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New Brazilian Antitrust Law to increase sanctions for cartel and to clarify the reach of leniency immunity

25 septiembre, 2012

Normally, practitioners tend not to pay a great deal of attention to the last provisions in a long piece of law. Experience shows that most relevant provisions are not in the last sections of any legislation. However, this is not what happened in the new Brazilian Antitrust Law (Law # 12,529/11) with its 128 sections: even though the changes in its first and middle sections are considerable for the administrative enforcement, it is only in section 116 that a dramatic change in the criminal enforcement against anticompetitive practices takes place.

Under the old regime, there were sanctions applicable to anticompetitive practices in the Law of Crimes about the Taxation, Antitrust and Consumption (Law # 8,137/90), but its enforcement had a weak dissuasion effect. Although there have been some temporary arrests over the last 5 years, in practice businessmen involved in anticompetitive practices could get rid of serving a time in jail very easily, since the penalties were not so harsh and the criminal proceedings could be suspended before the defendants were sentenced. The amendment to the Law of Crimes about the Taxation, Antitrust and Consumption is expected to increase the stick available to dissuade businessmen from breaking the antitrust legislation. Even so, from an antitrust perspective, only individuals can be prosecuted: no changes in relation to legal entities are to be reported in this regard. Companies are liable in the administrative sphere, while individuals can be liable both in the administrative and criminal spheres.

There were three major changes worth reporting.

First, the definition of what is a punishable has been simplified. Under the old regime, there were too many possibilities which could fall within the crime of anticompetitive behavior. This is explained by the fact that the legislation was passed when there was still a great deal of government intervention in the economy. Among the 15 possible anticompetitive conducts, there was one which could even describe an M&A transaction (“to abuse the economic power, dominating the market or eliminating totally or partially the competition, through: (…) the acquisition of companies or quotas, shares, bonds or rights”). 

Under the new Brazilian Antitrust Law, abuse of economic power is defined as “to abuse the economic power, dominating or eliminating the competition totally or partially through any kind of arrangement or agreement among companies”. Even though the definition is still subject to criticism for mixing abuse of market power with cartel, it is far better than the old regime’s approach.

As regards collusion, the new definition of cartel reads as follows: “to enter into agreement, contract, arrangement or alliance among suppliers, aiming at: (i) artificially setting the price or output sold or manufactured, (ii) controlling local markets by a company of group of companies, (iii) controlling the suppliers or distribution network at the expenses of competition”. Once more, the definition may be subject to criticism, but it is far more technical than the old one.

The second major change regards the penalty for entering into the two above mentioned crimes. A minor change in how the section about the penalty is drafted will increase the likelihood of serving some time in jail. In theory, the penalty will range from 2 to 5 years plus a fine. In practice, this means that at least 4 months may be served in jail, as long as certain conditions are present such recidivism and other crimes committed together with the cartel offence. The suspension of the criminal action will no longer be possible. Given the circumstances of the crime, the offender may become eligible for parole.

As a matter of fact, in December 2011, the Secretariat of Economic Law (SDE) put to public consultation a proposal to amend the penalties, so that the maximum incarceration time will be 8 years rather than 5 years. The proposal was put on hold due to the surge of work related to the implementation of the new Brazilian Antitrust Law, but it is expected to be retaken as soon as the activities come back to normal.

Last but not least, there was another substantial change related to the leniency policy to fight cartels. Under the old regime, it was uncertain whether the execution of the leniency agreement by the SDE and its later approval by the Administrative Council of Economic Defense (CADE), both of which were mere administrative bodies subject to judicial review, would lead to criminal immunity. To sum up, the Federal Constitution granted the Public Prosecutor’s Office with the monopoly over the criminal actions and the section regulating leniency in the previous legislation, which empowered administrative authorities to execute a leniency agreement, could be interpreted as unconstitutional. This would mean that any prosecutor could file a criminal action against lenient who was granted with immunity in the administrative sphere but not in the criminal. In practice, such as mismatch has never been reported: there has been a close cooperation between the prosecutors and the administrative authorities (SDE and CADE) in most cartel cases.

The new Brazilian Antitrust Law streamlined the immunity at the same time it extended to some other crimes which were not listed in the first edition of the leniency policy. Even though the same uncertainty about the constitutionality of this rule remains, it is unlikely that prosecutors will challenge it criminally, since there seems to be a consensus about the efficiency in the cooperation with the CADE.

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