EU body issues $416 million in cartel fines, decision challenged by some cable companies
Finding that some of the world's top power cable companies were part of a cartel that controlled bidding on major infrastructure and underground high-voltage projects for a decade, a European Union antitrust regulator has fined a number of the world's top power cable companies and an investment bank a total of $416 million.
That decision was denounced by a few of the 27 named companies, such as Prysmian, Nexans and NKT Holding, which either declared that they would appeal or that they are considering it. The EU doled out hefty penalties, led by Prysmian, which was fined $143 million, a figure that included a joint $53 million fine with investment banker Goldman Sachs, which acquired the Italian company in 2005 but later sold its holding; and Nexans France, fined nearly $97 million. ABB Ltd., had faced a 33 million euro penalty, but was not fined because it "was the first to inform the EU of the cartel," the article said.
An EU press release outlined a story of deliberate actions by the companies to control competition on submarine and underground high-voltage projects from 1999 to 2009.
"Six European, three Japanese and two Korean producers of submarine or underground power cables were involved in the cartel. Several companies that took part in the infringement and later merged their activities into joint ventures are also held liable, as well as parent companies of the producers involved, because they exercised a decisive influence over them. This includes the investment company Goldman Sachs, the former owner of Prysmian.
"The investigation revealed that from 1999 to the inspections carried out by the Commission in January 2009, these producers entered into mutual agreements according to which the European and Asian producers would stay out of each other's home territories and most of the rest of the world would be divided amongst them. In implementing these agreements, the cartel participants allocated projects between themselves according to the geographic region or customer. In particular, the European companies agreed to allocate projects within the European Economic Area (EEA). The evidence in the Commission's file shows that these agreements were in place for almost ten years. In internal communications the cartelists referred to themselves as the "R", "A" and "K" companies, meaning European, Japanese and Korean companies.
"Whenever Japanese and Korean companies received requests from European customers, they would notify their European counterparts and decline to bid. In order to allocate projects successfully, the cartelists also agreed on price levels to be applied or exchanged information on price offers to ensure that the designated power cable supplier or "allottee" would bid the lowest price while the other companies would submit a higher offer, refrain from bidding or submit an offer that was unattractive to the customer. The cartelists regularly met each other in hotels in South-East Asia and Europe and maintained further contacts by means of e-mails, faxes and telephone calls.
"The investigation also revealed that the companies were well aware that they were breaking competition rules. For instance, in a note of a meeting, the advantages and disadvantages of entering into a cartel were discussed: It would be tough unless the pie for each company increases and the merits exceed the risk of having cartel.
"The participants were also taking precautions not to be found in possession of anticompetitive documents. By using its forensic IT technologies the Commission was able to recover several thousand documents that had been deleted by an employee of Nexans. Most of these documents were closely linked to the illegal cartel activities and relevant for the Commission's investigation."
Per the EU and media reports, the other companies cited were Viscas Corp., which shares a $48 million fine with Furukawa Electric Co. and Fujikura Ltd. Furukawa was separately fined an additional $12.2 million and Fujikura must pay an extra $11.2 million. J-Power Systems Corp., a joint venture owned by Sumitomo Electric Industries Ltd. and Hitachi Cable Ltd., was fined $28.4 million. LS Cable & System Ltd. was fined $15.5 million, Taihan Electric Wire Co. Ltd. was fined $8.5 million, Brugg Kabel AG was fined $11.7 million and NKT Holding A/S (NKT) was fined $5.3 million. Safran SA (SAF) was fined $11.7 million and must share another $170,000 fine with Silec Cable SAS, which it has since sold to General Cable. Silec and General Cable Co. share a $2.6 million fine. General Cable is suing Safran for compensation for the fine, according to Safran's 2013 annual report.Sumitomo was also fined $3.56 million euros and Hitachi was fined $3.15 million.
In a statement, Nexans said that it would review "the voluminous decision" to decide its next course of action, which could include appeal. "The Group will evaluate the consequences of the decision for possible follow on claims as well as the impact of this decision and other recent developments in the other ongoing competition authority investigations in the same cable sector in the United States, Canada, Brazil, Australia and Korea, which consequences as previously reported could have a material adverse effect on the results of Nexans and its financial situation."
Prysmian said it would appeal the fine, calling the decision by European authorities "unlawful."
NKT Holding said it would challenge the decision in court. "We do not believe that there is evidence in the Commission's allegations. We have not in any way been involved in any form of cartels. Therefore, we disagree with the decision and we will appeal," NKT Chief Executive Michael Lyng told Reuters.
General Cable noted that charges against its Spanish subsidiary, Grupo General Cable Sistemas, were dismissed for lack of evidence, and that it is reviewing the $2.5 million fine for Silec Cable. "This fine was based on participation that allegedly commenced well before Silec Cable was acquired in 2005 by General Cable," it said, adding that General Cable will also seek full indemnification for the Silec Cable fine "under the previously disclosed terms of the acquisition agreement with Safran SA."
Media reports said that Prysmian would appeal the fine, calling the decision by European authorities "unlawful."