(by Andreas Stephan) The Republic of Ireland is facing the most serious economic crisis in its history. In order to deal with its sovereign debt crisis, it has had to accept a painful and far reaching from the EU and the IMF. As part of this, Ireland is required to “introduce reforms to legislation to empower judges to improve fines and other sanctions in competition cases in order to generate more credible deterrence” (p24). This is an odd requirement for a country which is arguably ahead of the UK and other larger EU Member States in the development of its competition enforcement regime. It raises the question of whether higher competition sanctions really will make a difference to the Irish recovery.

Ireland has responded to the IMF requirement by publishing the doubling the maximum gaol sentence for breaches of cartel laws from five to ten years. Fines are to be increased from a maximum of €4m to €5m. The Bill also changes cost rules so that those convicted of competition infringements must pay the costs of investigation and court proceedings, introduces director disqualification in competition cases, measures to facilitated private enforcement and measures to assist juries when considering complex economic evidence. The “This legislation will provide a more effective deterrent and punishment for individuals or organisations who engage in price-fixing…. It will make a real difference in the fight to bring down costs and ultimately help our economy on the road to recovery”.

The headline change of doubling prison sentences is odd given that Ireland is already ahead of the rest of the EU in its criminal cartel enforcement. It was not only one of the first Member States to criminalise its cartel laws, but is also ahead of the UK in terms of the number of successfully prosecuted cases against individuals. These domestic cases have so far resulted in suspended sentences, but in 2009 Justice Liam McKechnie (Central Criminal Court, Dublin) warned “The first generation of carteliers have escaped prison sentences. I can say that the second will not”. So there is no immediate pressure for the maximum sentence to be raised. It is also far from certain that a higher maximum will automatically result in higher sentences handed down by the courts.

The doubling of the maximum prison term hides the relatively limited room for movement Ireland has to raise sanctions. Despite the rise in maximum penalties, Ireland cannot impose a fine which exceeds 10 per cent of an undertaking’s annual turnover. Regulation 1/2003 does allow for stricter treatment of abuse of dominance, but such cases are rarer and often less straight forward than cartel cases. Changes to cost rules may help to increase cartel fines slightly, but director disqualification will have little impact while there is a across the EU in enforcing such orders. Like other EU member states, Ireland also faces an uphill struggle to encourage private enforcement.

Competition law can play a central role in helping the Irish economy recover. At times of economic crisis, firms may be more likely to form crisis cartels or indulge in bid-rigging in public procurement. Tackling both these problems will help lower prices, to the benefit of consumers and public finances. However, simply raising maximum sanctions may only give the illusion of enhanced deterrence. The existence of a credible threat is paramount to deterrence and so the number of cases successfully completed is far more important than the size of the sanction. It is hard to see how doubling prison sentences will raise deterrence when Ireland has yet to see its first custodial sentence handed down. More broadly, the IMF requirement leaves one wondering whether any serious consideration was given to the country in question, or whether such requirements are part and parcel of a standard recovery plan template. It makes you worry about all the other details in these massive sovereign bailout plans required by international agencies!