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April 5, 2013

Yesterday, the Competition Bureau announced that in connection with its ongoing motor vehicle components  cartel investigation, Furukawa Electric Co., Ltd. (Furukawa), a Japanese supplier of motor vehicle components, pled guilty and was fined $5 million by the Ontario Superior Court for participating in a bid-rigging agreement to relating to bids provided to Honda of Canada Manufacturing Inc. (see: $5M Fine for a Japanese Supplier of Motor Vehicle Components).

In making the announcement, Canada’s Interim Commissioner of Competition John Pecman said: “cracking down on cartels, including bid-rigging offences, is a top priority for the Bureau. … This criminal activity defrauded the automobile sector in Canada and the substantial fine demonstrates the seriousness of such an offence.”

According to the Bureau, the plea by Furukawa related to electrical boxes (including fuse boxes, junction blocks and relay boxes) sold to Honda between 2000 and 2010, with a total volume of affected commerce in Canada of approximately $41 million (the Bureau uses the volume of commerce as a starting point for negotiating fines).  The Bureau also said that it became aware of this cartel through its Immunity Program and that its investigation benefitted also from parties that had cooperated under its Leniency Program.

In Canada, under section 47 of the federal Competition Act it is a criminal offence to agree to not submit a bid or tender, agree to withdraw a bid or tender already made (an offence recently added to the Competition Act as a result of 2009 amendments), or submit a bid or tender arrived at by agreement.  In essence, the Competition Act prohibits most types of agreements or arrangements between competing bidders or tenderers (with the exception of bids or tenders arrived at by agreement that are disclosed to a tendering authority in advance, which allows for certain bid consortia agreements provided that they meet the requirements of the Act).

Bid-rigging agreements are often structured in a handful of key ways to avoid detection.  These include: (i) “cover”, “courtesy” or “complementary” bidding: some firms submit bids that are too high to be accepted (or with terms that are unacceptable to the tendering authority) to protect an agreed upon low bidder; (ii) bid suppression: one or more bidders that would otherwise bid or tender agree to refrain from bidding (or withdraw a previously made bid); (iii) bid rotation: all parties submit bids but take turns being the low bidder according to a systematic or rotating basis; (iv) market division: suppliers agree not to compete in designated geographic areas or for specified customers; and (v) subcontracting: parties that agree not to submit a bid (or submit a losing bid) are awarded subcontracts or supply agreements from the successful low bidder.  These types of covert bid-rigging arrangements are typically intended to achieve several goals, including keeping the bid-rigging arrangement secret and dividing contracts/markets among the parties.

Violation of the bid-rigging offences of the Competition Act is subject to unlimited fines (i.e., fines in the discretion of the court) and/or imprisonment for up to 14 years.  Recent changes to the sentencing provisions of the Criminal Code have also eliminated conditional sentences (i.e., sentences served in the community or “house arrest”) for some Competition Act offences, including criminal conspiracy agreements and bid-rigging.

Bid-rigging is also a “per se” offence (as it was before Competition Act amendments in 2009), which means that no market effects are required to be proven and is as well one reason why the Bureau will sometimes pursue bid-rigging as a criminal theory of harm for pre-2009 conduct rather than price-fixing or another conspiracy theory, as Canada’s prior conspiracy offences included a market effects test and therefore a higher burden before those changes came into force in 2010.

For more recent bid-rigging cases and developments see: here, here, here, here, here, here, here and here.

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