European Commission fines private equity firm for cartel

European Commission fines private equity firm for cartel

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Author: Amanda Howlett

On 2 April 2014, the European Commission announced that it was fining the participants in a worldwide undersea cable cartel. The companies in question had colluded to share markets and customers over a ten year period.

The overall size of the Commission's fines, just over EUR 300 million, was large. However, the aspect of the Commission's decision that is drawing attention is the fact that it fined Goldman Sachs EUR 37.3 million.

Goldman Sachs itself played no role in the cartel. However, one of the funds that it managed, GS Capital Partners, had a stake in one of the cartel members (Prysmian) which was fined EUR 104 million, of which Goldman Sachs is jointly and severally liable for EUR 37.3 million.

Under the competition law rules, a parent company is liable for the cartel fines of a wholly owned subsidiary. But liability also extends to a parent company that exercises a "decisive influence" over a subsidiary.

Goldman Sachs was found not to have participated directly in the cartel but it was found to have exercised decisive influence on Prysmian for several years as it had been involved in management decisions through voting rights and board representation.

Goldman Sachs has said that it is considering an appeal. If it does challenge the decision, the focal point is likely to be what amounts to "decisive influence".

This decision serves as a reminder to corporate investors that they can face direct risks arising from competition law infringements carried out by their investee business which are in addition to the indirect risk if their investee business is fined.

Competition infringements present a risk of fines of up to 10% of worldwide group turnover (as well as other risks, such as damages claims and potentially criminal sanctions for the individuals involved). Whilst the direct risks should not be over exaggerated - the Commission acknowledged that Goldman Sachs involvement went beyond the normal involvement of a financial investor - the safest approach for an investor is to ensure that the investee business is committed to competition law compliance and has in place appropriate compliance procedures to protect against the risk of infringements.

About the author

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Amanda Howlett

Partner

03700 86 5804

Amanda is a partner in Shoosmith's EU and competition law practice. She has extensive experience advising on competition law compliance, merger control, price fixing and cartels. Shoosmiths is a full service national law firm in the UK including corporate teams advising on all types of private equity and venture capital transactions, supported by in-house specialist tax, employment and pensions, real estate, environmental, intellectual property, IT and competition lawyers.

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