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Print articleOnce bitten, twice shy? European Commission Adopts Record Fines for Cartels
March, 2007 - John Schmidt and Charlotte Sjostedt
The European Commission continues its interest in the energy sector in 2007 by imposing record fines on participants in a gas insulated switchgear cartel and carrying out unannounced inspections on several power transformer manufacturers suspected of participating in a cartel. Siemens and ABB confirm involvement in both investigations. A record fine of EUR 992 for a lifts and escalators cartel has also been announced.
On 24 January 2007, the European Commission announced that it had fined participants in a gas insulated switchgear cartel a total of EUR 750,712,500. One of the participants, Siemens, received a fine totalling EUR 396 million for its conduct.
This cartel related to the supply of gas insulated switchgear, which is equipment used to control electricity flows in substations. There were eleven participants involved in the cartel, including ABB, Alstom, Mitsubishi Electric Corporation, Siemens and VA Tech. The European Commission has confirmed that from at least 1998 there was a written agreement between the members of the cartel and the cartel's activities included rigging bids for procurement contracts, fixing pricing, sharing markets and exchanging sensitive commercial information.
The cartel members met regularly at both management level and lower levels to implement the prohibited activities and took sophisticated measures to keep the cartel a secret (including using code names and encryption for sending messages).
The large fines imposed reflect the size of the market for the products, the duration of the cartel and the turnover of the firms involved. The fines were also increased for certain participants for leadership roles and for one participant for being a repeat offender.
The cartel was uncovered when one of the participants, ABB, tipped off the European Commission. As a result of the tip-off, it received full immunity from fines under the European Commission's leniency programme. The European Commission then acted on the tip-off by carrying out unannounced inspections (also known as dawn raids) at the suspected participants premises.
Shortly after imposing these record fines, the European Commission also confirmed that it had carried out dawn raids in France, Germany and Austria on 7 and 8 February 2007 in relation to another suspected cartel in the energy sector, this time related to the supply of power transformers. Power transformers can reduce or increase voltage in electrical circuits and are therefore crucial in electricity transmission and distribution.
In a twist, Siemens and ABB have subsequently confirmed that their premises were raided in this new suspected cartel. Siemens, the highest fined participant in the switchgear cartel, confirmed that inspections took place at facilities in Nuremberg (Germany) and Linz (Austria) and that it will give the European Commission its full support and co-operation.
Following the raids, Siemens has suspended three employees and said that its internal findings show that five companies were involved in collusion regarding power transformers produced by Siemens and VA Tech between 2001 and 2003 for the German market. It also commented that the European Commission investigation relates to collusion in the market for power transformers between 1999 and 2003 in Germany, Austria and the Netherlands.
If the European Commission finds evidence of a cartel, it can impose fines of up to 10% of worldwide turnover of the participants involved. Third parties may also raise damages actions if they have suffered loss as a result of the cartel.
Hot on the heals of the announcement of the fining of the gas insulated switchgear cartel it was revealed on 21 February that the Commission was issuing a record fine of EUR 992 million on members of a cartel in the lifts and escalators market. The cartel members had been engaged in bid rigging, price fixing, market sharing and information exchange. This is the largest fine ever imposed by the Commission for cartel violations.
On 24 January 2007, the European Commission announced that it had fined participants in a gas insulated switchgear cartel a total of EUR 750,712,500. One of the participants, Siemens, received a fine totalling EUR 396 million for its conduct.
This cartel related to the supply of gas insulated switchgear, which is equipment used to control electricity flows in substations. There were eleven participants involved in the cartel, including ABB, Alstom, Mitsubishi Electric Corporation, Siemens and VA Tech. The European Commission has confirmed that from at least 1998 there was a written agreement between the members of the cartel and the cartel's activities included rigging bids for procurement contracts, fixing pricing, sharing markets and exchanging sensitive commercial information.
The cartel members met regularly at both management level and lower levels to implement the prohibited activities and took sophisticated measures to keep the cartel a secret (including using code names and encryption for sending messages).
The large fines imposed reflect the size of the market for the products, the duration of the cartel and the turnover of the firms involved. The fines were also increased for certain participants for leadership roles and for one participant for being a repeat offender.
The cartel was uncovered when one of the participants, ABB, tipped off the European Commission. As a result of the tip-off, it received full immunity from fines under the European Commission's leniency programme. The European Commission then acted on the tip-off by carrying out unannounced inspections (also known as dawn raids) at the suspected participants premises.
Shortly after imposing these record fines, the European Commission also confirmed that it had carried out dawn raids in France, Germany and Austria on 7 and 8 February 2007 in relation to another suspected cartel in the energy sector, this time related to the supply of power transformers. Power transformers can reduce or increase voltage in electrical circuits and are therefore crucial in electricity transmission and distribution.
In a twist, Siemens and ABB have subsequently confirmed that their premises were raided in this new suspected cartel. Siemens, the highest fined participant in the switchgear cartel, confirmed that inspections took place at facilities in Nuremberg (Germany) and Linz (Austria) and that it will give the European Commission its full support and co-operation.
Following the raids, Siemens has suspended three employees and said that its internal findings show that five companies were involved in collusion regarding power transformers produced by Siemens and VA Tech between 2001 and 2003 for the German market. It also commented that the European Commission investigation relates to collusion in the market for power transformers between 1999 and 2003 in Germany, Austria and the Netherlands.
If the European Commission finds evidence of a cartel, it can impose fines of up to 10% of worldwide turnover of the participants involved. Third parties may also raise damages actions if they have suffered loss as a result of the cartel.
Hot on the heals of the announcement of the fining of the gas insulated switchgear cartel it was revealed on 21 February that the Commission was issuing a record fine of EUR 992 million on members of a cartel in the lifts and escalators market. The cartel members had been engaged in bid rigging, price fixing, market sharing and information exchange. This is the largest fine ever imposed by the Commission for cartel violations.
