Pressure on to toughen competition law penalties
LEGAL OPINION:Just last week, new legislation was adopted doubling jail terms for cartel offences from five to 10 years and extra resources are promised, writes PHILIP ANDREWS
IT IS A DECADE this week since the Competition Act 2002, heralded by enforcers as “a substantial step forward in the development of a strong and proactive competition policy in Ireland” came into force. Over that decade, as the nearby graph shows, annual expenditure at the Competition Authority rose fourfold from €2 million in 2002 to more than €8 million in 2008 and staff numbers from 36 to 59. What are the results? And will new reforms, pressed upon the Government by the troika, make a difference?
Irish business is rife with secretive price fixing and bid-rigging, costing the economy over €1 billion annually, according to the authority.
After some initial success, however, the authority has struggled to uncover and prosecute competition law violations. The headline statistic is 33 convictions on indictment. That’s an impressive number. In the UK, for instance, no jury convictions have been obtained since criminalisation of cartels in 2003. But 32 of the 33 Irish convictions were obtained in respect of two cartels. More recent prosecutions have failed. In 10 years, five prosecutions have been brought, with two resulting in conviction of cartelists.
The agency’s record on tacking monopolies is similarly mixed. Two major enforcement cases were taken over the last decade: the Irish League of Credit Unions (ILCU) and Beef Industry Development Society (Bids) cases. The authority lost ILCU while Bids was ultimately settled, with the agency recouping some legal costs, albeit after nearly eight years of legal wrangling. A recent settlement with RTÉ, in which the State broadcaster agreed to abandon suspect “share deal” practices in marketing its TV advertising, is undoubtedly a breakthrough.
More controversially, the authority has aggressively applied competition rules to the self-employed. In a 2004 decision, agency officials challenged set fees for voiceover actors (ranging from €22 to €140) as anti-competitive price-fixing between “undertakings”. This position, which rests on a debateable interpretation of the law, effectively means the self-employed, including vulnerable part-time contract workers, cannot collectively bargain. Unforeseen implications, particularly as to how this affects the Government’s ability to deliver health services via collective negotiation with doctors and pharmacies, have resulted in sharp criticism.
The authority’s merger control – fundamentally an exercise in economic prediction – deserves recognition. True, in the first and only appeal, the High Court found that the prohibition of Kerry Group’s acquisition of rival Breeo was vitiated by serious error. But the authority’s record – 95 per cent of transactions cleared at phase one, 5 per cent involving phase two investigations, and about 0.5 per cent of notified deals blocked – is in line with international practice.
Authority advocacy has also undoubtedly had some impact, perhaps most notably in bringing about repeal of the Groceries Order. To estimate accurately the benefits of this outcome to consumers cannot be easy. But the Competition Authority says it saves Irish households €481 a year.
However, in the final two years of the last Government’s term, the agency suffered existential threat. Likened in 2009 to a 1980s skinhead organisation by a Dáil deputy from the ruling party, an unwanted merger with rival agency, the National Consumer Agency, remains on the cards – a “shotgun” wedding according to agency officials.
But EU-IMF bailout officials have required the Government to strengthen competition law enforcement by enacting new sanctions and increasing authority resources. Just last week, new legislation was adopted doubling jail terms for cartel offences from five to 10 years and extra resources are promised.
Will this make a difference? While agency officials lobbied for new sanctions, they wanted so-called “civil penalties” to allow judges impose fines on a lower civil law standard. Doubling existing criminal penalties may not make its job easier – if anything, it may increase the prosecution challenge.
As the graph nearby also suggests, additional resources alone may not promote enforcement. The number of searches carried out by the agency each year – usually conducted in serious criminal cases – is doubtless a crude measure of agency activity. Assuming “dawn raid” searches remain an important means to chase cartels, there appears – at least since 2005 – to be unclear correlation between agency resources and conduct of investigations.
Philip Andrews is a partner and co-head of the competition, regulated markets EU law group in McCann FitzGerald