CADE investigates cartel in public bids for the construction of World Cup 2014 stadiums

The General Superintendence of the Administrative Council for Economic Defense - CADE signed another Leniency Agreement with the company Andrade Gutierrez Engenharia S/A and its current and former executives. The General Superintendence was informed about an alleged cartel in the market of civil construction, modernization and/or reform of sportive facilities to the Brazil’s World Cup 2014. The agreement, a result of the so-called Car Wash Operation, was signed last October and brought evidence of bid rigging in the public bid for the construction of World Cup stadiums.

According to the agreement, which was signed jointly by CADE and by the Federal Prosecution Service section in the State of Rio de Janeiro – (MPF/RJ, for its acronym in Portuguese), with the company and its executives, the parties confessed their involvement in the conduct, provided evidence, and cooperated with the investigation of the alleged cartel. This is the seventh Leniency Agreement signed with CADE within the scope of the “Car Wash Operation Task Force” and the third signed with Andrade Gutierrez.

Apart from the MPF/RJ negotiations of a Leniency Agreement with Andrade Gutierrez’s former executives within the scope of the criminal suit under the Federal Justice, CADE’s General Superintendence initiated the negotiation of the Leniency Agreement proposal nearly eleven months ago. The agreement was signed in accordance with the articles 86 and 87 of Law 12.529/2011 (Brazilian Competition Law) and is related exclusively to the practice of cartel – an investigation that behooves to CADE. 

There is evidence that, at least, five public bids regarding the construction of World Cup stadiums were affected by the cartel, among them the Pernambuco Arena, in Recife/PE, and the Maracanã Stadium, in Rio de Janeiro/RJ. The signatories highlighted that they initially established anticompetitive conditions for the construction of the Mineirão Stadium, in Belo Horizonte/MG, but they were not implemented due to the changes in the public bid modality for Public-Private Partnership (PPP). Two other stadiums have also been listed as targets of the conduct, but are being kept confidential due to ongoing investigations conducted by the Federal Prosecution Service.

It is also worth noting that, when the Morumbi Stadium, in the state of São Paulo, was announced as one of the potential stadiums to be selected to the 2014 World Cup, one of the companies expressed interest in being responsible for its construction in the future. However, the previous anticompetitive agreement was not implemented due to the final choice of Corinthians Arena as the official stadium for the event in the city of São Paulo.

Furthermore, the signatories indicated that three other bids could have been affected by anticompetitive conducts, although they claim not to have taken part of such bids: Castelão Arena, in the city of Fortaleza; Dunas Arena, in the city of Natal; and Fonte Nova Arena, in the city of Salvador.

The agreement and the aforementioned evidence will subsidize the investigations conducted by CADE and by the Federal Prosecution Service, which will be analyzed in a more detailed basis. The allegedly colluded companies are: Andrade Gutierrez Engenharia S/A, Carioca Christiani Nielsen Engenharia S/A, Construções e Comércio Camargo Corrêa S/A, Construtora OAS S/A, Construtora Queiroz Galvão S/A, Odebrecht Investimentos em Infraestrutura Ltda., and, at least, 25 current and former employees of these companies.

According to the signatories of the Leniency Agreement, the contacts between the competitors began in October 2007, when Brazil was defined as the host of  the World Cup, and lasted until mid-2011, when the stadiums and their respective host cities were chosen.

During the "Phase I" of the cartel, the companies made a preliminary anti-competitive agreement, which consisted in indicating their respective interests in future works in order to coordinate their participation by submitting proposals for coverage, suppression of proposals, subcontracting or formation of consortium, as well as the monitoring of this preliminary agreement.

In the "Phase II" of the cartel, after the definition of host cities for the 2014 World Cup, the contacts between competitors were then conducted in bilateral and multilateral meetings, which involved specific bids and compensations between competitors.

Anticompetitive Conduct Records and Administrative Proceeding

 Part of the Leniency Agreement consists in a document called the Anticompetitive Conduct Records (HC, for its acronym in Portuguese), in which CADE’s General Superintendence describes in detail the anticompetitive practice as reported by the signatories and complemented by the submitted probative documents. By mutual agreement, CADE, MPF and the signatories have partially waived the confidentiality of the agreement and its annexes.

 At the end of the Administrative Inquiry, CADE´s General Superintendence decides on the initiation of an Administrative Proceeding, in which the evidence of an economic infraction is gathered and the individuals and legal entities are notified to present their statements. At that stage, the defendants will be notified to present their defense. In the end of the investigation, the General Superintendence issues an opinion on the conviction or the filing of the case concerning each defendant. The conclusions are then forwarded to CADE’s Administrative Tribunal, which is responsible for issuing a final decision.

The final judgment in the administrative sphere is responsibility of the Administrative Tribunal, which may impose fines of up to 20% of company´s turnover. Fines ranging from BRL 50 thousand to BRL 2 billion may also be imposed to individuals. The Tribunal may also take other measures that it deems necessary to cease the conduct.

CADE's Leniency Agreements under the Car Wash Operation

 This is the seventh Leniency Agreement signed with CADE within the scope of the Car Wash Operation. The previous agreements were signed with the following companies:

One Leniency Agreement signed with Setal/SOG and employees concerning the public bids in Petrobras’ onshore platforms;

Two Leniency Agreements signed with Camargo Corrêa and employees in public bids regarding Angra 3 nuclear plant and the North-South and West-East Railroads;

Two Leniency Agreements signed with Andrade Gutierrez and executives of the company; the first one regarding an alleged cartel in the public bids to build and operate the Belo Monte hydroelectric power plant; the second agreement due to an alleged cartel in the public bid for engineering and construction works for the urban improvement of the Alemão, Manguinhos and Rocinha neighborhoods in Rio de Janeiro;

One Leniency Agreement signed with Carioca Christiani-Nielsen Engenharia S/A concerning an alleged cartel in Petrobras’ public bids for the construction of the Leopoldo Américo Miguez de Mello Research Center (commonly referred to as Novo Cenpes), of the IT Data Processing Center (CIPD in its acronym in Portuguese), both located in Rio de Janeiro, and of the Petrobras’ headquarters in Vitória, Espírito Santo state. 

As established by Law 12.299/2011, the Leniency Agreement aims to obtain information and documents that prove the existence of a cartel, as well as to identify the other participants in the conduct. The agreement may be signed in cases where, at the time of its signature, CADE does not yet have enough evidence to ensure the conviction of the infractors involved.

Leniency Agreements are only signed with the first applicant (or its economic group), which must cease its involvement in the conduct, confess the wrongdoing and cooperate fully and permanently with the investigations by identifying others involved and providing evidence and relevant information. Leniency Agreements benefit the signatories with the termination or reduction of one to two thirds of the punishment in the administrative sphere. The agreement is signed together with Prosecution Services and provides criminal immunity for the applicant regarding the participation in the cartel.

The Leniency Agreement is an instrument used by competition authorities in several countries to unveil cartels. Since 2003, CADE has signed nearly 60 Leniency Agreements.