Facilitating a Cartel is as Bad as Participating
A recent European Commission (EC) fining decision against UK-based broker ICAP confirms that companies which merely facilitate a cartel will be tarred with the same brush as those which actually engage in the cartel. The decision formed part of the EC’s investigation into cartels in the sector of yen interest rate derivatives (YIRD).
The EC announced its fines (totalling nearly €670 million on six participants which admitted the infringements and settled) in the YIRD cartel in December 2013. It found seven distinct bilateral infringements of competition law involving discussions among traders of various banks on certain Japanese yen (JPY) LIBOR submissions. The traders involved also exchanged, on occasions, commercially sensitive information relating either to trading positions or to future JPY LIBOR submissions.
ICAP did not settle and the EC therefore continued its investigation. In its decision against ICAP, announced 4 February 2015, the EC found that ICAP facilitated six of the seven cartels in the YIRD sector through various actions that contributed to the anticompetitive objectives pursued by the cartelists. In particular, it disseminated misleading information to certain JPY LIBOR panel banks, which were veiled as “predictions” or “expectations” of where the JPY LIBOR rates would be set. It also used its contacts with several JPY LIBOR panel banks that did not participate in the infringements, with the aim of influencing their JPY LIBOR submissions. Finally, it served as a communications channel between a trader of Citigroup and a trader of RBS and thereby enabled the anticompetitive practices between those companies.
ICAP was therefore fined nearly €15 million. The EU courts have previously ruled that a facilitator can expect to be fined if it knows that it is actively and deliberately contributing to a cartel. The ICAP case appears to be a natural extension of that principle by the EC.
European Commission Announces Further Investigation into Tax Arrangements
On 3 February 2015, the EC announced that it has opened a formal investigation into tax ruling practices in Belgium. This case is looking at rulings which allow multinational entities in Belgium to reduce their corporate tax liability by “excess profits” that allegedly result from the advantage of being part of a multinational group. The concern is that this is selective and therefore gives rise to State aid granted by Belgium to those companies, which might therefore have to be repaid.
The EC noted that these tax rulings are often granted to companies that have relocated a substantial part of their activities to Belgium or that have made significant investments in Belgium. Further, according to the EC, this scheme appears to benefit only multinational groups, whilst Belgian companies active only in Belgium cannot claim similar benefits (thus it is selective).
The EC is looking at tax ruling practices EU-wide, and formal investigations into similar issues have already been opened in relation to Ireland, the Netherlands and Luxembourg. The Belgian case is different, however, as it appears to be a general investigation, as opposed to one looking at rulings favouring individual companies.
The case shows that the EC continues to expand its tax State aid investigations. This issue will run and run, and any company active in the EU would be well-advised to consider the potential impact. Separately, the European Parliament has established a “special committee” to conduct a general probe into tax evasion and fraud in the EU.
UK Competition and Markets Authority Continues Investigation into Energy Markets
The UK Competition and Markets Authority (CMA) is currently conducting an in-depth investigation into the supply and acquisition of energy in Great Britain. It is expected to issue its final report by the end of 2015, with provisional findings due in May 2015.
On 18 February 2015, the CMA published an updated “issues statement”. This summarises the CMA’s initial thinking based on the evidence it has received and the analysis it has carried out. It updates the theories of harm outlined in its initial issues statement published in July 2014 and highlights those issues likely to represent the ongoing focus of the investigation in the period leading up to publication of the provisional findings.
The updated issues statement identifies the following theories of harm:
- Theory of harm 1: The market rules and regulatory framework distort competition and lead to inefficiencies in wholesale electricity markets.
- Theory of harm 2: Market power in electricity generation leads to higher prices.
- Theory of harm 3a: Opaque prices and low liquidity in wholesale electricity markets distort competition in retail and generation.
- Theory of harm 3b: Vertically integrated electricity companies act to harm the competitive position of non-integrated firms to the detriment of the consumer, either by increasing the costs of non-integrated energy suppliers or reducing the sales of non-integrated generating companies.
- Theory of harm 4: Energy suppliers face weak incentives to compete on price and non-price factors in retail markets, due in particular to inactive customers, supplier behaviour and/or regulatory interventions.
- Theory of harm 5: The broader regulatory framework, including the current system of code governance, acts as a barrier to pro-competitive innovation and change.
The CMA’s analysis in this issues statement and going forward will be of interest to any actual or potential actors in the UK energy markets as well as in similarly structured markets elsewhere. The CMA invites comments on the document.
Additional European competition law news coverage can be found in our news section.