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On September 24, 2019, the General Court of the European Union (“GC”) annulled the EUR 33.6 million fine imposed by the European Commission (EC) on banking group HSBC for participating in the Euribor cartel.

The GC annulled the fine only because the EC did not provide a sufficiently detailed reasoning for its calculation methodology.

The GC judgment assesses Commission Decision of December 7, 2016 (Case AT.39914), declaring an infringement of articles 101 TFEU and 53 of the EEA Agreement by HSBC Holdings plc, HSBC France plc and HSBC France (“HSBC”). According to the EC, between February and March 2007, HSBC and other banks had been involved in a cartel that altered the normal course of pricing on the market for Euro Interest Rate Derivatives (“EIRD”) linked to Euribor or to the Euro Over-Night Index Average (“EONIA”). The EC imposed an EUR 33,606,000 fine to be paid jointly by the banking group.

As explained here, the EC investigation began in 2008 after Barclays Group requested a fine exemption. Then, under the leniency program, Deutsche Bank, Royal Bank of Scotland (“RBS”) and Société Générale also cooperated with the EC by providing relevant information for the proceedings. Additionally, in 2013, the four banks entered into a settlement procedure with the EC to end the investigation. As a result, they obtained an additional 10% fine reduction for accepting the objections raised by the EC. Out of the seven banks under investigation, HSBC, Crédit Agricole and JP Morgan refused to settle.

On December 4, 2013, the EC issued a decision establishing that the four settling banks had (i) agreed on EIRD pricing intentions and strategies and (ii) exchanged sensitive information. Therefore, the EC imposed fines totaling more than EUR 800 million after the said reductions except on Barclays (who benefited from total immunity).

After these fines, the investigation continued for three more years into the non-settling banks, but the outcome was the same: in December 2016, the EC fined French-based group Crédit Agricole EUR 114.654 million; HSBC EUR 33.606 million and United States bank JP Morgan EUR 337.196 million.

In its Judgment of September 24, 2019, the GC decided on HSBC’s action for annulment of the said EC decision. The GC mostly upheld the EC’s substantive analysis, but it annulled the fine arguing that the EC did not provide a sufficiently detailed reasoning for its calculation methodology.

The contested EC decision stated that interest rate derivatives did not generate any sales in the usual sense of the term. The EC could not use “the value of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates” as provided in the Guidelines on the method of setting fines (available here). Therefore, the EC applied a proxy value: the cash flows that each bank received from their EIRD portfolios linked to any Euribor tenor or EONIA during the infringement period. For HSBC, this was equal to EUR 16,688 million.

Additionally, the EC discounted the said figure “by an appropriate, uniform factor” set at 98.849% to take into account the specificities of the EIRD market, and particularly the netting inherent in derivatives trading. The EC recalled that it was not required to apply a precise mathematical formula and that it had certain discretion to determine the amount of each fine.

According to HSBC, the EC made a wrong assessment when calculating the value of EIRD sales based on discounted cash receipts without sufficiently accounting for the netting inherent in EIRD trading, since these contracts give rise to both receipts and payments. HSBC added that it did not understand why the EC applied that reduction factor instead of another one.

The GC partially upheld HSBC’s claims and decided important aspects regarding (i) the calculation of fines and (ii) the EC’s duty to provide a sufficiently detailed reasoning (the obligation to state reasons):

  • The GC concluded that the EC’s accounting for the value of sales based on the discounted cash receipts was not inherently wrong. It also considered that the applicants did not propose a more appropriate alternative method during the administrative procedure.
  • However, since the EC (i) applied the Guidelines on the method of setting fines (being able to depart from that methodology having regard to the circumstances) and (ii) the sales value was particularly high because it was only based on cash receipts without discounting payments: the GC judgment added that it was necessary to determine the discount factor flawlessly, since the tiniest variation or error in this factor would have a significant impact on the amount of the fine.
  • Since the reduction factor was essential, the concerned companies needed to understand how it was set by the EC. Given its importance, the GC had to conduct “an in-depth review, in law and in fact,” on the reduction factor, but it was unable to do so because the EC did not state the specific values considered to set the reduction factor at over 98.849%.

Since the EC did not provide a sufficiently detailed reasoning on how it set the reduction factor, the GC concluded that it is unable to conduct an in-depth review of a decisive element for the amount of the fine. Therefore, the GC annulled the fine altogether.

This judgment stresses the importance of providing a sufficiently detailed reasoning when determining the amount of fines. In line with ICAP (General Court Judgment of November 10, 2017, T‑180/15, upheld by CJEU Judgment of July 10, 2019, C‑39/18 P), the GC annuls the fine on HSBC because the EC did not sufficiently explain the calculation methodology. In ICAP, the GC required the EC to state reasons when the EC departed from its Guidelines under paragraph 37 of them, but in the case at hand the GC found a lack of sufficient reasoning although the EC did not depart from its standard calculation methodology provided in the Guidelines.

This case emphasizes again the need to preserve the rights of defence in investigations resulting in settlements for some parties (who accept the infringement in exchange for a fine reduction) but not for others (“hybrid settlements”). This matter has been widely discussed and pointed out by EU courts in recent cases.

This will not be HSBC’s last battle in its war before EU courts. The GC judgment does not prevent the EC to issue a new decision imposing the same fine providing a new reasoning, as in Printeos (Case AT.39780, upheld by CJEU Judgment of September 24, 2019, T-466/17 Printeos, SA and Others v. European Commission), since the GC has mostly accepted the EC’s legal reasoning regarding the infringement by the bank.

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