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The Wall Street Journal: EU Fines Rubber Cartel

Decision Illustrates
Perils of Cooperating
In Price-Fixing Cases
By MARY JACOBY and ANNE JOLIS
November 30, 2006; Page A12

BRUSSELS — European regulators, in slapping five chemical companies that had fixed prices on synthetic rubber with the EU’s second-highest-ever group-cartel fine, also exposed what defense lawyers call an increasing problem: the inability in Europe to plea-bargain with cooperating antitrust offenders.

The European Union yesterday fined five companies a total of €519 million ($685 million) for fixing prices in Europe on synthetic rubber used to produce tires, shoe soles, floor coverings and golf balls.

U.S.-based Dow Chemical Co. was ordered to pay €64.6 million; Royal Dutch Shell PLC €160.9 million; Czech Republic-based petrochemical company Unipetrol AS €17.6 million; Italy-based Eni SpA €272.3 million; and Poland-based Trade-Stomil €3.8 million.

Germany’s Bayer AG escaped a €204.2 million fine by bringing the cartel to investigators’ attention, according to the European Commission, the EU’s executive arm. Dow Chemical also saw its fine reduced by 40% for helping the commission with its investigation.

Shell also cooperated with investigators, according to a commission statement. But investigators didn’t consider the information it provided to be valuable enough to warrant a reduction in Shell’s fine, the statement said.

“It’s difficult when companies assist an investigation in the hope they will get a substantial fine reduction,” said Julian Joshua, a former EU cartel enforcer now in private law practice. “They provide the commission with a lot of information and essentially deprive themselves of the chance of a defense, and in return they get nothing out of it.”

A spokesman for Shell declined to comment.

This month, an analysis by the American Bar Association’s antitrust section also criticized Europe for considering changes that the ABA says would discourage companies from coming forward with incriminating evidence of price fixing. Under a program designed to encourage whistleblowers, the first company to expose a cartel can apply to receive full immunity from fines in Europe, while subsequent companies in the door with information can apply for a reduction in fines.

Currently, an initial statement that a price-fixing scheme was taking place is enough to get a company’s foot in the door, with the expectation the company will fill in the details later. Under the proposed changes, the EU would require the company to give a full accounting of the cartel, including the names of executives who participated and the products and markets affected, upon initial approach.

This requirement could complicate a company’s defense while not assuring it of any leniency, Joe Angland, a New York-based antitrust lawyer and an author of the ABA paper, said last week. “We think that could inhibit people” from blowing the whistle, he said.

The largest EU penalty ever against an industry sector for price-fixing was in 2001, when a group of vitamin makers was hit with a collective €790.5 million fine.

“Cartels strike at the heart of healthy economic activity,” said EU Competition Commissioner Neelie Kroes. “They undermine competition, raise prices for consumers and reduce the diversity, quality and innovation of European companies.”

Eni and Shell both saw higher individual fines for being repeat offenders, the commission said.

In a statement, Eni and its subsidiary that participated in the cartel, Polimeri Europa, called the fines “entirely disproportionate and unjustified” because the rubber cartel “could in no way have had a negative effect on the end consumer.” Eni added that it rejects the charges and may appeal.

Along with fixing prices, the companies also conspired to share customers for certain types of synthetic rubber known as butadiene rubber and emulsion styrene butadiene rubber, between 1996 and 2002, the commission said. These rubbers are mainly used in tire manufacturing.

Dow Chemical said it might appeal the fine but said it will decide only once it has received written notification of the commission’s decision. The companies have two months to appeal the fines.

The amounts of the fines were based on the size of the market for the products, the fact that cartel activity took place for six years and the size of each of the companies involved, the commission said.

Including the rubber cartel fines, the commission has fined companies a total of €1.84 billion for price fixing so far this year. Ms. Kroes has made cartel busting one of her top goals.

Write to Mary Jacoby at [email protected] and Anne Jolis at [email protected]

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