PENALTIES: companies facing substantial fines as commission tightens rules to deter crime

The European Commission hardened its stance against cartels last week, lawyers warned, as it released new tough guidelines on the fines it can impose.


The new rules will inflict much heavier penalties on repeat offenders and will mean companies face substantial fines for the mere fact of entering into a cartel, however briefly.


Under the guidelines, the basic amount of the fine will be increased. For the first time, it will take into account a percentage of the value of sales relating to the infringement - up to 30% - which will be multiplied by the number of years' participation in the cartel.


In addition, the commission has introduced an 'entry fee' of 15 to 25% of the company's annual sales in the market sector covered by the cartel. The fee will be triggered if a company enters into a horizontal price-fixing, market sharing or output limitation agreement, regardless of the length of time it participated.


Repeat offenders will have their fines increased by as much as 100% for each of their previous infringements, with decisions made by national competition authorities now taken into account.


The commission will pay particular attention to ensuring that the fines have a deterrent effect, according to the guidelines, and will augment fines to make sure they are greater than the profits gained as a result of the cartel.


Kyriakos Fountoukakos, competition partner at City firm Herbert Smith, said: 'The commission has to retain flexibility to ensure that companies can't predict how much the fines will be, but it wanted the rules to be clearer. It wanted to apply the guidelines in a way that will have a deterrent effect, and a recent court judgment has confirmed that it is entitled to do that.


'The commission restructured a few months ago, with a new DG (Directorate General) Competition introduced. That will have quite a big effect, with the commission becoming more expert in investigating and prosecuting cartels. It will focus on the issue more seriously.'


Susan Hankey, a partner at City firm CMS Cameron McKenna, added: 'This will certainly raise the bar (in terms of fines) and should concentrate the minds of clients... the amount of the fine will be clearer, and going for leniency will remain a wise option.'


Rachel Rothwell