Analysis of the Brazilian Cartel Policy

5/21/2018 Analysis of the Brazilian Cartel Policy

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Spring 2014 University of Vienna

ANALYSIS OF THE BRAZILIAN CARTEL POLICY

NEW CHALLENGES

Adrienn Zetk, Pamela Vukman, Katayoun Arabzadeh

ABSTRACT

The present paper has the aim to outline the latest achievements of the Brazilian

competition cartel policy. The so-called Brazilian Competition Policy System has

developed over a very broad and interesting history. The BCPS is internationally

conceded as constitutive incentive for further enhancement regarding the efficiency of

their enforcement pursuit, including a strengthening cartel enforcement program and

also the endeavor to modernize merger review mechanism. The paper aims to give a

brief perspective on the development of the BSCP. In order to do so, it willconcentrate on a short review of the foundation of Brazilian competition policy to

provide with a better understanding of the economic situation and the motive of

advancements. Then, the paper will focus on the enactment of the new legislation and

it gives a short introduction of the current institutional advances. Finally, the paper

provides with a demonstration of the cartel enforcement, focusing on the combination

of administrative and criminal regimes.


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Table of Contents

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List of Abbreviation

ART. ARTICLE

BCPS BRAZILIAN COMPETITION POLICY SYSTEM

CADE ADMINISTRATIVE COUNCIL FOR ECONOMIC DEFENSE

ENACCC ANTI-CARTEL ENFORCEMENTNATIONAL STRATEGY

GS GENERAL SUPERINTENDENCE

IDB INTER-AMERICAN DEVELOPMENT BANK

LACF LATIN AMERICAN COMPETITION FORUM

OECD ORGANIZATION FOR ECONOMIC CO-OPERATION AND

DEVELOPMENT

SDE SECRETARIAT OF ECONOMIC LAW

SEAE SECRETARIAT OF ECONOMIC MONITORING


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Chapter I. The Brazilian Competition Policy

1. Introduction

The present paper has the aim to outline the latest achievements of the Brazilian

competition law and policy. The so-called Brazilian Competition Policy System

(BCPS) has developed over a very broad and interesting history. Eventually, it

became gradually more active than in former decades and eventually permitted Brazil

to be in leading position among South American nations raising increment and

sustainability and also the advancement of a fully functioning market economy1in

Brazil. To support this statement, it has to be mentioned that the Global CompetitionReview2elected the CADE one of the three Brazilian competition authorities for

Agency of the Year in the Americas in 2011. Thus, the BCPS is internationally

conceded as constitutive incentive for further enhancement regarding the efficiency of

their enforcement pursuit, including a strengthening cartel enforcement program and

also the endeavor to modernize merger review mechanism.

The paper aims to give a brief perfective on the development of the BSCP. In order to

do so, it will concentrate on a short review of the foundation of Brazilian competition

policy to provide with a better understanding of the economic situation and the motive

of advancement. Then, the paper will focus on the enactment of the new legislation

and it gives a short introduction of the current institutional advances. Finally, the

paper provides with a demonstration of the cartel enforcement, focusing on the

combination of administrative and criminal regimes.

1J. Silvia: Emerging Market Competition Policy; The Brazilian Experience, ExpressO, September,

2007, Pp. 1, http://works.bepress.com/joseph_silvia/1 [Accessed July 15, 2014]

2A leading competition law journal, Available at: http://globalcompetitionreview.com [Accessed July

15, 2014]


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2. Brazil as an emerging economy

Over the last decades, Brazil has become suitable for making a transition from a

developing countryinto an emerging capital market

3

.

Emerging markets [] are in need of external financing in order to fund

rapid growth and development and will be able to provide a large

population with a ready market for manufacturing goods and technology.4

From competition aspect, the concern arises when many of these emerging economies

such as Brazil possess many state-owned enterprises. The Brazilian economy after

World War II was represented by extensive government intervention in marketbehavior. During the period of 1930s until the mid 1990s state-led interventions in the

economy left little or absolutely no more place for efficient competition law regime to

function. Brazils largest financial, industrial enterprises and transportation companies

were owned by the state. The state regulated prices and all these measures were

supported by private sector. For instance, trade consortiums cooperated with the

governments institutions that controlled process by way of consultation.5At the end

of the 1980s, after the military dictatorship was substituted by a democratic regime,

the economic liberalization process began. Fernando Cardoso, the former Finance

Minister and Brazilian President was the center of the new era with implying policies

with anti-inflation standard and insisted privatization that permitted foreign investors

higher access to the economy in Brazil. Nevertheless, Cardoso also established the

Real Planthat connected the Brazilian currency to the United States dollar.

3J. Silvia:supra.pp. 5

4Id.

5Competition Policy International, Trustbusters, Competition Policy Authorities Speak Out pp. 38-

42, 2009


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3. Foundations of the competition policy

The competition policy has its foundation in the 1988 Brazilian Constitution.

According to Art. 170 economic policies had to conform to constitutional principlesin several areas such as the protection of consumers, state sovereignty, competition,

full employment and social justice.

[] the economic order of Brazil shall be founded on the

appreciation of the value of human work and on free enterprise, and shall

operate with due regard for certain principles, including free

competition, the social role of property, consumer protection, and

private property.

Furthermore, Art. 173 4 provides of wider provisions regarding the elimination of

market dominance, thus, increasing the competition.

[] the law shall repress the abuse of economic power that aims at the

dominance of markets, the elimination of competition, and the arbitrary

increase of profits.

The modern era of Brazilian competition policy began in 1990s whereby the

countrys President launched a wide range of reforms including privatization,

deregulation and price liberalization. As a part of the reform, in 1994 a new

competition law was introduced which is coincident with the countrys transition to a

market-based economy. Law 8884, remained as Brazils competition law, however it

required amendments quite often, namely three times: in 1999 when a merger

notification fee was imposed, in 2000, giving the BCPS essential powers in complete

investigations, especially powers to conduct dawn raids and to institute a leniency

program, and also in 2007 when a new procedures were qualified for settling conduct

cases and authorizing settlement in cartel cases.


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4. The Peer Reviews of the OECD

The OECD has been active in advancing competition policy in countries across Latin

America for many years. Further support comes from the Inter-AmericanDevelopment Bank that helps OECD to promote such activity. On competition

matters the collaboration has been taking place annually on Latin American

Competition Forum (LACF). The main characteristic of the LACF is the peer review

of a countrys competition law and policy that is exercised by voluntary request of a

country. In this progress, countries submit their competition policy for an effective

review with the goal of revealing recommendations to reinforce the institutions and

develop economic activities. Brazil had requested such procedure in 2005 and 2010.

The Peer Review has confirmed that such economic and regulatory reform

encompasses three factors. Firstly, the privatization of certain economic activities

conventionally fulfilled by the State, secondly, the innovation covers the

liberalization of the markets whose rates and tariffs were regulated6and finally, the

deregulation is a key element meaning that the elimination of those rulings that had an

impact on the efficiency of markets can drive to higher level of competitiveness,

higher productivity, more efficiency and lower prices overall7.

The Peer Review had been overseen not only Brazil but also other South American

countries and made its implications clear. It referred to main problems such as the anti

cartel efforts are absent and also realizes that building a vivid anti-cartel program is

not easy. In many cases where anti cartel investigations were instituted, only a few

were successfully prosecuted. Also it mentions that leniency program either non-

existent or non-productive8. Furthermore, it stated that the in general the sanctions

that had been imposed in prosperous cases were not high enough to establish an

appropriate disincentive to future cartel activity. The Peer Review indicated general

recommendations such as to give higher priority to prosecuting cartels and to begin

6OECD/IDB: Follow-up to the Nine Peer Reviews of Competition Law and Policy of Latin American

Countries, ARGENTINA, BRAZIL, CHILE, COLOMBIA, EL SALVADOR, HONDURAS,

MEXICO, PANAMA AND PERU, 2012 pp. 7

7Id.pp. 9

8OECD/IDB: Peer Reviews of Competition Law and Policy in Latin America, A Follow-up,

ARGENTINA, BRAZIL, CHILE, MEXICO, PERU 2010. pp. 9


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to impose stiffer sanctions9and provides specific suggestions like adding necessary

investigative tools, clarifying the legal standard applicable to cartels (hopefully

adopting the per se rule or its equivalent), and making changes to leniency programs

to make them more effective

10

.

5. Major Challenges

The latest Peer Review in 2010 helped Brazil to rebuild its structure of competition

principles. Therefore, Brazil had created major changes in its competition policy, and

2011 was a milestone for relevant advances in competition policy. The Law 12,529

was approved on 30th November 2011 and entered into force on 30th May 2012. The

new legislation provided with huge contribution to modernize and improve Brazils

existing competition law enforcement system. The bill deals with some of the most

crucial problems of Brazilian competition law and policy, such as the inefficiencies

deriving from having three different agencies in charge of competition law

enforcement and the lack of staff. Thus, the main focus of reform was to radically

change the institutional structure and the merger control system In accordance with

international best practices the new law introduced some changes to cartel policy not

only owing to modifications in the administrative enforcement structure but also

because the new law changed some criminal cartel provisions instituted in the

criminal antitrust statute, Law 8137 of 1990. Brazil has experienced a genuine

revolution in competition enforcement in the last decade, particularly in relation to

cartel enforcement. To deepen the cartel enforcement awareness in Brazil the

authorities even created a lot of advertisements. They introduced ads at airports,

weekly magazines and postal cards to support the public awareness that was one of

the achievements among others supported by the Peer Reviews.

9Id.10

Id.


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Chapter II The Law 12,529

1. General Implications

The new law applies both to corporations and individuals involved in cartel activities

as well as the individuals are also subject to criminal charges in cartel cases. One

important peculiarity of the Brazilian Competition Law related to cartels is that not

only the implementation of the coordinated practice is subject to penalties but also the

mere intention to implement it. Art. 36. 1 provides that

The acts which under any circumstance have as an objective or may have

the following effects shall be considered violations to the economic order,

regardless of fault, even if not achieved:

I - to limit, restrain or in any way injure free competition or free initiative;

II - to control the relevant market of goods or services;

III to arbitrarily increase profits; and

IV - to exercise a dominant position abusively

The 3 gives a non-exhaustive list about those anti-competitive acts refers to the first

paragraph

The following acts, among others, to the extent to which they conform to

the principles set forth in the caput of this article and its clauses, shall

characterize violations of the economic order:

- to agree, join, manipulate or adjust with competitors, in any way:

- to limit or prevent the access of new companies to the market;


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- to create difficulties for the establishment, operation or development of a

competitor company or supplier, acquirer or financier of goods or

services

Furthermore, Brazilian antitrust regime adopts the effects doctrine, according to

which the law is applicable not only to any practice fully or partially carried out in the

Brazilian territory, but also to any practice that even fully practiced abroad produces

or is capable of producing effects in Brazil. Art. 2 provides that

This Law applies, without prejudice to the conventions and treaties of

which Brazil is a signatory, to practices performed, in full or in part, on

the national territory, or that produce or may produce effects thereon.

This means that Brazilian authorities have already perceived that exports of a

cartelized product into Brazil are adequate to establish jurisdiction, as well as they

recognized that indirect sales of a cartelized product would be sufficient for creating

connection to the Brazilian territory and therefore satisfying the effects test.

According to that even if a collusive practice is occurred exclusively abroad it could

fall under the jurisdiction of the national antitrust authorities. Therefore the effect

doctrine remains key element for the extraterritorial jurisdiction of Brazilian law.

Moreover, the new law structured the Brazilian system for protection of competition

and set preventive measures and sanctions11.

2. Administrative Enforcement Structure

Relevant changes in the new law are related to applicable sanctions, investigative

tools and inspections (including Leniency Program) and they brought newinstitutional framework with the creation of a single independent authority. According

to the competition law of 1994, the former institutional framework had three main

bodies: Secretariat of Economic Law (SDE), Secretariat of Economic Monitoring

(further in text SEAE) and Administrative Council for Economic Defense

(CADE). Although its decisions could not be appealed to higher ranks, SDE was not

independent agency but part of Minister of Justice.The main tasks of SDE were

11Law 12,529. MP. No 11/11


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investigative and some preliminary enforcement functions. SDE was divided into two

Departments, one with responsibility for the competition law and the other

responsible for the consumer protection law. Each of the Departments had a Director

which was appointed by the Secretary. SEAE was a dependent body on Minister ofFinance and had three major responsibilities: performing certain investigative and

advisory functions under competition law, providing economic analysis for economic

regulatory programs (including analysis of prices), and monitoring market conditions

in Brazil12. CADE was the third institutional body and its role in competition law was

to adjudicate alleged violation of the law and impose appropriate remedies and fines.

CADE had a President and six Council members, which were appointed by the

President of the Republic and approved by the Senate for two years term.

Former law also provided of two independent officers. The first was the CADE

Attorney General, appointed by the Minister of Justice and commissioned by the

President of the Republic, after Senates approval. The Attorney General served under

the same conditions as apply to Commissioners with respect to term of office,

qualifications, re-appointment, and removal, and thus was not subject to removal by

the Board. The Attorney Generals duties were to provide legal advice, render

opinions on cases pending before CADE for judgment, defend the agency in court,

arrange for judicial execution of its decisions, and enter into settlements of cases

pending in court. The second officer was a representative of the Federal Prosecutor

General and had to handle cases submitted to CADE for review. CADE may request

the Prosecutor General to enforce CADE decisions in court and take other judicial

action in furtherance of the Prosecutors statutory duty to protect the economic

order13.

The new law consolidates the investigative, prosecutorial, and adjudicative functions

of the Brazilian competition authorities into one independent agency.14 New structure

for CADE is presented in Chapter II Section I of the new law. Art. 5 states that

12OECD Country studies, Brazil Peer review of competition law and policy, 2005 pp. 52

13Id.pp. 48

14Martinez, A.P. Tavarez de Araujo, M. (2012), Shaping the future of Brazils anti-cartel program:

Relevant changes introduced by law no. 12,529/2011.


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Cade is comprised of the following bodies:

I Administrative Tribunal of Economic Defense;

II General Superintendence; and

III Department of Economic Studies

It can be noticed that the new law does not mention SEAE, who was once in charge of

investigation in merger review. It does not mean that SEAE no longer exists; SEAE

now deals exclusively with competition advocacy before the Brazilian regulatory

agencies and other governmental bodies. The new General-Superintendence is now

responsible for the former functions of SDEs Antitrust Division and SEAE and is in

charge of investigating anticompetitive conduct that could eventually be sanctioned

by CADE. The main difference between GS and the former CADE is that the first is

legally independent since its head has 2 years renewable term, after approval by

Senate. New investigations are now launched by independent and not politically

dependent authority. The GS has 1 General-Superintendent and 2 Assistant-

Superintendents appointed by General-Superintendent who is, though, appointed by

Brazils President for 2 years term, renewable for additional 2 years, and approved by

Senate. The GS concentrates most of the powers previously held by SEAE and SDE.

Those are broad powers to monitor, investigate, prosecute and render decisions in

connection with imposition of fines upon defendants and merger clearance. Among

the several measures that GS is allowed to adopt, the most relevant functions are:

monitoring commercial practices and requesting information from companies in order

to avoid anticompetitive acts, initiation of administrative investigations, dismissing

administrative investigations in case of lack of evidence, to file, analyze and issue

decisions in administrative proceedings related to anticompetitive practices, to

analyze and render decision in antitrust review proceedings, to suggest the signing of

agreements between the parties and CADE, adopting preliminary measures in order to

cease anticompetitive practices and adoption of judicial measures to enforce CADEs

decisions. The Tribunal is consisted of 6 Commissioners and 1 Chairman. Each of

them is appointed by Brazil's President, for 4 years term, and approved by Senate.

With this term the authorities avoided previous issues of change of Commissioners,during antitrust investigations and review proceedings, in the 2+2 term system. This


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change led to many delays and often caused interrupted modification in CADE's case

law. With the new structure it is believed this issue will be surpassed. The Tribunal is

the highest instance in CADEs structure and its prerogatives are similar to an appeal

court. Tribunal will be responsible for rendering the final judgment in antitrustinvestigations and antitrust review proceedings decided by the General-

Superintendence, approving commitment agreements with parties and analyzing

preliminary measures adopted by the General-Superintendent or the Reporting-

Commissioner. Additionally, the Tribunal can order measures to achieve its

objectives, such as the adoption of effective measures by other entities of the

government in order to enforce new antitrust law and reports, analysis and diligences

to specialized firms and determine the fees to be paid and any entity of the

government, individuals and companies to provide information in connection with

antitrust cases. Although the new law brought many novelties in the institutional

framework it also brought some difficulties. The main issue, which caused other

issues, is the limited budget or, to say in a different manner, a lack of resources. Art.

121 of the new law states two hundred jobs of Specialists in Public Policies and

Government Management shall be created for the exercise of the Secretary for

Economic Monitoring and, primarily in CADE, observing the quantitative and

guidelines established by the Supervising Board of Career, integrating the Career of

Specialist in Public Policy and Government Management to be gradually provided,

within the legal limits and specific authorization of the budgetary guideline law. The

new staff would allow the agency to deal with case overload experienced in the past.

Practice, however, shows it is unlikely authorities will grant this many new places due

to the budgetary provisions and that personnel allocation is in the hands of federal

government. A notable issue of Brazils federal personnel system is that a significant

number of its employees are hired on a contract basis, and thus are considered to be

temporary employees. The number of contract employees is especially high in non-

professional support positions.

The situation does not look bright for new employment when we check the historical

data. In the 1994 competition law provided for the creation of a permanent staff at

CADE, but it was never done. Until 2006 CADE had no permanent positions assigned

to it and in the same year CADE received authority for 27 permanent positions (in the

late 2009 twenty five of these positions were filled). Although the situation has


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improved it is still obvious that new CADE will have a lack of staff in the future and

that fact will limit CADE in its work. This issue led to the fact that now the new

CADE has to prioritize cases. In the previous structure the whole competition law

system was divided between three agencies and today antitrust enforcement isconsolidated in new CADE. Former SDE did not apply fixed criteria in prioritizing its

antitrust case work. Various elements were taken into account when selecting its

investigations, including the importance of the sector for the economy, the impact of

the conduct on consumer welfare, and the availability and possibility of obtaining

evidence to progress the investigation. Since the staff growth did not follow the

consolidation of powers, it means the situation that CADE will have to choose some

cases or kinds of cases to prioritize. The problem is particularly acute in the case of

the CADE (20 staff reviewed 700 mergers in 2011)15. The last issue for the authorities

and whole competition law community is that the institutional reforms take too much

time. This is actually time consuming for the authorities because they are overloaded

with the whole process of drafting, discussions and approval of regulations which are

necessary for the implementation of the new law. Adaptation to the new pre-merger

review system requires too much time and attention both of the private practitioners

and the authorities. In the transition it is difficult to devote same attention to the

matter of complex mergers and the anticompetitive practices they want to prioritize.

Therefore the authorities would be disburdened if the whole institutional reform

process could be ended in a reasonable time without detriment to the whole process.

3. Procedure and cooperation with criminal prosecutors and police

The new law did not bring any significant changes to the procedure yet it brought

some changes in the names of the former procedures. The Art. 48 of the new law give

list of the different types of administrative proceedings.

This Law regulates the following administrative proceedings established

to prevent, investigate and suppress violations of the economic order:

I - preparatory procedure for an administrative probe to investigate

violations of the economic order;

15OECD/IDB (2012)supra.pp. 39


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II - administrative probe to investigate violations of the economic order;

III - administrative proceeding to impose administrative sanctions for

violations of the economic order;

IV - administrative proceeding for the analysis of acts of economic

concentration; V - administrative procedure to investigate acts of

economic concentration; and VI - administrative proceeding to impose

incidental procedural sanctions.

One of the crucial problems for the Brazilian competition authorities is the length of

the investigation. The 2010 Peer Review noted the need to reduce the backlog of

investigations and conduct cases and to shorten the time required for the final

disposition of cases. It noted that the consolidation of the three agencies should assist

in this regard but recommended that formal procedures at the investigation stage be as

efficient as possible.16 Indeed, if Brazilian competition authorities want to make

significant achievements in their fights against cartels they will have to conduct the

whole investigation process in the reasonable period of time. The parties have

intention to prolong the investigation for years because of the strict formal

procedures. They are using every opportunity to challenge competition authoritiesdecisions in court; it is still in the end important that competition authorities conclude

the investigation process in the reasonable period of time. If the authorities want to

effectively fight cartels they will have to finish the whole process in reasonable period

but not on the expense of the efficiency of the anti-cartel policy. Although the

authorities could improve and shorten the period of time needed between

investigation and the sanctioning of the cartels if we check some researches made by

OECD we can notice that Brazilian authorities try to effectively sanction cartels. That

is visible from the table found in the OECD peer review from 2010.17

16Id.pp. 4017

OECD Country studies, Brazil (2005)supra.pp. 15


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From this table it is clear Brazil makes efforts in fighting cartel. 2009 has especially

good results because if we compare, there were no much dawn raids unlike in

previous years but there were more cartel cases opened. This reveals Brazilian

competition authorities had good information about the cartel cases and they used

dawn raids when necessary. When we compare, for example, year 2009 with year

2005 it can be clearly seen that down raids were not used at all which led to the fact

that there was only 5 cartel cases investigation opened. Four years later Brazilian

authorities managed to use dawn raids and make it effective tool in the investigation

of the cartel cases. Dawn raid was a new tool among other methods like wiretapping

and leniency, which authorities started using in the 2000s with the help of police,

criminal prosecutors and courts. Nowadays, it is extremely difficult, if not impossible,

to investigate any collusion case without these tools. Moreover, experience has shown

that it is extremely complicated to prove any collusion case on the basis of indirect

evidence alone.

Those measures were needed to fight cartels effectively but they could not have beentaken just by sole determination of competition authorities. Therefore there was a

significant need for the cooperation of the criminal and competition authorities.

Brazilian federal and state public prosecutors are in charge of criminal enforcement in

Brazil. Cartels are not just anticompetitive conducts they are also crimes. Therefore

the police may start investigations of cartel conduct and report the results of their

investigation to the prosecutors.


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Since 2003, Brazil wanted to make more effective penalty system that would prevent

cartels much more efficient than fine imposed by CADE. Their choice was to create a

new system, an integrated system where the administrative authorities in the federal

government and the criminal authorities at the federal and state levels work as a team,so as to utilize the best of both systems and improve deterrence. 18 With this

cooperation Brazil managed to help both competition and criminal authorities.

Criminal authorities were playing a supporting role that was mostly providing

technical assistance to competition authorities during dawn raids. Competition

authorities were not the long time established entities unlike police and criminal

prosecutors and they did not have necessary experience that criminal authorities have

and on the other hand, criminal authorities had no or little experience when it comes

to competition law enforcement. Although these issues still exist with the cooperation

of these entities the situation is much better in practice. Nowadays undertakings

involved in cartels have to worry not just about fines but also about criminal

conviction and jail sentence for the executives involved in the cartel. In the previous

years 23 out of the 27 Public Prosecutor State Offices and some local police forces

took part in this cooperation. With use of the Ministry of Justices financial resources,

dedicated criminal anti-cartel units were or are planned to be established in the states

of Sao Paulo, Rio de Janeiro, Paraiba, Santa Catarina, Amazonas, Rio Grande do

Norte and others. It is obvious that even criminal authorities understood how big

problem cartels are and they understood the necessity to fight them with all disposable

means. The 260 raids which were performed between 2003-2010 with the help of the

prosecutors give us the indication how much has been done in this area. Public

prosecution became aware they need to involve themselves in the fight against cartels

because no matter how many funds government invests in the competition authorities

they will never have the resources, which are on the disposal of the public

prosecution. Competition authorities have more difficulties to overcome than public

prosecution ever will. As a result of cooperative efforts, there are more than 300

18A.P. Martinez, M. Tavarez de Araujo, Brazils Anti-Cartel Enforcement: Preparing for the Future.

2011

http://www.levysalomao.com.br/files/publicacao/anexo/20110719164443_preparing-for-the-future-

2011.pdf [Accessed July 8, 2014]


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executives facing criminal proceedings in Brazil for alleged cartel offenses and there

is a final criminal decision sentencing 19 executives to pay a criminal fine for cartel

offenses. Other 21 executives were sentenced to serve jail terms of two and a half to

five years and three months 12 for cartel offenses. Foreign executives may also besubject to Brazils criminal system as long as their conduct produces effects in Brazil.

In fact, some of the criminal settlements mentioned above involved foreign executives

who had, as part of their obligations, to appear every other month before a Brazilian

Embassy located in their country of residence.19

Same issues were noticed in the area of wiretapping and leniency program. With the

help of the criminal authorities, leniency became one of the most powerful tools that

are on disposal to criminal and competition authorities when detecting and fighting

cartels. It is not easy to detect cartel conduct and therefore Brazilian authorities, like

many others, included leniency program into their anti-cartel systems. In the 2000

leniency was introduced into Brazilian system and it has been there ever since. The

new law deals with leniency in the articles 86 and 87 and gives an instruction when

the new CADE can enter into leniency agreements. Under Brazils competition law

the following requirements have to be fulfilled for entering into leniency agreement:

the applicant is the first to come forward and confesses its participation in an antitrust

violation, the applicant ceases its involvement in the antitrust violation, the applicant

agrees to provide full, continuing and complete cooperation to CADE throughout the

investigation, the cooperation results in the identification of other members of the

conspiracy and in the obtaining of documents that evidence the antitrust violation, at

the time the leniency applicant comes forward, CADE has not received sufficient

information about illegal activity to ensure the imposition of sanctions against the

applicant. By the 2011 no beneficiary of a leniency agreement faced criminal

proceedings in Brazil for cartel conduct reported. The reason is prosecutors seem to

be convinced of the importance of fighting cartels and the value of leniency for

achieving good results in that respect. Brazilian authorities still stick to the winner

19Martinez, A.P. (2014). Brazils leniency program: Recent developments and challenges ahead

http://www.levysalomao.com.br/files/publicacao/anexo/20140123142034_brazil-s-leniency-program--

recent-developments-and-challenges-ahead--10th-iba-aba-amp.pdf [Accessed July 8, 2014]


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takes all approach and therefore the beneficiaries of leniency agreements were not

faced with the criminal proceedings.

4. Brazilian anti-cartel enforcement strategy

The year of 2009 was important year for competition authorities in Brazil because of

the anti-cartel enforcement strategy that deals with some important matter regarding

criminal and administrative policy. Strategy was made by representatives of former

SDE, SEAE and CADE, jointly known as BCPS, and further: States Public

Prosecutors, Federal Prosecutor, Federal Police Department, National Secretariat of

Justice, National Secretariat of Public Security, States Secretariats of Public Security,

the National Group for Anti-Criminal Organizations Enforcement, Criminal Public

Prosecutors National Association and Office's of the Comptroller General Secretariat

of Corruption Prevention and Strategic Information. A larger efficient action of the

State for prevention and repression of cartels depends on a high cooperation and

interaction among the several authorities responsible for the implementation of such a

policy. For those reasons the Anti-Cartel Enforcement National Strategy (known also

as ENACC) was established and aims to promote a coordinated and systematic plan

of activities among the authorities responsible for the investigation and repression of

the economic infractions. The strategy has 6 pages and its scope is to inform the

society about public policies that have been discussed and implemented with purpose

of increasing the welfare of all Brazilian citizens and it gives some information

relevant for the anti-cartel enforcement. The strategy gives the definition of cartel as

following

cartel is an agreement among competitors primarily directed at price-

fixing, customer and market allocation, and production output

restrictions.

Moreover, it states that among all anticompetitive conducts, cartel is the most

egregious violation of competition law and cartels severely harm consumers by

raising prices and restricting supply, thus making goods and services unavailable to

some consumers and unnecessarily expensive for others. Furthermore, by artificially


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limiting competition, cartel participants also avoid those pressures that lead them to

innovate. The strategy also reviews some methods previously used, for example dawn

raids, and reviews some quantitative methods and other tools for evidence collection.

The need for Prosecutors Office in protection of the principles of the constitutionaleconomic, among which are the principle of freedom of enterprise, free competition,

consumers protection and abuse of economic power repression is also reaffirmed.

The strategy gives the idea of creation of the annual meeting for setting goals and for

evaluating results of such national and a virtual system for communication between

each enrolled authority will be created. SDE was also to be responsible for developing

the virtual environment which will make possible the constant communication and

information exchange among the ENACC participants.Other authorities of the BCPS

with this Strategy declared their support and stated they will make all necessary

efforts to collaborate with technical and financial support.


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Chapter III. Sanctions and remedies:

1. Introduction of sanctions and remedies

When it comes to sanctions and remedies, what matters the most for the antitrust

authorities are the enforcement efforts they put in fighting cartels and in particular

international cartels. The more well-established cartel prohibitions are, the more

adoption of the corporate leniency policies occur. This increases the resources the

countries devote to antitrust enforcement. As a result, it will enlighten more cartels to

be sanctioned. This paper witnesses the growing trend toward criminalization andlarger corporate fines, resulting from the introduction of more intense detection of

cartel activities.

The United States and the EU have in the recent years showed large and increasing

fines imposed on the companies involving in cartels. This is an example that shows

that the Antitrust Laws have been focusing on increasing corporate fines as a solution

of inconvenient and insufficient deterring of cartel activities.

2. General Motivations of Sanctions

Most favorable sanction for price fixing could be guided by two main principals,

namely, the efficiency of the sanctions, which means they must be great enough to

(and not more than necessary) to take the benefits out of the price fixing. When the

price fixing is beneficial and profitable, then the market will continue producing it.

When this price fixing is a profit to the firm, it raises its share values and it is likely

that the firm is more rewarded than deterred by the market. That is why the sanctions

must be sufficient to make the price fixing unprofitable.

On the other hand, if the sanctions exceed the appropriate and sufficient level, that

will make higher prices for the customers since the firms will show excessive

monitoring and compliance expenditures that will be totally imposed to the customers

through the higher prices. Even if there will be no higher prices imposed on the


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customers, the exceeded sanctions have negative effects anyway. This point applies

still valid even if the best level of cartel activity is zero. Second principal concentrates

on the individuals, who are engaged in the cartel activities and are negligent in the

price fixing schemes. These individuals should be given a disincentive.

3. Brazilian Cartel Enforcements Motivation

In Brazil, cartels could be prosecuted both criminally and administratively and in

neither spheres there were legal restrictions about prosecuting and/or condemning a

case only with circumstantial evidence. Specifically regarding the administrative

jurisdiction, Law 8.884/94 did not award any discretion for the authority to decide

whether or not to investigate a case..R Therefore, whenever a complaint of a cartel

was filed, there was a legal obligation to investigate the case, regardless of the value

of the evidence presented. Nevertheless, the competition authority could decide which

procedure it will adopt in order to investigate the complaint..!

After several years in congress under discussions and amendments, the new Brazilian

Competition Law (Law No.12.529/2011)..was key for modernization of the antitrust

law and policy in Brazil regarding sanctions too.

a) Administrative Sanctions

In the new law, we can see some changes of applicable fines, e.g. in the case of a

company, a fine of 0.1 % to 20% of the gross sales of the company, group or

conglomerate, in the last fiscal year before the establishment of the administrative

proceeding, in the field of business activity in which the violation occurred, which

will never be less than the advantage obtained, etc. is applicable to the firm deterring

the cartel activity.

20D. H. Ginsburg and J. D. Wright, Antirust Sanctions 2010

21DAF/COMP/GF/WD (2006)37, Roundtable on prosecuting cartels without direct evidence of

agreement, Contribution from Brazil 3 Feb2006

22B.Rosenberg The enactment of The New Brazilian Competition Law 2013 Barbosa, Mssnich &

Arago Advogados

http://www.mondaq.com/x/253956/Antitrust+Competition/The+Enactment+Of+The+New+Brazilian+

Competition+Law+An+Important [Accessed 15 July, 2014]


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Under the preceding law, the penalties ranged from 1% to 30% of the total turnover of

company or group in the year before the launching of administrative procedure.

We encounter a very important question in thisregard, and that is whether the fine isbased on the whole companys turnover or only the relevant market of the

investigated practice. If the definition of the turnover is not possible (in the branch of

the business activity) or not properly done by the parties, the law provides an

alternative way. In such cases, the authority can return to the total turnover method. If

the managers are found to be responsible for the anticompetitive behavior the amount

ranging from 10% to 50% will be imposed on them, while the penalty imposed on the

company will be 1% to 20%. In contrast, in the old law the fine could range of the

penalty applicable to the company, but in the new law we can see that they changed

applicable to applied.

Therefore, the administrative penalty imposed on the individuals is necessary

different from the one imposed on the company. There will be a fine between

R$50,000,00 to R$2,000,000,000,00, In the case of other individuals or public or

private legal entities, as well as any association of persons or de facto or de jure legal

entities, even if temporary, incorporated or unincorporated, which do not perform

business activity, not being possible to use the gross sales criteria..;

In the new law there are sections about other possible penalties that already existed in

the previous statute as well. As an example, companies can be prevented from

participating in public procurement for at least 5 years and may have to pay the

publication of CADEs decision in newspapers among others.

b) Criminal Enforcement

Formerly the penalties provided for a cartel in criminal Statutesuch as prison terms of

2-5 years orcriminal fine in old law and it was on the judges point of view but in the

new law penalties of 2-5 years prison andcriminal fine. Criminal cartel enforcement

is similar to judicial review of CADEs decision. Till now, there isnt any reliable

23Law No.12.529 Chapter 3, Art.37


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body of criminal decision to resolve many outstanding questions and provide

guidance either to companies, individuals and counsel, or to the judicial officers..-

c) Private Actions

A provision in the previous antitrust law states that parties injured by any

anticompetitive act may claim single damages before civil judicial courts, regardless

of the existence or stage of administrative decision. This claim can be, individually by

parties or represented by other parties such as the union, public prosecutors office,

governmental entities entitled to protect consumer rights and so on.

Cartel enforcement is still relatively new even for the specialized antitrustadministrative authorities. For instance, there are no comprehensive data available on

the number and frequency of private antitrust actions in Brazil. There is a statement

on competition law in the judiciary which highlighted that the cartels should be

combated by criminal and administrative measures complemented by civil actions

aimed at compensating the damages imposed by the cartel on individual parties or

specific groups of consumers or entities. As we see, this example shows that the

Enforcement Law is capable of being more developed and detailed.

24 A. Emch, J. Regazzini, V. Rudomino, Competition law in BRICS Countries, International Bar

Association Series, Volume 24, Kluwer Law International 2012


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Chapter IV. Case Study

1. The Rio de Janeiro - Sao Paulo Airline Case

This case was initiated after some of the leading newspapers in the country reported

that the presidents of Brazils four major airlines had a meeting at a hotel and five

days later, the prices of the plane ticket for the Rio de Janeiro- Sao Paulo route had

increased by 10%. SEAE s investigation concluded that the price move was not

merely a case of conscious parallelism. In addition to the meeting of the companies

executives, evidence revealed that price data were exchanged among the companies.A company could configure a price change notice so that, for an initial three-day

period, the change could be viewed only by other airline companies and not by

consumers or travel agents. The posting company was thus able to abort the change if

competitors failed to follow suit. This feature had earlier been attacked by the U.S.

Department of Justice, but system modifications arising from that case had been

implemented only in North America. In September 2004, CADE determined that the

four airlines had colluded to raise prices. Each carrier was fined with 1% of the

revenue earned on the affected route during 1999 and was enjoined from fixing prices

and from posting price adjustments in advance. Apart from the chairmens meeting,

the investigation showed that the companies had a very efficient tool for coordinating

their prices, which was the ATPCO25system. Based on the association of three factors

(the price parallelism, the chairmens meeting and the tool for coordinating prices),

CADE decided that there was a strong indication that the firms were colluding to fix

prices. It should also be noted that CADE, in its decision to punish the firms, made a

point of justifying why the price leadership theory could not be applied in the

case..@

25Airline Tariff Publishing Company who provides fare data in an electronic format with the encoded

rules associated with those fares, which make the information suitable for computer processing.26

OECD Country studies, (2005), Brazil


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2. The Newspaper Cartel Case

The case involved the four largest newspapers in Rio de Janeiro. Here, there was also

a price increase at the same time and same percentage rates. In addition to the priceparallelism, the indirect evidence consisted in the fact that the newspapers published

simultaneously an editorial note informing readers of their price increase on the same

day and with very similar content.

In addition to this aspect, during the investigation, executives of the companies gave

testimonies to the authorities and CADE identified numerous contradictions in their

statements, specially referring to the explanation for the price increase. For example,

one of the newspapers executives stated that they simply waited for the leading

newspaper company to raise their price so as to do the same. However, this

newspaper was unable to explain why the price rise happened exactly on the same day

of their competitor, considering that on the same day of the price rise the other

newspapers were out with the modified price.

CADE found the firms guilty of cartel because of the association of price parallelism

with the publication of the editorial note to explain the price increase, together with

the lack of a plausible explanation for the price increase at the same time and at the

same percentage rates.

3. Considerations

Some qualifications about the cases are appropriate: First, in all previous cases,

CADE has indicated that it is important to exclude the price leadership explanation

for the price parallelism; and second, although the indirect evidence available in the

cases were important to indicate the existence of illegal behavior, CADE did not

punish the firms exclusively based on that. In the cases referred above, in addition to

the economic evidence, some circumstantial event was associated to the price

parallelism. Thus, CADE applies the parallelism plus theory to condemn cartel

based on indirect evidence..J

27DAF/COMP/GF/WD (2006) 37supra.Section 2


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In practice, fines imposed by CADE have been systematically raised in recent years:

in every new cartel case, imposed fines are getting closer to the higher percentages

above since CADE has traditionally seen cartel as a hard-core conduct and therefore

concludes a more strict sanctions. Using more aggressive investigative tools, CADEhas levied high fines on both companies and individuals found liable for hard-core

cartel conduct. The highest fine imposed by CADE in line with a cartel case was

around US$1 billion, in 2010. The table28reveals a summary of the main cartel cases

sanctioned by CADE and the duration of the investigation:

.MA.P. Martinez supra. pp. 4


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Chapter V. Conclusion

The historical achievement of competition in Brazil is a clear manifestation that

competition policy can only exist in a market-driven economy. Therefore, theliberalization of the 1990s was the major driver in the development in level of

competition law in Brazil. The year of 2011 was a cornerstone year of Brazilian

competition law. The new legislation paves the way to the modernization and

improvement of Brazils competition law enforcement. The recent law deals with

some of the most critical issues of Brazilian competition law and policy. The new law

implied a few radical changes in institutional structure, however it did not bring

significant procedural changes. Additional improvements could have been achieved.The major difficulty is that Brazil does not have a culture in the competition compare

to the experience of other jurisdiction such as the EU or the US. It also has a lack of

neutral evaluation of the effect on the marketplace of competition decisions.

There are several issues needed to be addressed in order to ensure a sustainable

development but unfortunately we face the lack of enough resources for effective

coordination both internationally and domestically. The greatest challenge for the

authorities now is to consolidate underscore and remarkable advances and to

transition from a young and energetic regime, sometimes stumbling as it races ahead,

into a mature cartel enforcement jurisdiction29.

.OA. Emch, J. Regazzini, V. Rudomino,supra.


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Bibliography

BOOKS

A. Emch, J. Regazzini, V. Rudomino, Competition law in BRICS Countries, International Bar

Association Series, Volume 24, Kluwer Law International 2012

ONLINE PUBLICATIONS

A.P. Martinez, M. Tavarez de Araujo,Shaping the future of Brazils anti-cartel program: Relevant

changes introduced by law no. 12,529/2011. 2012

A.P. Martinez, M. Tavarez de Araujo, Brazils Anti-Cartel Enforcement: Preparing for the Future.

2011

A.P. Martinez, Brazils leniency program Recent developments and challenges ahead 2014

B.Rosenberg The enactment of The New Brazilian Competition Law 2013 Barbosa, Mssnich &

Arago Advogados

D. H. Ginsburg and J. D. Wright, Antirust Sanctions 2010

DAF/COMP/GF/WD Roundtable on prosecuting cartels without direct evidence of agreement,

Contribution from Brazil 3 Feb 2006/37

Competition Policy International, Trustbusters, Competition Policy Authorities Speak Out 2009

J. Silvia: Emerging Market Competition Policy; The Brazilian Experience, ExpressO, September,

2007,

OECDPEER REVIEWS

OECD/IDB: Follow-up to the Nine Peer Reviews of Competition Law and Policy of Latin American

Countries, ARGENTINA, BRAZIL, CHILE, COLOMBIA, EL SALVADOR, HONDURAS,

MEXICO, PANAMA AND PERU, 2012

OECD/IDB: Peer Reviews of Competition Law and Policy in Latin America, A Follow-up,

ARGENTINA, BRAZIL, CHILE, MEXICO, PERU, 2010.

OECD Country studies, Brazil Peer review of competition law and policy, 2005 pp. 52


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LAWS

LAW # 8884 OF JUNE 11, 1994

LAW No 12.529 OF NOVEMBER 30, 2011

Constitution of the federative republic of Brazil 1988

INTERNET WEBSITES

http://www.cade.gov.br

http://www.oecd.org

http://globalcompetitionreview.com

https://www.competitionpolicyinternational.com

http://www.levysalomao.com.br

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Analysis of the Brazilian Cartel Policy

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