March 13, 2014
Guest post by Tamara Dini
(Director, Bowman Gilfillan)
In October last year, Takata Corp. of Japan announced that it would pay US$71.3 million to settle charges of competition law infringements brought by U.S. prosecutors over price-fixing on seat belts sold to vehicle manufacturers. This proposed settlement was one of many in a long-running investigation by competition law authorities in several countries into price-fixing in relation to more than 30 types of car parts, including seat belts, radiators, windshield wipers, air-conditioning systems, power window motors and power steering components.
In the United States, where price-fixing exposes companies to very high penalties and the individuals involved to criminal sanctions, at least 20 companies (9 of these based in Japan) and 21 executives have agreed to plead guilty. A Takata executive in the United States, Gary Walker, agreed to serve 14 months in prison in the U.S. and to pay a $20,000 criminal fine. In Japan, Takata’s CEO, Shigehisa Takada, faces a 30% percent cut in his compensation, while other directors will face a 15% cut.
The auto parts were sold to a wide range of U.S. automakers and U.S. subsidiaries of foreign automakers, including Fiat S.p.A. affiliate of the Chrysler Group, Ford Motor Co. and General Motors, Honda Motor Co., Mazda Motor Corp., Mitsubishi Motors Corp., Nissan Motor Co., Toyota Motor Corp. and Subaru, owned by Fuji Heavy Industries Ltd.
In some cases the price-fixing lasted for a decade or longer. Reportedly, executives of the auto parts companies typically met in person or discussed telephonically to reach agreement on prices. Scott Hammond of the US Justice departments Antitrust Division’s criminal enforcement programme, said “Every time we discover a conspiracy involving the automotive industry, we seem to find another one.”
Similar investigations are underway on the upstream level. In September last year, Spain’s antitrust regulator, the National Commission of Competition (CNC) announced that it is investigating possible price fixing by some of the world’s largest vehicle companies. CNC will examine evidence that motor manufacturers shared market-sensitive information to set prices. These alleged infringements expose firms found in contravention to fines of up to 10 percent of total (Spanish) turnover.
The investigation, which targets both motor manufacturers and their Spanish distributors, was a priority “given the serious consequences for consumers,” CNC announced.
Nissan, Ford, Toyota and Seat, which is Volkswagen’s Spanish subsidiary, said they were aware of the investigation and were cooperating. Nissan said in a statement that the opening of the proceedings does not mean that any competition law infringement has taken place while Renault also said the company had not broken any competition laws, and Ford added that it operated within the law.
The implications for companies involved in cartel conduct are very serious. Not only are they exposed to harsh penalties and significant reputational harm but they may also be hit by class actions for damages brought by customers who have suffered loss as a result of the cartel conduct. In the U.S., where treble damages are provided for, class actions for damages suffered as a result of a decade long cartel can be devastating. For individuals involved in conduct where the effect is felt in the U.S., they face possible imprisonment as well as fines being imposed on them personally. This is not a new development — the sanctions for price-fixing have been in place for decades and the risks for contraventions are well-known.
If such significant sanctions do not deter cartel conduct, the question is raised as to whether more creative mechanisms are needed to incentivize companies and their employees to abide by the law. This question is very relevant in South Africa, where the introduction of criminal sanctions and personal liability for cartel conduct has been considered for a number of years as a mechanism to deter cartel conduct. Globally more than thirty countries have criminalized cartel conduct in some form. All but five have done so since 1995 and over 20 have done so since 2000, and the list is growing. However, it is not clear that criminal sanctions alone serve as an effective deterrent. Other mechanisms which studies show as important in deterring individuals from engaging in cartel conduct include increased awareness and understanding of the law and the implications for infringements, as well a business prioritising compliance over increased sales and high market shares. Incentivizing and rewarding managers and directors in a way that promotes compliance is another option. The law alone is also seemingly insufficient to deter cartels: regulators need to be regarded as vigorous. Whatever the most effective combination of deterrence mechanisms, companies, regulators and lawyers still have some way to go in reducing and eliminating anti-competitive conduct and instilling a culture of compliance.
(Reprinted with permission)
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