. Such civil actions are still a new phenomenon in Europe, but if successful, they could open the door to much larger monetary penalties based on a company’s ill-gotten gains.
Schulz says Britain currently leads the way with six such open cases; Germany has a few more, and the European Commission is broadly approving of such activity.
Kroes is working to introduce class-action lawsuits at the pan-European level to compensate the small victim, such as the householder who might have been marginally over-charged for a domestic item. She says, “Collective address [class action] is central to plugging that gap” of restitution, since some EU states don’t allow or encourage class-action lawsuits.
One country in the spotlight of corporate infringements these days is the United Kingdom. The country still has a black eye from its decision in 2006 to stop an investigation into bribery from BAE Systems to Saudi Arabian officials as part of a large defense contract; the deal had been under investigation by Britain’s Serious Fraud Office, and many denounced the government’s move as caving into geopolitical pressure.
Knight
Last autumn, the Paris-based Organization for Economic Cooperation and Development’s working group on bribery sharply criticized Britain’s failure to bring its anti-bribery laws into line with its international obligations. Peter Knight at the London office of international law firm Bird & Bird describes the existing British legislation as “a patchwork of common law and early 20th century rules” containing “certain loopholes.”
He says that new British anti-corruption legislation, expected to be in force by the autumn, will correct the situation. The upgrade will contain specific provisions covering the negligent failure of a corporation to prevent a bribery offense. It will also extend the jurisdiction to cover foreign nationals who live or work in the United Kingdom.
Another clean-up move in Britain comes from its Financial Services Authority, which says that it has new plans “to create a consistent and more transparent framework for calculating financial penalties.” On a practical level, that could mean some fines will triple in size.
Across the rest of Europe, there is panoply of law cases relating to alleged unethical behavior. Recently four executives from Deutsche Bank were ordered by an Italian court to stand trial for contributing to the collapse of the Italian milk-products company, Parmalat, which went bankrupt in 2003.
The trial of the four, which is planned to start in September, was ordered by an Italian judge. The four deny wrongdoing.
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