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Greywash

By Seamus Maye

What do you get when you merge two failed quangos? Last year the National Consumer Agency and the Competition Authority merged and became the Competition and Consumer Protection Commission (CCPC).

To put the intended role of the CCPC into perspective, it should be pointed out that the Authority has estimated that competition law infringements are costing €4bn per year, which amounts to €2,400 for every household in the State. A properly functioning Authority could have obviated the need to commit a €2,000 pay increase to civil servants simply by increasing purchasing power by an equivalent amount. This would have the effect of improving the balance of payments, improving competitiveness and increasing living standards. Are things going to change with the new CCPC?

Two weeks ago, some forty-six years after the State first drove a coach and horses through our Constitution by allowing Roadstone to merge with Irish Cement, a CCPC investigation was announced in front-page news by the traditionally CRH-friendly Sunday Business Post.

There are two fundamental questions arising from the headline. Does CRH plc warrant investigation and is the CCPC capable of carrying out the type of investigation that will be required? The first question is easily answered. CRH has continually attracted attention for all the wrong reasons over several decades and is currently sheltering from a hail of accusations of criminal breaches of competition law.

The 1969 merger created Ireland’s biggest company but at the expense of the public and its many SME competitors in Ireland. The merger allowed the new Cement Roadstone Holdings to integrate both vertically and horizontally thus allowing it to gouge artificially high prices for cement and explosives on the one hand whilst using its market power to evict all before it through the use of margin squeeze, banking embargos and other predatory tactics.

Back in 1988, ‘Prime Time’s precursor ‘Today Tonight’ did an excellent expose on CRH’s dirty tricks and uncovered prima facie evidence of cartels in several of its markets, together with a host of predatory practices. CRH’s then senior executive Declan Doyle denied the practices on air and CRH was taken to the High Court by two courageous families, the O’Regans from Cork and the Quirkes from Kerry, amid allegations of defamation. CRH came up with a then record settlement on the steps of the High Court. Despite the RTé revelations, the State took no action.  And RTé’s hands have been well and truly tied since then.

In 1994, there was what should have been a defining moment: the European Commission fined 42 European cement-makers ECU250m. The Commission found that Irish Cement played a lead role in fixing prices and dividing European cement markets. At a cartel meeting in January 1983, the Chairman noted that: “Our Irish colleagues have described the threats to their domestic market and have asked for my help”.

At a later cartel meeting in March 1984, the Irish Cement delegate Diarmuid Quirke noted of the Irish situation:  “As the country which had started these discussions, Ireland had a duty to request that they be continued as they had been extremely useful in calming the situation in Ireland”, i.e. in blocking cement imports into Ireland.

Despite incontrovertible evidence of CRH’s cartel activities, no action was taken against CRH even though the State was one the biggest users of cement and other construction materials.

The Examiner of Restrictive Practices turned a blind eye to complaints and the Competition Authority was always awash with complaints after it was set up in 1991. In 1999, a Sunday Independent investigation confirmed that CRH operated a web of secretly-controlled downstream companies and named four. There were, indeed are, several more. The British-based Mergers and Monopolies Commission once described secretly owned subsidiaries as: “fighting-companies, that is to say a company which is a member of a group, but whose ownership is concealed from the public; the fighting-company can then be used to attack a competitor’s customers by offering them favourable terms and conditions”.

In fairness to economist Pat Massey who was the Director of Competition Enforcement, he immediately sought funding from Government to instigate an investigation into CRH and the building materials sector but promptly resigned his position in February 2000 when the required funding was not forthcoming.

In December 2001, John Fingleton, then Chairman of the Competition Authority, stated that: “There was no enforcement of Competition Law in Ireland at all until 1996” and “Small concrete producers became proxies for the consumer”.

However, in May 2002, Dr Fingleton wrote that the Competition Authority would not be investigating the sector but “will continue to monitor the cement sector generally”. In 2004, Pat Rabbitte asked that a market study be conducted into the sector. Dr Fingleton responded that there was no funding available until the following year. Again there was no follow through and no study.

The stream of complaints continued. The takeovers continued. Kilsaran bought Tracy Enterprises amid a flurry of objections. Whistleblower Barry Goode’s evidence given in 2011 appears to have been binned. Other potential whistleblowers have been discouraged by the Authority. The Authority stood idly by when CRH, Readymix and Kilsaran mounted the latest predatory assault which involved a sustained campaign of below-cost selling that wiped out minority shareholder value in Readymix [Cemex].

In April 2011, gardaí from the Bureau of Fraud Investigation attached to the Authority informed the Goode family that: “there isn’t a hope of the Authority investigating this behaviour (concrete and cement cartel) because of who you are up against and what’s at stake”.

CRH bosses: Myles Lee and Albert Manifold
CRH bosses: Myles Lee and Albert Manifold

In October 2011, the Authority told the Goode family and their solicitor:  “that if the Authority were to carry out any investigation, the Authority was only going to investigate small companies similar to their own and stated they would not go after the major companies (CRH and Cemex)”.

In March 2012, Hudson Brothers submitted a detailed complaint to the Authority about the latest round of predation but this too was trashed. Cemex then bought out the minority shareholders in Cemex Ireland for circa €10m and exited the market, allowing Kilsaran to mop up the Cemex assets in the Republic of Ireland. Once again, complaints to the Authority about the manner of the planned exit of Cemex and the CRH/Kilsaran axis’ intention to purchase the Cemex assets were completely ignored by the Authority.

Question one above is therefore answered in the affirmative.

Is the CCPC capable of carrying out an effective investigation into CRH? Ireland’s Competition Law regime is an amalgam of cut and paste from other jurisdictions, mainly European Law. The regime is hopelessly dysfunctional and entirely inadequate if the aim is to enforce European Law. Certainly, all of the blame cannot be attached to the CCPC. For example, Ireland does not have the equivalent of the UK’s Enterprise Act. This gives the UK’s Competition and Markets Authority (CMA) the power to undertake civil investigations and make effective orders in situations where an AEC (Adverse Effect on Competition) is discovered. A recent UK market investigation into the aggregates, cement and readymix concrete market found AECs. So the CMA ordered the divestiture of a large cement factory by Lafarge together with the divestiture of a GGBS cement plant by Heidelberg-owned Hanson, and made several other orders. The CMA found sufficient evidence of co-ordination among cement manufacturers to enable it make such robust orders under the Enterprise Act. No findings were made in relation to breaches of the UK’s Competition Act as no investigation was conducted under the Competition Act.

With no such legislation in Ireland, the CCPC has to rely solely on the Competition Acts. The two core provisions of the Competition Acts are Section 4 which deals with price-fixing and market-sharing and Section 5 which deals with Abuse of Dominance. Strangely, breaches of Section 4 are categorised as criminal offences while Section 5 breaches are civil. Arguably, abuse of dominance is the graver and less visible of the two offences and serves to create an ideal platform for price-fixing and market-sharing.

Ireland’s track record in prosecuting white-collar criminal offences is deplorable. Despite swathes of criminal behaviour across the banking sector, not one banker has been incarcerated. The same applies to Section 4 of the Competition Acts. It is noteworthy that the CCPC is conducting its investigation into the “bagged” cement market under Section 5, i.e. for abuse of dominance. This has resignation written all over it and amounts to an admission by the CCPC that it is virtually unable to bring a criminal prosecution across the line. Secondly, the bagged cement market is a minuscule and somewhat detached element of the building-materials sector. There is and always has been price-fixing and market-sharing within the bagged market (Section 4). It will however be very difficult to prove that there is abuse of dominance (Section 5) in the bagged market.

It is extraordinary that the CCPC has avoided looking into the real problem within the sector, that of vertical integration and the secret ownership structures that act as a platform for wholesale abuse of dominance and horizontal cartels across the cement, aggregates, readymix concrete, asphalt, ground-limestone and super-fines markets. These act as fillers in fertiliser and animal feedstuffs. The ODCE has also steadfastly refused to investigate the secret ownership structures in the sector.

The CCPC is further handicapped by the fact that it cannot of itself impose fines or make orders for divestment or make findings under the Acts as is the case with the UK’s CMA. The CCPC must refer all criminal matters to the DPP. The UK has another useful tool in its armoury, whistleblowers can be paid up to £100,000 for coming forward. The US Dodd Frank Act whistleblowers can receive up to 30% of the fines imposed. The introduction of whistleblower rewards in Ireland could dramatically alter the landscape for competition law enforcement.

As it stands, it will take more than a mere name change to create a functional competition regime in Ireland. Don’t hold your breath on the CCPC upsetting CRH too much anytime soon. •