Cleaner business

Fighting Hard Core Cartels: Harm, Effective Sanctions and Leniency Programmes
OECD Observer

“Our competitors are our friends, our customers are the enemy.” Whether or not this sums up the cavalier attitude of cartels to business, they certainly appear to lack the service-oriented, open mentality today’s society expects.

On conservative estimates, cartels cost consumers many billions of dollars each year. By fixing prices and rigging bids, they stifle innovation and reduce output. Indeed, hard-core cartels have been recognised as the most serious and harmful violations of competition law.

What then can we do to combat them?

Naturally, these cartels go to great lengths to remain undetected and unpunished. Without the help of an “insider”, the veil of secrecy can be impossible to lift. In this book, the OECD identifies an increasingly successful “carrot and stick” approach–stiffer punishment, combined with greater incentives to defect and co-operate with the authorities.

Several countries already provide lenient treatment to those who confess and provide evidence–offering a smaller fine, shorter sentence, or complete amnesty. The first firm to break ranks should receive the highest reward, though a degree of leniency could also be offered to other co-operative firms, even after an investigation has begun. And this policy is proving successful–the US programme has led to the conviction of 30 defendants and the collection of well over US$1 billion in fines in the past two years.

On the flip side of the leniency coin, the sanctions “stick” must be severe enough to give effect to the “carrot”. Fines serve a double function: they deter the formation of new cartels, while making defection more attractive. Though some countries have imposed large fines against organisations in cartel cases, many others have not. And few countries currently sanction individuals for cartel conduct–the risk of personal liability is a powerful deterrent.

Because the unlawful gain accruing to the cartel members from their activity is so great compared to the chances of detection, far heavier sanctions are needed. Some experts recommend two or three times the gain to the cartel.

There is a trend toward greater fines, but for now some competitors look set to remain the best of friends.

©OECD Observer No 234, October 2002

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