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German automakers face a tough tactical choice following word that they might have colluded for decades on a wide-ranging set of technical and commercial issues — confess or fight.
The EU and German regulators have confirmed to Bloomberg BNA that they are investigating allegations that five German automakers — Daimler AG, Volkswagen AG, BMW AG, Porsche SE, and Audi AG —may have engaged in an illegal cartel by participating in industry meetings related to technology, costs, suppliers and emissions controls in diesel engines. Now the companies have to decide whether to cooperate with the investigation in hopes of reduced penalties.
Antitrust authorities in Germany, the EU, and the U.S., all have leniency programs that immunize the first party to report a cartel. The system is set up to provide incentives for cartel members to break their silence and turn on their co-conspirators to avoid punishment. Deciding whether to go to the authorities is an important decision for a company, with potential cartel fines in the EU as much as 10 percent of worldwide revenue for an offender. The problem spreads to multiple authorities when a cartel is international in scope.
In making a leniency application, “precision, thoroughness, and speed are crucial,” a German antitrust practitioner told Bloomberg BNA, who asked not to be identified. “It’s never boring,” he added, noting that a first-place confessor might not give regulators a complete picture and thus lose that spot in line.
The German carmaker investigation has been confirmed by both the German Bundeskartellamt and the EU competition commission, but there is little more that the regulators will divulge about the probe. “It is premature at this stage to speculate further,” said an EU spokesperson, responding to a question about the state of the investigation.
The companies alleged to participate in the cartel now must choose between seeking leniency, settling with enforcers, or denying involvement and seeing where the investigation goes. They need to move fast because cartel leniency programs usually only immunize the first company to reveal a cartel to a regulator.
“A cartelist should indeed set a ‘marker’ in Germany as well as with the EU Commission,” said Kim Manuel Künstner, senior associate at the German law firm Schulte Riesenkampff, who specializes in antitrust law.
Some leniency systems, like the ones in the EU and in Germany, provide partial reductions in penalties for subsequent leniency applicants.
In the U.S., it’s winner-take-all. Only the first leniency applicant can get immunity. Subsequent applicants face full penalties for their participation in a cartel.
To get immunity, the cartel member must be the first to report the infringement to authorities and cooperate fully, handing over all information and evidence available. Failure to be entirely forthcoming means that a leniency applicant can lose its place in line — and immunity from enforcement — to a later applicant that complies with those requirements.
Accordingly, it might be worth it to one or more car companies to place a marker with regulators to save a place in line. If something goes wrong with the leniency applications already on file, a later applicant might still get substantial protection from enforcement.
Companies can set a marker in most national authorities with a phone call, the German antitrust lawyer said. Companies that expect to file a full leniency application in the EU should place markers with other national antitrust authorities quickly as added protection, he said. But that telephone marker must set out the type and duration of the antitrust violation, the product and geographic markets affected, and the identities of the cartel members.
Once the company informs a national regulator that an EU application will be filed, it’s usually exempted from filing a second full application with that national authority, German lawyers told Bloomberg BNA. The marker is enough to hold the company’s position for any proceedings undertaken at the national level.
Authorities investigating cartels often uncover overlapping collusion in several markets, and splits in enforcement between the EU and national regulators can result in different outcomes for cartel members.
A recent example is DHL’s experience with a set of cartels in transport. DHL Express Italy and DHL Global Forwarding Italy were granted leniency from the EU as the first to report a freight forwarding cartel. But they fell behind Deutsche Bahn AG and its subsidiary Schenker Italiana SpA in reporting specifics to Italian authorities. As a result, Italy’s Autorita Garante della Concorrenza a del Mercato (AGCM) granted leniency to Deutsche Bahn and Schencker and fined DHL.
In that case, the European Court of Justice held that leniency applications to the European Commission aren’t binding on EU members’ competition authorities, which can operate their own national leniency programs to companies that apply for reductions in cartel fines. Member states also aren’t required to check with the EU before making decisions under their own national leniency programs, the court said.
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