An Unusual Purchasing Cartel: EU Fines Ethylene Purchasers

On July 14, 2020, the European Commission adopted its 33^rd cartel settlement decision: an unusual one involving a purchasing cartel, in the ethylene merchant market.  Four companies were found liable for having colluded for over 5 years to drive down the prices in monthly ethylene merchant bidding markets.  Westlake was the first to apply to the Commission and received immunity from fines (which would have been about Euro 190M). The other three were fined in aggregate Euro 260M. What are the interesting features of this cartel decision?

• It is the first settlement decision involving a purchasing cartel in the chemicals sector. A feature of the ethylene merchant market is its volatility and a mechanism for reducing price volatility is through industry price referencing of bi-laterally negotiated pairing of identical supply contracts. The four cartelists coordinated their pricing strategy to depress prices within the merchant market.  This has echoes of the LIBOR cartel case in which traders coordinated loan data to influence the LIBOR rate.
• The affected markets were EU countries Germany, France, Belgium and the Netherlands, although the cartelists were all non-EU companies. Lesson: where EU markets are affected by cartel conduct, the European Commission will have jurisdiction regardless of where the cartelists are based.
• The Cartel period covered by the Decision ended in March 2017, although Westlake made its application for immunity in June 2016.  Lesson: this suggests that the cartelists continued for a period after Westlake ceased participation.  This can happen in cartels and from an internal audit perspective, companies should be on the lookout for sudden unexplained absences of participants in a trade association or other meetings.  It can offer a signal for concern.
• The cartel was a purchasing cartel and the Commission, therefore, used the value of purchases, rather than the value of sales as the measure of affected turnover for fine calculation. Since the cartel's objective was to depress purchase prices, the Commission applied an uplift of 10% to the level of the fines, in order to ensure there was no under-deterrence that might have resulted from a lower fine.
• Clariant had been previously penalised for infringing conduct – an indication of recidivism which (as in the case of St Gobain) typically attracts a materially higher penalty and the Commission reflected this in its fine. Nevertheless, Clariant, which was the second leniency applicant (and therefore in the 20-30% leniency band) achieved the fullest discount within its band.  By contrast, Orbia of Mexico, which was the first leniency applicant, secured 45% fining discount (not the 50% which was potentially available).

In addition to securing an additional 10% reduction in penalty – which is what is on offer to cartelists who participate in the settlement procedure – the Commission has agreed to grant the settling parties an additional three months payment terms (out to six months), in light of the COVID-19 circumstances affecting so many sectors and in recognition of short term liquidity challenges. See European Commission's press release here.