Cartel investigations: recent challenges to Colombia’s leniency programme

July 2018 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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Over the last few years, cartel investigations in Colombia have become an increasingly important issue, one which is frequently discussed in the media and between governmental authorities. With the implementation of Law 1340 of 2009, the Superintendence of Industry and Commerce (SIC) became the national authority in charge of investigating and prosecuting infringement of competition regulations. Since then, the SIC has sought to prevent companies from entering into agreements that are likely to reduce competition.

Cartels benefit from business practices that lead to higher prices, and reduce innovation and the quality of products and services offered by companies not involved. As such, there was a need to implement effective measures to restrain the negative effects caused by cartels, which directly affect competing companies and consumers.

The Benefits for Cooperation Programme in Colombia was established for this purpose in 2009. This programme awards benefits to individuals and corporations that, having participated in conduct that violates competition regulations, decide to cooperate with the prosecution authority by providing important information and evidence related to anticompetitive conduct.

In Colombia, different sanctions have been imposed by the SIC, governing products including diapers, tissue papers, notebooks, sugar and concrete, among others. During some of these investigations, the leniency programme has proven to be an important tool, helping the SIC to gather relevant information and evidence supporting the existence of anticompetitive agreements. Under the Benefits for Cooperation Programme, cooperating parties may receive exemption from, or a reduction of, any sanctions depending on the order in which the decision to cooperate is submitted to the SIC, and depending on the utility of the information and evidence submitted, among other factors. In this sense, the first party to cooperate has the right to complete exemption, the second will receive a reduction of between 30 and 50 percent, and the third and subsequent cooperating parties will receive a reduction of up to 25 percent, depending on the utility of the information and evidence provided. As benefits are awarded to both companies and individuals, the same reductions that apply to a company are also granted to employees.

Investigations into cartels operating within the diaper and tissue paper markets are two examples where the leniency programme had an important effect in promoting the discovery of anticompetitive agreements in Colombia.

The diaper cartel was in place between 2001 and 2012. An investigation into it was launched at the end of 2013, undertaken with the cooperation of two of the investigated companies, Colombiana Kimberly Colpapel S.A. (Kimberly) and Productos Familia S.A. (Familia). In 2016, the first ruling was issued by the SIC, exonerating Kimberly as it was the first party to cooperate. Familia received a 50 percent reduction of its fine as the second cooperating company. In this case, both companies confessed to participating in the cartel, admitted responsibility for fixing prices in the Colombian market, and submitted important evidence, including emails, documents and depositions from employees. Tecnoquímicas S.A., the third company sanctioned, did not participate in the leniency programme, and had to pay approximately US$24m in fines.

The tissue paper cartel was active in Colombia between 2000 and 2013, and was responsible for fixing the prices of four types of products in the Colombian market: toilet paper, hand and face tissues, napkins and kitchen towels. During the investigation, two of the companies that participated in the diaper cartel were also implicated, Kimberly and Familia. These companies cooperated with the investigation though the Benefits for Cooperation Programme. A third participant, Cartones y Papeles de Risaralda S.A., was also involved. In 2016, Kimberly was again awarded with an exemption as it was the first company to cooperate, and Cartones, as the third cooperating party, received a reduction of 30 percent. Although Familia was the second cooperating party, the SIC established that the company had breached the obligations of the leniency programme, and granted a reduction of only 10 percent, for hiding information and not providing useful evidence.

Even though the decision was issued by the SIC in May 2016, investigations related to the tissue paper cartel are ongoing. As part of the Andean Community, Colombia must comply with regional regulations applicable to its member countries. In this sense, Decision 608 was enacted in 2005, with regard to the protection and promotion of free competition in the region. According to Article 5 of this decision, the General Secretariat of the Andean Community (SGAC) is entitled, as executive body, to investigate conducts which take place in the territory of one or more member countries, and that have effects in one or more member countries.

Based on this provision, the Ecuadorian competition authority submitted a request to the SGAC on October 2016, asking it to investigate potential anticompetitive practices performed by Colombian companies involved in the tissue paper cartel, and which may have had an effect in Ecuador. This investigation was formally initiated in November 2016. The first pronouncement of the SGAC was issued on March 2018, stating that Kimberly and Familia and its corresponding affiliates in Ecuador engaged in anticompetitive practices on a regional level, more particularly, fixing prices in Colombia with direct effects in Ecuador. Based on the investigation, the SGAC suggested sanctioning the companies involved, fining them 10 percent of their revenue in 2017.

This recent decision has generated considerable debate in Colombia, as it involves companies previously investigated and prosecuted by the SIC that have cooperated with the authority by providing information that constitutes evidence of their participation in a cartel at a national level. As such, it is a decision that may affect the policies and procedures that have been implemented in Colombia through the leniency programme for the discovery of anticompetitive agreements like cartels.

In fact, to each company participating in a cartel, the SIC may impose fines up to approximately US$27m for 2018, while fines imposed by the SGAC are determined based on the revenue of the companies involved. In this sense, the fact that investigated parties which decide to cooperate may be exposed to higher sanctions by a regional authority represents a risk to the confidence and legal security that these companies need to participate in the leniency programme, and a loss of the incentives that promote cooperation.

Taking into account this situation, it is important to adopt important measures at a national level in order to ensure the stability of the Benefits for Cooperation Programme in Colombia, and the confidence of its potential users.

The next step in the investigation carried out by the SGAC is to submit this first opinion to the Andean Committee for Free Competition, which is a body composed by the competition authorities of the member countries. In this sense, the SIC will need to issue a pronouncement with regard to the SGAC’s recommendations, which will be of great interest for companies currently and potentially involved in cartel investigations, in order to evaluate the risks of being sanctioned and investigated by a regional authority for conducts already prosecuted in the national territory.

The power of the SGAC, which enables it to investigate and impose sanctions upon national companies, has created instability in Colombia, harming legal security and confidence in the country, which requires the leniency programme to accomplish its goals. For this reason, national measures are required to remedy this situation, starting with the SIC’s announcement which should be made in the coming months regarding the sanctions recommended by the SGAC to Colombian companies which have already been prosecuted.

Bettina Sojo is an associate at Holland & Knight. She can be contacted on +57 1 745 5720 or by email: bettina.sojo@hklaw.com.

Bettina Sojo

Holland & Knight