For affected companies, the amendment means "carrots and sticks": Companies with effective antitrust compliance systems for the prevention and detection of cartel infringements as well as those that contribute to the detection of a cartel infringement as leniency applicants can in the future be rewarded to a greater extent when fines are imposed (see below 2.), while companies that do not (immediately)opt for such contribution can now be forced to cooperate in the investigations (see below 1.).
Duties of cooperation in the investigation phase
Even though the Corona virus pandemic has led to a sharp decline of unannounced inspections ("dawn raids"), these remain one of the most important investigative powers of the German Federal Cartel Office (FCO). It is to be expected that the FCO will, in an attempt to make up for lost time, increasingly conduct dawn raids again to uncover and prosecute cartel infringements once the pandemic restrictions allow.
- Previously, the management and employees of the company concerned were only obliged to tolerate the search of the company premises and the seizure of evidence (primarily electronic data) in the event of a dawn raid by the FCO. In contrast to cartel investigations by the European Commission, they had in general (subject to a witness position) no duty to cooperate such as through the disclosure of the location of certain documents or the password of their laptops. This has now changed.
- Now, management and employees must disclose "information that may provide access to evidence, as well as explanations of facts or documents that may be related to the subject matter and purpose of the search" in the course of a dawn raid, subject to a fine (Section 82b (1)(1) in conjunction with Section 59b (3)(1) no. 3 ARC, new version). The right of these persons to refuse to provide information does not apply if "the information only gives rise to the risk of proceedings for a fine by the antitrust authorities" and the FCO has given a non-prosecution commitment (Section 82b (2) in conjunction with Section 59 (4)(2) ARC, new version). Since the FCO can withdraw a non-prosecution commitment later on, for example because the employee allegedly did not testify completely or correctly, this considerably restricts the nemo tenetur principle as guaranteed by fundamental rights. However, it will be very interesting to see to what extent the protection of private data will be a limiting factor for these new cooperation duties (see the recent General Court decision Les Mousquetaires, Case T-255/17).
The new power to request information (Section 82b(1)(1) in conjunction with Section 59 ARC, new version) is also of considerable importance for future cartel investigations by the FCO.
- Previously, the FCO has only been allowed to request information and documents on turnover data and company shareholdings for the purpose of calculating fines (Section 81b ARC).
- Now, the FCO may also request the provision of information and the surrender of documents which form the basis of the cartel infringement. For the FCO, such general requests for information ("RFIs") offer the advantage that the companies themselves will have to investigate, i.e. they have to execute the often broad search terms of the FCO and transfer all documents found on that basis to the authority, under threat of a fine. The European Commission is increasingly making use of this option in its antitrust investigations already. Here, too, the nemo tenetur principle is in danger of being undermined.
Recognition and privileges as concerns fines
At the same time, the 10th amendment to the ARC substantially changes the provisions on setting the fines in a number of points. Two changes in particular will be of importance in practice.
The first important change concerns the setting of fines.
- Previously, only the range of fines (0 - 10% of worldwide group turnover) and some broader assessment criteria (gravity of the infringement, its duration and the economic circumstances of the company) were regulated by law (Section 81(4) and (4a) ARC). In order to increase legal certainty, the FCO had issued guidelines on setting the fines which are primarily based on the turnover achieved from the infringement (which in the case of large companies often accounts for only a small proportion of total turnover). However, the Higher Regional Court of Düsseldorf, which is the appeal court for decisions by the FCO, does not apply this "home-made" calculation of the FCO. Instead, it makes full use of the fine range of up to 10% of group sales and thus usually arrives at significantly higher fines. The companies concerned have therefore regularly felt compelled to refrain from appeals, i.e. to accept the FCO's fining decision (often based on a settlement with the authority).
- Now, Section 81d(1) ARC will provide a number of criteria for the setting of fines which, according to the legislator, should remedy these unfortunate consequences of a diverging decision-making practice between the FCO and the court of appeals. However, these criteria are not binding ("in particular... can be considered"). Moreover, it is not provided how they are to be applied in relation to each other. Unfortunately, therefore, the different ways in which fines are set and the practically limited judicial review will likely not change in the future.
However, the new provision in Section 81d(1) ARC is of considerable practical importance for another reason: the antitrust compliance defense. For now, "appropriate and effective precautions taken to detect and avoid infringements" can be rewarded at the level of setting the fines by taking such effective compliance efforts into account – even if this relates to compliance efforts undertaken before the infringement which is supposed to be fined. The introduction of the compliance defense is in line with a current trend and creates further incentives for companies to invest in the establishment and review of compliance management systems.
According to the reasoning to the amendment, compliance measures are "appropriate and effective" if "the owner of a company has taken all precautions which are objectively necessary in order to effectively prevent infringements of competition law provisions by employees." This is generally to be assumed "if the measures taken have led to the detection and reporting of the infringement."
Therefore, according to the reasoning, the compliance defense can be taken into account for reducing fines in the following cases:
- the precautions taken have led to the discovery and reporting of the infringement, and
- neither the management (such as the board of directors of a stock corporation) nor any other person responsible for the management of the company was involved in the infringement.
The assessment of compliance measures as "appropriate" shall be undertaken on a case-by-case basis and shall depend on the size of the company, the propensity of the company's business area for cartelization, the number of employees, the applicable regulations and the risk of their infringement (see our article Compliance im Aufwind).
The second important change to the provisions on setting fines concerns the privileges for companies that reveal a cartel and help to investigate it. With the 10th ARC amendment, the legislature has for the first time enshrined in law a leniency program for cartel infringements. The regulations largely correspond to the existing leniency program of the FCO. Under this program, companies receive a reduction in fines or even immunity from fines depending on the timing and extent of their leniency application.
- Previously, under the previous leniency program, the leniency applicant could only receive full immunity from fines if he or she was not the leader of the cartel (so-called "ringleader") or did not coerce others to participate in the cartel.
- Now, the new provisions implementing the ECN Plus Directive will no longer provide for such a restriction. This means that ring leaders can also benefit from full immunity from fines in the future.
Outlook
In its recent annual review of 2020, the FCO again noted a decline in leniency applications in Bonn as a result of increased cartel damages litigation. As a consequence, the FCO has announced that it will explore "innovative investigation methods such as the screening of markets" and expand the possibilities of its digital anonymous whistleblower system. It remains to be seen whether the changes of the 10th ARC amendment will lead to the desired outcome and increase the effectiveness of cartel enforcement. However, it seems that the FCO is already exploring further ways and means to revive cartel enforcement (in particular its currently beating the drum for a new market screening tool which it seeks to apply more frequently in the future).
Rewarding effective antitrust compliance, now enshrined for the first time in German law, is in line with current global trends. With the provision now adopted, Germany is following a significant recent change in the practice of the US Department of Justice (DOJ). For a long time, the DOJ had (also) resisted rewarding compliance efforts in the case of antitrust infringements. It was not until the summer of 2019, however, that the DOJ made a surprising U-turn and declared that effective compliance systems should now be fully taken into account – including, in particular, when bringing charges.
In Germany, the new provision is also in line with the wording of the government's current draft of the new German Corporate Criminal Law Act (Section 15(3)(2) No. 6 of the government draft). There, too, the legislator provides that the court may take into account "[...] precautions taken prior to the act of association [i.e. the illicit conduct] to prevent and detect acts of association" when assessing fines against companies.
Companies should be prepared for an increased cartel investigation activity by competition authorities from summer/fall 2021 at the latest, in particular in view of the backlog of antitrust dawn raids due to the Corona virus pandemic. When reviewing their dawn raid procedures and antitrust compliance systems, companies should therefore pay increased attention to ensuring that these comply with the new investigative powers and the new requirements for appropriate and effective compliance precautions.
Authored by Christian Ritz and Hubertus Weber
