Twelve individuals from nine companies were fined a total of EGP 4.5 million (about USD 255,000) for their involvement in a cartel designed to lower prices and foreclose the market for chick production. The producers agreed to reduce the price of chicks over a period of two weeks in order to foreclose imports.
Why is this case interesting?
- The Cairo Economic Court (Court) agreed with the Egyptian Competition Authority (ECA) that an agreement between competitors to lower prices is per se illegal if its ultimate aim is to limit competition. Although this conclusion is in line with global antitrust standards, cases dealing with such agreements are rare in practice and this judgment serves as a useful reminder to companies to ensure awareness amongst their employees of the risks of price-lowering cartels.
- The ECA is increasingly active and this case clearly demonstrates its willingness to tackle novel and unusual scenarios.
- Continued economic turbulence and price hikes have led the ECA to focus on food-related sectors. In 2017 it uncovered a cartel in the chicken brokers market, and it has also investigated cartels in the starch and glucose markets.
- The fine on the cartel "ringleader" was doubled to reflect that player's key position within the cartel agreement - the first time such an increase has been applied.
- For the first time, an Egyptian court considered information exchange in the context of a competition law investigation. Although the information exchanged did not relate to future prices, it was recent and detailed and the Court considered it to be evidence of anticompetitive behavior.
Implications for market players
- Agreements that aim to reduce prices are serious cartel-like infringements of the competition rules. Although the Court did discuss the impact of the cartel in terms of import foreclosure and competitor harm, it clarified that consideration of a cartel's effect or its likely consequences is not required when proving the existence of that cartel.
- Trade associations remain under the spotlight. The price-reducing cartel in this case was revealed by minutes of a meeting of the Chicken Production Federation stating that the signatory producers agreed to reduce the price of chicks over a two-week period in order to try to foreclose imports. To date, over 40% of cartel investigations in Egypt have involved evidence obtained from discussions linked to trade associations/unions.
- For the first time in Egypt, ringleader behavior (in this case proposing and leading the meetings) was held to be an aggravating factor by the Court when setting the fine. The ringleader's position was especially strong in this case, as the relevant individual acted as executive director of three of the implicated companies.
- Getting the fine down is not always easy:
- Failure to implement the cartel agreement was not seen as a mitigating factor by the Court. Employees from companies that did not implement the agreement were fined the same amount as those from companies that did.
- Failure to generate profits from the cartel was rejected both as a defense and as a mitigating factor.
- Top management may be fined despite not attending cartel meetings. Even where they did not attend meetings in person or sign relevant documents, executive directors or chairpersons of the companies were fined considerably more (EGP 500,000 each) than the sales or marketing directors who actually attended the meetings (who were fined EGP 100,000 each).
- Fines can really add up. Companies are liable to pay all fines imposed on their sanctioned employees, and six companies saw fines imposed on two employees each. In a previous case, where five employees from one company were implicated in the same cartel, the fine was multiplied five-fold. The maximum fine in Egypt for engaging in cartel activity is EGP 500 million per person and per violation.
What happens now?
The defendants have appealed the Court's judgment, which will be reviewed by the Court of Appeal within the next few months. However, fines are payable immediately.
Companies are strongly advised to assess their business practices and to ensure that they take legal compliance in general, and competition law compliance in particular, very seriously. Cartel agreements to reduce prices may be rare, but they are still illegal and relevant guidance should be included within company compliance programs and employee training.
Defenses such as lack of implementation, failure to generate profits, or lack of specific evidence as to the awareness of senior management do not constitute valid defenses before the Egyptian courts in cartel cases.
Companies are liable for all cartel fines imposed on their employees in Egypt, and fines are imposed per person and per violation.