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"Within the past 10 years, there has been a proliferation of cartel enforcement aroung the world," a lawyer says.
Karen M. Kroll, CFO Magazine
August 24, 2006
Not only may companies implicated in price-fixing schemes have to pay hefty fines, they may have to pay them twice, if not more.
In May, the European Court of Justice, an appeals court for the European Union, upheld a fine of €43.9 million ($55.5 million) imposed on Decatur, Ill.-based Archer Daniels Midland. The fine was in response to the agricultural company's attempts to fix the price of lysine, an ingredient in animal feed, in the mid-1990s.
The court dismissed ADM's claim that it was being punished twice for the same crime. That claim stemmed from the fact that the fine, originally levied by the European Commission, was imposed on top of $100 million ADM had already paid to U.S. authorities. But in the court's view, because the price-fixing case affected both U.S. and European markets, the commission was right to levy a fine for the damage done in Europe.
On a broader scale, the ruling highlights the growing willingness of governments to prosecute price-fixing schemes. "Within the past 10 years, there has been a proliferation of cartel enforcement around the world," says Ray Hartwell, antitrust partner with Hunton & Williams LLP. For example, earlier this year, both the European Commission and the U.S. Department of Justice began investigating about a dozen airlines, including British Airways, Japan Airlines, and Air France, looking for evidence of price-fixing within the companies' air-cargo businesses. Four airlines have subsequently been sued for alleged price fixing on passenger flights. Elsewhere, countries such as Australia are seeking to introduce criminal penalties and even jail time for cartel conduct.
In addition to being seen as aggressively guarding their markets, regulatory agencies want their piece of the pie. Fines levied for various price-fixing and related anticompetitive behavior can run millions of dollars, with those imposed in the United States and the EU often larger, since they are calculated based on the volume of affected sales, says Hartwell.
Given the willingness of regulators to prosecute price-fixing, companies could end up paying fines out of proportion to the impact of their actual actions, says J. Mark Gidley, chair of the global competition practice at White & Case LLP. And short of not being involved in price-fixing at all, companies need to take the risk of fines from multiple governments seriously.
"It's a new world," says Joshua Newberg, associate professor at the University of Maryland. "More countries are getting into the act of competition enforcement."