March 10, 2013
Readers of this blog will know that two of my main interests are competition/antitrust compliance and cartels. Despite the continually escalating fines and persuasive reasons cartels should be aggressively punished, they seem to chug on in the corporate world unabated. Perhaps it’s the game theory of cartels that I find fascinating. At any rate, in this vein this new paper on cartels and compliance caught my eye by D. Daniel Sokol: “Policing the Firm” (see: here). Abstract:
“Criminal price fixing cartels are a serious problem for consumers. Cartels are hard to both find and punish. Research into other kinds of corporate wrongdoing suggests that enforcers should pay increased attention to incentives within the firm to deter wrongdoing. Thus far, antitrust scholarship and policy have ignored this insight. This article suggests how to improve antitrust enforcement by focusing its efforts on changing the incentives of internal firm compliance.”
From the introduction:
“In 2006, details began to emerge about a massive, decade- long, worldwide price-fixing conspiracy involving air cargo. Seasoned international travelers will recognize members of the conspiracy, which included some of the best-known airlines in the world—Air France-KLM, Alitalia, American Airlines, British Airways, Cathay Pacific Airways, Delta (via merged partner Northwest), Lufthansa, LAN, El Al, Emirates Airline, Singapore Airlines, Air India, All Nippon Airways, South African Airways, and Thai Airlines. The extraordinary dollar amount of this world- wide price-fixing cartel (over $4 billion recovered so far) have made the air cargo cartel the largest cartel in terms of damages collected.
The number and sophistication of the companies and individuals involved in this collusive criminal activity and lack of detection by internal gatekeepers such as in-house counsel and compliance officers illustrates inadequate corporate governance on a massive scale. Employees of a given airline would send emails and phone their counterparts across airlines to ensure that price changes, based upon an agreed upon fuel surcharge index, would be followed by all of the cartel members. These employees would report up to their superiors that all the cartel members would increase the surcharge. Put differently, there were price conversations between competitors and some bonding and monitoring mechanisms thereafter to enforce the cartel.
With all of the compliance enforcement methods used by antitrust agencies (imprisonment, individual and corporate fines, and leniency), the number of antitrust agencies around the world spending resources to uncover cartels, and layers of compliance programs within a given company, it may be surprising that so many large and sophisticated companies avoided detection for ten years. The cartel’s duration and composition is even more shocking given significant corporate governance focus on improving compliance.”
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