GCLC Luncheon Talk “International Cartel Enforcement” by W.J. Kolasky

1. GCLC Luncheon Talk“International Cartel Enforcement” by W.J. Kolasky Comments by Onno W. Brouwer, Freshfields Bruckhaus Deringer 29 September 2004, Brussels

2. CONTENTS 1. Extensive doctrine and debate on optimal enforcement and sanctions at both sides of the Atlantic 2. Enforcement instruments: optimising social welfare (Shavell) 3. What is the optimal choice/balance? 4. The case for introducing individual penalties in antitrust law 5. Possible individual sanctions 6. The case for imprisonment 7. Issues that need to be considered (technical and fundamental) 8. Conclusion

3. 1. Extensive doctrine and debate on optimal enforcement and sanctions at both sides of the Atlantic • G. Becker, “Crime and Punishment and Economic Approach” (1968) • G.J. Stigler, “The Optimum Enforcement of Laws” (1970) • R.A. Posner, “Optimal Sentences for White-Collar Criminals” (1980) • S. Shavell, “The Optimal Structure of Law Enforcement” (1993) • A.M. Polinsky and S. Shavell, “Should Employees be Subject to Fines and Imprisonment Given the Existence of Corporate Liability?” (1993) • Hammond and Penrose, “Proposed Criminalisation of Cartels in the UK” (2001) • W.P.J. Wils, “The Optimal Enforcement of EC Anti-Trust Law (2002) • OECD Competition Committee discussion on sanctions against individuals, including criminal sanctions, in prosecuting cartels (October 2003)

4. 2. Enforcement instruments: optimising social welfare (Shavell) • Three dimensions: • Timing (prevention or ex post intervention) • Form of sanction (monetary or non monetary) • Balancing private and public enforcement

5. 3. What is the optimal choice/balance? • Measuring social welfare is complex, many considerations such as • Aim of punishment (optimal deterrence or retributive) • Costs of enforcement (identifying parties, cost of proceedings, cost of sanctions, etc.) • Court cases are often brought irrespective of social benefits or efficiency • Judiciary and criminal sanctions play crucial role in other areas (counterfeit, euthanasia, biotechnology, etc.); priorities must be set

6. 4. The case for introducing individual penalties in antitrust law • Corporate sanctions cannot bring about effective deterrence (legal ceilings, inability to pay, imposition and collection costly, objections of proportional justice, do not guarantee adequate incentives for individuals within the firm) • Authorities can threaten more serious sanctions (e.g. in case of management-controlled companies or in case of managers who have left the company) • Provide resistance to corporate pressure to break the law • Strengthen normative commitment (moral commitment to the law) • Must be combined with corporate sanctions for several reasons

7. 5. Possible individual sanctions • Individual fines and/or compensation • Publicity • Disqualification orders • Imprisonment

8. 6. The case for imprisonment • Inability to pay fines • Risk of compensation by company • Imprisonment most effective deterrent • Should not be withheld from those with economic power and social status (distributive justice) • Publicity unlikely to have comparably strong effect? • Disqualification orders less effective because of possibility for indemnification or circumvention?

9. 7. Issues that need to be considered (technical and fundamental) a.    Europe's tradition of administrative enforcement • Certain Member States have introduced criminal sanctions for certain antitrust behaviour (F, IE, I, A, UK, G) • However insufficient support for criminal sanctions in many European Member States • Tradition of administrative enforcement • Doubts as to the effectiveness of criminal enforcement (debate of many of the abovementioned issues and question whether priority should be given to improving possibilities of private enforcement, e.g. UK Hammond/Penrose Report, discussion OECD) • Explore possibilities of using existing criminal law provisions (Germany, Netherlands, etc.) b.    Introduction of criminal sanctions top down by Community remains controversial • Sufficient legal basis for criminal sanctions? (Article 83 EC; Article 308 EC?) • E.g. recent discussion in the Netherlands (Community should not impede on key characteristics of Dutch criminal system and so-called opportunity principle in the prosecution of criminal offences

10. 7. Issues that need to be considered (technical and fundamental) c.    All-in-one enforcement systems may become untenable • Both at European level and in various Member States currently administrative authority investigates, prosecutes and imposes sanctions • This all-in-one enforcement has often been challenged from human rights and good governance angles (e.g. F. Montag, The case for radical reform of the violation procedure under Reg. 17 (1997); D. Waelbroeck and D. Fosselard, Should the decision-making power in EC antitrust procedures be left to an independent judge • The impact of the European Convention of Human Rights on EC antitrust procedures (1994) • Article 5(1)(a) ECHR requires 'the lawful detention of a person after conviction by competent court‘ • What role would the European Courts play (CFI) and are they equipped to play this role? • What roles can national prosecutors and courts play? • Prosecutors and courts at national level: equipped and sufficient capacity? • Insufficient safeguards in EC Treaty for proper legal process in criminal cases (view European Commission in OECD debate)

11. 7. Issues that need to be considered (technical and fundamental) d.    Issues concerning the exchange of information • Simultaneous administrative, civil and criminal regimes of enforcement require strong safeguards as regards use and exchange of information (information gateways and information blockades between various regimes need to be established; same applies to exchange of information between competition authorities. Much stronger safeguards needed against misuse of information) • Appropriate sequence: administrative inquiries first followed by possible criminal proceedings e.    Impact on effectiveness of leniency regimes • Conflict of interest between companies and individuals may undermine effectiveness of (corporate) leniency regimes, in absence of adequate rules • Compatibility of leniency schemes and criminal sanctions must be ensured (e.g. leniency applications could lead to criminal prosecution of (ex) employees by national authorities as a result of information exchange within ENC; prosecuting authority bound by grant of immunity by competition authority)

12. 7. Issues that need to be considered (technical and fundamental) f.   should priority be given to improving private enforcement within the EU? • Is level of private enforcement relevant? • Current initiatives at EU and national level (envisaged EU Green Book on private enforcement; UK CAT procedure for damages; Sweden 'opt-in' class actions; German reform facilitating private enforcement; review in the Netherlands)

13. 8. Conclusion • EU and Member States may move to individual criminal sanctions • Thorough debate necessary as to feasibility and effectiveness of introducing criminal sanctions • Question how to meet the safeguards required by the ECHR and the EU Charter of fundamental rights