Within the scope of the Car Wash Operation, CADE investigates another cartel in Petrobras public bids

On December 2, the General Superintendence of the Administrative Council for Economic Defense - CADE initiated an Administrative Inquiry to investigate an alleged cartel in Petrobras’ public bids  regarding 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 (Administrative Inquiry 08700.007777/2016-95). The inquiry, part of the so-called Car Wash Operation, was  based on evidence provided by a Leniency Agreement signed with the general contractor Carioca Christiani-Nielsen Engenharia S/A, with its current and former executives. 

According to the agreement, which was signed jointly by CADE and by the Federal Prosecution Service of the State of Paraná – (MPF/PR, 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. This is the sixth Leniency Agreement signed with CADE within the scope of the Car Wash Operation and the first signed with the Carioca Engenharia.

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.

Besides Carioca Engenharia, the companies allegedly involved in the anticompetitive conduct  are: Andrade Gutierrez Engenharia S/A, Construções e Comércio Camargo Corrêa S/A, Hochtief do Brasil S/A, Construtora OAS S/A, Construtora Norberto Odebrecht S/A, Construtora Queiroz Galvão S/A, Construbase Engenharia Ltda., Construcap CCPS Engenharia S/A, Mendes Júnior Trading Engenharia S/A, Schahin Engenharia S/A, WTorre Engenharia e Construção S/A and, possibly, Racional Engenharia Ltda, as well as at least 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

The contacts between the competitors began in 2006, with the development of a group formed by seven companies: Andrade Gutierrez, Camargo Corrêa, Carioca Engenharia, Hochtief, OAS, Odebrecht and Queiroz Galvão. In this first moment, the interests of each one of the colluded companies regarding the public bids were discussed, considering that Andrade Gutierrez, Odebrecht and OAS were defined as the leaders of the future consortiums.

Odebrecht would have declared its interest in the public works of the Headquarters of Vitória, forming a consortium with Hochtief and Camargo Corrêa. For its part, OAS demonstrated interest in winning the Novo Cenpes bid, suggesting Carioca Engenharia take part in its consortium, due to previous joint work experiences between the companies. Andrade Gutierrez and Queiroz Galvão stated their interest for the CIPD bid.

On August 2006, the anticompetitive agreement was expanded to cover other companies invited by Petrobras to participate in the public bid. The leaders of the future consortium had to contact representatives of the others companies in order to integrate them in the collusion. 

The four companies that became part of the anticompetitive arrangement were Construbase, Construcap, Mendes Júnior and Schahin. The definition of the winners of the public bids, as well as of the companies that would present cover bids or suppress their bids  were based on such contacts with the purpose of enabling the agreements of the alleged cartel in the three public bids. The anticompetitive contacts have lasted at least until 2008.

The anticompetitive agreement related to the Vitória Headquarters’ bid was duly implemented. Odebrecht, Hochtief and Camargo Corrêa won the bid.

In the Novo Cenpes public bid, the arrangements were temporarily undermined by the participation of WTorre in the public bid, who was not aligned to the collusive conduct. In the end of the negotiation phase with Petrobras, however, after being contacted by its competitors, WTorre would have stopped lowering the price of its bid, thus allowing the victory of the consortium formed by OAS, Carioca, Construcap, Construbase and Schahin in exchange of a financial compensation.

Finally, in the CIPD’s public bid the anticompetitive agreement was also implemented without major concerns. Andrade Gutierrez, Queiroz Galvão and Mendes Júnior won the public bid.

The Leniency signatories report that, although it did not take part directly in the anticompetitive arrangements, Racional Engenharia Ltda., could have had knowledge or some subsidiary participation in the collusion,  since it presented bids together with Andrade Gutierrez and Construbase – which were certainly cover bids.

 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/PR 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

This is the sixth 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; two with Camargo Corrêa and employees in public bids regarding Angra 3 nuclear plant and the North-South and West-East Railroads; 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; and with Andrade Gutierrez Engenharia S/A 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.

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.