Cencosud Reaches Extrajudicial Agreement with FNE: A Landmark Case in Combating Interlocking Directorates

In a groundbreaking move, the Chilean National Economic Prosecutor’s Office (FNE) has reached an extrajudicial agreement with Cencosud, Manfred Paulmann, and Asesorías Alpa to put an end to an investigation into interlocking, a practice that poses a serious threat to free competition.

The Interlocking Dilemma

Interlocking refers to the simultaneous participation of an individual in the roles of director or key executive in two or more competing companies. This practice is strictly prohibited as it can undermine the principles of free competition, allowing for the exchange of sensitive information and the potential coordination of strategic decisions between rival firms.

The FNE’s investigation, which began in September 2023, focused on a concentration operation where Cencosud was set to acquire assets from ARS, a subsidiary of Asesorías Alpa. The investigation revealed that Manfred Paulmann had simultaneously served as a director at Cencosud and as a key executive at Alpa from July 2021 until the present, as well as a director of ARS from July 2021 to May 2022.

The Landmark Agreement

As a result of the extrajudicial agreement, Cencosud will pay $870 million, Asesorías Alpa will pay $280 million, and Paulmann will pay $50 million to the Chilean Treasury. This substantial financial penalty underscores the gravity of the offense and the FNE’s commitment to enforcing the prohibition on interlocking.

Furthermore, the parties have agreed to adopt measures to safeguard free competition in the market and ensure the termination of the unlawful conduct. This includes ongoing monitoring by the FNE to ensure compliance with the interlocking prohibitions, a crucial step in fostering a healthy competitive environment among companies.

Cencosud’s Perspective

In a statement to the Financial Market Commission (CMF), Cencosud acknowledged that the agreement establishes that the company has acted in good faith, under a distinct understanding from that expressed by the FNE regarding the scope of horizontal interlocking and the notion of competing companies. The company emphasized that the settlement was chosen to prioritize its strategic plan and the future of its business, rather than an admission of responsibility.

Conclusion

This landmark case sends a clear message that the Chilean authorities are committed to protecting the integrity of the market and ensuring fair competition. The substantial fines and the implementation of corrective measures demonstrate the FNE’s determination to address the issue of interlocking, which can have far-reaching consequences for consumers and the overall business landscape. As the Fiscal National Economic, Jorge Grunberg, aptly stated, companies must understand the fundamental relevance of the prohibition of interlocking and strictly comply with it.

This case serves as a powerful example of the FNE’s vigilance and the importance of maintaining a level playing field in the Chilean market. It is a testament to the authorities’ commitment to fostering a thriving and competitive business environment that benefits both companies and consumers alike.