Rude awakening…the EC’s rush of dawn raids
In two separate investigations, the European Commission (EC) has conducted dawn raids on the oil and sugar industries for suspected price fixing and cartel conduct.
On 14 May 2013, the EC conducted dawn raids on three of the world’s largest oil companies on suspicion that they engaged in price fixing and price distortion in the oil and biofuel industries. In allegations reminiscent of the recent LIBOR scandal, the EC alleges that Shell, BP and Statoil colluded to submit ‘distorted prices’ to price reporting agency Platts. Platts sets the benchmark price for oil and biofuel commodities by using data provided to them by oil companies, banks and private investment companies. The benchmark price is heavily influential in the trading of oil both in the physical and financial derivatives markets.
The allegations involve the three oil companies agreeing to manipulate the oil benchmark by submitting inaccurate prices to Platts and preventing other companies from participating in the price assessment process. Reports suggest that the alleged conduct may have begun as early as 2002. The Directorate-General for Competition of the EC (DG Comp) stated that ‘even small distortions of asset prices may have a huge impact on the prices of crude oil, refined oil products and biofuel purchases and sales, potentially harming final consumers’. While DG Comp was quick to announce that the dawn raids do ‘not mean that companies are guilty of anti-competitive behaviour’, both BP and Shell have experienced a drop in their share value and outrage from various motoring groups and politicians in the UK.
The UK’s Office of Fair Trading decided against an investigation into the same conduct four months ago on the basis that there was “very little evidence” that prices were being manipulated. It will be interesting to see if the dawn raids have changed that view. If guilty, the companies face punishment under European antitrust laws for engaging in a prohibited cartel and abusing their dominant market positions.
This investigation follows the EC’s dawn raids on several sugar companies in a number of member states in relation to the supply of white sugar on 23 April 2013. In a press release, the EC stated that it had “reasons to believe that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices”.
This was just the first step in an investigation and the EC has confirmed that this does not “not mean that the companies are guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself”. Accompanying the EC were their counterparts from the relevant national competition authorities.
Authored by Chris Chynoweth and Martine Phillips