By Benjamin Gomez*
So it took a bit longer than originally predicted on my previous contribution to DWA , but it came as tough as expected. I am referring to the new amendments to Decree Law 211 – the antitrust statute in Chile – which entered into force by Law 20.945 on August 30th, 2016, bringing unprecedented punishments for cartels and an overall strict regulation of other relevant antitrust issues. In an effort to be critical yet pragmatic, I will keep the informal tone that has been encouraged by the founders of this blog.
We need to begin with the big shocker of this new law: the reinstatement of criminalization for an anticompetitive conduct. Prison time for cartels is no novelty; until 2003, Chilean Antitrust legislation contemplated up to 5 years of prison for these anticompetitive conducts (although no one was ever sentenced) . But the new statute raises the criminal bar and now contemplates up to 10 years of prison time for individuals. Just to give a better idea, this is the same prison time that could potentially apply to a rape or murder case. Although it is difficult to imagine any high-society Chilean billionaire (as has been the tone for most recent cartel cases in the country) doing any effective jail time it is still a big deal, the fact that this new sanction is out there will definitely make the big players think twice.
Still on the cartel trail, we can see once again (as the previous amendments back in 2008) a significant increase in economic fines, this time doubling up the cap from USD $25 million to USD $50 million approximately. In addition, a new predominant criteria was inserted to determine the amount of the fine. The Antitrust Tribunal (Tribunal de Defensa de la Libre Competencia – TDLC) shall calculate and apply first 30% of the gains for each of the colluding parties during the breaching period, or alternatively up to twice the economic benefit gained by such party. Only if those benefits cannot be determined, the TDLC can apply other factors to freely decide on the amount of the fine, with the aforementioned USD $50 million cap.
All of these measures seem to be directly inspired by the Sherman Act, one of the main federal antitrust statutes in the United States, and maybe the harshest from a comparative perspective. The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million . The new law already equalized the US on the jail time aspect, and if a new double-up is made by the Chilean Congress on economic penalties, Decree Law 211 will then be among the toughest antitrust regulations in the planet.
The Sherman Act imposes an exponential increase of fines, aimed at some of the world’s largest corporations, and that is a factor to be considered. To continue doubling-up the fines in Chile would lead to a potential punishment-victim disproportion. Furthermore, it is difficult to imagine a scenario where the Chilean criminal system would end up imposing effective imprisonment as the general rule, both from a logistics and cultural standpoint. On the other hand I understand that this has become a necessary effort to fight the growing recklessness by the major economic groups engaging in high-impact collusive agreements. Just as the year 2016 came to a close, the Chilean media exposed a cartel on the baby diaper market carried out by the same companies involved in the “Toilet Paper Cartel”, CMPC and Kimberly-Clark. Yes, you read correctly: a “Diaper Cartel” that systematically coordinated to increase prices between 2002 and 2009 (as if an agreement to fix prices of toilet paper was not outrageous enough!).
Moving past cartels, another interesting amendment to Decree Law 211 is the now mandatory control of all mergers and concentration operations. Just recently, the new thresholds were set by the National Antitrust Prosecutor of Chile (Fiscalia Nacional Economica – FNE) by means of Resolution 667 dated November 24, 2016, requiring all potential mergers where combined national sales by the intended merging parties are equal to or higher than USD $70 million approx. for the previous commercial year or at least USD $11 million approx. separately considered, to have prior antitrust clearance by the FNE. The effects of this new amendment will need to be assessed in time, but it is definitely positive to have the FNE thresholds already in place early in the game.
Finally worth mentioning, the new statute brings some positive novelties by imposing restrictions to different actors involved in the antitrust universe. For company board members, there will be interlocking restrictions in place, while members of the TDLC shall now have exclusive dedication to their role. This last one always puzzled me; how some members of such tribunal were acting as active law firm partners and gave advice to private parties on antitrust matters. Incompatibility and ethics must go both ways, and this is definitely a smart move to improve the current statute and prevent conflicts of interest.
All things considered, the new amendments to DL 211 come just in time to tackle the cartel explosion going on in Chile, which has reached new levels of shameless anticompetitive conducts –involving public health basic goods such as toilet paper and diapers – and is giving no signs of stopping. Higher fines and harsher punishments are seen with welcoming eyes by both government and the public, but at the same time there must be some serious consideration of how legislation is going to move forward and how convenient will it be to continue imitating some of the Sherman Act’s criteria for determining punishments by the TDLC. For now, locking up the bad guys seems to be a move in the right direction.
* Attorney at Law, Pontificia Universidad Católica de Chile
LL.M, University of California, Berkeley, School of Law