B. PUBLIC MARKET SURVEILLANCE
II. T HE OPTIMAL VALUE FOR GOVERNMENT FINES C D
1. The baseline scenario: The current level of public fines in European and German law
It is important to note that, other than for the most part of economic models focusing on one singular field of law,724 DG is assumed to be the total damages an infringing firm faces with fines and damages having their basis in both capital market (DM) and antitrust law (DA).725 Both fines add up to
DG = DM + DA.
In the following sections, the respective levels of fines are elaborated for antitrust (a) and capital market law (b).
720 The cost of collection of fines does of course have to be added. See ibid, 180.
721 Wouter P.J. Wils, “Optimal Antitrust Fines: Theory and Pratice”, World Competition Vol. 29, no. 2 (2006), 17.
722 For the case of cartel deterrence see Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 4. Also ibid, 17.
723 See the third Chapter section D of this work.
724 See e.g. Wouter P.J. Wils, “Optimal Antitrust Fines: Theory and Pratice”, World Competition Vol. 29, no. 2 (2006), 4. The author explicitly limits its analysis to corporate fines, which excludes fines on individuals, im-prisonment and also private damages.
725 Refer to the first chapter of this work, sections II.1.c), II.2.c) and III. 2.c).
a) Fines for antitrust infringements D
ABoth, the European Commission and the German FCO have published guidelines on the method of setting fines in cases of antitrust infringements in 2006. From these docu-ments, the current level of public fines DA will be deducted as a baseline scenario in order to draw conclusions on the appropriate amounts of these fines in the following analysis.
Other sanctions, especially nonmonetary punishments for infringements of the law (e.g.
prison sentences or occupational bans for offenders), are not part of the European rules.726
aa) The European Commission guidelines on fines for antitrust infringements
As already pointed out above, the European Union may impose fines to sanction manipulations of powerful undertakings, Article 23(2) of Regulation N° 1/2003.727 The guidelines of the European Commission on fines imposed pursuant to Article 23(2)(a) of Regulation N° 1/2003 were first published in 1998 and further refined in 2006.728 The explicit target is sufficient deterrence in specific cases to sanction undertakings concerned with infringements and general deterrence in order to keep other undertakings from en-gaging in behavior contrary to the EC Treaty.729 The fine is imposed on the undertaking, individual fines for the acting management are not part of the EU guidelines.730
The relevant basis for setting fines comprises three variables:
▪ “The value of the sales of goods or services to which the infringement relates” (N°
5),
▪ the duration of the infringement in years as “a proxy to reflect the economic im-portance of the infringement as well as the relative weight of each undertaking in the infringement” (N° 6), and
▪ “A specific amount irrespective of the duration of the infringement, in order to deter companies from even entering into illegal practices” (N° 7).
726 Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 23.
727 Georg-Klaus de Bronett, Handbuch des Kartellrechts, 2nd ed., ed. Gerhard Wiedemann (München: C.H.
Beck, 2008), 898 Ref. 5.
728 European Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003. Official Journal from September 1, 2006. N° C 210, 2-5.
729 Ibid, 2 N° 4.
730 Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 23. See also Martin Klusmann, Handbuch des Kartellrechts, 2nd ed., ed. Gerhard Wiedemann (München: C.H. Beck, 2008), 1917 Ref. 31.
For each infringement, a basic amount of the fine is determined in a first step.731 Basically, the value of sales of an undertaking is calculated using the best available figures (N°
15) during the last full business year of the undertaking´s participation in the infringement (N° 13) before value added tax (VAT) and other taxes directly related to sales (N° 17).732 To calculate the basic amount of the fine, a proportion of the value of sales will be set depending on the degree of gravity of the infringement and multiplied by the number of years of the infringement (N° 19).733 Finally, the so-called “entry fee”, a sum of between 15 percent and 25 percent of the value of sales will be added to the basic amount in order to deter undertakings from entering in infringing practices (N° 25). Clearly laid out, the European Commission calculates this basic fine according to the following formula:
DA = α . dy [(p . x) – T] + β . [(p . x) – T],
Specific deterrence General deterrence (Sanction)
where T is the amount of taxes subtracted from the value of sales, dy the duration of the infringement in years, α the relevant multiplier defining the gravity of the individual in-fringement and β the multiplier for the general deterrence element. The domain for the gravity multiplier in the equation ranges from 0 to 0,3 (N° 21). Hence, depending on the circumstances of the case gravity (α) may be assessed up to a level of 30 percent of the value of sales734 and general deterrence (β) has a domain from 0 to 0,25735.
In a second step, potential adjustments to the basic amount are assessed, taking account of all the relevant circumstances in each individual case that might either increase (N° 28) or decrease (N° 29) the basic amount determined before.736
Finally, N° 32 of the Commission´s guidelines sets a legal maximum amount for the total fine that shall not exceed 10 percent of the total turnover in the preceding business year
731 Felix Engelsing, “Die Bußgeldleitlinien der Europäischen Kommission von 2006”, WuW Vol. 57, no. 5 (2007), 472.
732 Ibid, 474.
733 For details on the graivity factor see ibid, 473-474.
734 The European Commission names a number of factors that influence the assessement of gravity such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographic scope of the infringement and whether or not the infringement has been implemented. See European Commis-sion, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003.
Official Journal from September 1, 2006. N° C 210, 3 N° 22.
735 In case of hardcore cartels, markups of 15 percent to 25 percent are mandatory in the guidelines, however, for the case of other infringements, the Commission has a margin of discretion including also the choice of a zero markup. See ibid, 3 N° 25.
736 Ibid, 3 N° 27. See also Felix Engelsing, “Die Bußgeldleitlinien der Europäischen Kommission von 2006”, WuW Vol. 57, no. 5 (2007), 472.
of the undertaking.737 Furthermore, N° 35 contains a provision for cases where the fine imposed on an undertaking exceeds the ability of this firm to pay from an objective point of view.738
All things considered, the European guidelines for the determination of the amount of the public punishment DG do therefore not satisfy the above-defined condition for the optimal level of deterrence.739 First, the guidelines are ignorant of the subjective view decision makers in a firm have on the expected gain, fines and the probability of punishment. This imprecision leads to inaccurate calculations of fines for violations. Furthermore, the influ-ence of the probability of punishment pP(e) on the level of deterrence is not part of the calculation method in the guidelines. Therefore, DG might be set too high or too low as compared to the above-described optimality condition. Third, the Commission´s consider-ations solely discuss DG, where the total cost from detection CD to the infringer is the sum of public and private damages DP.740 Yet, the ignorance of the cost to be expected from private damage claims741 does reinforce the presumption that the EC values for DG might exceed the efficient level and therefore cause unnecessary cost to society.742 The exami-nation of past experience with the EC guidelines (subsection (2)) following the discussion of the FCO standards will reinforce this observation.
bb) The German FCO guidelines on fines for antitrust infringements
Also in Germany, the general rule for public fines in Sec. 81(4) GWB743 has been concretized with the help of administrative principles.744 These German FCO guidelines on the determination of fines, imposed pursuant to Sec. 81(7) GWB745 date also to 2013
737 Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 4.
738 Hans Jürgen Meyer-Lindemann, “Durchsetzung des Kartellverbots durch Bußgeld und Schadenersatz”, WuW Vol. 61, no. 12 (2011), 1239.
739 See section C.III. of this chapter of this work.
740 Jürgen Schwarze, Rainer Bechtold and Wolfgang Bosch, Deficiencies in European Community Competition Law. Critical analysis of current practice and proposals for change. (Stuttgart: GleissLutz, 2008), 9.
741 Also for the purpose of this analysis, DP has been held constant, yet will be considered in section D. of this chapter as part of the total damages to be paid by an undertaking CD being held liable for manipulative behav-ior.
742 Already before the introduction of the 2006 guidelines, sanctions in the EU ranked among the highest in the world and were supposed to further rise with the introduction of the 2006 guidelines. See e.g. Felix Engel-sing, “Die Bußgeldleitlinien der Europäischen Kommission von 2006”, WuW Vol. 57, no. 5 (2007), 470, 482.
743 Gerhard Wiedemann, Handbuch des Kartellrechts, 2nd ed., ed. Gerhard Wiedemann (München: C.H. Beck, 2008), 1032 Ref. 83.
744 Andreas Mundt, “Kartellverfolgung im 21. Jahrhundert”, in: Recht, Ordnung und Wettbewerb. Festschrift zum 70. Geburtstag von Wernhard Möschel, ed. Stefan Bechtold, Joachim Jickeli, and Mathias Rohe (Baden-Baden: Nomos Verlag, 2011), 430.
745 Federal Cartel Office, Leitlinien für die Bußgeldzumessung in Kartellordnungswidrigkeitenverfahren, 2013.
and resemble the EC guidelines in methods and contents.746 In Germany, other than under the EU guidelines, fines for individual actors according to Sec. 9 OWiG are possible for authorized representatives of an undertaking.747 The circle of offenders is further extended to individuals with supervision obligations, Sec. 130 OWiG.748
The individualized fine is dependent on the type of antitrust infringement. The maximum fine is only exhausted for hardcore cartels and not in manipulation cases.749 The calculation is based on two steps. First, a basic amount of the fine depending on gravity and duration as well as the potential damage done with the infringement is determined.750 A multipli-cator applies to take account of the individual firm´s size (N° 13). The second step is, in line with the EC guidelines, optional adjustments to the basic amount. These may be in-creasing factors like the 100 percent markup for the purpose of deterrence or aggravating circumstances (N° 16), but also factors that decrease the fine.751
Also according to the German guidelines, the calculated fine is fixed upwards at 10 percent of the total turnover in the preceding business year (N° 8). In case of a fine exceeding the financial capacity of a firm also in the long term, the FCO may reduce the amount.
A synopsis of the German guidelines comes to the same conclusions as for the EC provi-sions above: A pinpoint determination of the optimal value for DG cannot be achieved.
Also, the resulting fines tend to be unduly high with an upward trend.752 The following subsection (2) will present empirical evidence on the practical experience with the EC and FCO method of setting antitrust fines.
cc) Experience with the baseline scenario for D
AIn the past decades, fines for antitrust infringements have risen dramatically in the European Union.753 Data for the years 1990-2009 shows how the EU total of corporate
746 With regard to the predecessor from 2006 Felix Engelsing, “Die Bußgeldleitlinien der Europäischen Kommis-sion von 2006”, WuW Vol. 57, no. 5 (2007), 470, 471. See also Andreas Mundt, “Die Bußgeldleitlinien des Bun-deskartellamtes”, WuW Vol. 57, no. 5 (2007), 458, 469.
747 Martin Klusmann, Handbuch des Kartellrechts, 2nd ed., ed. Gerhard Wiedemann (München: C.H. Beck, 2008), 1916-1917 Ref. 31-32. See also Andreas Mundt, “Die Bußgeldleitlinien des Bundeskartellamtes”, WuW Vol. 57, no. 5 (2007), 466.
748 Martin Klusmann, Handbuch des Kartellrechts, 2nd ed., ed. Gerhard Wiedemann (München: C.H. Beck, 2008), 1917 Ref. 33 et sqq.
749 Andreas Mundt, “Die Bußgeldleitlinien des Bundeskartellamtes”, WuW Vol. 57, no. 5 (2007), 460.
750 Federal Cartel Office, Leitlinien für die Bußgeldzumessung in Kartellordnungswidrigkeitenverfahren, 2013, Ref. 2, 9.
751 A detailled description of the adjustment factors may be found in Andreas Mundt, “Die Bußgeldleitlinien des Bundeskartellamtes”, WuW Vol. 57, no. 5 (2007), 462 et sqq.
752 Ibid, 461.
753 Andreas Mundt, “Kartellverfolgung im 21. Jahrhundert”, in: Recht, Ordnung und Wettbewerb. Festschrift zum 70. Geburtstag von Wernhard Möschel, ed. Stefan Bechtold, Joachim Jickeli, and Mathias Rohe
(Baden-fines collected in a five-year period rose from 344 Million Euro between 1990 and 1994 to almost 10 Billion Euro between 2005 and 2009, which is almost 27 times the amount collected in the base period.754 The following figure illustrates this trend:
Figure 16: EU Total Corporate Fines 1990-2009
Also, the highest individual fines imposed by the European Commission have risen consid-erably, especially since the introduction of the guidelines in 1998.755 In the case of the vitamine cartel756 from 2001, a fine of altogether 855,23 Million Euro has been imposed.
In the same year, a 313,69 Million Euro fine was imposed in the case “Carbonless Paper”757 and another 218,8 Million Euro fine in the case “Graphit electrodes”.758
In Germany, the total amount of corporate fines collected increased by about four times the baseline level in the 2005 to 2009 period.759 Also, fines for individual companies have reached tremendous amounts, as is tellingly illustrated by the case of Microsoft760.
Baden: Nomos Verlag, 2011), 431. See also Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 4. Also Jürgen Schwarze, Rainer Bechtold and Wolfgang Bosch, Deficiencies in European Community Competition Law. Critical analysis of current practice and proposals for change. (Stuttgart: GleissLutz, 2008), 8-12.
754 An almost as big increase can be shown for the EU average corporate fines in the same time period. See Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 11.
755 Ulrich Soltész, Christian Steinle and Holger Bielesz, “Rekordgeldbußen versus Bestimmtheitsgebot, Die Kar-tellverordnung auf dem Prüfstein höherrangigen Gemeinschaftsrechts”, EuZW Vol. 14, no. 7 (2003), 203. See also Thomas Kapp, Kartellrecht in der Unternehmenspraxis: Was Unternehmer und Manager wissen müssen, 2nd ed. (Wiesbaden: Springer Gabler, 2013), 219, 228, 232.
756 European Commission, decision from November 21, 2001. COMP/37.512 “Vitamin cartels”.
757 European Commission, decision from December 20, 2001. COMP/36.212 “Carbonless Paper”.
758 European Commission, decision from July 18, 2001. EU Official Journal 2002 L 100, 1. “Graphit electrodes”.
759 Hans Jürgen Meyer-Lindemann, “Durchsetzung des Kartellverbots durch Bußgeld und Schadenersatz”, WuW Vol. 61, no. 12 (2011), 1236.
760 Microsoft v Commission. Case T-201/04. European Court of First Instance 2007.
344 271
With regard to the above criticism in the EC and FCO approach to the determination of the optimal public fine DG, however, it can be doubted whether the ever-increasing fines on the national and European level establish an efficient level of deterrence.761 The mere fact that violations continue to be detected should not serve as an argument to raise the level of fines endlessly. With regard to the social optimum of deterrence being smaller than 1, a certain number of manipulations will constantly be observed.762
The amount of fines CD is after all limited by the profits () and the assets (A) of the individual firm. For any firm i, the following liability condition does therefore have to be fulfilled:
CD ≤ πi(p) + Ai.
Penalties causing the infringing firm´s bankruptcy do not have a deterrent effect for the parties involved beyond this barrier.763 Furthermore, the bankruptcy of a firm entails high social costs for employees, suppliers, customers, creditors and tax authorities.764 Even if bankruptcy is avoided through an ex post reduction of the fine, the ex-ante threat of high fines leads to excessive expenditures in the fields of corporate monitoring and compliance, which will be passed on to end-customers and cause inefficiencies.765
As a consequence, legislators have to link sanctions to the firms´ assets and cannot in-crease the fines endlessly. Eventually, empirical evidence suggests that ever-increasing fines do not even have a deterrent effect on antitrust infringements: According to the statistics introduced above, both the EU and Germany have been increasing corporate fines since the 1990s, yet contrary to the expectations the number of cartel cases did not
761 A divergent view is hold by Andreas Mundt, “Kartellverfolgung im 21. Jahrhundert”, in: Recht, Ordnung und Wettbewerb. Festschrift zum 70. Geburtstag von Wernhard Möschel, ed. Stefan Bechtold, Joachim Jickeli, and Mathias Rohe (Baden-Baden: Nomos Verlag, 2011), 432.
762 Wouter P.J. Wils, “Optimal Antitrust Fines: Theory and Pratice”, World Competition Vol. 29, no. 2 (2006), 16.
763 Hans Jürgen Meyer-Lindemann, “Durchsetzung des Kartellverbots durch Bußgeld und Schadenersatz”, WuW Vol. 61, no. 12 (2011), 1238. See also Bernd Schünemann, "Die Strafbarkeit der juristischen Person aus deutscher und europäischer Sicht," in Bausteine des europäischen Wirtschaftsrechts: Madrid-Symposium für Klaus Tiedemann, ed. Bernd Schünemann and Carlos Suarez Gonzáles(Köln: Carl Heymanns Verlag KG, 1994), 290. The EC and FCO guidelines take account of this fact through the ability to pay provisions introduced above.
764 Wouter P.J. Wils, “Optimal Antitrust Fines: Theory and Pratice”, World Competition Vol. 29, no. 2 (2006), 19. 765 Douglas H. Ginsburg and Joshua D. Wright, “Antitrust Sanctions”, Competition Policy International Vol. 6, no. 2 (2010), 5.
decrease.766 Especially high values of recidivism imply that deterrence based on increasing sanctions is not fit to curtail manipulative practices in the market.767
The opposite is true: Undertakings are being overcharged with the financial burden from public fines768, not yet including private damage claims and fines in other jurisdictions.769 High transaction costs arise from the complicated system of rules to set fines with their many exemptions and proceedings taking an average of more than four years to be con-cluded.770 In summary, the available data suggests that the current strategy to constantly increase antitrust fines does fail to work effectively and meet the target to deter infringe-ments of the law.771 As well, it falls short of working efficiently since it causes unnecessary cost to society through the increase of transaction costs for firms and authorities.
In conclusion, for the public fines from antitrust infringements DA the following relation already mentioned above must be noted:
DA = α . dy [(p. x) – T] + β . [(p . x) – T], where
DA ≤ 0,1 . (p . x),
hence a maximum damage to the firm from publicly imposed antitrust fines of 10 percent of the total turnover in the preceding business year.772
Therefore results
α . dy [(p. x) – T] + β . [(p . x) – T] ≤ 0,1 . (p . x).
DA hence depends on a number of variables but does not refer to the economic optimum derived above: = R - C.
766 Ibid, 10-12.
767 John M. Connor and C. Gustav Helmers, “Statistics on Modern Private International Cartels, 1990-2005”, American Antitrust Institute Working Paper No. 07-01, 38. Earlier studies do also find prove for repeated of-fense, see for example Richard A. Posner, “A Statistical Study of Antitrust Enforcement”, Journal of Law and Economics Vol. 13, no. 2 (1970), 394-395.
768 Hans Jürgen Meyer-Lindemann, “Durchsetzung des Kartellverbots durch Bußgeld und Schadenersatz”, WuW Vol. 61, no. 12 (2011), 1239.
769 Meinrad Dreher, "Kartellrechtscompliance. Voraussetzungen und Rechtsfolgen unternehmens- oder verbandsinterner Maßnahmen zur Einhaltung des Kartellrechts," ZWeR Vol. 2, no. 1 (2004), 76. Refer also to Hans Jürgen Meyer-Lindemann, “Durchsetzung des Kartellverbots durch Bußgeld und Schadenersatz”, WuW Vol. 61, no. 12 (2011), 1238.
770 Hans Jürgen Meyer-Lindemann, “Durchsetzung des Kartellverbots durch Bußgeld und Schadenersatz”, WuW Vol. 61, no. 12 (2011), 1238.
771 Schünemann, "Die Strafbarkeit der juristischen Person aus deutscher und europäischer Sicht," in Bausteine des europäischen Wirtschaftsrechts: Madrid-Symposium für Klaus Tiedemann, ed. Schünemann and
Gonzáles(Köln: Carl Heymanns Verlag KG, 1994), 289. The author points out the necessity to install efficient control mechanisms.
772 Douglas H. Ginsburg and Joshua D. Wright, "Antitrust Sanctions," Competition Policy International Vol. 6, no. 2 (2010), 4.
The next subsection b) will describe the baseline situation with regard to fines in capital market law both in Europe and Germany, before section c) concludes on the current level of government fines.
b) Fines for market manipulation D
MSince section B.III. of the second chapter has shown that market manipulation at EPEX spot may also be subsumed under German capital market law (during the period of examination the former Sec. 20a(1) first sentence N° 2 WpHG in conjunction with Sec. 3(2) N° 1 MaKonV) and European energy capital market law (Art. 5, 2(2) REMIT and Sec. 95 EnWG),773 firms engaging in such illegal practices might also be charged a (public) fine on the grounds of capital market law. This section will elaborate the scope of these fines and their relationship to the antitrust fines presented above in order to obtain the overall amount of public fines charged for market manipulations DG.
In German capital market law, Sec. 39 WpHG contains the legal consequences for WpHG infringements. Sec. 39(1) N° 1 WpHG qualified infringements of Sec. 20a(1) first sentence N° 2 WpHG in conjunction with Sec. 3(2) N° 1 MaKonV as administrative
In German capital market law, Sec. 39 WpHG contains the legal consequences for WpHG infringements. Sec. 39(1) N° 1 WpHG qualified infringements of Sec. 20a(1) first sentence N° 2 WpHG in conjunction with Sec. 3(2) N° 1 MaKonV as administrative