An overview of Mexico’s major antitrust reforms, including increased sanctions and fines for violators.
BY MARCO NAJERA
Amendments to the Federal Antitrust Law, to the Federal Criminal Code and to the Code of Federal Procedures, among others, were recently approved in Mexico. Passage of the amendments constitutes major revisions to the legal framework behind antitrust and competition in Mexico and is certainly one of the most large-scale antitrust reforms ever approved in the country. The intent is to enhance the Federal Competition Commission's (or COFECO, due to its Spanish acronym) facilitation of enforcement and to better prevent disorders caused by monopolistic practices. The changes are similar to those existing in other countries that lead in antitrust legislation. Other goals are to improve transparency and procedural rights benefitting economic agents. Here we review the most far-reaching antitrust amendments.
FELONIES FOR PARTICIPATING IN CARTELS
Participating in certain absolute monopolistic practices, i.e., in agreements or contracts among competitors for the purpose of: (i) fixing, raising or manipulating the selling or purchase price of goods or services; (ii) setting forth obligations not to produce, distribute, market nor acquire goods or services but rather a limited or restricted amount; (iii) dividing or assigning market segments by clients, suppliers, periods of time or geographic areas; and (iv) agreeing upon or coordinating bidding offers or the abstention to participate in bids, are now considered crimes.
Criminal sanctions will range from three to ten years in prison, in addition to the applicable fines for individuals, officers or employees participating in the cartels. These crimes can only be prosecuted under claims filed by COFECO with the attorney general in cases where COFECO has previously investigated and confirmed the commission of absolute monopolistic practices, as well as the liability of the economic agent in question.
Criminal liability will be excluded for individuals participating in the cartel who first inform COFECO of the aforementioned conduct and agree to submit to a leniency program under the requirements set forth in the Antitrust Law.
Prior to passage of the amendments, fines for infringing Antitrust Law had no actual dissuasive effect and have constantly been challenged in court. The new bills seek to rectify this situation through the introduction of extremely severe fines.
Fines for infringement of Antitrust Law may now be calculated based upon the taxable income of economic agents who directly participate in such infringements, a concept new to Mexico's antitrust arena.
The following fines are set forth based upon the taxable income of the economic agent involved in the infringement: (i) up to 10 percent for an economic agent participating in absolute monopolistic practices with competitors (i.e., cartels); (ii) from 8 percent to 10 percent for failing to comply with COFECO's rulings; (iii) up to 8 percent for entering into relative monopolistic practices (i.e., dominance abuse among noncompeting economic agents) as well as into forbidden concentrations; and (iv) fines up to 5 percent for failing to notify COFECO of concentrations when such an obligation exists.
Fines for individuals directly participating in or facilitating the commission of monopolistic practices or forbidden concentrations will be also subject to greater fines of up to US$1 million. These penalties will be doubled in the case of repeat offenders.
With these amendments in place, COFECO is now entitled to file class actions before Federal District Courts when consumers suffer damages as a result of forbidden concentrations or monopolistic practices that so have been declared by final resolution issued by COFECO.
By these actions, a defendant can be condemned to repair the damage in a different manner depending on the type of class action that is filed. The options include restoring things as they were before the damage occurred, the substitute repair according to the affectation of the collective rights or interests, or individually paying damages to each member of the collective involved in the action.
NEW ANTITRUST COURT PROCEDURE
As a mechanism to challenge final or definitive rulings within procedures carried out by COFECO, a new administrative trial has been introduced. Economic agents may opt for this court procedure or file the reconsideration appeal with COFECO that has always existed in Antitrust Law. The administrative trial will also be available against reconsideration appeal decisions. The trial will be carried out before Federal District Courts that specialize in antitrust matters. This new procedure may prolong the definite resolution of antitrust matters while providing an additional defense mechanism to economic agents involved in antitrust procedures with COFECO. This amendment will become effective when the specialized courts are established and the corresponding procedural rules are published, which is expected to occur before the close of 2011.
COFECO will be able to order verification inspections in investigations without a court order or previous notification and without the limitation of solely audit information previously requested by COFECO, as it was established before the amendment. The inspections can be ordered by simple authorization of the Commissioners' Board of COFECO in connection with an investigation procedure. COFECO may now request police enforcement to ensure the adequate completion of inspections. Verification inspections shall not stop or limit the production, distribution or marketing capacity of the audited economic agents.
PREVENTIVE AND SUSPENSION MEASURES
COFECO will be entitled to order the temporary suspension of operations that may involve monopolistic practices or forbidden concentrations (such as mergers and acquisitions infringing antitrust rules) when irreplaceable damages to competition process and free concurrence can be caused due to such practices and a probable liability ruling is issued against an economic agent involved. The suspension may continue until the investigation procedure concludes. The economic agents will be entitled to offer guaranty enough to repair the possible damages and avoid the suspension measures. The criteria for the economic agents to offer guaranty and its relative procedure are to be established in the Regulations of the Antitrust Law.
Relative monopolistic practices (among noncompeting economic agents) can now be sanctioned not only when dominance of a sole economic agent exists, but also when the dominance is jointly exercised by different economic agents acting in group or aggregately for the consecution of a determined economic purpose.
CONCENTRATIONS NOT REQUIRUING NOTIFICATION
Several examples of concentrations excluded from the requirement of previous notification are now included in the Antitrust Law, clarifying and amending thereby some of the exemptions previously contained in the regulations of this statute. Among others, some of the exempted concentrations that will not be required to previously pass before the COFECO are those transactions where: (i) an owner of shares or equity interests having control of an entity increases its participation in the capital; (ii) the buyer does not acquire more than 10 percent of the capital; (iii) the buyer participates through investment funds of different types; and (iv) administrative or guaranty trusts are created.
Among other rights, economic agents will be now entitled to appear before the Commissioners' Board of COFECO and present oral arguments in investigation procedures, instead of arguments in writing, which were only available before the amendment. COFECO is now bound to publish on a periodic basis technical criteria and documents of reference in different matters. These documents shall be submitted by COFECO to previous public consultations before their publication.
NEW GUIDES AND DOCUMENTS OF REFERENCE
In addition to the amendments that were previously discussed, COFECO, in an effort to meet with the transparency requirements indicated above, has recently published some guides and documents of reference, which, although not binding, certainly contain important elements of interpretation in the following matters: (i) concentrations; (ii) relevant market; and (iii) dominance.
Marco Nájera is a business lawyer in the Mexico City law office of Gardere Arena with more than 15 years of experience assisting foreign and domestic clients in antitrust, among other areas of law. His antitrust practice includes merger control, cartels, dominance abuse, bids and litigation. He can be reached at [email protected]