On 21 March 2014 the Brazilian Conselho Administrativo de Defesa Econômica, (“CADE”), announced that its investigation into trains and subways in 5 Brazilian states had turned up evidence of cartel activity. The investigation is one of the largest ever conducted in Brazil and includes several multinational companies.
The investigation is focused on train and subway procurements between 1998 and 2013. 18 companies and 109 employees are accused of participation. A search and seizure operation in July 2013, carried out by CADE, produced evidence of possible bid-rigging in 15 public tenders worth a total of BRL 9.4 billion. The investigation arose from participation in a leniency programme by the German conglomerate Siemens.
In a 200-page report, CADE’s investigators claim the subway contractors divided the tenders among themselves by agreeing bids in advance. CADE has alleged that contractors accepted payments from rivals for not participating in the tenders.
The politically sensitive investigation has attracted more media attention than any previous cartel investigation in Brazil, due to suggestions that public officials were aware of the alleged conspiracy. Siemens’ voluntary disclosure surfaced just weeks before a contract for a 318-mile high-speed line between the cities of Sao Paulo and Rio de Janeiro came up for bidding. Under Brazilian law the companies involved could be fined 20% of their turnover. Balfour Beatty, Caterpillar, Alstom and Mitsui are included within the scope of the investigation, which has reportedly proceeded slowly due to the quantity of information seized in the July 2013 raids.
Public prosecutors in São Paulo have launched a parallel investigation into whether illegal kickbacks were paid to government officials to obtain lucrative contracts for the construction, fitting and maintenance of metro trains and lines. Observers have suggested that the case could lead to the first prison sentences for cartel activity in Brazilian history.
On 28 August 2013, Brazil’s antitrust regulatory body, the Administrative Council for Economic Defence (CADE), fined four airlines and seven individuals a total of BRL293 million (approximately USD125 million) for price fixing in the international air cargo sector. The parties were found to have colluded to fix the price and timing of fuel surcharges on freight shipments between 2003 and 2005, during which time they controlled about 60 per cent of the market. United Airlines was also investigated but CADE found that there was no evidence of its participation in the cartel.
The largest fines of BRL145 million and 114 million were imposed on VarigLog, which filed for bankruptcy last year, and ABSA Aerolineas Brasilerias (currently TAM Cargo and a part of Latam Airlines Group SA), respectively. American Airlines and Alitalia-Linee Aeree Italiane received substantially lower fines.
Deutsche Lufthansa AG, Lufthansa Cargo AG, Swiss International Airlines and five individuals were not fined after reporting the cartel to CADE and signing leniency agreements in 2006. Following this, dawn raids were carried out at the offices of a number of implicated airlines and evidence obtained that led to last week’s fines. Societe Air France, KLM and two individuals signed an agreement with CADE in February 2013 in which they admitted unlawful cartel conduct, pledged to cease the practice and paid a fine of BRL14 million (approximately USD6 million).
American Airlines has issued a statement indicating that it disagrees with CADE’s decision to fine the company and that it is evaluating its options to appeal the decision. The fines follow an international crack-down against price fixing in the airline sector. The US Department of Justice, the European Commission and the Canadian Competition Bureau have all issued substantial fines in recent years.
On 13 August 2013 the Governor of Sao Paulo, Brazil, announced that the state plans to sue German engineering firm Siemens over allegations of price-fixing during bidding for a contract relating to construction of the city of Sao Paulo’s metro rail system. Governor Geraldo Alckmin made it clear that any other companies found to be involved will also face legal action. Prosecutors in the state also announced last week that they had launched a criminal investigation after uncovering strong indications of price rigging during the bidding. The investigation relates to suspected criminal cartel conduct in tenders issued by the Sao Paolo commuter rail company CPTM and the Sao Paulo Metro Company from 1999 to 2009.
The announcements follow reports in July that Siemens had been granted federal immunity from criminal proceedings for both the corporation and senior executives after self-reporting cartel conduct to the Administrative Council for Economic Defence (CADE), the Brazilian competition regulator. The state prosecution office has stated that it has seen documents held by CADE, and that its investigation is based on these. It also said that it had asked Siemens twice to provide information but that it had not complied.
Early in July 2013 CADE searched the offices in a number of cities seizing evidence at thirteen firms. Siemens is the only corporation that has been officially named, but others reported to be involved are Spain’s CAF, Japan’s Mitsui and Bombardier of Canada, a part of French company Alstom. CADE is expected to take up to three months to assess the documents.
Siemens is alleged to been involved in a bid-rigging cartel for the construction, fitting and maintenance of metro trains and lines in Sao Paulo and Brasilia between 1990 and 2007 resulting in bids that were 10 to 20 per cent higher than the market standard. Siemens has been awarded a number of contracts in Brazil in recent years including a contract in 1990 to build Sao Paulo’s metro line number 5 worth 600 million reais and a contract in 2007 for the maintenance of the metro in Brasilia worth 96 million reais.
The allegations are another blow for Siemens who were at the centre of a bribery and corruption scandal in Germany in 2006, and in 2008 paid a record USD1.6 billion fine to settle investigations in both Germany and the US. Siemens issued a statement in July 2013 saying that it is aware of the probe in Brazil and that is has made great efforts to develop a new and effective compliance system and to encourage employees to comply with antitrust guidelines following its past failures.
As well as demonstrating the difficulties for large multi-national corporations of running an effective compliance system, this case also demonstrates the risks of self-reporting in some countries where federal immunity is not always the end of the matter and state level fines and prosecutions may follow.