Latin America Overview

Introduction: anticompetitive practices, corruption and compliance

There cannot be free competition in corrupted contexts; therefore, the degree of competition in open markets will be distorted because of corrupt practices. The connection between anticompetitive practices and corruption is more evident in public tendering or procurement in public contracts, considering the immense effect these offerings can have on a government’s finances. Collusive behaviour, conspiracies or agreements to raise prices, lower the quality of goods or obtain public contracts, cost governments and taxpayers billions of dollars and the consequences can be seen in last year’s grand corruption scandals in Latin America. The highest-profile corporate investigations in the region currently are those involving corruption in public contracts and concessions in sectors such as infrastructure, health and public function.

The Organisation for Economic Co-operation and Development (OECD) recognises that the:

most common intersection of corruption and anticompetitive conduct occurs in government procurement when bid rigging can be combined with or facilitated by bribery of public officials or unlawful kickbacks. Collusion and corruption are distinct problems within public procurement, yet they may frequently occur in tandem, and have mutually reinforcing effect. Corruption is a big barrier to competition, discouraging genuine competitors from bidding for a contract in cases where they are apprehensive of unfair competition or are unwilling, or unable, to pay bribes.^[2]

Most Latin American governments have come to recognise the need to promote free competition as a key to achieving growth and development. An appropriate framework for competition has been linked to better performing economics, and consequently business opportunities increase for citizens and the cost of goods and services decrease. By the same token, unilateral acts and agreements that prevent, restrict or hinder free competition injure the economy and society. Therefore, most Latin American countries have been strengthening their competition and antitrust legal framework to fight anticompetitive conduct such as price-fixing, predatory practices, bid rigging and other collusive practices in public tendering. Allowing participants to compete on equal grounds and without barriers has become an essential goal of competition regulations.

This chapter analyses antitrust laws and regulations, and specific provisions for collusion in public tendering in Colombia, Peru and Chile. It discusses internal and government investigations and litigation from a regional perspective.

Legal framework

In general, competition laws in Latin America aim to protect free competition, thereby promoting economic efficiency and consumer welfare. To achieve these goals, national competition regimes in Latin America prohibit anticompetitive practices that hinder free competition in local markets, ultimately affecting the corresponding economic systems. Competition laws typically prohibit both unilateral conduct and anticompetitive agreements, including price-fixing, output restrictions, market allocation and bid rigging, among others. Competition authorities in the region have increasingly turned their enforcement attention to bid rigging in public procurement processes, as this type of conduct typically affects public resources raised by governments for the welfare of society as a whole.

The following analysis focuses on provisions that address collusion in public tendering.

Chile

The Chilean antitrust regulation is contained in Decree Law 211, 1973 (DL 211) and its subsequent amendments. Article 1 of DL 211 stipulates that the objective of the Law is to promote and defend free market competition. In turn, Article 3 establishes a general prohibition against performing or executing, individually or collectively, any act or agreement that prevents, restricts or hinders free competition, or that tends to produce such effects. Such conduct will be sanctioned, without prejudice to the preventive, corrective or prohibitive measures that may be provided in each case.^[3]

Regarding collusive practices in public tendering, Article 3(a) of DL 211 prohibits agreements or concerted practices that involve behaviour between competitors that aims to affect the outcome of bidding processes.^[4]

Historically, under this regulation, for such practices to be punishable by law, the authorities had to prove that the person or entity in question obtained market power as a result of the conduct. However, in 2016, the regulation was amended, and obtaining market power is no longer a prerequisite for the punishment of anticompetitive conduct.

For enforcement of the Chilean antitrust law and regulations, there are two independent bodies. The prosecuting authority is the National Economic Prosecutors Office (FNE), and the authority in charge of preventing and sanctioning anticompetitive conduct is the Antitrust Court (TDLC).

Law No. 19.911.7, 2003 and Law No. 20.361, 2009 regulate most of the FNE’s faculties and its relationship with the TDLC. In addition, Law No. 20.361, 2009, Article 8, which modified Article 39 of DL 211, strengthened the FNE’s power to fight cartels and other serious competition offences.

Several legal powers of the FNE are established in sections (f), (k), (l) and (m) of Article 39 of DL 211 and include:

(f) to request the collaboration of government services and their employees in the exercise of its functions;

(k) to require reports from technical government bodies and hire the services of experts and technicians;

(l) to sign agreements with government services and universities or other (overseas) competition agencies for the purpose of promoting and defending free competition;

(m) to enter into agreements for the transfer of information with other State bodies or electronic interconnection with private parties or overseas agencies.

Further regulations dictate when the FNE may collect information from private parties and establish that such information can only be gathered in the course of an investigation. Article 43 of DL 211 provides that the FNE’s public officials must ‘treat all the information or data to which they may have access in the exercise of their tasks and, especially, that information or data obtained as a result of their powers, as confidential’.^[5]

Colombia

The current Colombian antitrust regime is marked by the enactment of Law 155, 1959, which was issued before the 1991 National Constitution. Law 155 provides the basic legal standard applying to anticompetitive conduct, agreements and unilateral acts, set forth as a general prohibition against:

Any agreements or arrangements that directly or indirectly have as their purpose to limit the production, supply, distribution or consumption of national or foreign raw materials, products, goods or services and, in general, any type of practice and procedure or system tending to limit free competition and to maintain or determine inequitable prices.^[6]

The Colombian antitrust regime was modernised and restructured in 1992 through Decree 2153, which introduced a list of certain specific agreements and unilateral acts that are deemed contrary to free competition, and certain actions constituting abuse of dominance. Under the provisions of Decree 2153, both agreements and unilateral acts that have anticompetitive purpose or anticompetitive effects are considered unlawful. The general prohibition under Law 155 is still in force, serving as a catch-all for anticompetitive conduct not otherwise specified under the provisions of Decree 2153.

The Colombian competition regime was further updated with the enactment of Law 1340, 2009, which introduced significant amendments to modernise the free competition protection system and to optimise the tools available for enforcing competition law, notably, substantially increasing the applicable fines for competition violations and introducing a leniency programme, among others.

The Superintendence of Industry and Trade (SIC) is the authority that monitors competition matters and enforces competition laws. The SIC is an administrative body attached to the Ministry of Commerce, Industry and Tourism, which has investigative and sanctioning powers.

Collusion in bidding and tendering processes, including in public tendering, is considered contrary to free competition under Article 47(9) of Decree 2153, which specifically prohibits those agreements ‘whose object is the collusion in tenders or contests or those whose effect is the distribution of contract awards, the distribution of contests or the fixing of terms of proposals’.

Moreover, in 2011 bid-rigging in public procurement proceedings was established as a criminal offence by Article 27 of Law 1774, which added Article 410a to Colombia’s Criminal Code, prohibiting collusive practices in public tendering, regarding agreements or concerted practices that involve behaviour between competitors with the aim of affecting the outcome of public bidding processes. The Attorney General’s Office (the SIC has no criminal law enforcement authority) is in charge of enforcing criminal liability for directors, legal representatives or employees who have taken part in collusive practices in public tendering.

Peru

The main law that governs free competition in Peru is Legislative Decree 1034, 2008 (D. 1034), which enacted the Law of Repression of Anticompetitive Conduct. The Peruvian regulatory framework for the defence of free competition aims to promote economic efficiency in the market, as a means to improve consumer welfare.

In general, the Peruvian competition laws prohibit abuse of dominance, as well as horizontal and (certain) vertical collusive practices.

Article 11 of D. 1034 describes horizontal collusive practices as ‘agreements, decisions, recommendations or concerted practices made by competitors, with the purpose or effect of restricting, preventing or distorting free competition’. This provision includes a sample list of types of conduct that can be considered collusive, including efforts to ‘agree or coordinate offers, bids, proposals or abstaining from bidding in public or private invitations to tender or contests, or other forms of public procurement, and in public auctions’.

Moreover, horizontal agreements on bids or abstaining from bidding in public bids, tenders or other forms of public procurements or actions are considered as absolute prohibitions under Article 11.2 of D. 1034. Similar to per se violations, agreements under the absolute prohibition standard do not require analysis of competitive effects, only requiring the competition authority to prove the occurrence of the conduct to demonstrate the existence of the infraction.

The absolute prohibition standard is opposed to the relative prohibition standard, which requires the competition authority to demonstrate the existence of the conduct and its potential negative effects within the market.

The Peruvian competition regime is enforced by the National Institute for the Defence of Competition and Protection of Intellectual Property (INDECOPI).

Article 384 of the Peruvian Criminal Code makes it a crime to engage in collusion in public tendering. The most important element in the crime of collusion is defined or known as the concertation (agreement), between a public servant and a private party. The concertation for collusion requires an agreement between the parties to defraud a public entity. Accordingly, under this crime, a simple request or proposal is not sufficient to be punishable within the framework of a criminal process.

The law on collusion in public tendering requires the offender to be an official or public servant. For the existence of an illegal agreement, an interested party within the private sector must participate. The participating private party (known as extraneous) is considered a primary accomplice, and, according to Article 25 of the Peruvian Criminal Code, is sanctioned with the same penalty as the initiator of the crime.

Any agreement that falls within the scope of the crime of collusion must be clandestine and necessarily harm the interests of the state, or cause damage. For this, public servants or officials must violate their functions, prioritising their own interests before those of the state.^[7]

Cultural context

In this section, we analyse compliance of antitrust laws that address collusion in public tendering, to identify trends and behavioural patterns within antitrust authorities.

Chile

Since its implementation, the antitrust regime in Chile has been accompanied by a strong legal culture, marked by increased compliance and respect for the law, especially regarding collusive practices in state-contracted bidding. This can be evidenced in the limited number of bid rigging cases persecuted by the Chilean Competition Authority,^[8] which led its last bid rigging investigation in 2018 after more than five years of inactive investigations.^[9] There is thus a shortage of cases, rather than a disinterest in pursuit from the Chilean authority. Consequently, for the Chilean market, there is a lack of recognisable patterns at this time.

Colombia

In the past decade, the media has taken an increased and sustained interest in cases involving collusive practices in public tendering, helping expose them to the public. Negative opinion surrounding such conduct can be traced back to the ‘public procurement carousel’,^[10] which inspired a significant institutional movement with the aim of protecting public procurement and combating collusive practices. In response to the scandal, the Colombian government promoted the enactment of a new law on corruption in state procurement processes – Law 1471, 2011. It criminalised collusive practices in public tendering and made the Attorney General’s Office a critical player in the battle against this type of illicit behaviour. In addition to other administrative and legal efforts, the SIC promoted new institutional projects, including the creation of an Interdisciplinary Group of Collusion in 2012,^[11, ^[12] and its relaunch in 2016 as an Elite Group Against Collusive Practices in Public Tendering.^[13]

In 2015, the SIC and the Attorney General’s Office signed a co-operation agreement to enforce anti-collusive practices in the private sector. This agreement includes the exchange of information and evidence collected, and training programmes for public servants. It also includes a system to post complaints to the Attorney General’s Office once the SIC begins an administrative investigation.

Following these efforts, the past decade has seen an increase in the number of investigations carried out by the Colombian competition authority. Between 1992 and 2009, there were some 16 decisions against anticompetitive behaviour relating to collusive practices in public tenders.^[14] Between 2010 and 2017, the SIC formally opened 24 investigations into bid rigging in public procurement, imposed sanctions in 13 cases and closed two cases for lack of evidence. These 15 decisions (13 sanctions and 2 closed files) on bid rigging in public procurement amount to approximately 24 per cent of all antitrust cases decided by the SIC during this period.^[15] Finally, between January 2018 and May 2019, the competition authority sanctioned 23 market agents for bid rigging in public procurement cases.^[16]

Between 2004 and 2018, the SIC’s rulings concerning collusive behaviour in public procurement processes tackled some of the most significant corruption scandals in the country.^[17] The SIC maintained its focus on investigating and sanctioning collusive practices regarding infrastructure and the provision of services.

In 2018, the SIC formally charged 23 companies for competition law violations relating to hardcore cartel practices in public tendering during 2014 and 2017 (Resolution Order N. 27915). The Resolution indicated that:

• among the alleged cartelists, the parties would determine who would be the bidder or bidders in each contracting process in which they would apply the cartelist or collusive strategy;
• the proponent or bidder who was slated to win the bid would offer the competitors a sum of money or bribe. The SIC established that, in some cases, the bribe payment was made through façade collection accounts that were purportedly for transport services offered;
• the competing bidders who accepted the bribe payment then refrained from improving their offers in the reverse auction. As a result, the bidder slated to win by the cartelists was awarded the contract, after the alleged competitors withdrew from the process; and
• to ensure the highest possible award, the proponent made offers substantially close to the official budget provided by the contracting entity.

In those cases, the SIC ordered copies of the administrative actions to be sent to the Attorney General’s Office for criminal investigations for collusive practices in public tendering.

Peru

The Peruvian competition authority investigates and sanctions colluding with private entities, primarily for improper price arrangements and other practices, such as the abuse of the dominant position. Unlike Colombia and other Latin American jurisdictions, collusion cases in public tendering are not a frequent occurrence.

The few cases of collusion in public tenders have involved the purchase and sale of goods and services for state agencies, for instance, haemodialysis services, lubricant containers, and medicinal liquid and gaseous medical oxygen.

These cases occurred during a period of approximately 10 years and affected the capacity of the Peruvian government to service its citizens. This is not surprising as, in Peru, public procurement represents more than 11 per cent of the nation’s gross national product.^[18]

In 2018, INDECOPI published a document titled ‘Guide to Fight Collusion in Public Procurement’, which establishes certain parameters and analysis for government officials to identify warning signs for colluding practices within public procurement processes.

In criminal cases, the main problem faced by prosecutors relating to collusive practices is to find evidence to prove the existence of an illegal agreement. In most cases, collusive agreements are verbal and not written. Therefore, unless one of the accused confesses or the conversation has been recorded, prosecutors face serious problems in obtaining a conviction for collusion.

In some critical cases, prosecutors have reached agreements with the accused in exchange for a confession, which has allowed prosecutors to bring criminal convictions. Nevertheless, these cases are the minority.

When prosecutors fail to find enough evidence to prove the collusive agreement, generally they choose to modify the accusation for the lesser crime of incompatible negotiation,^[19] which requires a much lower standard of evidence than collusion (i.e., prosecutors do not need to prove that there was an unlawful agreement, only that the public official had a particular and illegal interest in the contract). However, since the crime of incompatible negotiation is exclusive to public officials, all other persons are excluded from the criminal investigation (i.e., charges are dismissed) and nobody is punished for the illegal conduct.

Administrative sanctions

Chile

The antitrust court may sanction a person who engages in any of the practices described in the ‘Legal framework’ section, above, namely (1) modifying or terminating those acts or agreements that hinder free competition or (2) ordering the modification or dissolution of partnerships and corporations involved in such conduct, with fines up to the equivalent of 60,000 annual tax units (approximately 35,955 million Chilean pesos).^[20]

In the case of the conduct foreseen in Article 3(a) of Decree Law 211 of 1973, the antitrust court may also prohibit colluding private companies from contracting in any capacity with public entities, with autonomous organisms or with institutions, organisations, companies or services in which the state makes contributions, with congress and the judiciary, and from awarding any concession granted by the state, for a period of up to five years.

Colombia

The current competition regime expanded its scope of application with the enactment of Law 1340, 2009. Article 2 of Law 1340 establishes that a natural or legal person who affects, or may affect, the development of economic activities may be subject to sanctions. Under Article 25, a contracting entity that violates free competition rules may be sanctioned, if the crime is proven, with economic fines in favour of the SIC up to 100,000 legal monthly minimum wages (approximately 82 billion Colombian pesos) or, if greater, up to 150 per cent of the profit derived from the conduct displayed by the offender.

In addition to administrative sanctions imposed on economic entities, any natural person who collaborates, facilitates, authorises, executes or tolerates such infractions will be subject to administrative sanctions. In such a case, as per Article 26 of Law 1340, the legal representatives and the senior managers will have to pay fines of up to the equivalent of 2,000 times the legal monthly minimum wage (approximately 1,666,368,000 Colombian pesos) in favour of the SIC.

Peru

If a person engages in any of the practices described in the ‘Legal framework’ section, above, the INDECOPI may impose the following administrative sanctions.^[21]

Economic sanctions

In accordance with D. 1034, INDECOPI may impose economic fines of up to 4,291,601.25 Peruvian soles depending on the severity of the conduct. If the infraction is considered very serious, the fine may exceed the limit set forth by law but is capped at 12 per cent of the gross annual income of the offender.

A related person who promoted or participated in the illegal practice, such as legal representatives, managers or directors of the company, may be sanctioned too. The maximum fines for each representative involved can total 429,069.10 soles.

Corrective measures

In addition to the sanctions imposed for the infringement, INDECOPI at its own discretion may impose corrective measures to restore the competitive process and reverse the effects of the illegal practice.

Corrective measures may include:

• an order to cease illegal activities;
• an obligation to contract with a supplier; and
• the declaration of ineffectiveness or unenforceability of certain anticompetitive clauses or agreements.

The corrective measures that are applied should be based on the degree of impact or harm on the competitive process.

Antitrust compliance programmes

Promoting competition and reducing the risk of corruption and anticompetitive practices in the private sector is a priority of international organisations, such as the OECD. Different guidelines and recommendation documents have been issued to make governments and companies aware of the need to avoid practices that prevent, restrict or hinder free competition. As a result, competition law in many countries has been strengthened, and authorities have been fighting against practices such as collusion.

Currently, it is common to find domestic regulations that protect whistleblowers and enforce leniency programmes, encouraging those with relevant information to come forward, to better enable authorities to conduct investigations of bid rigging in public tendering. In the same way, severe sanctions, including criminal liability and imprisonment, which serve to deter would-be wrongdoers, are some of the effective antitrust enforcement policies against collusive behaviour.

Therefore, companies should be aware of the implications and contingencies (legal, reputational and operative) of competition law breaches, mainly those pertaining to collusive practices. For example, if an employee colludes with someone from another company, administrative and criminal sanctions in some jurisdictions could be imposed not only on the individuals – including directors and board members – but also on the corporation or legal person.

In that situation, and if an investigation is started by any competition authority, the employee and the company would be likely to try to seek immunity and the company and the employees may have the same interests; however, the authorities may be interested in granting immunity just for one of them, and to prosecute and sentence the other. In most cases, that ‘other’ would be the company, considering that it is more attractive for authorities in the region to sanction and impose fines on corporations than individuals. Thus, the authorities use employees as a tool to gather information and evidence on companies’ anticompetitive practices.

To avoid this situation, companies should strengthen their compliance programmes, unequivocally condemn price-fixing and collusion, and adopt a zero-tolerance policy towards cartels.

An antitrust compliance programme should include, among other things:

• a clear tone at the top, meaning that the directors and executives commit to abide by the antitrust policies established by the company;
• risk assessments for anticompetitive practices;
• the programme should be implemented effectively and in harmony with policies such as the anti-corruption policy;
• training for employees and executives in identifying antitrust practices;
• the implementation of a channel for complaints and whistleblowing on antitrust issues; and
• guidance or a procedure to ensure information is accurately preserved for later use.

Conclusion

A robust legal culture has emerged in Latin America during the past decade, with increased levels of compliance and respect for the law, especially regarding collusive practices in state-contracting bids. Authorities have more power and legal tools to pursue competitive law infractors. Thus, different kinds of sanctions have been added over the years, including criminal and administrative sanctions for natural and legal persons.

Consequently, companies are more aware of the importance of preventing anticompetitive and antitrust practices that may affect their business and cause damage to customers and the market. Therefore, adopting an antitrust compliance programme in harmony with anti-corruption policies is a useful tool for preventing the commission of such practices and the imposition of fines and sanctions.

Footnotes