Calculation basis
The calculation basis is the gross revenue of the company, group or conglomerate, in the fiscal year preceding the initiation of the administrative proceedings, in the area in which the violation occurred.
The Guidelines clarify that the Tribunal is required consider the revenue of the company involved in the wrongdoing. The revenue of the corporate group or conglomerate to which the company belongs should only be considered in exceptional circumstances, e.g. when a company with negligible revenue is selected to participate in cartel conduct for the benefit of other companies in the group, or when CADE is unable to obtain information on the revenue of the wrongdoer itself or when information provided is incomplete or unreliable.
The sector of the business activity in which the violation occurred is required to be determined by the Tribunal in accordance with CADE’s Regulation Nº 3/2012 (the “Regulations”), which provide a list of 144 sectors. However, the Tribunal has faced challenges when applying the Regulations. For instance, the sectors of activity set out in the Regulations are framed broadly (e.g. agriculture, manufacture of petroleum-derived products) and, as a result, in practice, a strict application of the Regulations could give rise to the calculation of fines that would be disproportionately high. Additionally, a violation may occur in a sector that could be fall within more than a single sector described in the Regulations, or that does not fall within any of the sectors listed.
In view of these challenges, the Guidelines clarify that pursuant to a reasoned decision, the Tribunal may adjust the sector of the business activity, taking into account a sub-sector of activity or the affected market, which can be narrower than a listed sector, both from a product perspective and a geographic perspective. The Tribunal may also consider the total revenue of the relevant firm as the calculation basis when the revenue in the sector of the business activity in which the violation occurred is provided in an incomplete or unreliable manner.
The Guidelines mention that in international cartel cases the Tribunal may consider as the basis for its calculation, for instance, a “virtual revenue in Brazil”, i.e., a projected revenue figure, based on the share that Brazil represents of the total revenue in the global market for the sale of product concerned, or an estimated value of indirect sales of the wrongdoer in the Brazilian market based on sales volumes, average prices, official international trade data, etc.
Further, the Tribunal is required to consider the calculation basis in the fiscal year preceding the commencement of the sanctioning proceedings. Whenever this figure cannot be obtained (for example, if the company had ceased its activities at that time), the Tribunal may take into account the revenue in the sector of the business activity or the affected market during the last 12 months of the violation; alternatively, the average revenue in the sector of the business activity or the affected market during the entire period of the violation; and in bid-rigging cases, the average revenue in the sector of the business activity or the affected market in the year of the public bid concerned. These examples are some of a number of possible proxies.
Finally, when determining the fine, the Tribunal is required to adjust the calculation basis for inflation according to Brazil’s benchmark interest rate for federal bonds, the Selic.
Initial fine rate
The Guidelines also provide helpful guidance in relation to the parameters that the Tribunal should adopt in determining the initial fine rate:
- In bid-rigging cases, which are viewed as the most egregious violation, 17% or more (up to the 20% cap), or a minimum rate of 14% is provided in the Guidelines;
- In hard-core cartel cases, the Guidelines contemplate 15% or more (up to the 20% cap), or a minimum rate of 12%. Examples of hard-core cartels mentioned in the Guidelines include not only price-fixing and customer or market allocation arrangements, but also the exchange of pricing information, an inclusion that was subject to criticism when the document was open to public comment; and
- In “soft-core” cases, the Guidelines envisage 8% or more (up to the 20% cap), or a minimum rate of 5%. Examples of so-called “softcore” cartels include the sporadic or non-systematic exchange of information, the unilateral disclosure of information and price standardization.
Final rates
The Guidelines also address the interpretation of aggravating or mitigating circumstances set in the Brazilian Antitrust Law that may lead to an increase or decrease in the initial rate, respectively. These include:
- The severity of the infringement: examples include acting as the cartel leader and lengthy participation in the unlawful practice;
- The degree of harm to free competition, the Brazilian economy or consumers: this is to be assessed based on the essential nature or the relevance of the products or services affected by the unlawful practice;
- Bona fides of the wrongdoer: an example of the wrongdoer’s bona fides may include cooperation with CADE in the process;
- The benefit obtained or intended to be obtained by the wrongdoer: the Guidelines emphasize that this calculation is often not possible or may be determined only on a very imprecise basis and, therefore, this element cannot necessarily be applied effectively in all cases; and
- The economic situation of the affected firm: examples of impaired financial circumstances include where the relevant firm has filed for bankruptcy or Chapter 11 proceedings.
Conclusion
Despite the non-binding nature of the Guidelines, the Guidelines provide useful input relevant to assessing the potential fine that may be applied by the authority in investigations of unlawful horizontal practices, as well as financial contributions to be paid in settlement cases, which depend on the expected fine and the percentage discount as determined in the Regulations.
