Europeans Engage In A Little Spring Cleaning As They Open The Window On Fines

The European Commission is engaging in a little spring cleaning as it opens the window on how the European Union calculates fines, and cleans up a price-fixing cartel of laundry detergent producers.

The EU’s drive for greater transparency in how it sets fines was announced by Competition Commissioner Joaquin Almunia, who revealed that the Commission will be adding a section on fines in its Statement of Objections, which is sent to companies under investigation.  This new section will “indicate … the elements for the calculation of the fine such as the value of the cartelized sales – which is a critical factor – but also, for example, an indication of the gravity” and whether they have breached rules previously, he said.

The announcement comes in the wake of criticism from businesses that the fines are too high, especially in difficult economic times.  Almunia said the change should “open a channel for dialogue with the parties and will give them a better idea, at an early stage, of the size of the fines” they are facing.

“In the last few years, we have been refining our fining guidelines to achieve optimal deterrence – which is our ultimate goal – and we will continue do to so,” he said.  Almunia defended the high fines by saying, “Our fines must remain large, because companies need to understand that cartels do not pay.”

The announcement came a day after the Commission fined two household products companies – US-based Procter & Gamble Co. and British-Dutch company Unilever NV – a total of $456 million as part of a settlement for fixing prices of laundry detergent powder in eight European Union countries.

Germany’s Henkel AG, one of the leading producers of laundry detergent in Europe, blew the whistle on the cartel in 2008 when it detected the conduct during an internal audit.  Henkel got immunity and was not fined because it informed regulators of the price fixing.

In a press conference, Almunia said the cartel began when the companies, through a trade association, began an environmental initiative which focused on methods to reduce the weight of detergent powders and reduce packaging waste.  “They agreed to protect their respective market shares, they agreed also not to decrease prices when decreasing the size of the packages, and afterwards they even agreed on a price increase,” Almunia said.

The cartel operated from January 2002 until March 2005, and affected the price of laundry detergents in supermarkets in Belgium, France, Germany, Greece, Italy, the Netherlands, Portugal and Spain.

As part of the Settlement, both Unilever and Procter & Gamble admitted that they participated in the cartel in exchange for a 10 percent reduction in fines.  The fines were also reduced as part of the Commission’s leniency program because both companies cooperated with the investigation.

The European Commission, which can fine companies as much as 10 percent of global yearly sales, imposed 12 billion Euros in fines from 2005 to 2010.  In 2010 alone, the Commission imposed fines of 3 billion Euros in the seven cartel decisions it made.  The Commission is currently investigating more than 25 cartel cases.

Tagged in: International Competition Issues, Price Fixing,