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Archive for May 21st, 2010

Admission of Guilt

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On Weds, the Commission adopted its first settlement decision in a cartel case. In a nutshell, the settlement procedure seeks to incentivize parties to cartel proceedings to admit early that they are guilty.

The procedure was introduced in 2008. It is based on Regulation (EC) No 622/2008 of 30 June 2008, which amended Regulation 773/2004. At the time, the procedure attracted much criticism, in particular because it allegedly forces firms to forfeit their right to judicial review (see paper by D. Waelbroeck et. al). Back in the day, I have published in Concurrences a chart which summarizes the procedure.

The ratio behind the procedure is plain simple: with leniency being a potential time-bomb in terms of workload, the Commission is adamant on achieving “procedural efficiencies” (sic). It thus tries to gain time in inducing parties to acknowledge their guilt. In turn, the Commission can reallocate scarce administrative resources to other – more demanding – investigations.

Importantly, this procedure is only likely to succeed if incentives for companies are right. On paper, the rewards for firms contemplating a settlement look attractive. In addition to the 10% potential discount on the fine, the limitation of the duration of proceedings leads companies to face lesser regulatory exposure over time, and management can return quickly to normal business. In addition, because “a sin confessed is a sin half pardoned“, companies may view new procedure as a means to exhibit repent, and minimize risks of follow-on proceedings.

Now the key question is whether the EU procedure is in practice workable, and delivers sufficient incentives to bring companies to the table of negotiation. On this, I have some doubts. The new system was introduced in June 2008. With this case – which started before this date – it took almost two years to the Commission to land its first settlement. On pure performance grounds, I do not view this as particularly efficient. The Commission implicitly confirms this in its press release, stating:

With experience and as the procedure applies to new cases, the Commission will deal with investigations more expediently

Written by Nicolas Petit

21 May 2010 at 9:50 am