Private International Cartels:

Effectiveness, Welfare, and

Anticartel Enforcement

John M. Connor

Purdue University

West Lafayette, Indiana

jconnor@purdue.edu

An earlier version of this paper was prepared for delivery at the first International Industrial Organization Conference, Northeastern University, Boston, Massachusetts, April 4-5, 2003.

June 18, 2003

Introduction

The sudden discovery of a global pandemic of international cartels in the mid 1990s, after a hiatus of a half century, is puzzling. That the greatest number and most injurious conspiracies should be clustered in the food and feed ingredients industries adds another element of mystery to the puzzle. Whatever the causes of this unexpected resurgence of global price fixing, the reaction of the antitrust-enforcement agencies has been fascinating. If the burst in illegal price fixing exposes one of the dark sides of globalization, the strong responses of antitrust agencies to the challenge of global cartels is one of the bright aspects.

International private cartels are at least 125 years old (Voigt 1962).[1] The German-Swiss dyestuffs cartel that was established around 1880 became a prototype for the late 19^th century international cartels. It was an amalgamation of two pre-existing national cartels that through predatory behavior against smaller producers in the UK, France, and Italy was able to ensure Western European dominance for its Swiss and German members. Word War I destroyed international cartels of this type, though most of them were re-established in the 1920s.

The interwar cartels were more ambitious in scope, often incorporating agreements with U.S. manufacturers that divided the markets of Western Europe, Africa, and the New World into two hegemonies. By this time the United States had an effective anticartel law, the Sherman Act of 1890, that made U.S producers wary of joining formed price-fixing agreements with European firms. Many U.S. firms may have believed that cartel arrangements that merely created spheres of influence were legal under the Sherman Act, but events would prove them wrong. From 1946 to 1950, a crusading U.S. Attorney General made the criminal prosecution of scores of these interwar cartels his highest priority. Aided by public revulsion about the assistance given by these cartels to the rise of National Socialism and the rearming of Germany during 1933-1941, the U.S. government enjoyed a long string of successes in the courts. The court victories apparently chilled the formation of international cartels for the next 40 years.[2]

The international cartels discovered and prosecuted since 1995 are qualitatively different from those operating in the interwar period. They are truly global cartels and as such represent the ultimate stage in the evolution of the cartel as a form of business enterprise.[3] Contemporary international cartels incorporate a refinement of operational techniques, a global perspective, a multicultural pluralism, a leadership style, a degree of longevity, and a scale of operation that the world has never before seen. Needless to say, global cartels are also the most injurious price fixing ventures yet devised, causing massive losses in market efficiency, losses in income for customers, and losses in faith in the honesty of businessmen[4] and the integrity of market institutions.

The behavior of global cartelists has scandalized the public and provoked the world’s major antitrust agencies to impose unprecedented sanctions (Hammond 2001b). Beginning with the announcement of the U.S. investigation of the lysine cartel in July 1995, literally thousands of articles have appeared in newspapers and magazines around the world that have covered the machinations of dozens of global cartels. Three books have been published on the subject (Lieber 2000, Eichenwald 2000, Connor 2001) and two Hollywood movies have or will appear (Anti-Trust and The Informant). Global cartels have become a major focus of antitrust agencies, which have imposed “titanic fines” ($2 billion by the United States, €1.8 billion by the European Union) that have “dwarfed” the actions taken against previously convicted price-fixing conspiracies (Hammond 2001b). Prior to 1995, U.S. prosecution of foreign companies or persons for price fixing was practically unknown, but since then 50 to 70 percent of the companies indicted by the U.S. Department of Justice have been foreign; moreover, the DOJ has convicted cartel executives from 12 foreign countries, sending many to prison.[5] International cartels successfully prosecuted by the U.S. DOJ have affected markets with more than $55 billion in sales (Kolasky 2002).

Objective

The general purpose of this paper is to survey and analyze the economic dimensions of private (i.e., non-government supported) international cartels discovered since about 1990 and to link measures of cartel effectiveness to the economic sanctions imposed by the world’s principal antitrust agencies. In particular, information has been collected on the durability, affected commerce, and direct-purchaser overcharges of almost 100 cartels. Some of these measures must be estimated from partial information. Durability is available for the great majority of the cartel cases included in this study. Affected sales are available for a large majority of cases in at least one jurisdiction. Overcharge estimates are available for only a minority of the observations.

One specific purpose is to evaluate the government-imposed and (in the U.S. and Canada) private antitrust sanctions relative to the economic harm caused by these cartels. This analysis has important implications for the deterrence power of antitrust sanctions, many of which are based on seemingly arbitrary rules of thumb: government fines of 20% of affected sales (with culpability modifications) in the case of the United States, 20% of affected sales in Canada, 10% of annual corporate sales in the EU case, and 6% of corporate sales in Japan. Second, I intend to analyze the pattern of leniency discounting by the world’s major antitrust agencies, which some writers have criticized as arbitrary, opaque, and unpredictable. Preliminary analysis of cross-company antitrust fines shows a greater degree of consistency among the U.S., Canada, and EU than heretofore suspected. Third, this paper will explore why such a large proportion (more than 50%) of these discovered cartels sold their products to buyers in two industry groups. The structure of cartel purchasers’ markets is an enforcement screening factor rarely cited in the literature.

This paper presents and analyzes economic and legal information on all known international cartels that operated during the 1990s. These cartels were made public by investigations and prosecution announced by either the Antitrust Division of the U.S. Department of Justice (DOJ), the Canadian Competition Bureau (CCB), or by the Competition Directorate of the Commission of the European Communities (EC). These cartels share a number of common economic characteristics, but for some illustrative purposes this paper will at times focus on four cartels for which the documentation is particularly rich. They are lysine, citric acid, and vitamins A and E.

Product Scope

Lysine is an essential amino acid, a building block of proteins that speed the development of muscle tissue in humans and animals. The form of lysine that we cartelized in the 1990s is a dry powder manufactured by a fermentation process and purchased by manufacturers of prepared animal feeds. Citric acid is an acidulant added to thousands of processed foods and beverages to enhance flavor and retard bacterial growth; a minor portion of industry output is used as an ingredient to replace phosphates in detergents. Citric acid is sold in two forms: a diluted aqueous form shipped in tanks and a dry salt form, usually sodium citrate. Since 1923, citric acid has been manufactured by a fermentation biotechnology. There are about 15 commercially important vitamins or provitamins, proteins found naturally in foods that become catalysts in regulating the metabolic functions of humans and animals. Diets deficient in vitamins will cause diseases or functional impairments. Most bulk vitamins are sold primarily to feed manufacturers; food-grade vitamins are added to many processed foods and minor portions are sold to the pharmaceutical industry. Vitamins have been produced by synthetic chemistry since the early 1930s, and this is now the dominant method of manufacture.[6]

Mention is made of a few additional food-and-agricultural products that were cartelized in the 1990s. Methionine is an amino acid added to animal feeds, swine in particular. Monosodium glutamate (MSG) and nucleotides are amino acids that enhance flavors of foods. Maltol, sodium erythorbate, and sorbates are chemical food additives that flavor or preserve foods. MCAA (monochloroacetic acid) and organic peroxides are chemical intermediates used to produce pesticides. Glyphosate, aluminum phosphide, and Bacillus Thuringiensis are insecticides. All of these products are forms of organic chemicals sold to food or feed manufacturers or to agricultural producers. What is striking about these products is that each of them are minor ingredients or components of more complex mixtures further processed by large numbers of manufacturer-buyers. This characteristic helps facilitate collusion by ensuring highly inelastic demand. In addition, market price information is both poor for buyers and asymmetric.

Geographic Scope

All of the cartels analyzed in this paper are international schemes. I will adopt the loose definition of international price-fixing agreements employed by the DOJ since about 1995. In this context the term “international” will be reserved to describe a cartel’s membership composition.. That is, an international cartel is a conspiracy in restraint of trade that has or is alleged to have one or more corporate or individual participants with headquarters, residency, or nationality outside the jurisdiction of the investigating antitrust authority. The participants may be convicted parties or, at the investigation stage of enforcement, may be the subjects or targets of a formal probe.

This paper further categorizes international cartels into three degrees of geographic spread, namely, global, EU and other regional. Global international cartels fixed or attempted to fix prices over at least two continents. Most of the “global” cases examined herein involve cartels that targeted markets in “the triad” of the most industrialized regions of the world – Western Europe, North America, and East Asia. At a minimum, the term global will be reserved for cartels that colluded across two of those continents.

The EU cartels operated entirely within a single customs union, the European Union (EU). The EU is well along to becoming economically integrated into a single market and is beginning to resemble a sovereign state. More importantly, the EU has one of the most active competition agencies, the Competition Directorate of the European Commission of the European Communities (EC). In fact, the EC has antitrust jurisdiction only not only the EU proper but also a group of states that are members of the European Free Trade Agreement (Norway, Iceland, and before they joined the EU, Finland, Sweden, and Austria). This expanded antitrust zone is called the European Economic Area.

The other regional category contains the smallest cartels in a geographic sense, those few that had international representation but that operated solely within a single national border. Although a rather awkward phrasing, these cartels may be thought of as “domestic” international cartels.

Organization

The following section offers a brief historical background to the phenomenon of international cartels. It also serves as a literature review that highlights some of the interesting issues in the treatment of international collusion by economists. The next section pulls together some generalizations about the relationship of cartel formation to market structure. The third section describes this paper’s original data set: its sources, major features, and descriptive patterns. The fourth section analyzes the effectiveness of international cartels discovered in the past two decades or so. The next section examines the anti-cartel measures taken by U.S, EU, and Canadian authorities, as well as private legal sanctions imposed by courts in the United States and Canada. These legal statistics feed into the paper’s last substantive section, which considers the deterrence power of corporate sanctions.

Background

International private cartels are at least 125 years old. (Schröter 1999)[7] The German-Swiss dyestuffs cartel that was established around 1880 is a prototype for the late 19^th century international cartels. It was an amalgamation of two pre-existing national cartels that through predatory behavior against smaller producers in the UK, France, and Italy was able to ensure Western European dominance for its Swiss and German members. Word War I destroyed international cartels of this type, though most of them were re-established in the 1920s.

The interwar cartels were more ambitious in scope, often incorporating agreements with U.S. manufacturers that divided the markets of Western Europe, Africa, and the New World into two hegemonies. By this time the United States had an effective anticartel law, the Sherman Act of 1890 that made U.S producers wary of joining formed price-fixing agreements with European firms. Many U.S. firms may have believed that cartel arrangements that merely created spheres of influence were legal under the Sherman Act, but events would prove them wrong. From 1946 to 1950, a crusading U.S. Attorney General made the criminal prosecution of scores of these interwar cartels his highest priority. Aided by public revulsion about the assistance given by these cartels to the rise of National Socialism and the rearming of Germany during 1933-1941, the U.S. government enjoyed a long string of successes in the courts (Wells 2002)[8]. The court victories apparently chilled the formation of international cartels for the next 40 years.[9]

The international cartels discovered and prosecuted since 1995 are qualitatively different from those operating in the interwar period. Most are truly global cartels and as such represent the ultimate product of the evolution of the cartel as a form of business enterprise.[10] Contemporary international cartels incorporate a refinement of operational techniques, a global perspective, a multicultural pluralism, a leadership style, a degree of longevity, and a scale of operation that the world has never before seen. Needless to say, global cartels are also the most injurious price fixing ventures yet devised, causing massive losses in market efficiency, losses in income for customers, and losses in faith in the honesty of businessmen[11] and the integrity of market institutions.

The behavior of global cartelists has scandalized the public and provoked the world’s major antitrust agencies to impose unprecedented sanctions. Beginning with the announcement of the U.S. investigation of they lysine cartel in July 1995, literally thousands of articles have appeared in newspapers and magazines around the world that have covered the machinations of about 30 known global cartels. Three books have been published on the subject two Hollywood movies have or will appear.[12] Global cartels have become a major focus of antitrust agencies, which have imposed “titanic fines” ($2 billion by the United States, €1.8 billion by the European Union) that have “dwarfed” the actions taken against previously convicted price-fixing conspiracies.[13] Prior to 1995, U.S. prosecution of foreign companies or persons for price fixing was practically unknown, but since then 50% to 70% of the companies indicted by the U.S. Department of Justice have been foreign; moreover, the DOJ has convicted cartel executives from 12 foreign countries, sending many to prison.[14] Successfully prosecuted international cartels have affected markets with more than $200 billion in sales.

Market Structure[15]

The market environments for the lysine, citric acid, vitamins, and other global cartels discussed in this paper made possible and indeed fostered collusive price-fixing behavior by the leading firms in the industry. Two industry features tower above all the others in importance because they are necessary conditions for cartels to be formed and flourish: high seller market sales concentration and product homogeneity. High barriers to market entry permit cartels to be durable; without barriers new sellers will enter the industry and in time make cooperation in pricing infeasible. The remaining structural features of markets shown in Table 1 may be called “plus factors.” The plus factors are not necessary conditions for the formation of cartels, but they do facilitate the establishment of price agreements and increase the probability of serious price effects.

Concentration

There is no doubt that industry concentration – the share of sales or production capacity controlled by the leading suppliers – was high for every global cartel. The share of global production accounted for by the four largest manufacturers of lysine, citric acid, and vitamins A and E was in excess of 80 percent in the early 1990s. [16] Except for citric acid in Asia, sales concentrations within the continents were even higher than global concentration (Table 1). [17] There is evidence that Western Europe, North America, South America, and Asia were viewed by the cartels as geographically distinct markets. Prices were set systematically higher in Europe and lower in most parts of Asia, yet never so far apart as to allow non-cartel firms to make profits through geographic arbitrage.

Conceptually separate from the issue of overall industry concentration is the degree of supply control by the cartel itself. In most cases the top four or five producers were all members of the cartel, so in practical terms industry concentration and cartel control of supply were nearly the same. Another dimension of concentration is the fewness of company numbers. In almost every case, the global cartel operated with three to five corporate conspirators.[18] About 20 vitamin makers admitted colluding on prices, but when one looks at the individual vitamin markets (A, C, E, B1, etc.) no more than five firms were members of the cartel.

Finally, consistent with cartel theory, the degree of buyer concentration was low. The buyers were thousands of feed manufacturers, food processors, or chemical wholesalers. In every instance, the top four direct purchasers accounted for less than 40 percent of the market, whether calculated at the global or regional level. Low buyer concentration makes it more difficult for purchasers to share credible information about transactions prices and prevents buyers from countervailing against the market power of

sellers. Low buyer concentration may be one factor that accounts for the prevalence of global cartels in the food-and-feed-ingredient industries.

Table 1. Economic Conditions Facilitating Global Price Fixing: Lysine, Citric Acid, and

Vitamin A, Early 1990s.

Market Conditions	Lysine	Citric Acid	Synthetic Vitamins A & E
High seller concentration: Global market U.S. market Few cartel participants High cartel supply control Low buyer concentration Homogeneous product^a High barriers to market entry: Large plant scales Sunk investment costs Technology secret Building new plants slow Transparency of market prices to buyers Large, infrequent transactions Major rivals have long history of strategic interaction Annual market growth Cultural propinquity of cartel members	CR4 > 95% CR4 > 97% 4 or 5 95-99% CR4 < 30% Perfect $150 mil.+ Yes Yes 3 years+ None Yes 3 of 5 10%, steady Low	CR4 > 80% CR4 = 90% 4 or 5 65-70%^b CR4 < 40% High $150 mil. Yes Yes 3 years+ Some Yes 3 of 5 8%, steady Moderate	CR4 > 95% CR4 = 100% 3 95-100% CR4 < 20% High Probably Yes Yes 3 years+ Little Yes Yes^c 2-3%, steady High^c

Sources: Chapters 4, 7, and 10 of Connor (2001).

CR4 = Sum of the market shares of the top four suppliers or buyers.

^a Within well recognized industry grades when prices were at cartel-enhanced levels. There were no substitutes when prices were within a normal range.

^b Control by formal members of the cartel. Cargill, a major supplier with up to 20 percent of U.S. capacity, provided passive support for the cartel's pricing decisions.

^c The vitamin conspirators were long time rivals from Western Europe, but in most of the other vitamin cartels Japanese or Northern American companies had to be recruited to the cartels.

Description of the Data Set

Data on the identity, economic dimensions, and legal actions of international cartels are drawn from many sources. First, most discovered cartels are first revealed to the public when fines, a guilty plea, or an indictment is announced in press releases of the DOJ, the CCB, or the EC. These are followed by additional documents, such as sentencing memorandums, plea agreements, “statements of fact” (in Canada), and official speeches of antitrust officials. In Europe the most important cartels have the full decision of the EC posted publicly about a year after the brief press releases about fines imposed or the closure of a case due to insufficient evidence. Lesser cases are described in the Competition Directorate’s quarterly newsletter. All these documents are preserved on the web sites of the U.S., Canadian, and the EU going back to the mid 1980s in most cases. Related U.S., Canadian, and European court decisions are fully achieved.

Second, when an investigation is announced or leaked to the press or when raids on corporate offices occur, business newspapers, trade magazines, and news services begin to publish pieces on the alleged violators and their industries. Older articles are often available that describe the size, growth, and market structures of the affected markets. List and transaction prices can also be located for some industries. Among the more useful trade magazines and newsletters are Chemical Market Reporter, Oil and Gas Journal, and similar publications available on major business-and-law search engines (Factiva, LexisNexis).

Third, a small number of academic and government researchers have been compiling similar data sets. Among the most useful are working papers by Levenstein and Suslow (2002) and Levinstein, Suslow, and Oswald (2003). Some useful Government/NPO publications are OECD (2002) and Development Prospects Group (2003). And of course I have built upon data collected in my previous publications (Connor 2000, 2001, 2002), as well as publicly available information contained in unpublished consultancy reports involving cartels.

Descriptive statistics for the international cartels analyzed in this paper are shown in Table 2 and Appendix Table 1. There are a total of 98 cases. Most of these cartels have been fully prosecuted or have had several participants prosecuted or indicted; the greatest amount of information is available for these cases. However, eight cases are cartels under investigation prior to indictments, guilty pleas, or the impositions of fines. That is, alleged cartel members have been subject to raids by the EC or have been served subpoenas in the United States. The chances of prosecution are judged to be high.[19]

Table 2. Description of Data Set: International Cartels

Cartel Characteristic	Number	Companies per cartel ^b			Global Sales Affected ^b			Regional or Global Overcharges ^b
		Min.	Max.	Ave.	Per Cartel		Total
								Percent
Product cartelized: ^a					$millions
Food-and-feed ingredients	42	2	8	3.8	2,883	86,488		26
Organic chemicals	50	2	17	4.9	2,946	102,127		27
Graphite-based	3	2	8	6.0	6,000	6,000		-
Carbon-based	4	2	6	3.8	-	-		-
Plastic material	6	5	17	12.8	-	-		-
Metal, metallic oxides	10	2	14	5.8	742	3,710		-
Services (finance, transport, etc.)	17	2	149	14.9	1,669	6,674		-
Cement	1	42	42	42.0	61,000	61,000
Total	98	2	149	7.4^d	3,907	210,998		25
Geographic areas affected:
Global	42	2	8	4.9	3,716	111,468		27
NAFTA area only	23	2	9	4.5	776	10,087		29
EU only	32	2	149	15.3^d	7,658	91,894 ^c		35

Source: Appendix Table 1

a) Categories non-exclusive.

b) Some rows contain missing observations.

c) Excluding cement, $2.8 billion per cartel.

d) Excluding Euro-Zone Banks, average is 5.9 worldwide, 11.0 for EU regional.

There are 98 international cartels with varying degrees of completeness of information (Table 2). More than half of the cartels discovered since about 1990 have colluded on the prices of organic chemicals, and of these 84% are chemicals purchased for use as food or animal-feed ingredients (citric acid, vitamins, amino acids, flavorings, insecticides, and preservatives). Another 40% of the cases involved a variety of manufactured products: graphite-and-carbon-based, plastics, rubber, steel, metal oxides, paper, and cement. The final 17% of cases involved banking, transportation and other services.

During the period of cartel operation, global or regional sales of at least $211 billion were affected. This total is based on a sub-sample of 55 cartels for which global sales are known or have been estimated with a fair degree of precision. As the dates and regions for cartels currently under investigation become known, this total may well exceed $300 billion.[20] One case alone, the EU’s Cement case, accounted for an estimated $61 billion in sales because virtually every cement maker in the EU was part of the cartel for 11 years. Including this anomalous case, the food-and-feed ingredients cartels account for 40% of total affected sales; other manufacturers amounted to 56% and service-sector cartels only 3% of total sales.

In terms of geographic impact, only 5% of the sales of all international cartels confined their operations to the NAFTA region; another 44% of affected sales occurred within the EU (i.e., the European Economic Area). Finally, more than half of the sales of markets affected by cartels involved what I have termed global cartels.

Finally, the data sets contain estimates of the overcharges imposed by these cartels. In the 32 cases for which reasonably accurate estimates are available, the simple average overcharge was about 30% of sales. The overcharge rate is slightly higher for the EU regional cartels than the US regional cartels; the global cartels had average overcharges of about 27%. The range was from 4% to about 100% but the great majority was within the 20% to 40% range. If these averages apply to all the cartels in the data set, then buyers were overcharge about $65 to $90 billion over the life of these schemes worldwide.

Table 3. Types of International Cartels: Temporal Patterns 1990-2003.

Types of Cartel	Date of Discovery
	1990-1995	1996-1999	2000-2003
	Number
Food-and-agricultural products:	4	22	12
NAFTA regional	3	3	0
EU regional	1	1	6
Global scope	0	18	6
Other products:	9	16	35
NAFTA regional	4	6	7
EU regional	5	7	10
Global scope	0	3	18
All types:	13	38	47
NAFTA regional	7	9	7
EU regional	6	8	16
Global scope	0	22	24
Total numbers discovered per year	2.2	9.5	14.9

Table 3A. Temporal Patterns: Dates of Discovery, 1990-2003

Type of Cartels	Dates of Discovery
	1990-1995	1996-1999	2000-2003
	Number per year
Food-and-agricultural:	0.8	6.0	4.0
U.S. & Canada	0.3	1.3	0.3
EU national	0.2	0.5	1.7
EU regional	0.2	0	0.3
Global scope	0.2	4.3	1.7
Other products:	2.3	3.8	15.7
U.S. & Canada	1.0	1.3	2.3
EU national	0	0	6.3
EU regional	1.3	1.8	2.0
Global scope	0	0.8	5.1
All products:	3.2	9.8	19.7
U.S. & Canada	1.3	2.5	2.6
EU national	0.2	0.5	8.0^a
EU regional	1.5	1.8	2.3
Global scope	0.2	5.0	6.9

a) 8.6 including Chile and Austrailia

The discovery-time pattern of international cartels is shown in Table 3. Perhaps the most striking statistic is the number of cartels discovered per year: the rate of discovery is seven times higher in 2000-2003 than it was in 1990-1995. However, the rate of increase was faster between 1990-1995 and 1996-1999 than it was between the two most recent periods, which confirms that the lysine-cartel discovery in June 1995 (convicted August-December 1996) was a watershed event. Either cartel formations increased after the early 1980s or prosecution became more efficient.

Another pattern that leaps out from the table is the more rapid rate of increase in discoveries among the non-food cartels. These cartels are being discovered at the rate of 11.1 per year since 1999, compared to 1.5 annually prior to 1996. Indeed, the rate of cartel discoveries among food-and- agricultural cartels has apparently peaked in the late 1990’s. Since 1995, the proportion of global-scope cartels has remained above 50%, while none were discovered prior to June 1995.[21]

Measuring Cartel Effectiveness

Durability

In this section, three measures of effectiveness are developed for international cartels: durability, average value of commerce affected, and the overcharge imposed on direct buyers. Each of these indexes has limitations, but each of them is directly related to the economic harm generated by the cartels. Ceteris paribus, the durability of cartels is doubtless an unambiguous indicator of the cohesiveness of a collusive group. However, cartel discipline is likely to be positively related to the opportunity for generating relatively large monopoly profits and to the persistence of entry barriers during the collusive period. Cartelists may be able to control the probability of defection and may be able to adopt strategies to raise or maintain barriers to entry, but potential profitability and some types of entry barriers arise largely out of the structured environment of the cartel’s market.

Some preliminary results of international-cartel durability are displayed in Table 4. On average these cartels spanned six years (i.e., about 72 months). Over the entire 1990-2003 period of observation, there is very little variation in durability that can be ascribed to the cartels’ industry groups. However, geographic scope of cartel operation appears to be systematically related to durability. The regional cartels endured 40% longer than those that were confined to one national territory; similarly, the global cartels lasted 55% longer that the most localized conspiracies.

Although not a very pronounced pattern, Table 4 shows that the durability of cartels discovered in the late 1990s was the highest of the three periods. The increase in durability from the early 1990s to the late 1990s seems reasonably explicable. The world’s major antitrust authorities, led by the U.S. DOJ, changed their priorities toward greater effort directed at global cartels. The rise in durability was led by global cartels in either the organic-chemicals or food-and-agricultural markets.

The decrease in average cartel durability from the late 1990s to 2000-2003 is somewhat puzzling. Part of the explanation lies in the industrial mix: discovery of the chemicals and food industries increased during 1996-2003, and these were increasingly of shorter duration. One interpretation of this pattern is that leniency programs in place were so effective that the supply of chemical/food cartels was drying up; moreover, the “Amnesty Plus” program would encourage cartelists to lead the authorities to a more diversified mix of target industries.

Table 4. Durability of International Cartels, by Type, Over Time.

Types of Cartels	Date of First Discovery
	1990-1995	1996-1999	2000-2003
	Months
Product groups:
Food and agricultural	38^5	84^16	58^12
Organic chemicals
Other manufactures	--	61^4	73^7
Services
All industries	102^17	83^36	63^53
Geographic scope:
U.S. and Canada	34^5	99^10	51^7
Nations in EU	-- ^0	87^1	61^22
EU regional	126^8	63^5	42^3
Global	141^4	80^20	72^21
-- = No observations Note: Superscripts indicate sample size

Affected Sales

If one sets aside the huge Cement cartel prosecuted by the EC in the early 1990s, the average sales size of discovered international cartels increased steadily over the period of observation: from about $2.5 billion in the early 1990s to $3.7 billion in the most recent period. Inflation explains only a small amount of the increase (Table 5).

Again excluding the Cement cartel, the size of the affected sales increases with the geographic scope of the discovered cartels: global cartels naturally affect more purchases than the regional and national cartels. Cartels operating within the NAFTA area (all were U.S.-Canadian prosecutions) were unexpectedly small. The average size of affected sales of the biggest cartel group, the food/chemical cartels, has changed very little since 1995. Other manufacturers and services have been inhabited by larger discovered cartels over time.

Table 5. Affected Sales of International Cartels, by Product and Geographic Type

Type of Cartel	Date of Discovery
	1990-1995	1996-2003	1990-2003
	Million dollars per cartel
Product Groups:
Organic chemicals	3,305^6	2,742^30	2,826^36
Food-and-agricultural ingredients	27^4	3,079^29	2,709^33
Cement	61,000^1	--	61,000^1
Other manufacturers	4,332^3	3,465^12	3,638^15
Services	--	1,375^6	1,375^6
All industries	9,025^9 a	2,684^48	3,685^57
Geographic Scope:
National	1,446^5	1,172^5	1,309^10
Regional: NAFTA	198^2	180^2	189^4
Regional: EU	36,800^2	1,201^11	6,678^13
Global	--	3,647^30	3,647^30
All areas	9,025^9 a	2,684^48	3,685^57
-- = No observations Note: Superscripts indicate sample size. The anomalous Cement case is classified as a regional EU cartel discovered in 1990-1995. Nominal dollars. a) Excluding Cement case, average is $2,528 million.

Overcharges

The third measure of cartel effectiveness is the percentage overcharge. These data are difficult to find for cartels generally, but a sample of 31 observations has been developed for this paper[22].

The average overcharge is 28% of affected sales (Table 6). The overcharges are surprisingly invariant to the type of cartel. For the whole period 1990-2003, most industries displayed averages of between 25% and 35%; moreover, geographic scope made little difference as to the degree of monopoly power achieved. Of course these are averages; at the individual cartel level, the overcharges varied from 4% to 100%.

Changes over time were also generally slight. Partly because no global cartels were discovered and prosecuted before 1995, the average overcharges rose form the early 1990s to the late 1990s. The degree of overcharge has remained particularly steady among the cartels in the organic chemicals industry (which includes most of the food-and-agricultural cartels).

Table 6. Percentage Overcharges of International Cartels, by Type.

Type of Cartel	Date of Discovery
	1990-1995	1996-2003	1990-2003
	Percent
Product Groups:
Organic chemicals	26^3	25^18	25^21
Other industries	19^5	51^5	35^10
All industries	22^8	30^23	28^31
Geographic Scope:
National	27^5	--	27^5
Regional	14^3	39^4	28^7
Global	--	28^19	28^19
All areas	22^8	30^23	28^31
-- = No observations Note: Superscripts indicate sample size.

Crime and Punishment

In a standard textbook on antitrust policies written in the early 1980s, the author tells the story of the international uranium cartel of 1972-1975. This cartel was comprised of 29 suppliers of uranium, 17 of them U.S. firms, that was successfully sued for treble damages by the largest U.S. buyer of uranium. The fact that the U.S. DOJ never indicted the cartel

“… demonstrates that the strict [U.S.] policy against price fixing largely exempts foreign cartels, even if they have U.S. members ... and probably affect prices in the United States.” (Shepherd 1985)[23]

How different the attitude is two decades later. In the United States at least, the early 1990s represent a major watershed in international cartel enforcement policies and effort. Since 1995, the U.S. DOJ has had a large number of legal victories against harmful, secretive global cartels. The Antitrust Division, together with its sister competition agencies in many other jurisdictions, has steadily expanded its investigatory methods, powers to negotiate guilty pleas, and harshness of penalties for noncooperative violators.

Antitrust authorities have been goaded into action by the disrespect shown by cartelists to competition laws and those who enforce them. Speech after speech by top antitrust officials betrays a visceral antipathy for global price fixers. The global conspirators are consistently described in highly emotive language as brazen, cold-blooded, contemptuous of the law, disdainful of their customers, and eager to break their own companies’ rules. Particularly surprising to antitrust prosecutors is the involvement of the most senior officers of colluding firms in the management of the cartel. At the same time, these global cartelists have shown a fear for the ability of U.S. authorities to detect their illegal activities by avoiding meetings on U.S. territory and by trying to hide the existence of the cartel from U.S. employees; these practices were particularly evident after the lysine-cartel investigation became public in 1995. Elaborate measures were taken to cover up the cartel’s activities wherever the conspiracy took place.

Once the threat of global conspiracies came to be recognized by the newly appointed head of the Antitrust Division in 1992-1993, the agency reordered its priorities fairly quickly. Prior to 1995, less than 1 percent of the corporations accused of criminal price fixing were foreign-based firms; after 1997, more than 50 percent were non-U.S. corporations. Fines imposed on global price fixers escalated steeply from 1996 to 1999, with new record amounts collected nearly every year. In 1999 alone, the $900-million-plus collected from international price fixers was far more than the entire 108 years of U.S. antitrust enforcement. Nearly four-fifths of the DOJ’s fines for criminal price fixing were imposed on non-U.S. firms in the late 1990s. The use of personal fines and prison sentences has also escalated; since 1995, the U.S. government has sent more than 30 executives to prison for price-fixing, and a high proportion are not U.S. citizens. Perhaps more importantly, the success enjoyed by the U.S. DOJ has been increasingly mimicked abroad by the antitrust agencies of Canada, the EU, Mexico, Korea, Brazil, and Australia. In 2001, the EU collected more than €1.8 billion in price fixing fines; from 1998 to 2001, the total was €2.5 billion (Arbault 2002).

This section presents some original data on the prosecutions by the U.S., Canada, and EU of international cartels, most of them global in scope.[24] The purpose is to show the pattern of anticartel enforcement by government agencies of three jurisdictions that have the most active programs to deter price fixing. These data are necessary to develop a fuller understanding of the potential for effective cartel deterrence in the long run.

The U.S. Department of Justice

The U.S. Sherman Act became law in July 1890. While the U.S. Congress has implemented many clarifying amendments over the years, the section of the Sherman Act that prohibits all agreements, contracts, or conspiracies in restraint of trade has remained virtually untouched in its original form. “Naked” cartels, those arranged through direct explicit communications between independent firms, are per se violations of U.S. law; no amount of evidence concerning circumstances in the industry or effects of the agreement on markets will be considered evidentiary in determining guilt. If the conspiracy is serious enough and the evidence of intent strong enough, corporations and individuals may be charged by the DOJ as a criminal matter. In practice, the DOJ files about 95 percent of all price-fixing cases as criminal matters, and nearly all other antitrust violations are treated as civil matters, for which the burden of proof is merely the preponderance of the evidence. All other parties that bring suits against price fixers, including other federal agencies and state attorneys general, may file only civil complaints.

Although preceded by antitrust laws passed by 13 states of the United States and at least two other countries (France and Canada), the Sherman Act became the first truly effective anticartel statute. By 1897 the U.S. DOJ had successfully prosecuted the first of many domestic price fixing conspiracies. The famous American Tobacco case decided by the Supreme Court in 1911 had some international elements; two of the defendants were UK firms. However, except for the period of five years following the end of World War II, the DOJ prosecuted very few international cartels, even though the Sherman Act applies to any conspiracy that affects U.S. markets. It appears that international cartels formed between 1945 and 1990 were few, very well hidden, or had no U.S.-corporate membership. Moreover, in the three or four cases of global cartels that were prosecuted between 1950 and 1995, the DOJ lost the cases because the witnesses were foreign or key evidence located abroad could not be obtained by prosecutors.[25]

The notable success in prosecuting global cartels after 1995 may be traced to several improvements in the law and in investigatory techniques. First, the Sherman Act’s penalties were steadily increased by amendments in 1955, 1974, 1987, and 1990 (Table 7). In 1974, corporate fines were increased twenty-fold and personal participation was made a felony (prison sentences were raised from a maximum of one year to three years). In 1987, a federal judicial commission further raised the possible fines on corporations up to a maximum of double the cartel’s overcharge, a level that could far exceed the previous statutory cap of $1 million; larger personal fines also became feasible. In 1990, the Sherman Act received a centennial “birthday present” of yet larger statutory fines from the Congress. Thus, from 1974 to 1990, the maximum corporate liability for U.S. price fixing rose from $50,000 to twelve times the cartel’s overcharge.[26]

Second, around 1993 an enforcement policy shift took place in the DOJ that placed a higher priority on investigating international antitrust violations and that instructed the FBI to employ all the tools of their trade to collect evidence. Prior to 1993, price-fixing fines had been cheerily paid with all the embarrassment associated with a parking ticket. The FBI had treated price fixers with the gentleness accorded a shoplifter. But after 1992, price-fixing probes had all the trappings of a major conspiracy by the worst types of organized criminals. Armed with intimidating new powers to sanction firms and their managers, prosecutors bargained hard to obtain confessions and to “flip” conspirators into useful witnesses against their co-conspirators. The 1993 revision of the DOJ Corporate Leniency Program described below was a particularly important investigative innovation. Prosecutors became sophisticated in their use of amnesty, leniency, or other blandishments to induce cooperation. By 2001, nearly 70 percent of all corporate price-fixing defendants were foreign-based.

Table 7. Criminal Penalties for Price Fixing, U.S. Sherman Act, 1890-Present.

Year Enacted	Maximum Fines for Companies	Maximum Penalties for Individuals
		Fines	Prison (Months)
1890	$5,000 per count^a	$5,000 per count	12^b
1955	$50,000 per count^a	$50,000 per count	12^b
1974	$1,000,000	$100,000^c	36^c
1987	Larger of $1,000,000 or double the harm with multipliers^d	Larger of $100,000 or 5% of the harm with multipliers^d	36
1990	Larger of $10,000,000 or double the harm with multipliers^d	Larger of $350,000 or 5% of the harm with multipliers^d	36

^a In serious cases, prosecutors can file multiple counts against firms involved in one conspiracy. Not used much in recent years.

^b Misdemeanor

^c Became a felony for individuals.

^d The base fines are calculated using either double or 5% of the estimated monopoly overcharge. The base fines are multiplied by upper and lower figures that depend on the degree of “culpability” (larger numbers for several exacerbating factors and smaller ones for extenuating factors). In the 1990s, the multipliers have often been between 1.5 and 4.5. If the overcharge is not known, it is presumed to be 10% of affected sales, which yields a base fine of 20% of affected sales, and a typical fine range of 30% to 90% of cartel sales. However, if a cartel creates a 25% overcharge, then the base fine is 50% of affected sales and the final fine range will be 75% to 225% of sales. “Sales” is usually U.S. only, but may be global cartel sales. In rare cases individuals can be fined up to $25,000,000 depending on their cartel’s overcharge amount.

The U.S. DOJ’s criminal price-fixing record is summarized in Table 8. During 1980-1999, the Antitrust Division convicted more than 50 price-fixing crimes per year on average.[27] Until late 1996, nearly all the cases prosecuted were domestic schemes that involved modest sales in the affected markets. Indeed, during the 1980s, more than 80 percent of the price-fixing cases involved bid-rigging, mostly construction firms colluding on government projects or suppliers to local school districts; fewer than 15 percent were directed against conventional corporate cartels.

After 1990, enforcement patterns returned to the more traditional pattern of prosecuting horizontal collusion by corporate perpetrators. More importantly, starting with the lysine cartel in September 1996, the most important U.S. price-fixing convictions have been global conspiracies in food-and-feed ingredients. Ten such cartels have been fully or partially prosecuted in the six years since 1996.[28] Total corporate fines imposed in the ten food-and-feed cartels was $1,326 million on 33 multinational corporations (five more companies were granted amnesties). In addition, the U.S. DOJ has convicted members of ten global cartels in other markets. However, the food-and-agricultural cartels accounted for 81 percent of the cartelized sales and 85 percent of all the fines on discovered international cartels.

Table 8. Fines or Prison Sentences Imposed in All U.S. DOJ Price-Fixing Cases, 1970-1999.

Years	Total Criminal Cases Filed	Cases in Which Fines Imposed	Cases in Which Prison Sentences Imposed
			Total Number	Largest Sentences
				< 1 yr.	1-2 yrs.	2+ yrs.
	Number
1970-1979	176	156	25	24	0	1^b
1980-1989	623	513	196	183	10	3
1990-1999	416	324	61	47	12	2
Global only: 1996-1999	10	10	3^c	1	1	1
	Percent of Total
1970-1979	42^a	88.6	14.2	96.0	0	4.0^b
1980-1989	84^a	82.3	31.5	93.4	5.1	1.5
1990-1999	68^a	77.9	14.7	77.0	19.7	3.3
Global only: 1996-1999	NA	100.0	30.0	33.3	33.3	33.3

Sources: Posner (2001:45), Connor (2001, Tables A.1, and A.2).

^a Proportion of criminal cases to total DOJ antitrust cases.

^b An unusual case; individual found guilty of racketeering as well as price fixing.

^c Seven persons have been indicted in a fourth, the sorbates case, but are fugitives as of 2002.

Since 1969, the DOJ has obtained fines from a high share (83 percent) of the corporations found guilty of criminal price fixing (Table 8). The global cartels prosecuted in the late 1990s were clearly all fairly serious cases because all of them resulted in fines for the corporate participants.[29] Indeed, all cartel members were fined except for those offered amnesty (Nanni 2002)[30]

Table 9 summarizes the sanctions imposed by the DOJ on violators involved in international price fixing since 1994 – 31 cases in all. A total of 93 corporations have paid fines or were liable to pay fines. Of the 93 guilty firms, 28 either received amnesty or in a few cases settled with the government through nonmonetary means such as consent decrees. As not all of these cases are closed, it appears that another 20 or so companies will either plead guilty or insist on a trial. Thus, the average international

Table 9. Fines and Sentences Imposed on International Cartels by U.S. DOJ, 1990-2003.

Case Filed	No. of Fines		Prison Sentences Imposed^c
	Corporate^a	Persons^b	Year	No. Persons	Total Months	Max. Months
1993 Aluminum phosphide	3^2	0^3	--	0	0	0
1994 Fax thermal paper rolls	6	1	--	0	0	0
1994 Plastic dinnerware	3	7	1996	7	80	21
1995 Explosives	4	2^1	1996	1	10	10
1995 Ferrosilicon	2^2	1	1995	1	4	4
1996 Lysine	5	6^1	1999	3	99	36
1996 Citric acid	5	4	--	0	0	0
1996 Tampico fiber	3^1	0	--	0	0	0
1996 Laminated tubes	0	0	--	0	0	0
1997 Sodium gluconate	3^2	5	--	0	0	0
1998 Anti-anxiety drugs	4	0	--	0	0	0
1998 Heavy-Lift marine construction	1^1(+6)	1^5	--	0	0	0
1998 Heavy-Lift marine transport	2^1(+2)	2	--	0	0	0
1998 Graphite electrodes	7^1	3^1	1999	2	26	17
1998 Sorbates	5^1(+1)	0^8	Pending	--	--	--
1998 Niacin (Vitamin B3)	4	2	2000	2	20	12
1999 Vitamins A,E,C,B1,B5 1999 Choline chloride (B4)	7 2	6^2 0^5	1999 --	6 0	22.5 0	5 0
1999 Sodium erythorbate	1^1	0	--	0	0	0
1999 Maltol	1^1	0	--	0	0	0
2000 Bromines	1^1(+1)	0	--	0	0	0
2000 Construction, USAID 2000 Bridge, California 2000 Bridges, cable-stayed	3^1 1(+1) 2	2^1 1 1^1	2001 -- --	1 0 0	36 0 0	36 0 0
2000 Fine art auctions	1^1	1^2	2002	2	18	12
2001 MSG and nucleotides	3^2(+3)	0^1	--	0	0	0
2001 Isostatic graphite	3^1	2^3	2002	1	3	3
2001 Organic peroxides	1^1	0	--	0	0	0
2001 MCAA	3	0	2002	3	9	3
2002 Carbon cathode block	3^1	2^2	2002	1	6	6
2002 Stamp dealers 2002 Polyester staple	6^6 1(+1)	5^5 1^1	Pending --	-- 0	-- 0	-- 0
2003 Magnetic iron oxide	1^1(+1)	3^1	Pending	--	--	--
Total	97^42(+20)	61^39	--	30	333.5	36

--=Not applicable

Source: DOJ(2003), Appendix Table 2.

^a Superscripts indicate additional companies that pleaded guilty but paid no fines. Parentheses show the number under investigation.

^b Superscripts indicate persons indicted but not convicted (either awaiting trial, awaiting sentencing, or fugitives). Some may be fined or imprisoned after 2002.

^c Includes a few cases of home detention.

cartel case generates about 3.5 corporate convictions. Moreover, the DOJ has sought convictions of individuals in about 80% of these cases. On average, about three executives plead guilty or are indicted per cartel. As of 2003, about 30% of the indicted executives were residing outside the United States and were fugitives; another 10% were U.S. citizens awaiting trial.

Prison sentences can be imposed by U.S. courts, which almost always follow the DOJ’s recommendations in these matters. The threat of prison is still reserved for the most serious types of price-fixing, namely, those involving large economic injuries or cases in which the cartel managers resisted pleading guilty and cooperating with prosecutors. In general, the DOJ imposes prison sentences in about 25% of all price-fixing cases that it prosecutes. However, the frequency with which prison sentences were imposed is significantly higher for the late-1990s international cartels, namely, about 40% of the cases. The share of long sentences imposed on the cartel ring leaders is particularly striking. In the one case where the managers resisted making deals for pleading guilty, the lysine cartel, the three ADM executives lost at trial and were sentenced to a collective 99 months in prison; ADM’s Vice Chairman was the first person in antitrust history to receive the maximum 36-month sentence for a single count of price fixing.

Table 9A. Maximum Number of Corporate Members, International Cartels, 1990-2003

Types of Cartels	Number with Data	2	3	4	5	6	7-9	10 or more	average
Global:
Food and agriculture	25	5	7	5	2	3	2	0	4.0
Other products	23	5	3	2	4	3	2	4	6.0
EU Regional:
Food and agriculture	4	1	0	3	0	0	0	0	4.5
Other products ^a	19	2	1	1	1	2	5	7	10.2
Other Regional:
Food and agriculture	7	3	2	2	0	0	0	0	2.9
Other products	18	6	2	4	4	1	1	0	3.8
Total	96	22	15	17	11	9	10	11	5..6

Note: In a few cases still under investigation or partially prosecuted, numbers may rise.

a) Omitted the Euro-Zone Banks case.

Criminal indictments and convictions of international price fixers display an interesting geographic pattern (Table 10). Since 1990, total of 552 corporations and 99 individuals have been sanctioned for their roles in about 100 international cartels by U.S. or EU authorities. (There is some double counting of corporations sanctioned for the same infraction by both jurisdictions). The majority of corporate cartelists come from just four countries: Germany, Belgium, the United States, and Japan. The top ten countries account for 80% of all international cartel participants.

Table 10. Nationality of International Price Fixers, 1990-2003

Country	Indicted by DOJ^a		Sanctioned by EC^b		Total Corporations
	Corporations	Individuals	Euro Zone Banks	Other^c	All	Excluding Euro Zone
1. USA	55	41	0	14	69	69
2. Germany	15	9	17	47	79	62
3. Japan	35	23	0	23	58	58
4. France	10	5	0	26	36	36
5. UK	7	4	0	21	28	28
6. Netherlands	4	5	15	17	36	19
7. Switzerland	11	5	0	6	17	17
8. Italy	2	2	0	13	15	15
9. South Korea	5	1	0	9	14	14
10. Sweden	1	1	0	11	12	12
11. Austria	0	0	8	10	18	10
12. Norway	3	0	0	6	9	9
13. Belgium	1	1	66	7	74	8
13. Spain	0	0	0	8	8	8
13. Denmark	0	0	0	8	8	8
16. Taiwan	1	0	0	3	4	4
16. Finland	0	0	7	4	11	4
18. Mexico	2	0	0	1	3	3
19. Portugal	0	0	27	1	28	1
20. Ireland	0	0	9	0	9	0
Others	7	2	0	12	17	17
Total	159	99	149	247	553	402
a Includes guilty corporations granted amnesty and fugitive individuals. b Includes infringing corporations granted amnesty c Eleven countries with one or two sanctioned parties.

One unusual case, the Euro-Zone Banks prosecution in the EU, distorts the distribution shown in Table 10. Excluding this case causes Belgium, Portugal, and Austria to drop out of the top ten countries to be replaced by Italy, South Korea, and Sweden; the top five countries then become the United States (17% of all corporate violators), Germany (15%), Japan (14%), France (9%), and the UK (7%). The individuals sanctioned for initiating and leading international cartels are overwhelmingly from the United States and Japan (65%).

Table 10A examines the nationalities of sanctioned cartelists in the case of global cartels only. The 150 corporations caught participating in these cartels are headquartered in 19 countries, but those from Japan, the USA, Germany, France, and South Korea account for 77% of the total. Relative to the sizes of their national chemical industries, Japan, South Korea, Switzerland, and the Netherlands seem to be overrepresented.

Table 10A. Nationality of Global Price Fixers, 1995-2003

Country	Indicted by DOJ		Sanctioned By EC	Total Corporations
	Corporations	Individuals
1. Japan	20	20	18	38
2. USA	19	15	10	29
3. Germany	9	6	11	20
4. France	8	4	7	15
5. South Korea	4	1	10	14
6. Switzerland	5	4	4	9
7. Netherlands	3	2	4	7
8. United Kingdom	3	5	3	6
9. Denmark	0	0	2	2
9. Singapore	0	0	2	2
9. Hong Kong	0	0	2	2
9. Taiwan	0	0	2	2
13. Sweden	0	1	1	1
13. Malaysia	0	0	1	1
13. Mexico	0	0	1	1
13. Poland	0	0	1	1
17. Belgium	0	1	0	0
18. Italy	0	1	0	0
Total	71	60	79	150

Corporate sanctions need not stop with fines. In a little publicized conviction of bid-rigging against the U.S. Agency for International Development on building projects in Egypt, a U.S. court required two convicted firms to pay for large advertisements in the Wall Street Journal and New York Times that detailed their shameful transgressions. The U.S. DOJ intends to seek similar court orders in appropriate cases. Corporate governance restructurings, divestitures, or disgorgement are possible additional sanctions that courts may require.

The executive who are fined or imprisoned for global price fixing by the U.S. DOJ are often at or near the top of their corporate management structures. Yet, in general the fines collected from individual criminal conspirators are modest compared with their corporate salaries, typically between $75,000 and $150,000 (Table 11). However, there are two noteworthy examples of high fines paid by the ringleaders of global cartels. The first was a fine of $10 million paid in 1998 by the German Chief Executive Officer of SGL Carbon, the instigator of the graphite electrodes cartel. He paid a fine well above the statutory cap of $350,000 to avoid a prison sentence. Second, in 2002, the Chairman of Sotheby’s art auction house was convicted at trial for fixing the fees for selling precious works of art. His fine of $7.5 million was the first litigated example of the alternative fine statute being applied for price fixing. This statute permits personal fines of up to $25 million, depending on the size of the overcharge caused by the cartel’s operations.

The conviction and imprisonment of non-U.S. executives for criminal price fixing by U.S. authorities is an extraordinary development in recent enforcement history. During 1995-2002, the U.S. DOJ has arranged guilty-pleas from dozens of top executives who were nationals of 12 foreign countries: Germany, Belgium, the Netherlands, England, France, Switzerland, Italy, Sweden, Canada, Mexico, Japan, and South Korea (Hammond 2002a). Many of these executives worked in the United States, but some traveled from their residences abroad to submit to the jurisdiction of the U.S. court, plead guilty, and pay fines. Although some are indicted fugitives,

The majority of all price fixers of prosecuted international cartels are foreign nationals. About 20 executives indicted for global price fixing, the vast majority of them Japanese citizens, have chosen to remain fugitives by residing outside U.S. territories. On the other hand, at least 12 foreign nationals from Canada, Germany, Switzerland, and Sweden have served significant prison sentences in the United States. One reason for foreigners’ willingness to serve time in U.S. prisons is that if they reside or even pass through countries that have criminal statutes for price fixing, they may be extradited to the United States (Nanni 2002a). The United States has explicit treaties with Canada, Ireland, and Japan that permit extradition for antitrust violations, though none of these has yet been invoked. In 2002, Interpol added U.S. antitrust fugitives to its “Red Notice” watch list for the first time. When foreign executives plead guilty for price fixing, they are frequently granted the right of free passage across U.S. borders for their cooperation.

Table 11. U.S. Convictions of Individual Price Fixers, Selected Global Cartels, 1995-Early 2003

CASE: Name	Nationality	Highest Corporate Position	Sanctions
			Fines	Prison
			U.S. dollars	Months
LYSINE (1999):
Michael D. Andreas	U.S.	Vice Chairman, ADM	350,000	36^a
Terrance Wilson	U.S.	Pres., Corn Products Division, ADM	350,000	33
Mark Whitacre	U.S.	Pres., Bioproducts Division, ADM	350,000	30
Kanji Mimoto	JP	Div. Mgr., Ajinomoto	75,000	0
Hirozaku Ikeda	JP	Div. Mgr., Ajinomoto	0	0
Kaztoshi Yamada	JP	Mng. Dir., Ajinomoto	Fugitive	--
Masaru Yamamoto	JP	Div. Mgr., Kyowa	50,000	0
Jhom Su Kim	SK	Pres., Sewon America	75,000	0
CITRIC ACID (1997-98):
Hans Hartmann	DE	Pres., Bayer subsidiary	150,000	0
Udo Haas	DE	Managing Director, Roche subsidiary	150,000	0
Rainer Bilchbauer	CH	President, Jungbunglauer	150,000	0
Silvio Kluzer	CH	Mang. Dir., Eridania subsidiary	40,000	0
VITAMINS (1999):^c
Kuno Sommer	CH	Mang. Dir., Roche	100,000	4
Roland Brönnimann	CH	Div. Pres., Roche	150,000	5
Andreas Hauri	CH	Mktg. Dir, Roche	350,000	4
Reinhardt Steinmetz	DE	Div. Pres., BASF	125,000	3.5
Dieter Suter	CH	Div. Pres., BASF	75,000	3
Hugo Strotmann	DE	Group V.P., BASF	75,000	3
SORBATES (2001):
Yuji Komatsu	JP	Genl. Mgr. Sales + Director, Ueno	Fugitive	--
Yoshihiko Katsuyama	JP	Dep. Sales Mgr., Ueno	Fugitive	--
Wakao Shinoda	JP	Genl. Mgr., Ueno USA	Fugitive	--
Hitoshi Hayashi	JP	Salesman, Organic Chem. Div., Daicel	Fugitive	--
Hiroshi Ikeda	JP	Gen. Mgr. Organic Chem. Div., Daicel	Fugitive	--
Kunio Kanai	JP	Gen. Mgr. Organic Chem. Div., Daicel	Fugitive	--
Takyasu Miyakasa	JP	Dep. Gen. Mgr. Organic Chem. Div., Daicel	Fugitive	--
ART AUCTIONS (2002):
A. Alfred Taubman	US	Chairman, Sotheby’s	7,500,000^a	12
Sir Anthony Tenant	UK	Chairman, Christies’	Fugitive	--
Dianna Brooks	US	CEO, Sotheby’s	350,000	6
SODIUM GLUCONATE (1997):
Cornelius Nederveen	NL	Mgr. Dir., Glucona	100,000	0
Marcel van Eekhout	NL	Mgr. Dir., Glucona	100,000	0
Bertrand Dufour	FR	Mgr. Dir., Roquette	50,000	0
Akira Nakao	JP	Asso. Div. Dir., PMP	200,000	0
GRAPHITE ELECTRODES (1998-99):
Robert Krass	US	Pres., UCAR Intl.	1,250,000	17
Robert Hart	US	COO, UCAR Intl.	1,000,000	9
Robert Koehler	DE	CEO, SGL Carbon	10,000,000^b	0
George Schwegler	CH	Dir. Eur. Export Sales, UCAR Intl.	Fugitive in South Africa	--
MCAA (2001):
Patrick Stanton	FR		50,000	3
Jacques Jordan	FR		50,000	3
Erik A. Brostorom	SW		20,000	3
CHOLINE CHLORIDE (2000):
John Kennedy	US		Pending	--
Robert Samuelson	US		Pending	--
Lindell Hilling	US		Pending	--
J.L. Fischer	US		Pending	--
Antonio Felix	US		Pending	--
ISOSTATIC GRAPHITE (2002):
Takeshi Tagaki	JP	Toyo Tanso	10,000	3
Masaru Endo	JP	Ibiden	Fugitive	--
Shigeo Yasuda	JP	Ibiden	Fugitive	--
Akira Hashimoto	JP	Ibiden	Fugitive	--
Michael Coniglio	FR	Carlone Am.	100,000	0?
CARBON CATHODE BLOCK (2002):
Shigo Ando	JP	Nippon	Fugitive	--
Manfred Mueller	DE	Electrode	Fugitive	--
John Casewell	UK	VAW carbon	23,000	3
Jan Hutchinson	UK	Hepworth	30,000	0
MIO (2003):
Takasi Azikawa	JP	Ishibara	Fugitive	--
Atuso Kinoshita	JP	Ishibara	Fugitive	--
Yoshiaki Tsujimura	JP	Ishibara	Fugitive	--
William Girvin	US		0	0
VITAMIN B3 (1998)
David Purpi	US	VP Sales, Nepera	100,000	12
Roger Mack	US	President, Nepera	50,000	8
EXPLOSIVES (1995):
Joseph Longmire	US	ICI	NA?	--
Withers Caldwell	US	ICI	50,000	0
Thomas Mechtenberg	US	Austin Powder	20,000	10
CONSTRUCTION, USAID (2001):
Peter Schmidt	DE	P. Hozmann	Fugitive	--
Elmore Anderson		Bill Harbert Construction Company	25,000	36
PLASTIC DINNERWARE (1995):
Clement Izzi	US	Comet Plastics	90,000	21
Russell Greer	US	Comet Plastics	20,000	10
Robert Westbrook	US	Plastics Inc.	75,000	15
Warren Wbile	US	Plastics Inc.	10,000	8
James Nurmi	US	Plastics Inc.	20,000	10
Andrew Liebman	CN	Polor Plastics	50,000	8
Basem Atallah	US	Polor Plastics	50,000	8
Peter Jacovelli	US	Dispos-O-Plastics	Acquitted	0
CONSTRUCTION, MARINE (1998):
Jan Meek	NL	Heere Mac	100,000	0?
Vincenzo Oliveri	IT	Saipem	Fugitive	--
Michael Lam	US	J. Ray McDermott	Pending	--
Robert Howson	US	J. Ray McDermott	Pending	--
Mervyn Raymor	US	J. Ray McDermott	Pending	--
James Wilasin	US	J. Ray McDermott	Pending	--
TRANSPORTATION, MARINE (1998):
Christiaan vander Zwan	NL	Dockwise	150,000	0
Bastiaan de Jong	NL		75,000	0
POLYESTER STAPLE (2002):
Troy Stanley	US	Arteva	20,000	0
Robert Dulton		Nanya Plastics	Pending	--

Note: Not shown here are convictied Canadian and Swedish executives who were imprisoned.

^a Largest litigated personal antitrust fine.

^b Largest personal antitrust fine.

^c Two anonymous executives are indicted fugitives.

In summary, the financial penalties applied by the U.S. DOJ to global price fixers in the late 1990s were unprecedented in their harshness. Average corporate fines for members of global cartels in the late 1990s were many times higher than the fines collected in 1990-1996 (Table 12). The main reason for the escalation in fines in the late 1990s was the extraordinary escalation in legal standards, the expanded size of the markets affected, the high overcharge rates, the longevity of many of the conspiracies, and, if truth be told, the rising intolerance of the judicial system for thieves dressed in expensive suits. This rise is especially notable in light of the fact that, correcting for inflation, average corporate fines were essentially unchanged for the first 90 years of the 20^th century.

Table 12. Average U.S. Criminal Penalties for Price Fixing, 1890-1999.

Years	Fine Per Company	Fines Per Person	Prison Sentence Per Person
	Dollars		Months
1890-1899	0	0	0
1900-1919	20,000	0	0
1920-1939	77,800	0	0
1940-1949	52,000	0	0
1950-1959	40,000	NA	0
1960-1969	131,000	NA	0.1
1970-1979	301,000	5,000^a	2
1980-1989	368,000	NA	4E
1990-1996	1,000,000	67,000	5E
1997^b	7,000,000	125,000	0
1998^b	11,000,000	131,000	0
1999^b	38,000,000	1,871,000	19

Sources: Posner (2001), Shepherd (1985), Connor (2001), DOJ (2002).

NA = Not available, but a small amount.

^a From the Folding Carton case.

^b Global cartels (Connor 2001:Table 13.A.1). The corporate lysine case is placed in 1997, but the individual sentences were delayed to 1999.

Canada

The Canadian Competition Bureau (CCB) enforces laws similar to those in the United States, and its prosecutions follow those in the United States by a year or so (Connor 2002: Table A.3). Cartel violations are crimes treated in effect as per se illegal acts. Persons can be fined and imprisoned, but this power is used quite sparingly. The CCB is a small agency that cooperates closely with the U.S. DOJ. Its indictments of global cartels in the 1990s usually followed those announced by the DOJ after a lag of one year. As in the United States, the CCB has imposed record antitrust penalties, but at a level proportionately lower than the U.S. fine rates, typically representing 10 to 20 percent of Canadian sales during the affected period. In several cases, except for leniency discounts, apparently to save the costs of economic analysis and litigation, the CCB has imposed identical percentage-of-sales fines on each of the conspirators.

The principal Canadian corporate fines for global price fixing are shown in Table 13. In the 1990s, prior to the lysine indictments in 1998, the total price-fixing fines imposed on international cartels were C$22 (US$15) million. However, in 1998 the fines from just two global cartels (lysine and citric acid) totaled nearly C$30 (US$20) million. During 1998-2003, Canada had collected about C$190 (US$125) million in global cartel fines.

Only one person, the CEO of a Canadian vitamin manufacturer, has been handed down a prison sentence. This sentence of 90 days, the first such punishment in many years, was commuted to community service. Four more cartel managers from Germany, Switzerland, and Japan, have paid large fines for their roles in the vitamins and sorbates cartels. They paid a total of $750,000, which were the third-largest fines in recent Canadian antitrust history.

As in the United States, Canadian fines for international price fixing were imposed predominantly on conspiracies in food in agricultural markets; since 1997, more than 85 percent of the fines have been imposed in these industries. Moreover, the vitamins cartels were by far the largest cartel cases uncovered. The vitamins fines accounted for 61 percent of all cartel fines imposed in Canada since 1997. Although Canada has a relatively small national market and many of the convicted firms sold cartelized products only through exporting (thus, owning few if any assets in Canada that could have been seized in the event of nonpayment of fines), it has been able to mount a surprisingly effective anticartel campaign in the last five years using very slim enforcement resources. Canada is a model for many smaller industrialized countries that have tough anticartel laws on their books yet have weak enforcement. Unlike many other areas of law enforcement, the returns to Canada’s treasury far exceed the outlays.

Table 13. Canadian Global Price-Fixing Convictions and Fines, 1990-2003 .

Year	Product:	Company (Ultimate Parent)	Fine
			U.S.$ mil.
1991-96	Various:	12 Companies	15.0
1998	Lysine:	ADM	9.1
		Ajinomoto	2.3
		Sewon America	0.1^a
		Kyowa Hakko	0.0^a
1998	Citric acid:	Jungbunzlauer	1.3^a
		Haarmann & Reimer (Bayer Corp.)	3.2
		Hoffmann-La Roche	2.0
		ADM	1.3
		Cerestar Bioproducts (Eridania)	0.5
1998	Sodium gluconate:	ADM	0^a
		Jungbunzlauer	0.6
		Roquette Frères	0.5
		Fujisawa Pharmaceuticals	0.3
		Glucona (Akzo Nobel)	0.2
1999	Chlorine chloride	Chinook Group	1.5
		Russell Cosburn	0
		DuCoa	Pending
		Mitsui	Pending
1999	Sodium erythorbate	Pfizer	1.0
		Fujisawa	0^a
1999	Vitamin B12	Hoechst/Aventis	0.2
		Rhone-Poulenc/Aventis	0^a
1999-2000	Vitamins:^b	Hoffmann-La Roche	34.1
		Kuno Sommer	0.1
		Roland Broenimann	0.2
		Andres Hauri	0.1
		BASF	12.7
		Rhône-Poulenc	9.4
		Takeda	3.6
		Daiichi	1.7
		Eisai	1.3
		E. Merck	0.7
1999-2001	Sorbates:	Ueno Fine Chemicals	1.0
		Daicel Chem. Industries	1.6
		Takayasu Miyasaka	0.2
		Höechst (Aventis)	1.6
		Eastman Chemical	0.5
		Nippon Gohsei	0.1
2000-2001	Graphite electrodes:	SGL Carbon	8.6
		UCAR Intl.	20.1^c
		Tokai Carbon	0.2
2001	Sodium erythorbate:	Pfizer	1.0
		Fujisawa	0^a
2001	Isostatic graphite:	Carbone of America	0.2
		Ibiden	Pending
		Toyo Tanso	Pending
		Tokai Carbon	Pending
		Nippon Steel	Pending
		SGL Carbon	Pending
2002	Vitamin B3	Degussa	1.6
		Lonza	0.7
		Napera	0.2
		Reilly	0.02
2003	Methylglucamine	Aventis	0.34
		E. Merck	0^a
	Total	62 corporations	124.6

Source: Canada Competition Bureau and Department of Justice: Fines chart dated November 23, 1999, News Releases, and Statements of Fact.

^a Discounted because of early cooperation with the Ministry.

^b Vitamins B3, B4, and B12 listed separately.

^c Includes restitution.

The European Union

Like Canada, the European Commission’s Directorate General for Competition (DG-IV) has cooperated with U.S. and other national antitrust agencies, but it is also terribly understaffed and relatively slow to act. The EC’s decisions take an average of four years after U.S. prosecutions are announced (Connor 2002: Table A.3). The EC’s lysine decision came eight years after the U.S. DOJ began investigating. Unlike the United States, Canada, and some of its member states, EU law treats antitrust violations solely as civil infractions by business entities.[31] Individual conspirators are not personally liable for monetary or prison penalties (Connor 2001:81-91). In this sense the powers and procedures of the DG-IV resemble those of the U.S. Federal Trade Commission more closely than the U.S. DOJ’s Antitrust Division.

Prior to the strengthening of the Sherman Act’s sanctions during 1974-1990, the EC’s formal authority to impose fines for major cartel violations was considered superior to the DOJ’s powers. Since the signing of the Treaty of Rome, corporate members of cartels have been subject to maximum fines of 10 percent of sales in the year or years prior to an effective price-fixing agreement. The EC’s fines can be based on the global sales of an offending firm in all its lines of business, but in practice cartel fines are mostly based upon a violator’s EU sales in the affected line of business only (Connor 2001:401-407).

The difference between U.S. and EU powers to fine corporations may be easily illustrated using a hypothetical but realistic example. Take ADM’s situation in the citric acid market during the mid 1990s: annual global sales of about $10 billion and citric acid sales of about $200 million per year (distributed equally between North America, Western Europe, and the rest of the world) out of $900 million in global citric acid sales. Then consider three cartel scenarios: (I) a short-lived cartel of modest effectiveness (a 10-percent overcharge), (II) a cartel of a three-year duration and highly effective (30 percent), and (III) a ten-year, highly harmful cartel.

Table 14 demonstrates ADM’s maximum antitrust liability under current U.S. and EU laws. By assumption, the overcharges on ADM’s buyers in the EU and USA are identical and equal to $6.7 million per year. Looking at cartel scenario I (a short, weak conspiracy), ADM would be liable for a top U.S. fine of $13 to $60 million, depending on the company’s degree of culpability (i.e., whether it was the cartel’s initiator, chief enforcer, or failed to cooperate with the DOJ’s investigation).[32] In the EU, ADM would be liable for simply an amount equal to its monopoly profits of $6.7 million, unless the EC took the unusual step of invoking global sales to calculate the cartel fine. In the latter case, the EC could impose a $1,000-million fine on ADM. Thus, the sales base employed by DG-IV has a critical effect on whether EU fines can be higher or lower than comparable U.S. fines.

Examining the scenario with the long-lasting, high-overcharge assumptions, the DOJ can request greatly enlarged fines of $200 to $600, because the overcharge in scenario III is 30 times larger ($200 million) than that for scenario I ($6.7 million). However, the EC’s ability to fine is severely hampered by its 10-percent-of-sales rule. In particular, under its usual practice, the EU’s top fine on ADM would be quite a bit lower than ADM’s monopoly profits from its EU operations during the cartel. That is, based on jurisdictional sales only, the EU’s ability to disgorge cartelists’ illegal profits is weak. It is in such cases that the EC is most likely to consider ADM’s global sales as a basis for its antitrust penalties.

Table 14. Maximum U.S. and EU Fines for a Company with $200 Million in Affected Sales in a $900-million Global Cartel.

Cartel Scenarios	Economic Harm to Company’s Buyers	United States		European Union^a
		Sentencing Guidelines	Felony Guidelines	Cartelized Market Sales	Group Sales of $10 Billion
		Million dollars
I. One year, 10% overcharge
A. Jurisdiction sales basis^b	6.7	20-60	13.3	6.7	333
B. Global sales basis^c	20.0	60-180	40	20.0	1,000
II. One year, 30% overcharge
A. Jurisdiction sales basis^b	20.0	20-60	40	6.7	333
B. Global sales basis^c	60.0	60-180	120	20.0	1,000
III. Ten years, 30% overcharge
A. Jurisdiction sales basis^b	200.0	200-600	400	6.7	333
B. Global sales basis^c	600.0	600-1,800	1,200	20.0	1,000

Source: Connor (2001:87).

^a Assumed that the sales of the cartelized product were $66.7 million in the EU out of $00 million in the world.

^b Assumed that of $900 million in global sales of cartel, $300 million occurred in the U.S. and 4300 million in the EU. The company has a 22% share of each geographic market. The USSG multipliers are 1.5 to 4.5, depending on the seriousness of the offense.

^c Rarely applied by U.S. authorities. More commonly applied (but in a minority of cases) by the European Commission.

As in all jurisdictions, maximum fines are one thing and actual fines another. The EU has recently adopted guidelines for calculating firm-by-firm discounts from the maximum statutory fines. First, the DG-IV considers the “gravity” of the offense; cartels are always the “most serious” (the highest of three levels) type of antitrust infringements, and large overcharges that are geographically widespread only add to the gravity. Second, large companies are fined double the amount of “small” ones: in the lysine case the threshold was €3 billion. Third, fines are increased by 10 percent per year for each year the cartel is effective. Fourth, these three factors result in a “base fine” that is adjusted upward by 50 percent for cartel leadership and downwards 20 percent for passivity. Fifth, a 10-percent discount is given for immediate cessation of the conspiracy. Finally, under the Leniency Notice, violators are given discounts for their degrees of cooperation, from 10 percent for minimal cooperation to 50 percent for the most cooperative. In rare cases, amnesty is granted.

The description just given for fine-setting probably overstates the degree of precision of the process. Moreover, firms can and usually do appeal the EC fines to the European Court of First Instance where they often receive modest downward adjustments. Nevertheless, the fines meted out by the EC for 12 cases of global price fixing have reached impressive amounts (Table 15). The first large cartel fined was the TACA shipping conference. Lysine followed in 2000, with a total of nearly $100 million.[33] In 2001, decisions were reached in four huge cartel cases with total fines of $1,115 million (together with other antitrust fines, DG-IV imposed €1.8 billion in fines in 2001). In 2002, the EC announced an historic decision to fine four companies $250 million for global price fixing in the market for the amino acid methionine; this is the first time that the EC has prosecuted a global cartel prior to a U.S. conviction. Several more global cartel cases under investigation are likely to result in continuing large fines for the next few years.

Table 15. EU Global Price-Fixing Convictions and Fines, 1996-2002.

Year	Product	Company (Parent)	Fine
			Million dollars^a
1998	TACA No. Atlantic shipping conference	15 ocean shippers	236.0
2000	Lysine	ADM	42.1
		Ajinomoto	25.2^b
		Kyowa Hakko	11.8^b
		Cheil Sugar	10.9
		Sewon	7.9
2001	Citric acid	Hoffmann-La Roche	56.5
		ADM	35.3
		Jungbunzlauer	15.7
		Bayer	12.7
		Eridania	0.2
2001	Vitamins	Hoffmann-La Roche	408.0
		BASF	261.5
		Takeda	32.7
		Daiichi	20.7
		Eisai	11.7
		E. Merck	8.2
		Solvay	8.0
		Rhône-Poulenc (Aventis)	4.5^c
		Höechst (Aventis)	1.6
		Lonza	0^c
		Sumitomo	0^d
		Sumika	0^d
		Tanabe	0^d
		Kongo	0^d
2001	Sodium gluconate	Jungbunzlauer	18.2
		Roquette Frères	9.6
		Akzo Nobel	8.0
		ADM	9.0
		Avebe	3.2
		Fujisawa	3.2
2001	Graphite electrodes	SGL Carbon	68.5
		UCAR International	43.1
		Tokai Carbon	20.9
		Showa Denko	14.9^b
		VAW Aluminum	9.9
		SEC	10.4
		Nippon Carbon	10.4
		Carbide Graphite	8.8
2002	Methionine	Rhône-Poulenc/Aventis	0^b
		Degussa-Hüls	116.3
		Novus International	125.2
		Nippon Soda	8.9
2002	Nucleotides	Ajinomoto	16.0
		Sewon/Daesang	2.8
		Chiel Jedang	2.3
2002	Isostatic graphite	SGL Carbon	18.9
		Toyo Tanso	10.8
		Tokai Carbon	7.0
		Carbone-Lorraine	7.0
		Ibiden	3.6
		Nippon Steel	3.6
		GrafTech (UCAR)	0^c
2002	Extruded graphite	SGL Carbon	8.8
		GrafTech (UCAR)	0^c
2002	Fine art auction	Sotheby’s	20.1
		Christie’s	0^c
2002	Methylglucamine	Aventis	2.8
		E. Merck	0^c
2000-2002	Total		1,803.4
2003-2004	Sorbates
(pending)	Wine alcohol
	MCAA
	Organic peroxides
	Sodium erythorbate
	Maltol
	Bromines
	Carbon cathode black

Source: EC (2002).

^a Translated to dollars in the month announced. Actual fines may be larger due to rise in the value of the euro since 2000 and delays in payment dates.

^b Vary large leniency reductions (50 to 70 percent).

^c Amnesty or near amnesty.

^d Guilty but not fined because of statute of limitations.

Four of the five cartels prosecuted by the EC in 2000-2001 operated in the food-and-agriculture sector. As in the United States and Canada, these cartels accounted for the lion’s share of fines: 85 percent in the EC case. A recent survey of EC competition-law enforcement did not anticipate these cases (Buccirossi et al. 2002).[34]

Summary

Global cartelists face investigations and possible fines in as many as ten national and supranational jurisdictions. Mexico, Brazil, Japan, South Korea, Australia, New Zealand, and a few other countries have active anticartel agencies. Mexico fined ADM a small amount in the lysine case; Australia imposed record fines for vitamin price fixing; and South Korea placed record fines on graphite-electrode makers. However, the three jurisdictions with heretofore the most consistent legal responses to global cartels are the United States, Canada, and the EU.

The fines imposed by the United States, Canada, and the EU are roughly proportional to the sizes of the affected markets’ sales in the respective jurisdictions. In the five overlapping cases of global cartels available as of mid-2002, government anticartel fines were highest in the United States and the EU and about 6 to 8 percent as high in Canada (Table 16). Even more impressive is the high degree to which fines were correlated in size between jurisdictions. The simple correlation between the U.S. and EU fines was +0.95, and the correlations between the other two remaining pairs ranged from +0.95 to +0.99; the rank correlations were perfect (1.00). Thus, corporate members of global cartels can use their fines imposed by the U.S. DOJ, usually the first to act, to predict with a high degree of certainty what their fines will be a year or two later in the EU and Canada.

Table 16. Five Global Cartels with Corporate Fines Imposed by U.S., EC, and Canada, 1996-2002.

Cartel	U.S.	EC	Canada
	Million U.S. dollars
Lysine	92.5	97.9	11.5
Citric Acid	110.4	120.4	7.9
Vitamins	906.5	756.9	64.0
Sodium gluconate	32.5	51.2	1.6
Graphite electrodes	436.0E	172.0	15.5
Total	1,577.9	1,213.3	100.5

Sources: Tables 10, 12, A.2, and A.3 of Connor (2002).

Note: These are the only five global cases for which all three jurisdictions had taken actions by the end of 2002. The list of overlapping cases ought to double or triple by 2004.

Given the near absence of private antitrust litigation in Europe, the total liabilities of cartelists operating in Europe are overall quite a bit lower in practice than an otherwise identical violation punished under U.S. or Canadian laws.

Deterrence

The corporate fines and personal sanctions handed out to global price fixers since 1995 were beyond and above the worst nightmares of corporate defense lawyers might have had in the early 1990s. Corporate cartelists, when they are unmasked by antitrust investigators, are now routinely paying fines that exceed their monopoly profits earned in North America and in Western Europe. Indeed, in North America, when the private treble-damages suits by buyers or the state attorneys general are factored in, prosecuted price fixers are nowadays normally disgorging close to double their illegal “earnings” (Connor 2001:469-476). Nevertheless, serious doubts remain that even the heightened fine structures observed since 1995 are sufficient to prevent recidivism (repeat offenses of the same crime).

Theory

A rational policy with respect to the design of legal sanctions would admit to two principal objectives: deterrence and compensation of victims.[35] The EC’s cartel decisions are explicit in mentioning deterrence as the main objective of its determination of fine levels; to the extent that these fines are used to defray the EU budget, European consumers are at least indirectly compensated.[36] In the United States, treble damages (i.e., settlements equal to three times the victims’ economic losses) were explicitly instituted in the 1890 Sherman Act to compensate buyers from cartels as well as to deter firms from forming cartels ex ante. However, the advent in the 1990s of the double-the-harm standard for setting government fines has led some legal writers to criticize cartel sanctions as having reached supradeterrent levels. (Easterbrook 1986), (Kelley and Savyed 2000), (Cohen and Scheffman 2000), and (Kobayashi 2001).[37]

These criticisms confuse the ex post liabilities faced by discovered cartel members with the ex ante decision making process that deterrence-fines are supposed to affect. True, the theoretical maximum fines and private settlements faced by prosecuted cartelists have reached surprisingly high multiples of cartel overcharges in the U.S. legal system. A domestic cartel successfully prosecuted in the United States is liable to pay up to double the cartel’s overcharge to the federal government and triple the overcharge to direct buyers who file civil suits. In addition, the cartel can be sued by the state attorneys general for another set of treble damages incurred by indirect buyers.[38] Thus, domestic cartels are obligated to pay as much as eight times their illegal monopoly profits if they are found guilty. Moreover, suppose the cartel is a global one with a typical one-third of its sales in the United States. Then, the U.S. DOJ has the option of calculating its fine on the basis of global overcharges (which are likely to be three times the domestic overcharges). In this case the federal fine could rise to six times a cartel’s U.S. overcharges. It is the possibility of fines and settlements totaling eight to twelve times a cartel’s U.S. monopoly profits that leads critics to make claims of overdeterrence.

However, deterrence effects of anticartel policies must be evaluated ex ante, that is, from the perspective of a company considering forming or joining a price-fixing conspiracy. Such a company must evaluate the probable additional profits from the cartel relative to the probable costs associated with being discovered and prosecuted. The evidence is that potential conspirators are adept at calculating the annual profits from an effective cartel, though they might have uncertainty about the scheme’s longevity.[39] As to the probability that a cartel will be discovered, most evidence seems to suggest a 10- to 20-percent chance. (Bryant and Eckart 1991, Connor 2001, Cohen and Scheffman 2000)[40] Moreover, even if cartelists are indicted by the U.S. DOJ, the chances of being convicted are less than 100 percent. The DOJ likes to boast that more than 80 percent of its indictments end in guilty pleas, which is true because the per se evidence is so damning in most cases that defendants usually negotiate a guilty plea. On the other hand, when accused price fixers choose to litigate a criminal price-fixing case, the government wins their cases less than half the time. Thus, cartelists adept at covering up their clandestine meetings or able to afford the best legal defense teams might well judge their chances of conviction to be in the 50 to 75 percent range.[41]

The decision facing a firm trying to decide whether to form a cartel or join an existing cartel may be explained using a benefit-cost framework. Let E(B) be the expected financial benefits, that is, the net present value of the expected monopoly profits accruing to the firm from an effective cartel. Let E(C) be the expected monetary costs of forming or joining the cartel, where the managerial costs are assigned to be negligible. Then the firm will opt to enter a cartel agreement if

E(C) < E(B)

In the simplest version of this decision model, one used by Richard Posner,

E(C) = p × F,

where p = the probability of U.S. government discovery and conviction and F is the fine imposed for the violation.[42] A more complete version of this model is

E(C) = p × c × E(F),

where p is the probability of detection and c is the probability of conviction or settlement. E(F) depends on the culpability factors and the size of the affected sales or overcharge (a range known with near certainty from the U.S. Sentencing Guidelines) and the firm’s position in applying for leniency. E(F) could be zero if the firm is granted amnesty, but even then the expected private settlement costs, E(S), are not zero. Moreover, the firm may incur significant legal defense costs and related managerial time losses as well as post-indictment reputational costs, E(R). Thus, in the case of a domestic conspiracy,

E(C) = p_g × c_g × E(F) + p_p × c_p × E(S) + E(R),

where subscripts g and p refer to government and private legal actions. In the usual follow-on suit, p_p = 1 and c_p will be very high (close to 1), but in some cases where the government does not indict p_p and c_p are low positive numbers, much closer to zero than to 1.

In the context of global cartels, the decision-making model has added geographical components:

E(C) = p_gu × c_gu × E(F_u) + p_pu × c_pu × E(S_u) + p_ge × c_ge × E(F_e) + p_ga × c_ga × E(F_a) +E(R),

where u = U.S. and Canada, e = EU and a = Asia. Because of the absence of effective private damages suits outside of North America, E(S_e) = E(S_a) = 0. Because most companies are listed on at most one stock exchange, E(R) refers to stock-price effects in the firm’s home country. Unlisted cartel members suffer little E(R), and in my view the reputational effects for public companies, if any, seem to dissipate within five years. (Alexander 1999)[43] Because of weak enforcement in Asia, E(F_a) = 0. Given the standards that have evolved for corporate sanctions for global cartels, E(C) can be converted to a function of the private financial “benefit” of price fixing, where E(B) is the overcharge paid by direct buyers during the conspiracy period. For a convicted cartelist, the maximum ex post costs of global collusion will be

E(C) = E(F_u) + E(S_u) + E(F_e) + E(F_a)

= (1.06)(2B) + (1.06)(3B) + (0.78)( E(F_u)) + 0

= 6.9B

That is, where p = c = 1 and the U.S. DOJ imposed the maximum double-the-overcharge (2B) fine on domestic sales with no leniency discounts, a firm might have to pay as much as seven times its monopoly profits in fines and settlements.

In the case of a more appropriate ex ante analysis, F(C) will be considerably lower than 6.9B because p and c are less than unity. My best prediction for p_gu is a value between 0.10 and 0.30, with the higher value due to the recent success of the leniency programs adopted by most antitrust agencies; given the improved degree of international cooperation in anticartel enforcement, it is reasonable to assume p_gu = p_ge = p_ga. For conviction, 0.5 < c_gu < 0.9 seems a reasonable range, and because most U.S. treble-damages suits are follow-on actions, c_pu = 1 is not unreasonable. Actual fines paid in the United States and EU can be used to derive expected fines, and these can be converted to an overcharge basis (B).[44] Past practice suggests that for the average cartel participant F_u = 0.18B to 0.64B; in the EU, F_e = 0.2 to 0.7B; and in Asia, E(F_a) = 0. Ringleaders of cartels have paid relatively high fines per dollar of overcharge, and small followers low fines. In North America, private suits against global cartels have yielded settlements of from 1.0 to 2.0 overcharges. These parameters imply that ex ante:

E(C) = 0.12B to 0.95B.

Thus, minor participants in global cartels can reasonably expect to incur fines and settlements far below their expected cartel profits. Even under the most optimistic assumptions about discovery, lenience, and prosecution rates, the average conspirator can reasonably expect to make a profit on the typical global price-fixing scheme. Only ringleaders of cartels that resist cooperating with prosecutors risk financial costs in excess of their expected profits. One example is ADM’s participation in the lysine cartel.[45]

Given the rational expectations about the certainty of punishment just mentioned, what is an appropriate level of financial sanctions to deter price fixing before it starts? At a minimum, to ensure absolute deterrence of a global cartel, total financial sanctions should be twenty times the expected U.S. cartel profits (the overcharge); at the upper end, deterrence would require penalties equal to sixty times U.S. overcharges.[46] These extraordinary multiples demonstrate that, from a purely benefit/cost approach, even the theoretical U.S. legal sanctions of eight to twelve times overcharges is insufficient to deter recidivism.

Practice: The United States

Recidivism in global price fixing is depressingly common. In part, this may be caused by the highly diverse businesses found in most large multinational firms. Price fixing in the 1990s bears all the marks of contagion, between and within enterprises. For example, soon after Hoffman-La Roche and BASF implement price fixing in vitamins A & E, the positive financial results prompted them to form at least five more highly complex cartels in eight other vitamins industries a year later. Furthermore, Roche’s success in vitamins instigated one top Roche executive to write a memorandum to the head of the company’s citric acid marketing department encouraging him to form a citric acid cartel. Soon after ADM and Roche began fixing the price of citric acid in 1991, the ADM vice president in charge of citric acid taught ADM’s head of the lysine department how to form and run the lysine cartel (see Figure 1 above). At least a dozen firms convicted of global price fixing in the 1990s have become repeat offenders.

Although the theoretical financial costs of price fixing may strike some as high, the actual amounts of the fines and private settlements are much lower than what is legally possible in cases settled before 1990. A wide gap between the maximum penalties prescribed by the law and the actual penalties imposed has persisted after 1995 in fines imposed on global price fixers.

In the three best documented prosecutions of global cartels, U.S. government corporate fines of $1,106 million were precedent-shattering. Yet they represented merely 10 to 79 percent of the maximum possible fines that could have been levied (Table 17). To place them further in perspective, these fines represented only 2.8 percent of global sales during the three conspiracy periods and only 12.6 percent of the cartel’s illegal profits.[47] Individual fines and prison sentences were also far more lenient than the law permits. These fines and sentences averaged 3 to 7 percent of the maximum levels allowed. Moreover, less than one-fourth of the individual conspirators were sanctioned at all.

Table 17. Potential and Actual U.S. Government Sanctions Applied in Three Global Cartels.

Cartel	Corporate Fines^a		Individual Sanctions
	Maximum	Actual	Number^b		Prison		Fines^c
			Max.	Actual	Max.	Actual	Max.	Actual
	$ million		Number		Months		$ million
Lysine	225-559	92.5	40	7	1440	99	14.0	0.9
Citric acid	189-721	105.4	12	4	432	0	4.2	0.8
Vitamins	994-9850	908.5^d	52	13	1872	22.5	18.2	0.9
Total	1408-11,130	1,106.4	104	24	3744	121.5	36.4	2.6

Sources: Connor (2001:Tables 13.1, 13.2, and 13.3).

^a Based on either the usual 20-percent of U.S. affected sales with a culpability score of 9 and multipliers of 1.8 to 3.6 or twice the U.S. overcharge. In general, had global sales been the basis of the fines, the maximum amounts shown in this table would be trebled.

^b Named conspirators in the DOJ’s proffers to the courts.

^c Based on the $350,000 statutory cap, not on the much higher amounts allowed by the alternative sentencing statute.

^d A few small companies have yet to plead guilty.

The major reason for the relatively low government fines is the ancient practice of prosecutors everywhere of offering rewards for a defendant’s cooperation. Such cooperation may be needed to induce price fixers to testify against other, more recalcitrant co-conspirators; it may be given to low-ranking employees in order to prosecute high-ranking executives with greater deterrence value; or it may be justified as a method to conserve constrained prosecutorial resources. What is new is the promulgation of formal leniency programs in the 1990s by the U.S. DOJ and the EC’s DG-IV for price fixing.

Here is how the U.S. Leniency Program works.[48] If a cartel member is not a ringleader or enforcer in the conspiracy and if the DOJ is not aware of the illegal activity, then the first firm to confess is granted automatic amnesty; that is, it is granted a 100-percent discount on its government fine specified by the U.S. Sentencing Guidelines. In the view of the DOJ, amnesty is valuable because it sets up a “race” to be first to confess and leads to tension and mistrust among cartel members. An extension of this program called “Amnesty Plus” offers amnesty to suspected price fixers if they are the first provide evidence of cartel activity in an unrelated market about which the DOJ was ignorant. The many vitamins cartels were unmasked by this type of amnesty granted to BASF. Indeed, as of 2001, more than half of the 30 grand juries established to investigate alleged cartel activity were set up as a result of the Amnesty-Plus Program.

The Leniency Program also extends concessions to later arrivals on the doorstep of the Justice Department. The second member of a cartel to offer its cooperation to prosecutors is entitled to a 50- to 80-percent fine reduction. The third and fourth conspirators to arrive may expect less generous discounts, but in effect all cooperators but the last firm to hold out are rewarded with substantial discounts. If anything, these leniency discounts, which were approved by a court, are larger than the official policy suggests. While the first and second firms to plea follow the Leniency Program standards, those that plea later receive discounts that exceed the program’s stated guidelines. Similar incentives to cooperate are offered to individual conspirators: reduced fines, short prison sentences, or the freedom to cross the U.S. border.[49]

An example of how a company will fare if it is the last to be sentenced and does not cooperate is provided by the Mitsubishi conviction at trial in February 2001. For its indirect role of aiding and abetting price fixing in the graphite-electrodes cartel, it received a fine of $134 million. What is impressive is that the fine was 76 percent of affected U.S. sales, probably a record percentage, and very nearly at the top of the Sentencing Guidelines range; it was also 7.6 times the assumed overcharge.

The U.S. Leniency Program for price fixing has been widely imitated by antitrust authorities in other jurisdictions. The most important adoption was by the European Union in February 2002.[50] Its new program makes the process for applying for full immunity far more transparent and predictable. Amnesty is automatic for the first company to reveal a cartel if (1) the EC was unaware of the cartel already, (2) cooperation is fully satisfactory, (3) the company immediately ceases price fixing, and (4) the company never coerced other companies to join to cartel. Thus, the new EC policy sets up strong incentives in the “races to be first” (to confess) to Brussels. Moreover, this race complements the race to be first to Washington, DC, Toronto, London, Paris, Brasilia, and at least three other national capitals where a company can earn multiple prizes. The global convergence of antitrust leniency policies has now become the major single source of information of formerly clandestine illegal activities that were nearly impossible to detect. To a large extent, the potentially huge and automatic financial rewards for informing antitrust authorities have made the disease of global price fixing self-medicating.

Finally, to get a complete picture of the actual U.S. financial sanctions for collusion, one must consider the treble-damages suits filed by injured parties. In the three best-documented global cartel cases, private plaintiffs garnered record-making settlements totaling between $1,745 and $2,445 million (Table 18). However, compared to fairly reliable estimates of what U.S. treble overcharges were, these settlements are well below what the Sherman Act promises to direct buyers. Lysine buyers received 35 percent of treble damages, citric acid buyers 32 to 40 percent, and vitamins buyers 32 to 54 percent. That is, injured parties got single damages (or slightly higher), not treble damages.[51] There is some evidence that the largest direct buyers that opted out of the federal classes obtained settlements that were twice as rich..

Table 18. Potential and Actual U.S. Private Settlements Paid by Three Global Cartels.

Cartel	Corporate Settlement Amounts
	Treble U.S. Damages	Actual Settlements^a
	Million dollars
Lysine	240	85
Citric acid	600-750	239
Vitamins	3,660-4,515	1,421-2,121^b
Total	4,500-5,505	1,745-2,445

Sources: Connor (2001:Table 16.A.1).

^a These amounts include federal suits by direct purchasers (both class actions and firms that opted out of the classes), a parens patriae settlement in vitamins, and estimates of indirect-purchaser suits in state courts. The latter amounts may be generous.

^b Several cases still in negotiation or litigation.

To summarize, government and private antitrust penalties on the lysine, citric acid, and vitamins cartels amounted to between $2,850 million and $3,550 million. Although by historical standards these amounts were great accomplishments for public prosecutors and private plaintiffs, they fall far short of what the Sherman Act intended. These price-fixing penalties amounted to about 47 percent of affected U.S. sales, or somewhere between 179 percent and 194 percent of the cartels’ illegal profits. Less than double overcharges will not deter absolutely.

Practice: Canada and the EU

The enhanced fines on global conspirators imposed by the governments of Canada and the EU help deter, but their incremental influence is still not sufficient to prevent the formation of new cartels.

In 1998-2000, the Canadian Competition Bureau (CCB) obtained court orders requiring the lysine, citric acid, and vitamins cartelists to pay a total of C$145.7 million. In addition, class-action suits were filed by direct and indirect buyers; two of these private damages actions were moderately successful. Taken together, the members of the three cartels have paid about U.S. $100 million in fines and settlements to parties in Canada.

In 2000-2001, the same three cartels were fined U.S. $975 million by the European Commission. Although legal in the courts of some of the member states of the EU, no significant private antitrust settlements are expected. The Australian, Mexican, and Brazilian antitrust agencies have launched investigations of the three cartels, but except for small fines for vitamins in Australia, none has yet resulted in significant fines.

The ability of direct buyers who purchase cartelized products outside the United States to obtain compensation is quite limited. Canada, Australia, and several European countries have laws that permit private suits for injuries due to price-fixing overcharges, but mostly these national courts do not award sufficiently large to make such suits worthwhile. Moreover, the possibility of class actions to recover damages is low. However, class actions against the lysine and citric acid cartels have been moderately successful in Canada under a 1992 law. Moreover, a March 2002 decision by the U.S. Court of Appeals for the 2^nd Circuit (Kruman v. Christie’s International) has extended the rights of foreign buyers to sue for damages under the U.S. Sherman Act. Oddly, instead of U.S. legal standards spreading to other nations, the U.S. court system itself is becoming a globalized legal institution.

The additional $1.1 billion in non-U.S. fines for price fixing in the markets for lysine, citric acid, and vitamins certainly moves global anticartel policies in the right direction. Nevertheless, the global penalties imposed on the three cartels ($3,950 to $4,650 million) still represent modest amounts when compared to either worldwide affected sales (9.9 to 11.7 percent) or to worldwide overcharges by the cartels (51 to 60 percent).

The relationship of global public and private penalties to the cartels’ illegal gains is illustrated in Figure 1. Estimated worldwide profits made from collusion are compared to U.S. and non-U.S. penalties for the three cartels. In each case, U.S. penalties are about double the non-U.S. (mainly EU and Canada) penalties. These penalties slightly exceed the cartel’s monopoly profits only in the case of lysine, by about $40 million. However, in the other two cases, cartel crime did pay. The corporate members of the citric acid cartel made a net return of about $370 million; that is, they retained about 53 percent of their illegal profits after paying their fines and private settlements. The members of the vitamins cartels kept more than $4 billion of their illegal profits, or almost 60 percent of their customers’ overcharges.[52] For ADM, probably the most heavily fined conspirator relative to its size, the antitrust costs of its lysine and citric acid ventures were about equal to its illegal net revenues.

Figure 1. The Bottom Line: Do Cartels Pay?

Illegal Profits (Overcharges)

U.S. Penalties^a

Non-U.S. Penalties^a

Sources: Tables 3 and A.2, Connor (2001).

^a Government fines on corporations and private settlements paid to buyers of cartelized products.

Final Thoughts and Speculations

After spending a possibly inordinate amount of time on the subject of global cartels, I still perceive a number of unanswered questions raised by the eruption of global cartels in the 1990s. Two seem paramount. What were the economic, financial, and political forces the facilitated the establishment of dozens of effective international cartels in the late 1980s and early 1990s? What remedies can be implemented to discourage and possibly deter the formation and effectiveness of global cartels?

Cartel Formation

The temptation for a company in an appropriately structured market to launch or join a cartel is well understood: it is a golden opportunity to increase profits to levels higher than those being earned, at present or in the foreseeable future. Were it not for the possibility of punishment under antitrust laws, cartels would run rampant, monopolizing vast stretches of national economies or international trade. We know this to be true because of numerous reliable economic studies of cartel activity during eras prior to the adoption of effective anticartel legislation. This was the state of affairs in the United States before the 1890 Sherman Act (Connor and Schiek 1997:37-42), in Germany before 1945 (Voight 1962), in the United Kingdom before 1956 (Symeonidis 2002), and in international trade before the U.S. prosecutions of the late 1940s (Stocking and Watkins 1946). In the UK in the early 1950s, hundreds of formal, open, and legal cartels operated in nearly half of the manufacturing sector, some of them of 70-years duration (Symeonidis 2002:21). Hundreds of international cartels operated in the interwar period, affecting nearly half of international merchandise trade (Stocking and Walkins 1946).

The temptation facing company managers to form or joining a cartel are more varied and complex. Loyalty to their employer and a desire to contribute to its financial performance often seem to play a role. At a more personal level, the desire for advancement and monetary rewards cannot be discounted. In the case of some managers in the lysine cartel, other personal motivations included the sheer thrill of controlling markets (akin to the mariner’s dream of sailing against the wind) and the nervous pleasure derived from the cloak-and-dagger aspects of outwitting the authorities (Connor 2001:199-229).

International cartels were relatively few during 1950-1990, especially compared to the interwar period (Caves 1996). Among the economic conditions accounting for the paucity of cartels after 1950 were the emergence of more aggressive behaviors by the largest U.S. manufacturers (through foreign investment and acquisitions that broadened their product lines), the focus of most European firms on rebuilding their domestic market positions, and a shift away from homogenous products toward differentiated consumer of high-tech goods. Most of the global cartels discovered after 1995 were formed during a narrow period, 1998-1992. There are tantalizing hints that slowing profitability in the late 1980s may have stimulated many of the cartelists to consider more risky alternative strategies. In the organic chemicals industry, a pronounced cyclic slowdown was apparent in the late 1980s; several pharmaceutical companies had “blockbuster” products coming off patents at the time; and in starch manufacturing, the period of rapid growth in high fructose corn syrup ended abruptly in 1986-1987 (Connor 2001). In Japan, the first troubling signs of the end of the “bubble economy” began to emerge in the late 1980s. By the early 1990s, massive corporate and government debt and falling asset prices had led to chronic recession, a weaker yen, and falling profits.

Changes in corporate management philosophies, especially evident in U.S. firms but also spreading to European companies, may have contributed to the acceptability of price-fixing. Criticism of top management of U.S. companies became intense during the decade of slow U.S. growth that began in 1973. A widespread solution during the 1980s was the implementation of new managerial reward structures that tied leaders’ pay more closely to financial performance, often short run profits and stock price. Boards of directors approved generous stock-option plans and other compensation policies that made stockholders’ interests the only stakeholders of importance. Restructuring corporate management to remove putatively unnecessary layers of management and other changes meant to enhance flexibility and speed of decision making came at the cost of cross-checks and accountability. Increasingly, corporate leaders were being trained in MBA programs with increasingly uniform curricular that emphasized applied management tools and had little room for courses on business ethics. Many critics of modern business principles decry what they perceive to be a decline in corporate ethics, extending to the consulting and accounting professions as well (Krugman 2002).

The third area that may have fostered cartel formations is that of politics and policy. The successful prosecution of scores of global cartels in the late 1940s is cited by Caves (1996) as one factor explaining the decline in cartel activity for 30 years or more thereafter. Perhaps these lessons were lost as successive generations of corporate leaders assumed the helms of their companies, or perhaps the lessons were not institutionalized through antitrust management-training programs or the monitoring efforts of corporate counsel. The enforcement of antitrust became more lax during the Reagan-Bush administrations (1981-1992) as the antitrust agencies’ budgets were cut nearly in half. Price-fixing enforcement shifted toward bid-rigging violations affecting small markets (Connor 2001:66-68). U.S. antitrust authorities failed to investigate ADM’s attempt to monopolize the lysine industry when it prevented Degussa’s entry in 1989 and ADM’s acquisition of Pfizer’s citric-acid assets in 1990, both key events in the formation of two important global cartels.[53] The European Union’s allocation of anticartel resources may also be criticized as inadequate up until at least the late 1990s. Another policy of the European Commission that inadvertently contributed to cartel effectiveness was the sponsorship of industry trade associations that became ideal covers for illegal price-fixing discussions for global cartelists. These organizations were also used to threaten trade reprisals against suppliers that remained outside the cartel.

Fashioning Remedies

The major objective of anticartel policies should be to lower the benefits (profits) or raise the costs (penalties) of price fixing. Other than vigilance in merger control, public policies can do little to change the structural features of markets that make cartels profitable: inelastic demand, large numbers of buyers, economies of scale, homogeneity, and so forth. Policies can sometimes have effects on trading conditions, such as the publication of transaction prices in markets characterized by lack of transparency. However, the principal role for antitrust is to develop rules, laws, and investigative procedures that make punishment surer and harsher than at present. Reforms should be implemented soon because the present favorable public and legislative support may not last.

It is clear from the geographic location of cartel meetings that, as a general rule, United States territory was avoided because of its well-deserved reputation for tough anticartel enforcement. Instead, conspirators met in Switzerland, Mexico, Japan, Hong Kong, and several EU cities that were regarded as less risky. This behavioral pattern is perhaps the best indicator that U.S. anticartel policies are the ones other jurisdictions should emulate.

One investigative technique that has proven especially useful in discovering cartels is the DOJ’s 1993 Leniency Program. Similar programs were subsequently adopted in Canada, the UK, Germany, Brazil, and the EU (Hammond 2001a:3). A novel variation is the “Amnesty Plus” program that rewards indicted companies if they inform the DOJ about collusive activity in a market not yet being investigated. In 2001, more than half of the DOJ’s 30 global-cartel investigations were the result of Amnesty Plus leads (ibid.:6). An example, admittedly the most productive one so far, is shown in Figure 2. Starting with 1992 information from one cooperating witness in 1992, the DOJ was able to leverage five global-cartel investigations into convictions of 10 companies, 11 executives, and $225 million in fines. Other U.S. policies worthy of globalization include: fines based on multiples of overcharges rather than arbitrary percentages, increased penalties for recidivists, encouragement of private antitrust suits, and the criminalization of antitrust violations. This last initiative is especially important because it reduces the number of safe havens for fugitives from U.S. antitrust laws. These policy reforms are especially needed in Japan (which has an arbitrary fine of 6 percent of sales for price fixing by manufacturers) and other industrialized Asian countries (Chemtob 2000, Hammond 2001a).

U.S. anticartel policies themselves are hardly above criticism. Periods of weak enforcement seem to be associated with clusters of cartel-formation, such as occurred in the 1930s and 1980s. While it is treacherous to second-guess the decisions of DOJ prosecutors, there seems to be a pattern of overly generous fine discounts being given routinely to late-arriving cartel members; actual discounts are often bigger than the stated discount policy. Given the relatively low levels of fines and private settlements outside the United States, consideration should be given to calculating fines routinely on the basis of global sales of the cartelized product, rather than as the rare exception it is today.

Figure 2. Amnesty Plus and DOJ Cartel Convictions.

June 1992 . . .	Lysine cartel formed
Nov. 1992 . . .	ADM V.P.* confesses to FBI
1993-1995 . . .	Secret taping reveals citric acid cartel
Sept. 1996 . . .	Lysine cartel convicted ADM executive* cooperates with FBI on citric acid