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Inside Jobs: How Cartel Busting In Europe Came To Resemble A Spy Thriller

Who's the snitch?
Who's the snitch?
Renaud Honoré

BRUSSELS - You know, those spy movies of some bespectacled hero photographing secret files, looking up every few seconds to make sure there's not a burly KGB agent around.

One executive from the Degussa chemistry group found himself in such a scene in 2002, entering a fancy Zurich building with a camera in his hand, set to try to secretly collect as much evidence as possible that could save his company from European Commission sanctions.

Spread across a desk in front of him were several years’ worth of archives that all ended up as digital files on his camera. He knows them all by heart. The documents account for 30 years of secret deals between several chemistry companies — his employer Degussa and its branch Peroxid Chemie, AkzoNobel, Atofina — meant to control the whole market of organic peroxides.

Since 1971, these supposedly rival companies held secret meetings and engaged in price fixing for these very dangerous chemicals that are widely used in the rubber and plastics industries.

The conspiracy lasted for almost three decades, until one of them betrayed the others. In April 2000, directors at AkzoNobel decided to come clean to the European Commission about the scheme it had been party to perpetrating. But it wasn't that company officials were suddenly remorseful. They just wanted to benefit from the Commission's leniency policy, which provided that if a company takes part in a cartel and is the first to denounce it, the hefty fine is waived.

But even for other members of the cartel, coming clean was in their best interest: the second company to confess could see its fine reduced by as much as 50%, and the third one by as much as 30%, etc. Basically, the law is the business equivalent of protecting a repentent member of the Mafia. And it's very effective.

"Leniency programs are essential tools in the fight against cartels," says Joaquin Almunia, the EU Competition Commissioner. "It would be extremely difficult, sometimes even impossible, to uncover them and sanction the companies if they were not intent on cooperating.”

After Akzo came forward, all hell broke loose. Atofina quickly did the same. Then, a few months later, Degussa wanted to cooperate too. But company executives quickly lost some of their enthusiasm when EU officials told them they needed to provide some kind of proof that the officials didn't already have in their possession.

How was that possible? All documents related to the business agreement were in Zurich, hidden in the safe of Swiss company Treuhand, which had been coordinating the cartel for a few years. There was only one solution: an executive from Degussa boarded a plane to Zurich and pretended he had something to discuss with Treuhand so that he could discreetly take pictures of the incriminating documents. A couple of days later, European Commission officials were in possession of all the pictures. Among them, a snapshot of the original deal between all the parties, a pink sheet of paper dated 1971 that represented the birth of the cartel.

It was a real masterstroke for Brussels, and the case could be closed. Degussa's trouble did not go unrewarded. In 2003, when sanctions were announced, the company got a 25% reduction on its initial $34 million fine. That's how a good informant is rewarded.

  1. Denunciation can be very profitable

  2. Over the past 10 years, about 80% of these multilateral deals have been punished on the European level thanks to informants. "This program is really what makes the system collapse," explains Olivier Guersent, who created the leniency policy. "All the companies that are involved in such deals are wondering if they should be coming clean before someone else exposes them.”

  3. Those who at first had been critical of this “informant thing” had to acknowledge the stunning results. Between 1995 and 1999 the Commission imposed "only" $292 million in fines to cartels. Then the leniency policy started and everything changed: $3.4 billion was collected between 2000 and 2004, and $9.4 billion between 2005 and 2009. Between 2010 and 2012, $5.4 billion more in fines was collected. All of it thanks to informants.

  4. The "gardeners’ club" and other camouflage tricks

  1. Companies can be very resourceful in finding ways to get around the law. In Germany, executives from a fire truck building company bought cell phones with pre-paid cards, for which no subscription is needed, so as to communicate with one another undetected. In other words, exactly the same technique as the one used by Baltimore drug dealers in the cult TV series The Wire.

  2. Last year, Brussels imposed severe fines (169 million euros) on air freight companies. Executives from different groups (UPS, Panalpina, Kühne & Nagel, Deutsche Post, Deutsche Bahn, etc.) had created specific email addresses on Yahoo! so that thay would not have to use their professional email accounts. Their conversations could seem very innocent at first. The person in charge of the cartel was very fond of plants, and had created a "gardening club" to discuss "asparagus" and "zucchinis" with his colleagues. But when they were meeting at the Mamamia pizzeria in Staines, UK, they did not actually talk about their respective crops. Every vegetable was a code name for a specific tax system.

  3. How to become a "snitch"

  4. An EU civil servant tells the story of an executive who came into his office with all the documents incriminating his company. It turned out he wasn't really a knight in shining armor, though, as it was simply a way for him to take revenge on the leader of the cartel, who had been sleeping with his wife.

  5. Most of the time, companies denounce the cartels of which they have been part. Sometimes, the cartels become so successful that they have more and more members, with a lesser degree of loyalty. It also happens that companies become scared when Brussels is giving a lot of attention to a particular sector. For instance, members of the "gardeners' club" were sharing warehouses with other air freight companies (Air France-KLM, British Airways, Air Canada), which were all fined by the Commission in 2010 about a different deal. "This might explain why Deutsche Post decided to denounce their fellow gardeners," one expert speculates. But most of the time, the reason is much simpler: The cartel is often uncovered when a company is sold to another one. The new owner finds out what has been going on and speaks up to avoid being blamed for it.

  6. "Go to jail" card

  7. In any case, denouncing a cartel is a strategic decision on the part of companies, which are well aware that the proceedings can have uncontrollable consequences. Even if the company gets full legal immunity, such revelations can harm the brand image and damage its relationship with partners and clients. It gets even more complicated when a cartel involves companies from several continents. In Europe, the sentence for cartel leaders is usually a fine, paid by the company. But in other countries, a similar case can put company executives behind bars. "Some employees were sent to a prison in São Paulo," one lawyer points out. "When you hear those kinds of stories, you confessing is harder to do."

  8. The United States is certainly seen as the bogeyman in these types of cases. Historically, countless executives have been sentenced to jail over business cartels. The most famous one is probably Keith Packer, a British citizen who was in charge of the cartel involving British Airways and other air freight companies. In Europe, the companies ended up paying fines, but in the U.S. the Justice Department was not as merciful. Packer spent nine months in the Pensacola penitentiary, sharing a cell with a drug dealer. But what doesn't kill you makes you stronger: Today, Packer is leveraging his experience, selling videos of his story to companies, which use them for ethics training.

  9. First-come first-served

  10. If you want to "squeal" on a cartel, you’d better be quick. Usually, members of a business deal think about it at the exact same time. Even if they have been working together for years, they rarely trust each other completely. Yet, only the first one to talk to the European Commission gets full immunity. Sometimes, it can literally come down to a matter of minutes. "Once, the company I was defending was only 22 minutes ahead of a Japanese adversary," one lawyer recalls. "And that’s only because we got there before the doors opened." There is so much money at stake that companies sometimes even legally challenge the "finish positions" of an informant. Indeed, a difference in self-reporting ranking can cost dozens of million in euros.

  11. To determine ranking order, Brussels uses the time of arrival, of course, but also the "added value" brought by the company. "Companies need to strike the right balance between how early they go and see the Commission and how strong a case they can make," explains Olivier d’Ormesson, partner at the Linklaters law firm.

  12. Inspection raids

  13. Incriminating documents, dubious emails — all the necessary evidence is often impossible to get without a police raid. They come in groups of inspectors, and avoid using the same elevator in case it miraculously breaks down that day. They search everything, from cupboards to computers. Even texts on employees’ phones are reviewed. They sometimes come across divorce papers, lovers’ emails, but usually just end up finding the evidence that will help them make the case.

  14. A company executive once became so panicked that he threw all the incriminating documents down the toilet. When the lawyer heard about it, he was none too pleased. So as a last resort, employees went to retrieve the documents down the drain at the bottom of the building, slightly soiled but perfectly readable.

  15. "What we are doing is real police work," says an EU employee. Indeed, the cartel division of the Commission increasingly hires people with detective profiles. When he was the head of this division, Olivier Guersent had a big board in his office, where he could pin all the elements of a case just as detectives do. "If you do your job well, it really takes over your whole life," he says. "It was the most intense part of my career."

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