The General Court annulled the EUR 33.6 million fine imposed on banking group HSBC for its participation in the euro interest rates derivatives cartel. Full annulment was granted based on the Commission's failure to provide sufficiently detailed reasoning for the first step of the fine calculation, establishing the value of sales. As the value of sales could not be established in a straightforward way, the Commission used a proxy. When doing so, the Commission needs to properly explain its reasoning to allow the companies fined to understand how it arrived at the proxy.
It is therefore advisable for companies active in industries where sales values are difficult to determine, to always double-check the depth of reasoning behind the Commission's fine calculations.
In 2016, the Commission imposed fines on HSBC, JPMorgan and Crédit Agricole for taking part in a cartel aimed at distorting the pricing of Euro Interest Rate Derivatives (EIRDs). These are derivative financial products whose prices are linked to the Euro Interbank Offered Rate (Euribor). The Euribor is established as an average of the banks' submissions, including those of HSBC. The sanctioned behaviour consisted of exchanges of information concerning the EIRDs and manipulation of the Euribor. The General Court largely agreed with the Commission on the main substantive points. However, it still annulled the fine imposed on HSBC as a result of insufficient reasoning.
The Commission's Fine Guidelines take the companies' value of sales affected by the behaviour as a starting point to reach a fine amount which reflects the economic significance of the cartel. As the financial trading industry does not generate sales in the ordinary sense, the Commission considered cash receipts received under the EIRDs as the starting point. It then applied a reduction factor which was set at a very specific level: 98.849% without, according to the Court, explaining why the reduction factor was set at this level.
The Court found that precision in establishing the reduction factor is fundamental, with the smallest change having a great impact on the fine. Additionally, because the Commission chose to find a proxy for the value of sales, it was essential that HSBC had the chance to verify whether the proxy chosen was vitiated by any error. Therefore, due to the circumstances of the case, the Commission's motivation was insufficient.
Cartel cases in which the fine calculation involves establishing a proxy for the value of sales, put an additional burden on the Commission to properly explain its motivation. In such cases, companies should double-check whether the Commission's reasoning is sufficiently detailed to enable them to verify the fine calculations.
This article was published in the Competition Newsletter of October 2019. Other articles in this newsletter: