EU CARTEL PENALTIES: SEVERITY AND...

EU CARTEL PENALTIES: SEVERITY AND RECOVERY: with international comparisons

John M. Connor

Purdue University

Contact: [email protected]

September 2015 Brussels J M Connor, Purdue U.

Outline

1. DATA 3

2. DETECTION RATES 4

3. CORPORATE FINES OVERVIEW 8

4. PRIVATE RECOVERIES 21

5. SEVERITY OF PENALTIES 26

6. DAMAGES & RECOVERY 33

7. CARTEL RECIDIVISM RAMPANT 52

8. Global Cartels: THE WORST 65

AUGUST, 2015 2

1. DATA

• The following charts illustrate the global size and economic impacts of the modern international cartel movement and the enforcement responses of the world’s antitrust authorities.

• The sample is a reasonably complete list of all contemporary private international cartels discovered by jurisdictions. There are 1,057 such cartels investigated or penalized, January 1990 to August 2015.

• All monetary data are in nominal U.S. dollars.

AUGUST 2015 3

2. DETECTION RATES • International cartels are now being assaulted on

all fronts • Numbers of North American investigations

seem to have peaked during 1995-2005, but are rising elsewhere.

• U.S. & EC shares of discoveries are dropping • Increased detection rates are probably due to

more agencies and better policies. • But the total number of cartels (including

hidden ones) could be rising or falling.

AUGUST, 2015 4

Annual Rate of Cartel Detections, All Antitrust Authorities 1990-2015

0

10

20

30

40

50

60

70

80

1990-1995 1996-1999 2000-2004 2005-2009 2010-2015

AUGUST 2015 5 J M Connor, Purdue U.

Rates of Discovery of Global Cartels Rising Faster

0

2

4

6

8

10

12

1991-94 1995-99 2000-04 2005-09 2010-15

Cartels/year

8 7.2

6.4

12

1.4

“Global” cartels affected prices in two or more continents


Cumulative Number of Antitrust Jurisdictions Prosecuting International Cartels Is Climbing

0

10

20

30

40

50

60

70

1990 1995 2000 2005 2010

Nu

mb

er o

f Ju

risd

icti

on

s

Year cartel was investigated MAY 2015 7 J M Connor, Purdue U.

3. CORPORATE PENALTIES OVERVIEW

• Cartel fines and private settlements as of 2015 are $153 billion; one-third is damages recoveries.

• The historical leader in fines – the DOJ – has been overtaken by other authorities.

• Every recent President outdoes his predecessor – and himself! (2nd term higher than 1st)

• EC fines exceeded the DOJ’s after 1999.

• About 5400 companies penalized monetarily

Feb 15, 2015 8

International Cartel Fines Announced, WORLD, Annually 1990- August 2015

0

4

8

12

16

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Total $102 billion

Calendar Year First Member of Cartel Is Fined

$ b

illio

n


Intl. Cartel Fines Imposed by NCAs (EU’s National Authorities) 1989-Aug.2015

0

1

2

3

4

5

1989 1992 1995 1998 2001 2004 2007 2010 2013

Total $21.7 billion

Year of Decision

August 2015 10 J M Connor, Purdue U.

$ b

illio

ns

1990-1999: 96% of Fines Imposed by EU and US Authorities

EuropeanCommission

EU NCAs

DOJ fines

Asia, Africa,Latin Am. etc.

Feb 15, 2015 11

2010-15: NCAs’ & ROW’s Shares of Fines Grow, EU’s & DOJ’s Shrinks

EuropeanCommission

EU NCAs

DOJ fines

Asia, Africa,Latin Am. etc.

May 2015 12

Corporate Penalties Mostly Imposed by EU & US Authorities

0.1

3.8

1.2

1.6

5.6

27.2

54.2

Oceana

Lat. America

Other Europe

Africa

Asia

US & Canada

EU (EC & NCAs)

$ Billion

Note: European international cartelists account for 55% of the total.

May 2015 13 J M Connor, Purdue U.

Corporate Penalties Are Mostly Imposed on EU & U.S. Companies

0.4

2.1

0.7

1.4

26.3

48.5

71.1

Oceana

Lat. America

Other Europe

Africa

Asia

US & Canada

W. Europe

$ Billion

Location of headquarters of company or its ultimate parent group.


Number of Corporate Cartelists Penalized, Proportions by Regions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990-94 1995-99 2000-04 2005-09 2010-15

ROW

EU NCAs

EC

USA &Canada

July 2015

Number of International Cartels Fined by U.S., 1990- August 2015

0

5

10

15

20

25

1990 1994 1998 2002 2006 2010 2014

Cartels

Total 190

Amnesty Program


Calendar Year First Cartelist Guilty

Vitamins

36 Auto Parts 2012-2014

Number of Cartels Fined by EC Is Similar to U.S., 1990-Aug. 2015

0

5

10

15

20

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Total 181

Year of Decision

Nu

mb

er

of

Dec

isio

ns


8 vitamins

Leniency Program

905 Intl. Cartels Punished: U.S. & EC Share of the World

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990-99 2000-04 2005-09 2010-15

ROW

US & EC

August 2015

Announced Cartel Fines, 1990-2014, U.S. GOVT., Annual Average, by President

0.0

2.0

4.0

6.0

8.0

Bush1 Clinton1 Clinton2 Bush2-1 Bush2-2 Obama1 Obama2

Total $28 billion


$ b

illio

n


4. PRIVATE RECOVERIES from Cartels

• Private suits recovered $51.5 billion for plaintiffs 1990-2015, one-third of penalties.

• 90% of settlements adjudicated in U.S.

• Amounts show time trend peaked 2008, and share of all penalties falling US & worldwide.

• All US criminal convictions have follow-on suits, but only half of all us suits are follow-on.

Feb 15, 2015 20

Value of Private Recoveries in the US Rising Unevenly

0

2

4

6

8

10

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

$ billion

←Bank Cards 2

Bank Cards 1 →

Bank Cards 3

Year First Company Settles (Zero Years Omitted)

August 2015 J M Connor, Purdue U. 21

Trend Line of US Private Recoveries Shows Downturn after 2008

R² = 0.1397

0

2

4

6

8

10

12

1995 2000 2005 2010 2015

$ billion

Poly. ($ billion)

Year First Company Settles (Zero Years Omitted)

August 2015 J M Connor, Purdue U. 22

U.S. Private Actions on International Cartels (1990-2010)

0%

10%

20%

30%

40%

50%

60%

Follow-on US Fines Follow-on non-USFines

Non-Follow-on

Number

Feb 15, 2015 23

U.S. Private Actions on International Cartels (1990-2010)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Follow-on US Fines Follow-on non-USFines

Non-Follow-on

Amounts

Feb 15, 2015 24

Counting Private Settlements, after 1997 US Total Sanctions Exceed EU’s

0

10

20

30

40

50

60

701

98

6

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Cu

mu

lati

ve $

bill

ion

Year Cartel Sanctioned


US Total $72 billion EU Total $55 billion

5. SEVERITY OF PENALTIES

• SEVERITY = PENALTIES/AFFECTED SALES

• Getting properly defined sales from public sources is often problematic, but better than nothing.

• EC Decisions often reveal EEA affected sales for one year, which can be adjusted for collusive period. Sometimes suppressed for confidentiality.

• Final EC Decisions using 2006 Guidelines usually allow reverse-engineered sales if one of three pieces of information is not suppressed.

• Ratios are highly skewed

Feb 15, 2015 26

Mean Severity of Penalties on International Cartels, 1990-2015

12

30

16 16 15 16

21

0

5

10

15

20

25

30

35

EC EU NCAs US Canada OtherNations

PrivateNo. Am.

World

Pen

alti

es/A

ffec

ted

Sal

es (

%)

July 2015 27

Mean Severity of EC Cartel Penalties

0

4

8

12

16

1990-94 1995-99 2000-2004 2005-2009 2010-15

Mean 12.4%

Ave

rage

Pen

alty

Sev

erit

y %

Year Cartel Decision


Mean of Annual Average Severities of EC Cartel Fines, by Commissioner

0

2

4

6

8

Monti Kroes Almunia

Ave

rage

Pen

alty

Sev

erit

y %

Year of Cartel Decision


Mean & Median Severities of Cartel Fines, by Commissioner, 2006 Guidelines Only

0

2

4

6

8

10

12

14

16

18

Kroes Almunia

Ave

rage

Pen

alty

Sev

erit

y %

Year of Cartel Decision


Mean Severity of U.S. Cartel Fines

0

5

10

15

20

25

30

35

1990-94 1995-99 2000-2004 2005-2009 2010-15

Mean 16.4%

Ave

rage

Fin

e Se

veri

ty %

Year First Cartelist Convicted


Mean Severity of All U.S. Cartel Penalties

0

10

20

30

40

50

1990-94 1995-99 2000-2004 2005-2009 2010-15

←Vitamins

Will Rise

Mean 27.9%

Ave

rage

Pen

alty

Sev

erit

y %

Year First Cartelist Convicted


6. DAMAGES & RECOVERY

• Customer damages=Overcharge + Deadweight loss

• DWL data rare; approx. 3% to 20% of overcharges

• EU cartel overcharges projected to be $1.25 trillion, from discovered cartels only

• No region has median Recovery Ratio > 100%.

• The highest ratio in the world is 90% for U.S. public and private sanctions combined 1990-2015.

• U.S. fine severity falling because (1) Affected Sales exploding & (2) Structural shift towards high-profit sectors

Feb 15, 2015 33

Median Percentage Overcharges Varies by Industry Type

0

5

10

15

20

25

30

35

40

Feb 15, 2015 34

Median Average Overcharges by Geographic Location of Pricing

0

5

10

15

20

25

30

35

SingleNations, W.

Europe

Africa, Lat.America, & E.

Europe

Asia andOceania

USA andCanada

MultipleNations, W.

Europe

Global

Percent

Feb 2015

Median Average Overcharges from Antitrust Authorities‘ Decisions

0

5

10

15

20

25

SingleNations, W.

Europe

USA andCanada

Asia andOceania

Africa, Lat.America, E.

Europe

EuropeanCommission

AllAuthorities

Percent

Trend in Affected Sales/Cartel: Convicted Cartels in the US

R² = 0.4577

0

5

10

15

20

1990 1995 2000 2005 2010 2015

$ billion

Expon. ($billion)←Vitamins

Copper

Year First Company Fined (Zero Years Omitted)

May 2015 J M Connor, Purdue U. 37

Municipal Derivatives

Trend in EU Annual Affected Sales/Cartel, EC-Convicted Cartels

R² = 0.4489

05

101520253035404550556065

1990 1995 2000 2005 2010 2015

$billion/c…

Year Fines Imposed

May 2015 J M Connor, Purdue U. 38

US Median Overcharges, Severity, and Recovery Ratio

0

10

20

30

40

50

60

70

80

90

100

Overcharges Severity Recovery

Percent

Feb 15, 2015 39

Note: A 100% ratio means full disgorgement of profits.

EC Median Overcharges, Severity, and Recovery Ratio (1990-2015)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0


Percent

Feb 15, 2015 40

Note: A 100% ratio means full disgorgement of profits.

Changes in US Recovery (Total Penalties/Damages Ratio)

0

10

20

30

40

50

60

70

80

90

100

1990-1999 2000-2010

Percent

Feb 15, 2015 41

Note: Penalties from all jurisdictions

Changes in EU Recovery (Applying 2006 Fining Guidelines only)

0

10

20

30

40

50

60

70

80

90

100

Kroes Almunia

Percent

Feb 15, 2015 42

Projected Total Damages by Region of Jurisdiction

0.0000

0.2000

0.4000

0.6000

0.8000

1.0000

1.2000

1.4000

EU USA Canada ROW

ProjectedDamages

World $2.6 trillion

Feb 15, 2015 43

7. CARTEL RECIDIVISM RAMPANT

• From a global perspective, my research shows more than 600 corporate serial price fixers (but few convicted individuals, if any)

• Scores of same market/same nation cases

• Many are sequential, but overlapping in time (may not meet the start/stop/start criterion for strict legal recidivism)

• Some are cross-jurisdictional violations

• 70+ companies with 10+ violations 1990-2015

TOP CARTEL RECIDIVISTS of 51 in U.S.

• Hitachi/DKB Group: Optical Disc Drives, LCD Panels, 4 Auto Parts

• Mitsubishi Group: Carbon Fiber, Fax Paper, Auto Shipping, Graphite Electrodes

• Mitsui Group: Carbon Fiber, Fax Paper, Auto Shipping, Intl Freight

• Bayer: Citric acid, Rubber Chemicals, NBR, Polyols

• BASF: Lysine, 7 vitamins, MSG

• UBS: Municipal Derivatives, LIBOR, FOREX

Global Cartels: The Worst of the Worse

• Global cartels: the world is their oyster

• Highest affected sales, highest overcharges, longest duration => greatest injuries

• Yet longest investigations result in lowest severity of penalties

Feb 15, 2015 46

Duration of Contemporary Global Cartels (1990-2015?):

Duration Is Rising

R² = 0.1108

R² = 0.1638

0.0

1.0

2.0

3.0

4.0

5.0

1994 2004 2014

LN(M

ON

THS)

Year Cartel Episode Ended (all observations)

Months

Linear(Months)Poly.(Months)

Feb 15, 2015 47 J M Connor, Purdue U.

Median Length of All Governments’ Investigations of Global Cartels Relatively Slow

0

10

20

30

40

50

60

1990-99 2000-04 2005-09 2010-15

MAY 2015 48 J M Connor, Purdue U.

Mo

nth

s

Global Cartels’ Overcharges, Severity, and Recovery (Penalties/Damages Ratio)

0

10

20

30

40

50

60

70

80

90

100


Percent

Feb 15, 2015 49

Note: Penalties from all jurisdictions

Severity of Penalties on Global Cartels Higher than Local, Except US Fines

0

10

20

30

40

50

60

70

EC US Other Govt. Private World

GlobalMedian

LocalMedian

Pen

alti

es/A

ffec

ted

Sal

es (

%)

Note: Penalties are skewed, so the median is the more meaningful measure Feb 15, 2015 50

IT IS TIME TO HARMONIZE INTERNATIONAL ENFORCEMENT

• The EC and EU Courts are rapidly moving toward criminal-law standards in cartel procedures. More deference needed. (Already happening in U.S. courts in class actions?)

• Recent bank prosecutions show need to develop cross-border prosecutorial task forces for vast global conspiracies

• More seamless cooperation for extradition of cartel managers

• Time to recognize the validity of foreign convictions for recidivism fine enhancements

APPENDIX

• Extra & unused slides

Extra Slides by Category

1. Introduction 3

2. DETECTION 4

3. CORPORATE FINES OVERVIEW 8

4. PRIVATE RECOVERIES 21

5. SEVERITY OF PENALTIES 32

6. DAMAGES & DETERRENCE 49

7. CARTEL RECIDIVISM RAMPANT 52

8. Global Cartels: THE WORST 65

AUGUST, 2015 53

Annual Rates of Discovery of Cartels Worldwide Are Rising over Time

0

10

20

30

40

50

60

70

80

1990-1999 2000-2009 2010-2015

Cartels/Year

15

79

48


Annual Rate of Cartel Detections by the US DOJ, 1990-2015

0

2

4

6

8

10

12

Before 1995 1995-99 2000-04 2005-09 2010-15


U.S. Share of Cartel Detections, All Antitrust Authorities 1990-2015

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1990-1995 1996-1999 2000-2004 2005-2009 2010-2015


Median Number of Companies: North American-Convicted Cartels

0

2

4

6

Before 1995 1995-99 2000-04 2005-09 2010-15

Ave

rage

Nu

mb

er

of

corp

ora

tio

ns/

cart

el

Year Cartel Discovered


Bid Rigging Supports Cartels with Higher Average Numbers of Firms

0

2

4

6

8

10

12

Bid-Rigging Classic

Mean No.

International Cartel Fines Announced, U.S. GOVERNMENT, Annually 1990-2014

0

2

4

6

8

19

90

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Total $28 billion


$ b

illio

n

July 2015 59 J M Connor, Purdue U.

International Cartel Fines Announced, U.S. GOVERNMENT, $2014, 1990-2014

0

2

4

6

8

19

90

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Total $30.6 billion


$ b

illio

n


DOJ Cartel Fines Obtained vs. U.S. Govt. Fines Announced, 2000-2014

0.0

2.0

4.0

6.0

8.0

Total $25.9 billion

Calendar Year or Fiscal Year

$ b

illio

n n

om

inal


Total $8.6 billion

International Cartel Fines Announced, All Governments, Annually 1990-2014

0.000

5.000

10.000

15.000

20.000

25.000

30.000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Total $98 billion


$ b

illio

n


Record Cartel Fines, U.S. GOVERNMENT, 1990-2015

0.0

0.5

1.0

1.5

2.01

99

0

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15


$ b

illio

n


Record Cartel Fines’ Trend, U.S. GOVERNMENT, 1990-2025

R² = 0.8538

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1990 1994 1998 2002 2006 2010 2014 2018 2022

Year

MO

NTH

S P

ER P

ERSO

N p

a


Number of Corporate Defendants, International Cartels, U.S., 1990-2015

0

10

20

30

40

50

60

70

80

90

100

1990 1993 1996 1999 2002 2005 2008 2011 2014

Firms

Total 694

Airlines


Calendar Year

Price-Fixing Penalties Imposed: The Division’s Share of All U.S. Govt.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990-99 2000-04 2005-09 2010-15

Other U.S.

DOJ

Cartel Fines: U.S. Share of the World

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990-99 2000-04 2005-09 2010-15

ROW

US

Average year authorities announced fine(s) May 2015

U.S. PENALTY ENHANCEMENTS NEED TO BE MORE PRECISE & CONSISTENT • U.S. DOJ denies the existence of a single recidivist

cartel defendant 1997-present! • The USSGs are vague on the definition, time,

geography, and size of fine enhancement. • Adopt the EU’s “ultimate parent” rule • Time to loosen the strict, extra-judicial definition

of U.S. recidivism and count previous violations in state, non-U.S. courts back more than 10 years

• Will result in more severe penalties, as occurred in EU after 2006 Guidelines adopted

Proportion of U.S. Govt. Fines from Non-U.S. Corporations, 1990-2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

% Non-US among All Intl. Cartel fines


Calendar Year First Member Fined

LIBOR Cartel: Penalties Imposed by Multiple Governments

0

0.5

1

1.5

2

2.5

DeutscheBank

UBS Rabobank RBS Lloyds Barclays

OtherGovt

UK FCA

OtherU.S.

DOJ

Total $6.2 billion

$ b

illio

n


Proportion of U.S. Govt. Fines from Non-U.S. Corporations, 1990-2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

% Non-US among All Intl. Cartel fines


Calendar Year First Member Fined

International Cartel Fines Imposed, EC and DOJ Trends, Annual 1990-2015

R² = 0.6615

R² = 0.5621

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1990 1995 2000 2005 2010 2015 2020

EC $bil.

DOJ $bil.

Poly. (EC $bil.)

Poly. (DOJ $bil.)

Feb 15, 2015 J M Connor, Purdue U. 72

Calendar Year

Cumulative Government Penalties Imposed: after 2000, EU Pulls Ahead of US

0.00

10.00

20.00

30.00

40.00

50.00

60.00

1986 1992 1996 2000 2004 2008 2012

$ B

illio

n

Year Cartel Sanctioned


EU total $55 billion US total $32 billion

U.S. and EU Cumulative Cartel Penalties, 1986-2014

0

10

20

30

40

50

60

70

1986 1990 1994 1998 2002 2006 2010 2014

EC + NCAs

US Govt+PVT

U.S. and EU Cumulative Cartel Penalties, Projections to 2020

R² = 0.9961

R² = 0.9843

0

20

40

60

80

100

120

1986 1990 1994 1998 2002 2006 2010 2014

EC + NCAs

US Govt+PVT

Poly. (EC +NCAs)

Poly. (USGovt+PVT)

TREND in LENGTH of Median Investigation, US DOJ, 1990-2015

18.7

32.7

20.5 22.9

0

5

10

15

20

25

30

35

1990-99 2000-04 2005-09 2010-15

Mo

nth

s

Understates length because termination is year the first cartelist was fined May 2015 76

Trend: Corporate Cartelists Penalized, Number, by Region of Jurisdictions

0

500

1000

1500

2000

2500

1990-94 1995-99 2000-04 2005-09 2010-15

ROW

EU NCAs

EC

USA &Canada

July 2015 J M Connor, Purdue U. 77

Year First Cartel Participant Fined

Trends in Severity of Cartel Fines: US DOJ Falls, EC Rises

R² = 0.0831

R² = 0.0518

0

10

20

30

40

50

60

70

80

90

100

1990 1994 1998 2002 2006 2010 2014 2018

US Severity

EC Severity

Expon. (USSeverity)

Expon. (ECSeverity)

Fin

es/S

ales

%


EU CARTEL PENALTIES: SEVERITY AND...

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