In order to ensure transparency and proportionality on fine application in cartel cases, the Administrative Council for Economic Defense (“Cade”) launched the Cartel Fine Calculation Guide on July 02, 2020, which will be available for public contributions until August 01.
Although the document is not binding, the initiative rewards legal sanctity by indicating the methodology applied by the Brazilian antitrust authority to calculate fines, in accordance with the recommendations of the Organization for Economic Cooperation and Development (“OECD”).
The Guide lists three steps for calculating the fine: (i) establishing the calculation basis and reference rate; (ii) adjusting the rate based on the duration of the cartel and, subsequently, on the mitigating and aggravating factors; and finally, (iii) adjusting the fine to the legal requirements. This Guide is compliant with the guidelines already addressed by the Cease and Desist Agreement for cartel cases, published by Cade in 2016.
Regarding the first step, the definition of the calculation basis and the reference rate, the Guide acknowledges that although the rule for the calculation basis is the gross revenues of the business segment, this parameter often needs to be flexibilized, in order to use the parameter of revenues in the market affected by the conduct in the year prior to the administrative proceeding, for the purpose of proportionality and ensuring the dissuasive effect of the fine. By ‘affected market’, the Guide specifies that it is the one targeted by the conduct, in which there may have been a concrete or merely potential impact. In this topic, the Guide lists, for example, some scenarios already adopted by Cade, for setting the calculation basis in relation to the base year of revenue and in relation to revenue in the national territory/geographical area affected, when it is not possible or reasonable to apply the legal rule.
Still on setting the calculation basis, the Guide proposes that the monetary adjustment be made based on the Selic rate. The amount to be adjusted corresponds to the period between the revenue used (by the legal rule, the revenue obtained in the year prior to the administrative proceeding) and the month prior to the conviction with the imposition of the fine. The value can be adjusted either by adding the monthly fees or by deducting the fee accumulated in the starting point from the fee accumulated in the starting point.
Once the calculation basis has been defined, it is the moment to proceed to the rate adjustment. In this topic, Cade highlights an important aspect of its case law, the reference rates for each horizontal conduct. Namely:
For cartels in public bids, the reference rate is 17%, and it may be higher than that or reach a minimum of 14%;
For classic cartels, those agreements or exchanges of information would be related to prices, geographical division, share, or customers, which have mechanisms for monitoring/punishment of misalignment and continuity. The rate to be applied is 15%, and it may be higher than this value or reach a minimum of 12%;
For other forms of joint conduct, including diffuse cartels, such as sporadic or non-systematic exchanges of information, unilateral disclosure of information, price fixing, among others, the reference rate of 8% is used, which may be higher than this or reach a minimum of 5%. The variations between reference value and minimum rate must be applied, considering the mitigating and aggravating factors of the conduct, according to Cade’s case law.
Firstly, the duration of the conduct is a relevant issue in the rate calculation. In this sense, the Guide proposes the addition of 0.5 percentage point (p.p.) to the rate per additional year of the conduct. For example, if the cartel lasted 9 years, 8 years will be computed, since the first year is already included in the reference rate. Therefore, 4 p.p (0.5 x 8 = 4) will be added.
Then, the second adjustment is made according to the mitigating and aggravating factors listed in article 45 of Law no. 12,529/2011. They are as follows: seriousness of the infraction; the infringer’s good faith; the advantage obtained or intended by the infringer; the materialization or not of the infringement, degree of damage, or danger of damage to free competition, to the national economy, to consumers, or to third parties; negative economic effects produced in the market; infringer’s economic status; and recidivism. The Guide highlights that suggestions for interpretation may be appropriate to the specific case.
Finally, the last step is the adequacy of the calculated fine to the legal limits imposed. For companies, Law no. 12,529/2011 delimits the minimum of 0.1% and the maximum of 20% of the gross revenues of the company, group, or conglomerate obtained, in the last fiscal year prior to the filing of the administrative proceeding, in the business line in which the violation occurred. After checking whether the fine is within the established limits, it is verified whether there is a recidivism. If there is, the amount of the fine must be doubled.
The Guide also makes considerations concerning the imposition of fines on legal entities that do not engage in business activity – such as associations and trade unions – and on convicted individuals. For the former, the Guide highlights the legal limits of fines between R$ 50,000 and R$ 2 billion, but it does not provide a specific fine calculation for these institutions.
For individuals, the fine has as its calculation basis, the amount imposed on the company where they worked at the time of the conduct, and the rate varies between 1 and 20% of the company’s fine, depending on the employee’s degree of participation in the cartel, and if he/she is an administrator. The Guide suggests the following attributions as leadership characterizers for measuring participation in the conduct, which are perceived as aggravating factors by the case law of Cade: (a) leadership positions (president, partners, de jure or de facto administrators, and/or directors), and (b) protagonism in negotiations. For other individuals (not administrators), the fine will be between R$ 50 thousand and R$ 2 billion.
For infractions committed under Law 8884/1994, Cade’s case law guides that the old law should be applied to associations, trade unions, and non-administrators, as it is more beneficial. However, this does not exclude the application of such law to other respondent persons who prove that it is more beneficial to their case.
Finally, the Guide reflects on the application of alternative sanctions provided for in Article 38 of Law No. 12,529/2011. Although the main sanction is the fine, CADE’s Tribunal may impose alternative sanctions in isolation or cumulatively to the fine, based on the creation of a deterrent effect against the commission of new infractions and inhibiting any harmful effect to the economic order.