Antitrust infringers beware as EU’s blacklisting tool for public funds gains traction

17 May 2024
By Tono Gil

Many companies enjoy feasting on the profusion of contracts financed from the EU budget, but the gates can quickly crash shut on this world for any businesses caught in wrongdoing — including antitrust infringements.

Whether it's a tender to provide official cars, manage the security of an EU delegation or offer project consulting services, the European Commission and other competent EU authorities can ban companies from participating in public procurement tenders with the bloc's Early Detection and Exclusion System.

EDES was introduced in 2016 to protect the EU budget from “unreliable” entities, for example companies that have committed fraud or money laundering or that have breached corruption, intellectual property or competition laws. It complements other national initiatives to ban offenders from landing public procurement contracts.

There’s little public information on companies caught by EDES over the past eight years, but MLex understands there have been more than 700 cases in total — translating to a theoretical average of around 90 cases a year.

Nevertheless, it's a tool still relatively little known, particularly perhaps in the antitrust legal community, but one that's getting more attention there, not least with a Spanish appeal case over a cartel-related EDES ban currently working its way through the EU courts.

Exclusion

When a company applies to participate in EU procurement tenders or receive grant or prize awards and the like, it must disclose whether it has committed any of the breaches in scope within the last five years.

If it has something to disclose, the commission will refer the matter to an inter-institutional panel, which will advise on whether to exclude the business. Companies that fall foul of the rules can face sanctions, a financial penalty or even be publicly blacklisted as an additional punishment — a burden currently carried by only four companies.

One of the best-known cases of an exclusion on account of antitrust matters came three years ago. In the midst of the Covid-19 crisis, 10 banks — including JPMorgan, Citigroup and UBS — were temporarily barred from running bond sales linked to the EU's multibillion-euro recovery plan for their participation in a cartel.

Exclusion can be fought, and the EDES mechanism has gained some prominence as disputes went to court.

Just this week, a consulting firm appeared at the EU's General Court, to fight exclusion by the European Agency for Safety and Health at Work from an EU awards program on grounds that it had been among businesses fined by the Spanish competition authority in 2021 for participating in a bid-rigging cartel.

The consulting firm, which hasn't been identified, has argued that it wasn't proportionate to add it to the EDES database. But an earlier plea for interim measures only partially succeeded: The EU's lower-tier General Court declined to pull it from the blacklist but did temporarily suspend an additional decision to make public its exclusion. This week its substantive case* was heard at the court. 

Dodged bullet

Currently, the exclusion system applies to funds directly and indirectly managed by EU institutions.

EU countries and lawmakers agreed last December to extend the scope of the exclusion mechanism to programs managed jointly by the commission and national authorities, which represent around 70 percent of the bloc’s programs.

This will only apply to companies that have committed the most serious offenses, such as fraud or corruption, however. Some may be breathing a sigh of relief that EU legislators decided not to include antitrust breaches on this list.

That doesn’t mean that national governments are powerless. The EU's 2014 Public Procurement Directive establishes that contracting authorities “may” exclude companies that have participated in agreements “aimed at distorting competition” from public procurement awards. 

Some countries are already applying their own banning systems. For example, the Spanish competition authority has imposed tender bans in several cases, and recently issued guidelines explaining how it intends to use this power.

Still, the application of the directive across the EU is disjointed, which reduces the effectiveness of ways to prevent the funds from the bloc-wide budget from landing in the hands of antitrust infringers.

Make-up homework

A company can offer “remedial measures” to escape exclusion under EDES, but there are no hard and fast rules to discern what would be enough to clean its reputation. 

Some might need to make just one minor adjustment to make it out of the blacklist, while others might not gain the commission’s trust even with multiple changes.

Factors such as how much a company has distorted competition with its actions, how long its infringement has lasted, or whether it has already paid a heavy fine and implemented changes, can play a role in determining each case.

On remedies, companies can get pretty creative. Antitrust compliance trainings can be an option, although these come in many shapes and companies might need to fine-tune them depending on the case at hand.

Personnel measures are not off the table either. For example, a company could commit to dispose of staff found to be responsible for the offense, MLex understands.

What the commission fundamentally wants to see is that there is a genuine change of conduct, and the sooner the company starts working on its implementation, the better.

If the risk of hefty fines, private litigation and reputation loss weren’t deterrent enough, EDES is yet another reason for businesses to think twice before committing an antitrust breach.

* The case reference is T-126/23, VC v EU-OSHA

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