CADE signs Leniency Agreement on cartel investigation in the public bid for the urban improvement of poor neighborhoods in Rio de Janeiro

On November 30, the General Superintendence of the Administrative Council for Economic Defense - CADE initiated, an Administrative Proceeding to investigate an alleged cartel in the public bid for engineering and construction works for the urban improvement of the Alemão, Manguinhos and Rocinha neighborhoods (Administrative Proceeding no 08700.007776/2016-41). The bid was conducted by the Secretariat for Public Works of Rio de Janeiro and was funded by the Federal Government’s Brazilian Growth Acceleration Plan (PAC, for its acronym in Portuguese). The proceeding is part of the so-called Car Wash Operation, and was based on evidence from a Leniency Agreement signed with the Andrade Gutierrez Engenharia S/A, its current and former executives. 

According to the agreement, which was signed jointly by CADE and the by Federal Prosecution Service of the State of Rio de Janeiro – (MPF/RJ, for its acronym in Portuguese) “Car Wash Operation Task Force” – 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.

CADE’s General Superintendence initiated the negotiation of the Leniency Agreement proposal nearly eight 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.
The companies allegedly involved in the anticompetitive conduct are: Andrade Gutierrez Engenharia S/A, Construções e Comércio Camargo Corrêa S/A, EIT – Empresa Industrial e Técnica S/A, Camter Construções e Empreendimentos S/A, Construtora Norberto Odebrecht S/A, Delta Construções S/A, Construtora OAS S/A, Construtora Queiroz Galvão S/A, Carioca Christiani Nielsen Engenharia S/A and Caenge S/A – Construção, Administração e Engenharia, as well as 14 current and former executives of these companies.

The General Superintendence has verified that the companies established agreements for fixing prices, conditions and advantages in the public bid, as well as the market division between them through consortiums and the exchange of sensitive competition information. Suspicious contacts between the competitors began in the first semester of 2007 and lasted, at least, until the beginning of 2008.

According to the information provided by the signatories, the anticompetitive conduct began in May 2007, when the companies became aware that the public bid would be divided in three batches (Rocinha, Manguinhos and Alemão). The investigated parties thereafter developed a working group to study the batches and to assist in the development of the basic project of the bid, as well in the auction notice. The purpose of the working group was to ensure that all the requirements to obtain PAC funds were met and that the technical requirements of the auction notice were able to limit the participation of other companies that were not in the cartel, thus facilitating the qualification of the cartel’s companies for the bid.

Divided in three consortiums between January and February 2008, the members of the cartel offered cover bids among them, assuring that the Novos Tempos Consortium (composed by Queiroz Galvão, Caenge and Carioca) would be awarded the bench related to the Rocinha neighborhood, that the Manguinhos Consortium (composed by Andrade Gutierrez, Camargo Corrêa, Camter e EIT) would win the bench of Manguinhos neighborhood; and, that the Rio Melhor Consortium (composed by Odebrecht, OAS and Delta) would be awarded the batch related to the Alemão neighborhood. According to its report, Camargo Corrêa was not satisfied with its share in the consortium and unilaterally decided not to participate in the auction bid.

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/RJ 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 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

This is the fifth Leniency Agreement signed with CADE within the scope of the Car Wash Operation. The previous agreements were signed with the company Setal/SOG and employees concerning the public bids in Petrobras’ onshore platforms; with Camargo Corrêa and employees in public bids regarding Angra 3 nuclear plant and the North-South and West-East Railroads; and with Andrade Gutierrez Engenharia S/A executives of the company regarding an alleged cartel in the public bids to build and operate the Belo Monte hydroelectric power plant. 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.