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Portfolio Media. Inc. | 860 Broadway, 6th Floor | New York, NY 10003 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | [email protected] Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting from the adoption of new and enhanced leniency programs worldwide and from increased communications among global enforcers is well known. There are now over 100 jurisdictions that prohibit cartel behavior, at least 35 of which have seen recent enhancement to their leniency programs.[1] Nonetheless, most investigations in the headlines continue to involve a relatively small and active group of jurisdictions because the widespread passage of anti‐ cartel policies has not necessarily translated into their vigorous implementation. The swell of a new wave of cartel enforcement, however, has begun to rise in China, India and Mexico, each of which is ripe for increased cartel enforcement. Michael Fanelli China and India, two of the world’s most robust economies, both have nascent competition laws, which only have begun to see enforcement. However, recent clarifications to China’s leniency program may encourage self‐reporting, and recent judicial decisions in India have lowered procedural hurdles for enforcers. Mexico, which has an established competition law regime, may be on the brink of change, as proposed legislation would establish more serious sanctions and provide enforcers more effective investigatory tools. China The Chinese agencies with cartel‐related enforcement powers are the State Administration of Industry and Commerce (SAIC), which is understood to be responsible for non‐price‐related conduct, and the National Development and Reform Commission (NDRC), which is understood to be responsible for price‐ related conduct.[2]

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Page 1: Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting

PortfolioMedia.Inc.|860Broadway,6thFloor|NewYork,NY10003|www.law360.comPhone:+16467837100|Fax:+16467837161|[email protected]

CartelEnforcement’sNextWave

Law360,NewYork(February25,2011)‐‐Thesurgeofglobalcartelenforcementresultingfromtheadoptionofnewandenhancedleniencyprogramsworldwideandfromincreasedcommunicationsamongglobalenforcersiswellknown.

Therearenowover100jurisdictionsthatprohibitcartelbehavior,atleast35ofwhichhaveseenrecentenhancementtotheirleniencyprograms.[1]

Nonetheless,mostinvestigationsintheheadlinescontinuetoinvolvearelativelysmallandactivegroupofjurisdictionsbecausethewidespreadpassageofanti‐cartelpolicieshasnotnecessarilytranslatedintotheirvigorousimplementation.

Theswellofanewwaveofcartelenforcement,however,hasbeguntoriseinChina,IndiaandMexico,eachofwhichisripeforincreasedcartelenforcement. MichaelFanelli

ChinaandIndia,twooftheworld’smostrobusteconomies,bothhavenascentcompetitionlaws,whichonlyhavebeguntoseeenforcement.

However,recentclarificationstoChina’sleniencyprogrammayencourageself‐reporting,andrecentjudicialdecisionsinIndiahaveloweredproceduralhurdlesforenforcers.Mexico,whichhasan

establishedcompetitionlawregime,maybeonthebrinkofchange,asproposedlegislationwouldestablishmoreserioussanctionsandprovideenforcersmoreeffectiveinvestigatorytools.

ChinaTheChineseagencieswithcartel‐relatedenforcementpowersaretheStateAdministrationofIndustryandCommerce(SAIC),whichisunderstoodtoberesponsiblefornon‐price‐relatedconduct,andthe

NationalDevelopmentandReformCommission(NDRC),whichisunderstoodtoberesponsibleforprice‐relatedconduct.[2]

Page 2: Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting

Bothenactedrules,effectiveFeb.1,2011,containingimportantclarificationstothepenaltiesthatmaybeimposedforcartelviolationsandthebenefitsthatwillbeextendedtoleniencyapplicants.

LeniencyProgram

TheAnti‐MonopolyLaw(AML)vaguelydefinedChina’sleniencyprogram,providingthat,“[w]hereanybusinessoperatorvoluntarilyreportstheconditionsofamonopolyagreementandprovidesimportantevidencetotheanti‐monopolyauthority,itmayreceiveamitigatedpunishmentorexemptionfrom

punishment.”[3]Theuseoftheword“may”suggestedthatsomediscretioncouldbeexercisedwithrespecttoadecision

tograntleniency,providingpotentialapplicantslittlecertaintyastothepossiblebenefitsofself‐reporting.Consequently,thoughtheleniencyprogramcameintoeffectin2008,ithasnotbeenperceivedtohavehadasignificanteffectonenforcement.

ThenewSAICrulesprovidegreaterclarityandpossibleincentivestoself‐report.Translationsofthenewruleshavebeenunderstoodtoprovidethatthefirstapplicanttoreportitscartelactivityonitsown

initiative“should,”ratherthan“may,”receiveanexemptionfromanypenaltyarisingfromanti‐competitiveconduct.Consequently,applicantsshouldhavegreaterconfidencethattheywillreceivethebenefitofbeingfirsttoreportandthatthedecisionwillnotbediscretionary.

Subsequentapplicants,however,continuetohavelesscertainty,astherulesprovidethatthey“may”

alsoreceiveawaivedorreducedpenaltyanddonotspecifytheamountofreductionorcriteriawhichwillbeusedbytheagency.[4]Also,althoughmonetarypenaltiesmaybewaived,theagencyisstillentitledtorecoupillegalmonopolyprofits.Thisissimilartotherestitutionobligationcontainedinother

leniencyprograms,includingtheU.S.program.[5]AlthoughtheSAICrulesprovidemorecertaintyregardingleniency,theNDRCrules,bycontrast,appear

tomaintainagencydiscretion.ThelanguageechoestheAML,statingthattheagency“may”grantexemptionsfrompenaltiestothefirstleniencyapplicantandtosubsequentapplicants.UnliketheSAICrules,theNRDCrulesfurtherdefinethebenefitsavailabletosubsequentapplicants:asecondapplicant

mayreduceitspenaltyby50percentormore,whileapplicantsthereaftermayreceiveareductionofpenaltiesbylessthan50percent.

ThenewruleshavetakenChina’sleniencyprogramseveralstepsclosertowhatmaybecomeaveryeffectiveenforcementtool.Nonetheless,thesignificantremaininguncertaintiesandlackofestablishedpracticeislikelytocontinuetodetermanyapplicantsfromparticipating.

Page 3: Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting

India

LastyearwasthefirstfullyearinwhichtheprovisionsofIndia’sCompetitionActrelatingtoanti‐competitiveagreementswereineffect,buttheinvestigatoryactivityandenforcementactionsoftheCompetitionCommissionwerelimited.[6]Apairofrecentjudicialdecisions,however,havepavedthe

wayformorevigorousenforcement.AsstatedrecentlybyaformerchairmanoftheCCI,“the[Competition]Commissionisgettingover[its]earlyteethingtroubles.”[7]

TheCCImayinitiateacartelinvestigationbasedoneitheritsowninitiativeoronthird‐partyinformation,butitmusthaveprimafacieevidenceofaviolationtoproceed.Untilrecently,CCIinvestigationshadbeenhinderedbyuncertaintyovertherightofapartytonoticeandahearingatthe

inceptionofaninvestigationandtherighttoappealsuchdecisions.InSeptember,theSupremeCourtofIndiaissuedanopinioninCompetitionCommissionofIndiav.SteelAuthorityofIndiaLtd.,[8]whichclarifiedtheseissues.

Asathresholdmatter,thecourtheldthatpartieshavenorighttonoticeandahearingpriortotheissuanceofanopinionthatthereisaprimafaciecasewarrantingadirectiontothedirectorgeneralto

openaninvestigation.[9]Thecourtalsodecidedthatneitheracommissiondecisionthatthereisaprimafaciecasenoracommissionordertoopenaninvestigationareamongthedirections,decisionsorordersimmediatelyappealabletothetribunal.[10]

Thecourtexplainedthattheactdoesnotprovidethepartiesarighttoappealadecisiontoopenaninvestigationbecausetheactintends“expeditiousdisposalofmattersbeforethecommissionandthe

tribunal”andthat“prolongedlitigationmayharmtheinterestoffreeandfairmarketandeconomy.”[11]Furthertothisend,thecourtalsoruledthatthedirectorgeneral,oncedirectedtoopenaninvestigation,mustissueareportwithin45days.[12]

Separately,inJuly2010,theSupremeCourtofIndiaalsoeffectivelyincreasedthetemporalscopeofthemattersthatmaybeaddressedundertheCompetitionActbydecliningtohearanappealofadecision

bytheBombayHighCourt.InKingfisherAirlinesLtd.v.CompetitionCommissionofIndia,[13]thehighcourtdismissedKingfisher’swritpetition,whichaskedthecourttostayaninvestigationintoitsallegedcartelactivitiesbecausesuchactivitiesarosefromanagreementoccurringbeforeenactmentoftheact.

Thecourtheldthat,althoughthecompetitionlawdoesnotapplyretroactively,itmaybeenforcedwithrespecttoactionsoccurringaftertheenactmentofthelawinfurtheranceofagreementsreached

beforethelawwentintoeffect.Thus,illegalcartelactivityafterMay2009thatisbasedonagreementsenteredintobeforeMay2009willnotbejustifiable.

Thesetwodecisionsaresignificantvictoriesforthecommissionandlikelywillenableittoinitiateinvestigationswithgreatereaseandoverabroaderscopeofconduct.Infact,inNovember2010,thecommissionissueditsfirstfine,orderingKingfisherAirlinestopay10millionrupees(roughly$220,000)

asapenaltyforfailingtosupplyinformationrequestedbythecommissioninconnectionwithaninvestigation.[14]

Page 4: Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting

Mexico

LegislativechangestoenhancetheenforcementpowersofMexico’sComisiónFederaldeCompetencia(CFC)appearimminent.SenatorEloyCantuofMexicorecentlysaidofhiscountry’sproposedantitrustreforms,“[t]hisiswhatiscolloquiallycalledgivingthe[CFC]moreteeth.”[15]

Mexico’slegislaturehasbeenconsideringthecurrentamendmentstoitscompetitionlawsinceearly2010.AlthoughmoreexpansivemeasuresthatpassedMexico’slowerhouseinAprilappeartobeoffthe

table,theSenatepassedamendmentsinDecemberthatwillbeimportantifenacted.Sanctions

TheSenatebillproposestostrengthenthecriminalpenaltiesavailabletotheCFCforanti‐competitiveconduct,includingcartel‐relatedactivities.Thebillforthefirsttimewouldmakeacompetitionlaw

violationsubjecttoincarceration—upto10yearsforindividuals.Theamendmentsalsoincreasethemaximumfine(currentlyatapproximately82millionpesosor$6.85

million)forviolationsofthelawtoasmuchas10percentoftherevenuereportedinMexicobythedivisionofthecompanyresponsiblefortheviolation.AsstatedbyCFCPresidentEduardoPerezMotta,“[h]ighersanctionsmean…companieswillthinktwicebeforecarryingon[withmonopolistic

practices].”[16]EnforcementPowers

TheSenatebillalsowouldempowertheCFCtosearchthepremisesofinvestigationtargets,thoughonlyafterprovidingnotice.Currently,theCFChasnopowertoperformdawnraids.Evidencefrom

investigationtargets,aswellasfromotherparties,isobtainedthroughrequestsbythecommissionorthroughon‐sitevisitstonon‐cooperatingparties.[17]

Thecommissionmayenforcetheserequestsbyimposingafineof1,500timesthedailywageperdayofnoncomplianceand/orafineof7,000timesthedailywageforprovidingfalseinformation.[18]Althoughtargetswouldbeprovidednoticeofthesearches,theamendmentsnonethelesswouldprovidetheCFC

animportantnewtoolingatheringevidenceagainstpotentialviolators.Theproposedreformsalsoprovideforthecreationofaspecialcompetitionlawcourt,whichisintended

tohavetheindependenceandexpertisetoquicklyandeffectivelyadjudicateappealsofCFCdecisions.Currently,violatorsmayconductprotractedappealsofnon‐monetarypenaltiesunderMexico’samparosystem,whichdelayspenaltyenforcement.[19]Thespecialcourtscreatedbythebillwillpotentially

enabletheCFCtoenforcepenaltiesmoreeasily.BeforetheSenatebillcancomeintoeffect,thelatestversionofthebillmustbeapprovedbythelower

houseandsignedbyPresidentFelipeCalderon,whooriginallyproposedthecompetitionlawamendmentinitiativetothelegislature.Approvalisnotexpectedforseveralmonths,attheearliest.

Page 5: Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting

NotonlywillincreasedenforcementinChina,IndiaandMexicohaveimportantconsequencesforthosedoingbusinessinthesecountries,butnationalenforcementwilldrivefollow‐oninvestigationsglobally

inlightofthesecountries'importantrolesinexportinggoodsandtheglobaleconomymorebroadly.And,thosemakingadecisiontopursueleniencyorcooperateanywhereelseintheworldwillneedtoconsidertheseemergingenforcementregimesintheircalculus.

‐‐ByMichaelJ.Fanelli(pictured)andKatherineSauser,Covington&BurlingLLP

MichaelFanelli([email protected])isofcounselinCovington&Burling'sWashington,D.C.,officeandtheeditorialchairmanoftheABASectionofAntitrustLawpublicationCompetitionLawsOutsidetheUnitedStates(2d.ed.2011).KatherineSauser([email protected])isanassociateinthefirm's

Washingtonoffice.Theopinionsexpressedarethoseoftheauthorsanddonotnecessarilyreflecttheviewsofthefirm,its

clients,orPortfolioMedia,publisherofLaw360.Thisarticleisforgeneralinformationpurposesandisnotintendedtobeandshouldnotbetakenaslegaladvice.

[1]“TrendsandDevelopmentsinCartelEnforcement,”presentedatthe9thAnnualICNConferenceinIstanbul,Turkey(April,292010).AsurveyofICNCartelWorkingGroupMembersreported43jurisdictionswith“increasedpenalties”forcartelenforcementinthelastdecade.

[2]Forin‐depthtreatmentoftherolesoftheagencies,seegenerally,ABASectionofAntitrustLaw,

CompetitionLawsOutsidetheUnitedStates(Second)ch.4(2011)(hereinafterCLOUS).[3]Anti‐MonopolyLawart.46.

[4]TheSAICmayalsoreduceorwaivepenaltiesforcartelparticipantsthatvoluntarilyceasetheiranti‐competitiveconduct,eitherbeforeorafterthecommencementofaninvestigation.

[5]IntheU.S.,thisobligationisoftensatisfiedthroughdamagespaidinprivatelitigation.

[6]CLOUS,ch.8,p.7.[7]KianGanz,TakingAimatCartels,AmericanLawyer.com.Jan.1,2011(quotingVinodDhall).

[8]CompetitionCommissionofIndiav.SteelAuthorityofIndiaLtd.,CivilAppealNo.7779[D.No.12247of2010],SupremeCourtofIndia,decidedSept.9,2010.

[9]Id.at18‐19.

[10]Id.at18.[11]Id.at42.

Page 6: Cartel Enforcement’s Next Wave - Covington & Burling · Cartel Enforcement’s Next Wave Law360, New York (February 25, 2011) ‐‐ The surge of global cartel enforcement resulting

[12]Id.at82.

[13]KingfisherAirlinesLtd.v.CompetitionCommissionofIndia,WritPet.No.1785of2009,HighCourtofJudicatureatBombay,decidedMarch31,2010.

[14]RosalindDonald,IndiaIssuesFirstFine,GlobalCompetitionReview,Nov.22,2010.$1=approximately45rupees.

[15]MiguelAngelGutierrezandMichaelO'Boyle,Update1‐Mexico'sSenateupsfinesforantitrustbreaches,ReutersLimited,Dec.7,2010,availableathttp://www.reuters.com/article/2010/12/08/mexico‐competition‐idUSN0710284220101208.

[16]CyntiaBarreraDiaz,Mexico'sCalderoneyestougherfinesonmonopolies,Reuters,Apr.5,2010.

[17]CLOUS,ch.12.[18]LeyFederaldeCompetenciaEconómica,arts.34‐35.

[19]ThewritofamparoisaproceduralmeasureusedtoensuredueprocessundertheMexicanConstitution.MonetarypenaltiesmaybeappealedbeforetheFederalTribunalforAdministrativeand

TaxJustice.

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