Fines are integral to EU cartel enforcement and subject to careful methodology and review. The European Commission (“EC”) determines cartel fines in accordance with the Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 (the “Fining Guidelines”). The Fining Guidelines set the value of sales of goods or services to which the infringement relates as the proxy that forms the basis of the fine calculation. The value of sales, together with the duration of the infringement, is considered “an appropriate proxy to reflect the economic importance of the infringement as well as the relative weight of each undertaking in the infringement”.
The proportion of the sales value taken into account will depend on the degree of gravity of the infringement, multiplied by the number of years of the infringement, and will be set at a level of up to 30%. However, point 37 of the Fining Guidelines enables the EC to depart from the usual methodology where the peculiarities of the case, or the need to achieve a deterrent effect so require.
Implemented in 2006, the Fining Guidelines have since come of age and in recent cases – mostly in the financial services industry – the EC has started to apply point 37 to accommodate increasingly complex infringements and sectors, rather than as an instrument to wriggle it out of the occasional fining impasse. Does this mean the Fining Guidelines are ripe for an overhaul? Or can the use of point 37 cater for all situations in which the standard methodology falls short?
Deviations from the Fining Guidelines in recent cartel cases
Indeed, a number of recent cases show that the general principles contained within the Fining Guidelines may not always provide a suitable methodology for the calculation of fines.
In the Euro Interest Rate Derivatives cartel, the participants did not generate sales in the conventional sense that would provide a suitable proxy. The EC instead took as the basis for its calculation the value of cash flows that each bank received from its EIRD portfolio with EEA-located counter-parties. The EC further took into account the value of sales during the months corresponding to each party’s participation in the cartel, instead of the value of sales during the last business year of the parties’ involvement. Finally, the Commission discounted the base fines to take into account the particularities of the EIRD market. Determining that the application of a conventional discount factor would have incurred an over-deterrent effect, the EC stressed that it “is not required to apply a precise mathematical formula and has a margin of discretion when determining the amount of each fine”.
In the Yen Interest Rates Derivatives cartel, which was facilitated by the inter-dealer broker ICAP, the Fining Guidelines provided only limited guidance. After all, facilitators do not operate on the market on which the cartel activity takes place, and as such do not achieve sales by their participation in a cartel. The EC considered that setting the brokerage fees as a proxy for the fine calculation did not appropriately reflect the gravity and nature of ICAP’s participation in the infringement, thus departing from the conventional calculation methodology. The General Court ( “GC”), later supported by the European Court of Justice (“ECJ”), subsequently annulled the decision with regard to ICAP in Icap v Commission, finding that it did not “provide the minimum information which might have made it possible to understand and ascertain the relevance and weighting of the factors taken into consideration”. In other words, the GC annulled the decision with regard to ICAP, not for faulty methodology in calculating the fine, but for not having set out any understandable methodology at all.
Deviations from the standard fining methodology have also occurred in less complex markets. For example, in Car Battery Recycling, the parties had participated in a cartel for the purchase of scrap lead-acid automotive batteries, thereby pushing down the price of purchases rather than increasing the price of sales. Unable to use the value of sales as a proxy, the Commission was required to deviate from standard fining methodology and instead used as a proxy the value of purchases. Noting that it had drafted the Fining Guidelines “with sales cartels in mind”, the EC considered that following the general methodology of the Fining Guidelines would not achieve a sufficiently deterrent effect. Given that the purpose of the cartel was to decrease the purchase price paid by the cartelists, the EC also noted that using the actual purchase price as the starting amount would unfairly benefit the cartelists. The EC therefore increased the basic amount of the fine by 10%, pursuant to point 37 of the Fining Guidelines.
Re-fining the method?
The Fining Guidelines provide for the adaptation of the fining methodology where necessary. The GC and ECJ have both repeatedly confirmed the EC’s leeway in deviating from the Fining Guidelines, as long as the reasons for the deviation and the fine calculation are set out transparently. Recent decisions raise the question whether the current Fining Guidelines display signs of obsolescence, or whether the EC has found a pragmatic way of applying the Fining Guidelines in scenarios where new fact patterns have emerged that weren’t quite envisaged when the Guidelines were devised over a decade ago .
Fining issues related to complex products in the financial sector – where disproportional cartelization persists – may remain a peculiar phenomenon, but also one where a methodological fix remains wanting. It will be interesting to see in this regard how the EC calculated the fines in the most recent FOREX decision, not yet published, where it fined Barclays, RBS, Citigoup, JPMorgan and MUFG a total of € 1.07 billion for their participation in a cartel in the foreign exchange spot trading market.
Whether future cases in other sectors will display similar calculation challenges remains to be seen. However, explicitly catering for specific sectors or fact patterns within the Fining Guidelines would put its general applicability at risk. It would appear that point 37 has proven to be a useful instrument to accommodate very specific circumstances – but the ECJ will need to remain vigilant and ensure that it does not turn into a free pass for the EC to apply excessive fines in situations suitable for the standard fining methodology.
A possible case to watch might be the Car Emissions investigation where, instead of the sale of products, the parties are alleged to have coordinated on restricting innovation. If the investigation finds one or more specific categories of vehicles that would have benefitted from the technology, sales of those cars could be used as a proxy. But if the technology (and subsequent innovation) was not earmarked for specific vehicles, how does one calculate a fine for products not yet developed?