Between 1990 and 2016, cross-border cartels affected sales of over $51 trillion worldwide. Indicatively, more than 100,000 companies were found liable for international price-fixing, with estimated gross overcharges exceeding $1.5 trillion. In light of the data provided, it becomes apparent that international cartels have a great impact, not only on consumer welfare, but also on economies as they deprive the latter of the benefits from international trade. On Thursday, May 20th 2021, the Economic Crime Series: International Cartels – Recommendations for an overall proportional punishment and a realignment of competition law event was held online, organised by Dr. Branislav Hock and chaired by Penelope Giosa who are both lecturers at the University of Portsmouth. Given the context of the seminar, speakers Dr. Marek Martyniszyn and Dr. Pieter Huizing presented their research work to shed light on the ways that existing regulatory gaps could be narrowed and an overall proportional punishment could be achieved in the area of international cartels. The Risk & Compliance Platform Europe has also covered this seminar via its website. This is part one of two articles on this event, which will focus on Dr. Martyniszyn’s presentation.
Dr. Marek Martyniszyn is a Senior Lecturer at the Queen’s University Belfast. His research focuses on various aspects of competition law and policy in international and transnational contexts, including the limits of extraterritorial jurisdiction, state involvement in anticompetitive practices as well as the challenges facing new and developing competition law systems.
International cartels and anti-competitive conduct
Dr. Martyniszyn began his presentation by stating that international cartels are widely perceived as a form of white-collar crime. He stated that we are looking at transnational businesses, which we have more and more of. Yet, we don’t have any proper international, global system of governance of anti-competitive conduct crossing borders. Consumers also often suffer harm as a result of this anti-competitive conduct. In this particular case, we are looking at perpetrators and hard consumers that are based in different jurisdictions.
He further stated that from research done on international cartels, we know that they generally charge more than domestic cartels. Think of the price-fixing of refrigeration compressors, which are devices that produce the cooling effects in fridges and freezers, for example. So, in short, we have a situation where we have price-fixers in one or more jurisdictions, and consumers being affected through competitive harm in some other jurisdictions, which leads to the extraction of wealth across borders.
He then examined the situation from a domestic perspective and stated that anti-competitive conduct is prohibited in virtually all countries that have introduced domestic competition legislation. However, its conduct causing harm elsewhere, is legal in most competitive systems. In this case, the US’s Foreign Trade Antitrust Improvements Act of 1982 is a particularly interesting piece of legislation because it was principally aimed at protecting US sellers from being challenged domestically for their activities abroad.
Domestic versus international responses to international cartels
Dr. Martyniszyn continued and said that state violators “tend to wash their hands off” – they care only about domestic, not global welfare. He explained that this could be due to a number of reasons, such as an inward transfer of wealth. For example, if firms in his jurisdiction engage in cartel activity that is affecting some other country, they will extract wealth, which will reach his jurisdiction. Another reason is that all agencies have limited resources. They have to carefully think about their priorities, and it’s not unreasonable for them to focus on conduct that primarily affects domestic consumers, because they are funded by domestic taxpayers. So, the situation at home in states hosting cartels is not very helpful from this perspective.
On the other hand, there is also an unsatisfactory international response to cartels. He stated that although there has been an international consensus on the fact that private hardcore cartels are bad since the late 1990s, this issue was left out of the agenda of the World Trade Organisation (WTO). Moreover, we also do not currently have a multilateral tool allowing for sanctions for transnational violations. We do have international cooperation and a variety of valuable platforms which allow for the voluntary exchange of knowledge, sharing of good practices, capacity building, trust building, etc. However, he stated that in actuality, none of those platforms enable us to provide hands-on help in actual cases. You can develop trust and talk about past experiences, but people are not going to gather evidence for you, and help you prosecute a case.
Extraterritoriality and the challenges of transnational enforcement
So, what are we then left with? Dr. Martyniszyn said that we are left with the possibility of applying domestic law in relation to transnational anti-competitive agreements, which is the case of extraterritoriality. Extraterritoriality was seen as contestable in the past, but nowadays it is accepted as the norm. However, he made an important point here by stating that having extraterritoriality on the books does not automatically translate into having experience in enforcement. What he also noted here is that there have been very few international cartels that have been challenged outside the global north. It’s still an emerging practice, so this is very crucial to keep in mind.
Dr. Martyniszyn then discussed the variety of reasons why transnational enforcement is challenging:
- First of all, there is a variety of domestic procedural rules which often hinder transnational enforcement
- Sometimes, domestic rules prevent you from prosecuting such a case if parties are based abroad because you don’t have an effective means of service
- Next, there is also the issue of the collection and gathering of evidence, which is by no means straightforward
- Then there is also the issue of domestic rules on seeking and rendering assistance in relation to evidence in such cases
- There is also the issue of insufficiency of currently existing international instruments relating to cooperation in enforcement
- And sometimes there are more demanding domestic rules where you have to prove adverse domestic impact beforehand to bring a case forward
- Finally, there is also the question of enforcement and the execution of rendered decision and judgements, and the fact that we have no international cooperation in this regard
So, as he explained, even if you end up overcoming all these challenges, you may still end up with an unenforceable judgement, which from his point of view, may not be a bad thing in itself. What he also sought to highlight here is that one cannot move down the chain of enforcement if an issue earlier up has not been addressed, so it’s important to take into account the various challenges. Some of these issues may also be domestic, which can be addressed without international negotiations.
Transnational enforcement of international cartels – systemic issues and how we can narrow the gaps
Systemic issues still remain, and Dr. Martyniszyn underlined some of them in his talk. He believes that further work is needed when it comes to know how and experience sharing between agencies. Quite often, the same cartels will operate in the neighbouring market. We also have a lack of cooperation agreements, which typically relates to the competition agencies of developed countries. Lastly, we also have the issue of trust. So, in short, he believes that further collaborative efforts are needed. There also needs to be more work done on creating more robust bilateral and regional frameworks, also to address specific enforcement related problems. Additionally, he believes that there needs to be more platforms for sharing good practices.
Dr. Martyniszyn then discussed how we can narrow the gaps. Firstly, he stated that we should think about providing a clear, textual basis for extraterritoriality because whenever this is not the case, it will be immediately challenged. We also need to think about the entire chain of enforcement. Quite often, competition rules don’t mend domestic rules on processes and the like, so if you want to think about transnational violations, you have to think through the entire chain of enforcement. At the minimum, competition agencies should think about the willingness to challenge transnational violators.
They also need to act and accept that this may be difficult, as quite often they will fail. He also added that it is important to monitor what your neighbours are doing and talk about the sort of actions that you are bringing to narrow the information asymmetry gap. He further believes that we should be prepared to use foreign decisions and judgements as prima facie evidence of cartel existence, and thereby shifting the burden of proof. Finally, with all these recommendations that Dr. Martyniszyn discussed, he said that none of them require international agreement.
During his presentation, Dr. Martyniszyn spoke about how we don’t have any proper international, global system of governance of anti-competitive conduct. Consumers also often suffer harm as a result of such conduct. He also analysed the domestic situation of countries hosting cartels versus the largely unsatisfactory international response to cartels. He noted how state violators tend to focus more on domestic welfare than global welfare, and how we have a variety of platforms, but that they do not provide hands-on help in actual cases.
He also discussed several challenges of transnational enforcement of international cartels and stated how important it is for one not to move down the chain of enforcement if a previous issue was not addressed. He mentioned that some systemic issues remain, and that further work is needed to overcome those issues. Finally, he also explained how to narrow the gaps when it comes to transnational enforcement of international cartels, and how crucial it is to think about the entire chain of enforcement.