Competition Buzz: Cartel Regulation in Ecuador: Is the current Legislative Regime prepared to face the challenges of this form of anticompetitive conduct?

By: Marco Rubio-Valverde

Perez Bustamante y Ponce Abogados

According to the objectives set out in Ecuador’s competition framework, the “Ley Orgánica de Regulación y Control del Poder de Mercado” (“LORCPM” of “Competition Act”), competition law seeks to correct distortions in the market that arise from anticompetitive conducts. Its aim is to promote efficiency through competitiveness that will ultimately lead to economic welfare, consumer satisfaction, and the establishment of a social and sustainable economic system. This last objective is particularly important, as we will analyse in the following paragraphs.

Cartel detection and enforcement has proven to be a difficult task even for countries whose experience is far greater than Ecuador’s. The Competition Authority in Ecuador, Superintendencia de Control del Poder de Mercado (SCPM) began its activities through the empowerment of its head of office in August 2012. Thus, there are significant problems that arise due to the early stages of cartel detection and enforcement in this jurisdiction.

Under the Ecuadorian Competition Law, cartels are regulated under article 11 of the Competition Act as forms of “concerted practices”. However, there are a number of challenges when enforcing the current legislative regime in Ecuador.

Article 11 of the LORCPM does not define what a concerted practice is; it proceeds directly to enumerate twenty-two conducts which are deemed unlawful and unenforceable under civil law provisions, “nulos de pleno derecho.” While the LORCPM requires that all concerted practices must have the actual or potential effect to “impede, restrict, distort competition or negatively affect economic efficiency or general welfare,” article 8 of the Regulation for the application of the Ecuadorian Competition Act establishes a per se illegality rule on concerted price fixing, bid rigging, allocation of territories or customers, or concerted practices that limit the production, distribution or commercialization of goods or services. In this regard, it is questionable whether a Regulation can modify the provisions established by a Law of higher hierarchy.

The per se illegality rule is a dangerous tool when applied without clear parameters, as the Competition Authority has demonstrated in previous cases. In this respect, the SCPM has initiated formal investigations against entire sectors of the economy that involve thirty to forty agents without clear or formal evidence against the parties based on this presumption of illegality. In consequence, due to the large number of companies being investigated, the SCPM has failed to properly consider the arguments presented by the parties or properly assess the evidence gathered, which has, in some cases, led to the violation of due process.

As for the tools that the Ecuadorian competition framework introduces to detect cartels in this jurisdiction, the LORCPM establishes a “leniency program” and a “compromise to cease and desist” as the mechanisms for economic agents that have participated in the implementation of anticompetitive conducts to apply for a reduction of the fines imposed by the law.

Article 83 of the LORCPM states a company can get full amnesty or immunity, if it voluntarily offers the SCPM sufficient evidence, which allows the regulator to perform a dawn raid, or to confirm the existence of a collusive agreement. Immunity cannot be granted if the request for leniency comes after the beginning of the investigation or if the SCPM already has information regarding the alleged agreement.

Despite the effectiveness of leniency programs in other jurisdictions, the SCPM has not yet instrumented the proper rules or guidelines that provide economic agents the certainty or the procedural norms in order to submit a leniency application. To date, the public information and decision chronicles available at the SCPM reflect that no leniency applications have been submitted in Ecuador, leading to a decision to the other members of a collusive agreement.

On the other hand, the SCPM has focused its attention on the “compromise to cease and desist.” This mechanism applies to all forms of anticompetitive conducts prohibited by the Competition Act, and it is not exclusive to concerted practices or cartels for that matter.

The compromises to cease and desist consist in an application where an agent that has committed or implemented an anticompetitive practice, voluntarily recognizes its responsibility on the implementation of the offence and offers a compromise to pay a corrective penalty established by the Authority to compensate for the distortion created into the market. This penalty is calculated according to a general equation that considers the net sales of the agent, the procedural moment in which the application was submitted and the chronological extension of the infringement. In addition, the agent must present a proposal to remedy the damages inflicted to the market through behavioural remedies.

According to the publically available information from the SCPM reports, there has been six successful compromises to cease and desist submitted and granted by the Competition Authority, and seven which failed to complete the legal requirements and therefore denied.

To the best of our knowledge, all the cases where a compromise to cease and desist was submitted, the SCPM had already launched a formal investigation in the relevant market and identified the actors that were part of the alleged conduct. In this regard, this mechanism has proven to be an effective tool to close investigations prior the adoption of a formal resolution from the Competition Agency, but has failed to provide the regulator with new elements of anticompetitive behaviour for which it had no previous knowledge.

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