The Brazilian Competition Law provides that the total or partial consummation of merger transactions prior to the approval of the Administrative Council for Economic Defense (Cade) – a violation known as gun jumping – can be punished with fines ranging between R$ 60,000 and R$ 60 million, as well as non-pecuniary sanctions.
By means of the Resolution 24/19, Cade established a methodology for calculation of fines, aiming at increasing the predictability in the application of sanctions for gun jumping violations. Pursuant to the resolution, the calculation of the total amount of the fine starts with a baseline fine of R$ 60,000, increased according to the time lapse between the closing and the filing of the transaction with Cade, the severity of the violation and the so-called intent of the parties.
The fine may also be reduced depending on the timing of the antitrust filing of the transaction in relation to the launching of an investigation and the condemnation for violating the pre-merger review system.
Three years after the resolution entered in force, Cade imposed gun jumping fines on six occasions, which entailed important developments on the matter, especially with respect to the agency’s interpretation of the parties’ intent when committing the infringement – criterion whereby the fine may be increased by up to 0.4% of the average revenue of the economic groups involved in the transaction.
Cade has already applied the maximum rate for the intent factor in the context of a transaction filed and deliberately closed by the parties before antitrust clearance.
However, in a case in which the merging parties knew they would commit the infringement, but did so for contingency reasons related to a judicial reorganization, the rate applied was considerably lower (0.02%). This indicates that legitimate reasons external to the will of the parties that require early consummation can mitigate the degree of intent of the violators.
The intent rate has been applied even when the violation was committed unintentionally and in good faith. The lowest rate adopted since the referred resolution came into effect (0.001%) took place in a case in which the parties' legal counsel erroneously evaluated that a filing with Cade would not be required.
In another case, in which the infringement resulted from a misunderstanding about the accounting parameters considered for the purposes of turnover calculation to determine whether a filing with Cade was needed, the rate was set at 0.01% on the grounds that the parties did not act with the minimum diligence expected by the authority, albeit in good faith.
There was also a transaction in which the parties claimed not knowing the law and Cade set a rate of 0.04%, exceeding the degree of intent considered in the violation in which the consummation was conscious, but for contingency reasons.
These precedents demonstrate that, in the calculation of gun jumping fines, intent is not exclusively related to the deliberate act of violating the law, as Cade identified that there was intent even in cases in which the parties acted without bad faith, but were not diligent enough in the assessment of whether a transaction should be submitted for antitrust clearance.