Undersized Oversight

Increasing Aggressiveness and Fines, Germany's Competition Watchdog Fights to Shake Ineffectual Image

The Federal Cartel Office has become much more aggressive in probing monopolistic activities in all sectors of German business, but some experts still question how effective it really is.

The Federal Cartel Office recently accused producers of sugar, beer and sausage for illegal price fixing in its ongoing efforts to maintain open markets in every sector of competition.

The competition authorities in Bonn have been aggressively pursuing investigations and levying hefty fines on violators, setting a new record this year by imposing penalties of €973 million ($1.3 billion), even though some companies vow to fight the fines.

“In the past years, cartel prosecution has clearly become more powerful,” said Andreas Mundt, president of the cartel office, which is an independent authority in the Federal Ministry of Economy and Technology. “Businesses are encouraged to disclose illegal cartels to receive a break on fines in return.” It’s estimated that about half of the procedures the cartel pursues are initiated in this manner.

Businesses under investigation aren’t happy about the relatively high number of principal witness cases, according to Christian Horstkotte, an expert in antitrust law in the law firm of Baker and McKenzie in Düsseldorf. Specifically, he criticizes the large number of principal witnesses who initiate the procedures, noting the cartel office hardly needs to seek out any cases when so many knock on its door. And he wonders whether even a simple discussion among groups of companies within the same industry could be punished as cartel behavior.

 

“The possibilities to defend oneself in such cases are rather limited.”

“It’s enough when just one of the parties participating in such a discussion approaches the cartel office out of precaution and submits a principal witness application, even though that party doesn’t believe in a cartel infringement at all,” Mr. Horstkotte said. The pressure to avoid public litigations, which can cause negative publicity, prompts many companies to reach quick settlements.

“The possibilities to defend oneself in such cases are rather limited,” Mr. Horstkotte said.

The attorney also is critical of the huge fines that are levied in many cases. While in a criminal case the court decides how to punish the defendant, he said, the cartel office not only investigates the cases but also determines the punishment. “That is also a difficult place for many businesses, due to the steadily rising fines,” he added.

 

Not surprisingly, Mr. Mundt disagrees. Even if principal witnesses coming forward facilitate the work of the cartel office, he said, a solid case that would stand up in court still must be assembled in the event the case goes to trial. He defends the fines by saying the cartel office bases them on the size of the company involved. A small- to medium-size company would pay a smaller amount than a large multinational firm for the same offense. The fines are designed to hurt the offenders, Mr. Mundt said, because they are meant to punish and deter the behavior of cartel members.

“Our main concern is to prevent illegal cartels as far as possible,” Mr. Mundt said.

Whether the aggressive activities of the cartel office are having a preventative effect is still a point of contention among experts. “Despite constantly new record fines, the number of exposed cartels continues to rise,” said Daniel Zimmer, director of the Institute for Commercial and Business Law at the University of Bonn and the chairman of the monopolies commission. “This may be due partly to the efficiency of the German cartel office, but probably also to the fact that the current system does not yet have a sufficiently established reputation for strict enforcement.

If forming cartels is viewed as something similar to illegal parking – an infraction that can be paid with a fine – the deterrent level could be comparatively low, Mr. Zimmer said. He believes there should be criminal sanctions against the largest cartels and that those who have engineered them should face the loss of employment.

For now, however, the cartel office will depend on hefty monetary penalties in its battle against monopolies.