Competition Newsletter | March 2019

Political Agenda on Brazilian Antitrust

Jair Bolsonaro’s government is expected to take a more liberal approach towards the economy while at the same time pushing a rigorous anticorruption agenda. With such a dichotomy in play, there are ongoing talks[1] and rumors about the Brazilian antitrust authority (CADE) having its links to the Justice and Public Safety Ministry severed, in favor of a new tie-up with the Ministry of Economic Affairs. Such a move would indicate the intensification of CADE’s agenda to foster competition, balancing out its focus on legality enforcement on anticompetitive practices and merger reviews.

Effective changes are expected at CADE in 2019, especially due to the optimistic tone regarding the Brazilian economy, but also owing to the wide-ranging changes in the Agency itself, with the term of office of four of the seven Commissioners expiring in 2019, including the term of the Superintendent-General. It is still unknown who will be the new Commissioners in charge, but relevant changes are expected soon.


Brain Project[2]

Developed in 2015, the “Brain Project” was created by CADE’s General Superintendence. It is an instrument that applies algorithms and data to a public procurement database to look for unusual patterns or other evidence of anticompetitive activities. According to the President of CADE’s Tribunal, “this data analysis has been playing an important role in CADE’s investigations, evidence gathering and dawn raids”.

To date, the “Brain Project” has been responsible for the opening of at least three (3) investigations involving: (i) a bid rigging cartel for the hiring of subcontracted services of brigades by several agencies of the Federal Government; (ii) an alleged cartel in the market of implantable cardiac stimulators; and (iii) an alleged cartel in the national market of distribution of orthoses and prostheses.  In addition, the project comprises a coordinated effort with the Oil, Natural Gas and Biofuels National Agency (“ANP”) in identifying possible fuel cartels in states and counties.

According to statements by the President of CADE’s Tribunal, the Agency is expected to continue investing in the tool and to investigative techniques for the detection of cartels and other anticompetitive conduct.


Leniency Agreements

Leniency agreements are still the main source for the detection of unlawful acts in Brazil, whereby out of every three cases that the agency investigates, two begin with leniency agreements while only one is initiated through the agency’s own volition. According to CADE’s internal data, 63% of cartel investigations launched from January 2017 to July 2018 were initiated based on Leniency Agreements.

The number of Leniency applications has risen significantly in the past years, in particular as a result of the so-called Operation Car Wash investigation. According to the public information available, there were 10 applications in 2015, out of which 2 were related to Operation Car Wash; 11 in 2016, out of which 6 were related to the Car Wash investigation and 21 in 2017, out of which 12 were related to the Car Wash Investigation. This trend declined in 2018 (only 3 related applications), most likely because (i) the number of Car Wash cases are reducing and (ii) the number of investigations opened were very time-consuming and CADE has limited workforce available.

It is expected that the Leniency Program and cartel enforcement in general will now be enhanced with the new Ministry of Justice, Sergio Moro, in office. Sergio Moro is a former Federal Judge and was the head of the Car Wash investigation in courts. He is expected to bring his reputation as a corruption-fighter to the executive branch, potentially enhancing the anti-cartel enforcement as well.

In spite of this, the President of CADE’s Tribunal has stated that “we want CADE to open its own investigations more often, not relying so much on leniency agreements to begin a probe”.


Budget & Personnel

CADE’s role in fighting anticompetitive practices has been increasing over the past years. Consequently, an increase in the Agency’s budget became more necessary. In 2018, CADE’s budget increased upwards of 182% from BRL 36.32 million in 2017 to BRL 66.16 million in 2018[3], which bolsters the current expectations for a personnel increase in the coming months. In addition, the Agency is planning to increase its staff by 25% to strengthen cartel enforcement results. The President of CADE’s Tribunal has also stated that the Agency is acquiring new IT equipment and investing in training for its employees to help in this process.


Unilateral Conduct

In respect of anticompetitive practices, cartel investigations represents the vast majority of the cases ruled by CADE – in 2018, out of the 25 cases ruled, only 2 referred to unilateral conduct, while the remaining corresponded to cartel cases. The Agency has indicated that the authorities will look more carefully at unilateral conduct. With this in mind, CADE’s General Superintendence indicated that the “Superintendence has been trying to raise the bar in unilateral conduct cases”.

According to CADE’s internal data, the Agency opened twenty (20) preliminary probes and received twelve (12) complaints up to October 2018, compared with five (5) probes and seven (7) complaints in 2017. In the past year, the General Superintendence has concluded 67 unilateral conduct cases. In addition, a publication of Brazilian Antitrust Guidelines on Unilateral Conduct is in production and is expected to be a more general guide, rather than focusing on restrictions and objective rules, due to the lack of jurisprudence in unilateral conduct cases.


Markets under investigation

In recent times, CADE has had its attention firmly drawn to the financial sector on several fronts. One of Brazil’s largest Fintech companies, Nubank, requested that the authority investigate Brazil’s five largest banks regarding allegations of anticompetitive practices and coordinated efforts against the financial maverick[4]. Additionally, CADE is investigating several payment companies, such as Visa, American Express, and MasterCard regarding allegations of anticompetitive practices[5]. And, finally, following a worrying report from the Economic Affairs Commission (CAE) of the Brazilian Senate, in December 2018, CADE launched an investigation into the financial and payments sectors, specifically focused on the negative impacts of the significant vertical integrations in such markets. The Agency also conducted an analysis of Brazil’s elevated financial intermediary costs, which creates one of the world’s highest banking spreads[6].

CADE is also paying close attention to digital economy trends, as evidenced by the recent shelving of an investigation involving Uber[7]. Additionally, the authority contracted an external consultant for the elaboration of economic studies on the subject[8], as well as the releasing of the preliminary version of its Economic Studies Department’s (DEE) Data Submission Guidelines[9], demonstrating the authority’s efforts to make the creation of economic studies more efficient and uniform.


Merger Control

CADE reviewed 404 merger cases in 2018, of which 6 were approved with remedies, 1 was blocked, 9 were declared as non-mandatory submissions, 4 were shelved due to their loss of object, while all other cases were approved unconditionally. Some of the most significant reviews included transactions submitted by Itau and XP Investimentos, Bayer and Monsanto, ArcelorMittal and Votorantim.

In 2019, certain relevant transactions have already been reviewed by the authority up to March 1, such as Disney’s purchase of Fox, subject to the divestiture of the “Fox Sports” channel in order to obtain approval, as well as the unconditional approval of a joint venture involving the Azul Airline and the Brazilian postal service, Correios.


Cooperation Agenda

CADE is constantly seeking to broaden its scope of action as well as its technical ability to oversee market activities through more than 30 cooperation agreements with local and international authorities. This expansion is borne out by recent developments involving the Organization for Economic Cooperation and Development (OECD), to which CADE was recently admitted as a permanent member of its Competition Committee[10].

The acceptance of CADE as a permanent member is a reflection of the authority’s active participation in the Competition Committee’s meetings for over 20 (twenty) years, as well as its constantly seeking to align its policy with international best practices for competition regulation[11].  


Damage Claims

On December 20, 2018, a draft Bill (“PLS 283/2016”) was approved by the Brazilian Senate[12], setting forth relevant stimuli recoupment damage claims in cartel proceedings. Currently, the abovementioned legislation is being considered by the Lower House under a new designation, PL 11.275/2018[13], which, if approved, would resolve important procedural bottlenecks in such claims. Additionally, the Bill has the potential to increase the undersigning of Leniency and Settlement Agreements significantly, given that it would double the value of fines in cartel convictions, in addition to the fact that undersigning agreements is an alternative to avoiding fines upon a possible conviction[14].