Brazilian antitrust authority CADE has recently issued a rule (Resolution 24/2019) to improve legal certainty of administrative proceedings involving gun jumping. Gun jumping occurs when a notifiable transaction is closed before the antitrust authority’s approval.
Although the topic was already the subject of a previous regulation (Resolution 13), the new rule differentiates two circumstances: (i) transactions that have been notified – or not – and closed prior to CADE’s review and (ii) notifiable transactions that are not notified to CADE within one year.
Resolution 24/2019 sets at sixty thousand reais the reference fine for gun jumping. This reference fine can be increased up to six million reais, as follows:
- 01% of the transaction value per day of delay, as from the closing date until notification of the transaction or of a change to the transaction, if any;
- Up to 4% of the transaction value, depending on the severity of the violation;
- Up to 0.4% of the average gross revenues of the economic groups involved, for the fiscal year preceding the closing year, depending on the good faith of the parties involved.
The amount of the fine can also be reduced in the following circumstances:
- By 50% in case the parties voluntarily notify the transaction before they are formally notified by the competent authority;
- By 30% in case the transaction is notified after the party is served with an information and before an investigation is initiated by CADE;
- By 20% in case the transaction is notified after an investigation is initiated and before the CADE Administrative Tribunal’s decision is issued.
Commissioner Paula Farani has already stated (in investigation APAC No. 08700.010071/2015-20) that having objective criteria in place for adjusting the amount of the fine according to the particulars of each case was essential. At that time, Commissioner Farani said that criteria such as (i) transaction value, (ii) days of delay in notifying the transaction, and (iii) gross revenue of the economic groups involved in the transaction, should be used when calculating the amount of the fine.
In addition, other factors such as the parties’ good faith (when they voluntarily notify transactions) and the economic situation of the parties involved should also be considered.
Prior to Resolution 24/2019, fines were calculated based on another regulation – section 45 of Law 12.529/2011 – which lays down broad rules for the imposition of penalties.
The purpose of the new regulation is to mitigate the effects of such lack of criteria and provide more transparency and certainty to the process of setting such fines. Nonetheless, this process still relies on certain subjective criteria. For instance, the new rule does not define good faith or severity of a violation, which can significantly impact the amount of the fine.
Notwithstanding such subjective factors, one cannot deny that the new regulation is certainly an improvement for it presents a clearer method for calculating the penalty.
This is why the new rule is in line with CADE’s movement towards transparency and predictability of its decisions. It remains to be seen how CADE will enforce the terms of this new regulation.
