The European Commission on Tuesday hit a cartel of airline companies, which had colluded over air cargo fees, with one of the heaviest collective fines it has ever imposed, totalling 799 million Euros. The alleged deeds spread over a period of six years, from December 1999 to February 2006. The companies began by coming to an agreement to impose fuel surcharges. After the September 11 attacks the discussions were widened to encompass security surcharges.

Once again the European Commission has caused a stir in having imposed a fine of vertiginous proportions on several businesses found guilty of market agreements. The penalty of over 800 million Euros slapped on eleven airline companies is a brutal one. Nevertheless it is not enough and more needs to be done. Here we argue that not only is European Commission action against cartels legitimate but that it should also be combined with penalties against the top managers of the business companies which are behind the misdemeanour. This new form of white collar crime can only be effectively combated if prison sentences are handed down or if the people found guilty are banned from holding certain economic posts or functions.

In practice what is a cartel? In its purest form – and also the most caricatured – several directors of competing business companies gather around a table to discuss figures and suspend the competition between them. Prices progressively rise on the shop shelves without consumers being able to turn to another supplier, all the products of the same type being affected by the rise in prices. When this type of practice affects products or services which are simply for pleasure, consumers are always free to refuse to buy them. It is another thing altogether when the cartel deals with indispensable or essential goods. In this case consumers find themselves prisoners of the cartel’s law, with no choice but to pay the price asked for to meet their needs, even if it is a prohibitive one. If for example the cartel targets pharmaceutical products, the consumer has no choice; it’s the budget or life. Literally. The European Commission reacted very early against what have been called ‘the cancers of the modern economy.’ Over the last five years significant results have been garnered. Heavier and heavier fines have been imposed by the European Commission on offending business companies. Thus in 2008 four businesses active in the car glass sector were hit by a record fine of close to 1.5 billion Euros.

LIMITATIONS

Such a strategy of systematically increasing fines nevertheless has its limitations. A lack of effectiveness, first of all. The supposedly deterrent character of financial fines seems to be failing to discourage the formation of new cartels. Here the divergence of interests between the business company, today punished, and its directors, exonerated from any responsibility but anxious to be able to post good results in the short term, is in all probability the main cause of the failure of the policy of fining. Next it needs to be acknowledged that the financial stick is a clumsy instrument to handle. Economic analysis shows us that the current amount of fines is not enough to compensate for the profits which the cartel has raked in over the years of its existence.

And yet when the public authorities take action these profits have generally already left the business’ patrimony – by means of dividends paid out to shareholders or other mechanisms. The fine thus hits a business which is incapable of meeting it, to the point where its very viability is threatened. The risk is a real one: certain businesses have already been pushed into bankruptcy because of their inability to pay. For the clients and suppliers of these companies it is a question of orders which will not be honoured; for their workers it means a social tragedy.

ALTERNATIVES

Alternatives nonetheless exist. Criminal penalties must be added to the financial punishments. Current fines fail to strike at those who are the genuine leading figures behind the cartels.  The offence committed is above all carried out by individuals, business directors, who are at present not subject to the consequent fall-out of their actions. On the contrary the granting of bonuses which forms current management practice encourages them to come to agreements over prices in order to obtain rapid results. Years later, at the time when the business will be forced to pay the fine, the person behind setting up the cartel will already be exercising his good offices elsewhere. In such a context, the imposition of individual criminal penalties would have the advantage of assuring that the long term interests of company managers coincide with those of the companies they manage.

OBJECTIONS

Several objections based on principle are often put forward against the introduction of criminal penalties for individuals. None is convincing.  One main argument is sometimes based on the fact that sentencing highly qualified and experienced business people would deprive the business of its main lifeblood. Here one struggles to understand the reasoning followed in as much as the company has every interest in removing those people who seek to defraud economic law. Next it is often proposed in this debate that respecting competition law is not of sufficient importance in the eyes of European citizens to justify establishing criminal penalties which are only aimed at punishing morally reprehensible behaviour. This is an opinion we do not share. For a number of years now citizens have agreed that criminal sanctions can be taken against white collar crime, particularly in the case of tax matters. What is more, in moral terms a cartel has close similarities with fraudulent swindling or aggravated theft. If prison sentences do not seem an appropriate solution given the notoriously dangerous and criminalistic nature of Belgian penal institutions, the use of electronic tags as well as being banned from exercising certain posts or company management functions are sanctions which seem likely to effectively dissuade business people from taking part in a cartel. France, Germany and the United Kingdom are already moving in this direction. Belgium needs to follow this example. Cartels need to be criminalised.