A View from Constantine Cannon’s London Office

By James Ashe-Taylor and Julia Schaefer

The governing institutions of the European Union are moving ahead with proposals that could enable consumers and businesses victimized by antitrust violations to have a better chance at recovering damages from cartel members.

Earlier this week, ministers from all 28 member states of the EU agreed at a meeting of the Council of the European Union to push ahead with a legislative proposal which seeks to facilitate damages claims by victims of antitrust violations and to allow them to receive full compensation.  Competition Commissioner Joaquín Almunia has called this effort a “milestone in the evolution of competition law enforcement in the EU.”

The European Commission (the EU’s executive arm) published the legislative proposal to revise rules governing antitrust damages actions under member states’ national law on June 11, 2013.  The Council (one of the EU’s two legislative bodies) has now authorized its Presidency to start negotiations with the European Parliament (the other legislative body) to agree to revisions in the legislative proposal.

The legislative proposals are designed to remedy defects in private enforcement, an area which Mr. Almunia described as “ineffective” and “uneven.”  Currently, victims of antitrust violations face high procedural hurdles in seeking relief, particularly under national discovery rules.  These often require a detailed description of specific relevant documents before discovery is permitted, an evidentiary obstacle few victims are able to overcome.

Similarly, the discoverability of leniency documents is often uncertain and determined only on a case-by-case basis.  The EU proposals aim to clarify this area of law, in order to give greater protection and certainty to whistleblowers, while at the same time upholding victims’ ability to access all relevant information.

The divergent rules and procedures across the EU member states have encouraged forum shopping for the courts with the most plaintiff-friendly procedural rules.  This has meant that the vast majority of damages actions have been brought in the British, Dutch and German courts.  The Commission considers this to be contrary to the single market principle.  It has also pointed out that forum shopping is a luxury available only to large corporations.

According to Mr. Almunia, the new proposals are about making recovery of compensation by ordinary European citizens and small businesses a reality.

The proposals would also preserve the competition authorities’ power to punish and deter anticompetitive practices.

The EU’s enforcement of its competition laws remains a priority.  As discussed on this blog yesterday, the EU has just imposed a new record level of fines against global banks in the Libor and Euribor benchmark manipulation investigations.

While the legislative proposals would bring European private antitrust damages actions a few steps closer to the American model, they would not make the full leap.  Unlike in the U.S., where victims of antitrust violations are able to seek triple damages from cartelists as a deterrent, the EU’s proposals are aimed only at compensating for the harm suffered.  Punishment, according to the Commission, should remain the exclusive realm of the competition authorities.  Moreover, the EU currently does not have a class action regime, which would facilitate damages actions by consumers and small businesses.  But on June 11, 2013 the Commission adopted a set of common non-binding principles for collective redress mechanisms in member states, which recommend limited opt-in class action-style laws.

The adoption of a “common approach” by the Council is a positive step toward finalizing the legislative proposal before May 2014, when new elections are held for the European Parliament.  Under the EU’s “ordinary legislative procedure,” the Council will have to reach agreement with the Parliament on the Commission’s proposed legislation.  However, disagreement remains on key aspects of the proposals, such as discovery rules and protection for whistleblowers.  In addition, political conflicts in the Parliament have led to a month-long postponement of the first reading of the proposal until January of next year.

Despite these roadblocks, there is strong pressure within the Parliament and the Council to complete the legislative passage of this directive before April.  Once adopted, the member states would have two years in which to implement the directive into national law.

Additional information about bringing private actions for antitrust damages in the EU can be obtained by contacting James Ashe-Taylor or Julia Schaefer in Constantine Cannon’s London office.  

— Edited by Gary J. Malone

By Gary J. Malone

The record fines imposed by the European Union today as part of its settlement with eight global financial institutions for fixing benchmark interest rates highlight both the risks of collusion and the rewards of coming clean.

Although the EU fined the group of financial institutions a record total of 1.7 billion euros (about $2.3 billion), two of the participants in the cartels—UBS and Barclays—escaped any fines because they alerted the European officials to the wrongdoing.

The financial institutions settled charges that they fixed rates for the London interbank offered rate (“Libor”) in the Japanese yen and the euro interbank offered rate (“Euribor”) in euros.  Four of these financial institutions—Barclays, Deutsche Bank, RBS and Société Générale—conspired to fix interest rate derivatives in the euro.  Six of them—UBS, RBS, Deutsche Bank, Citigroup, JPMorgan and broker RP Martin—participated in cartels that fixed interest rate derivatives in the yen.  Pursuant to the Commission’s cartel settlement procedure, the companies’ fines were reduced by 10% for agreeing to settle.

The Europeans’ investigation follows related investigations into conspiracies to fix the Libor rate by U.S., British and Swiss regulators that led to five financial institutions, including Barclays, RBS and UBS, admitting wrongdoing and agreeing to pay more than $3 billion.

In announcing the settlement, Joaquín Almunia, the EU’s competition commissioner, stated that “What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other.”

The banks’ settlement with the EU marks the first time that Citigroup and JPMorgan, will pay penalties in the rate-fixing investigations.  Citigroup, which will pay 70 million euros in fines, avoided fines of an additional 55 million euros because it cooperated with the European investigation.

The international expansion of investigations into international conspiracies to fix benchmark interest rates is not surprising.  Competitors that collude to eliminate competition put themselves at the mercy of not just the multiple regulators that police competition around the world, but also of their co-conspirators when their interests diverge.

As soon as members of a price-fixing conspiracy suspect that cartel activities may be revealed, there can be a race to prosecutors’ doors to get a deal avoiding civil fines or even criminal penalties.  After the first whistle-blower reveals the existence of a cartel, however, the next conspirator through the door has to reveal some new wrongdoing in order to get a deal.  If that conspirator is aware of any related cartels, they are likely to be revealed to the prosecutors, who will then start new investigations.

After that point, all the other conspirators may soon come to realize that their elaborate cartels were really interlocking houses of cards that could not survive even one defection.