After the bonanza of the last few years, the last year has seen the flow of merger control work for Europe’s competition practitioners slow to a trickle. “2009 has been a very weak period for merger control work, as you’d expect,” says Carlos Botelho Moniz of Portugal’s Morais Leitão, Galvão Teles, Soares da Silva & Associados.
However there is good news, too, for Europe’s competition laywers. The last two years have seen an uptick in enforcement activity that has, many practitioners say, more than made up for the downturn in advisory work. “Not all kinds of work are affected by the crisis,” says Joseph Vogel of French competition specialist firm Vogel & Vogel. “Competition authorities have their own objectives, and many have set out to increase their enforcement activity.”
Media attention tends to focus on the major investigations carried out by the European Commission – and the associated mega-fines, such as the record-breaking €1.06 billion fine applied to Intel in May for abusing its dominant market position. But it is national competition regulators which are driving the growth in enforcement work across Europe. “Since the end of last year the regulator seems to have more time to work on investigations that had been planned for several months,” says Juerg Borer of Switzerland’s Schellenberg Wittmer.
In Romania, for example, the national Competition Authority is undertaking a wide-ranging review of competition in key economic sectors that is expected to trigger a range of investigations. “Our schedule for enforcement work is booked for the next six months,” says one Romanian practitioner.
The surge in regulator activity is partly the result of recent reforms. Across Europe, new competition regimes – and in some cases new regulators – have been put into place in recent years. Now these new regimes are starting to come into their own, providing a lifeline for competition lawyers. In Spain, for example, a new competition authority was formed in 2007. The competition office within the Ministry of the Economy, which assessed complaints and mergers, was merged with the independent Tribunal, which took decisions on referral. The new regulator is known as the National Competition Commission.
“It was intended to modernise the competition regime and bring us into line with Europe,” says Andrew Ward, a partner at Cuatrecasas in Madrid. “But it was also felt that a single regulator could devote more time and resources to prosecuting serious problems.”
Similarly, Sweden introduced a new competition legal framework in 2008. Even France, long seen as a relatively soft touch on competition, has tightened up its regime in recent years with higher fines and a lengthening of the time allowed for the French competition authority to investigate abuses. “The authority now has more case-handlers than ever before, and more powers to investigate independently without relying on government support,” explains Louis Vogel.
The spread of leniency programmes
Perhaps the most significant innovation has been the introduction, first at EU level and then across Europe’s national regulators, of leniency schemes. Leniency – whereby competition regulators allow partial or full immunity from fines to cartel members who provide evidence to help the authority’s investigation – began in the US in the 1970s before being initially implemented by the EU in 1996, with reforms in 2002 and 2006.
Beginning with France in 2001, schemes began to be introduced at national level, with momentum growing in recent years: Portugal and Austria introduced schemes in 2006; Spain followed in 2008. Poland and Romania introduced schemes on their accessions to the EU in 2004 and 2007 respectively. Non-EU European countries, too, have introduced schemes, including Switzerland and Norway in 2004, and Russia in 2006.
Leniency schemes help competition authorities overcome the ‘club effect’ that makes cartels notoriously hard to detect. “Leniency has had an important effect on the investigation of cartels,” says Andrew Ward of Cuatrecasas. “Before, everyone in a cartel would naturally defend each other. Now everyone has an incentive to provide evidence on everyone else.”
Crucially, full immunity from fines is only available to the first member of a cartel to inform. This has created an unseemly rush to file in some jurisdictions: when Spain’s scheme went into force on 1 February 2008, company representatives queued up overnight outside the competition authority to be sure they filed before fellow cartel members.
Leniency schemes have transformed cartel enforcement. At the EU level, several mammoth investigations have begun with leniency applications. The €60.3 million fine issued in October 2008 against four fruit importers for operating a banana cartel stemmed from a leniency application by Chiquita, who accordingly received no fine. And the biggest ever EU cartel fine – a total of €1.4 billion levied against four glass manufacturers in November 2008 – saw Japan’s Asahi receive a 50% reduction in fines for co-operating once the investigation had begun.
But at national level, too, leniency is proving a vital tool in many jurisdictions. Austria, for example, has seen two major cartel cases this year, both begun by leniency applications. In Spain, the rush of initial applications – six in the first week – prompted a spate of dawn raids in early summer. “Leniency has proven to be a valuable source of information for the competition authorities,” says Jaime Folguera, a competition partner at Uría Menendez.
What’s more, the breaking of trust between cartel members has an added benefit for laywers. “Before, cartel members who were being investigated usually all hired the same counsel to provide a co-ordinated defence,” says Andrew Ward. “Now the incentives are to report one another, they all hire different law firms!”
Slow starts
But while leniency has taken off rapidly in some jurisdictions, it has proven a damp squib so far in others. “The leniency scheme in Portugal has not been successful,” says Carlos Botelho Moniz of Morais Leitao, Galvao Teles, Soares Da Silva & Associados. The scheme has yet to generate any completed investigations. “The problem is a cultural one. People aren’t keen to go to the authority and report other companies.”
Resistance to the ‘telling tales’ aspect of leniency is strongest in smaller European countries with close-knit business communities. In Ireland, for example. “Technically we do have a leniency scheme, but I’m not aware of anyone having availed themselves of it successfully,” says Helen Kelly of Matheson Ormsby Prentice. “People in the business world know each other. They’re reluctant to squeal on people they saw that morning dropping their kids of at school.”
This resistance is deeper in those European countries with an authoritarian past. “There is a generation in Spain – still in charge of many businesses – who remember the days of the dictatorship, when collaborating with the authorities was something bad,” points out Oriol Armengol of Perez-Llorca.
In jurisdictions with a strong history of competition enforcement, fear of prosecution will usually overturn natural resistance. “From the time when leniency was first introduced at EU level, many clients were reluctant to accept the idea,” says one Spanish practitioner. “They said: ‘You’re my lawyers. You’re supposed to defend me. Now you’re telling me to go running to Brussels and give them evidence against me?’” But by the time the country’s own leniency programme was introduced in 2008 – making Spain one of the last EU countries to implement a scheme – these concerns had begun to fade. “Most managers now see this as a normal part of dealing with the authorities.”