1

The Air Cargo Cartel: Lessons for Compliance

Howard Bergman
*
and D. Daniel Sokol
**


Introduction

Cartel enforcement and leniency are issues of increased academic and policy attention. Most of
the academic work in this area focuses on scholarship regarding formal modeling of leniency,
1

empirical work,
2
and analyses of broader legal theories, analytical trends
3
and specific case
decisions. Scholarship has not focused on how leniency works in practice to detect wrongdoing
and how robust and effective compliance programs may be used as a tool to take advantage of
leniency. This chapter fills in the gap by offering a case study of an effective compliance
program that uncovered what was at the time the largest ever international cartel. To do so, the
authors undertook interviews with the legal team of Lufthansa, the leniency applicant in the air
cargo conspiracy.
4


On Valentines Day, 2006, Nico von Ruckteschell,
5
general counsel for Lufthansa Airlines, was
in Hong Kong, attending a meeting of general counsel of members of International Air Transport
Association (IATA), the trade organization of the airline industry. Cell phones began ringing
and other general counsel began leaving the meeting. Headquarters of the airline companies were
calling to inform their in-house counsel that the FBI, the antitrust
6
authority of the European
Commission (DG Competition), and other national antitrust authorities were conducting raids on
their offices for involvement in a price fixing cartel.

Nico was the only general counsel who knew that he would not be receiving a phone call.
Lufthansa had approached the antitrust authorities in key countries, including the US Department
of Justice Antitrust Division (DOJ) and the European Commission Directorate General for
Competition (DG Competition), to inform them that they had uncovered their participation in the

*
Senior Consultant at the George Mason University Center for World Religions, Diplomacy and Conflict
Resolution. He is also a business negotiations consultant in Alexandria, VA. Previously, he served 25 years as
assistant general counsel at a multinational Fortune 100 company
**
Professor of Law, University of Florida Levin College of Law.
1
See J Pil Choi and H Gerlach, Cartels and Collusion: Economic Theory and Experimental Economics in RD
Blair and DD Sokol (eds), The Oxford Handbook of International Antitrust Economics (Oxford: Oxford University
Press 2014 forthcoming).
2
See MC Levenstein and VY Suslow, Cartels and Collusion: Empirical Evidence in RD Blair and DD Sokol
(eds), The Oxford Handbook of International Antitrust Economics (Oxford: Oxford University Press 2014
forthcoming).
3
See eg, C Beaton-Wells and A Ezrachi (eds.), Criminalising Cartels: Critical Studies of an International
Regulatory Movement (Oxford: Hart Publishing 2011).
4
Institutional Review Board protocols were followed for the interviews.
5
Nico is Lufthansa's general counsel. He began working at Lufthansa as Rechtsdezernent in 1990, became
Chefsyndikus (General Counsel) in 1997, and added the title of Chief Compliance Officer in 2003. Jan-Peter is
Lufthansas in-house antitrust lawyer. Miriam Faust leads their competition compliance program.

6
As US based authors we use US spellings and the US terminology. Antitrust is competition law in most of
the world.

2

conspiracy and to offer their help in the investigation in exchange for leniency. As a result
Lufthansa, paid no government fines in the US or EU.

Scores of enforcement officers were involved in the coordinated raids in the US and Europe,
including more than 50 officers who showed up at the Chicago offices of KLM Air France.
The agents seized computers and many documents as part of the investigation of allegations of
price fixing in the air cargo industry.

DOJ, DG Competition and other national antitrust authorities eventually brought charges against
nearly 20 air cargo carriers claiming that they engaged in a conspiracy between 1999 and 2006 to
fix the amount of the surcharge they charged on fuel.

The DOJ and EC entered settlements with virtually all of the carriers, with total fines exceeding
$1.6 billion in the US and $1.1 billion in Europe. The antitrust authorities in other countries
levied fines totaling in the hundreds of millions of dollars. In addition, the US DoJ brought
criminal charges against individuals from some of these countries for their involvement in the
conspiracy, some of whom served time in prison. Additional penalties for the cartel member
companies came in the form of private lawsuits in the United States were obtained by purchasers
of air cargo services.

This is the story of how Lufthansa uncovered its involvement in the air cargo cartel and avoided
significant penalties.

Cartels and Cartel Enforcement

Explicit price fixing is illegal in most countries around the world under antitrust laws. From
2000 to 2010, the fines imposed against cartels by government actions totaled $31 billion in the
European Union and $12 billion in the United States.
7
Private actions against cartels during this
period (mostly in the United States) amounted to an additional $34 billion in damages against
cartel members.
8


To deter cartel formation and participation, US antitrust law contains a mix of criminal and civil
penalties for both firms and individuals under Section 1 of the Sherman Act.
9
The mere threat of
criminal sanctions is enough for nearly all firms and individuals to settle with DOJ Antitrust
through a plea agreement.
10



7
JM Connor, Cartels Portrayed: U.S. vs. EC: Whos Winning the Prosecution Race?: A 21-Year Perspective,
1990 to 2010, at 29 (Am. Antitrust Inst., Working Paper No. 11-03, 2011), available at
http://www.antitrustinstitute.org/sites/default/files/AAI%20Working%20Paper%20No.%2011-03.pdf; see also JM
Connor and RH Lande, Optimal Cartel Deterrence: An Empirical Comparison of Sanctions to Overcharges (August
31, 2011) (unpublished manuscript),
http://works.bepress.com/cgi/viewcontent.cgi?article=1005&context=robert_lande (analyzing the total combined
impact of every existing anti-cartel sanction).
8
See Connor, supra note 7.

9
15 U.S.C. 1.
10
DOJ Antitrust Workload Statistics FY 2004-2013, available at http://www.justice.gov/atr/public/workload-
statistics.html.

3

Individuals within cartels may hide their cartel activity from their compliance personnel. To
improve detection of the cartel, the United States (followed by other countries) set up a leniency
program for cartel activity. The leniency program allows for firms to self-report their cartel
activity in return for reduced penalties. In the United States, leniency creates a prisoners
dilemma to encourage defectionthe firm that is the leniency applicant receives amnesty from
criminal prosecution and a reduction from treble to single damages if it fully cooperates. Other
firms involved in the cartel may be provided lower financial penalties if they provide additional
information to DOJ Antitrust that results in detection of other cartels, under a program known as
Amnesty Plus.
11
The possibility that firms might defect from a cartel and inform on its cartel
members destabilizes many existing cartels and deters other cartels from being formed. DOJ
Antitrust now detects most of its cartels as a result of the leniency program.
12


Air Cargo Industry

The air transport of cargo plays a critical role in the global economy. As global exports have
grown, so has the need to ship products quickly. The industry is large and includes the leading
global airlines and specialty freight carriers.
13


The air cargo industry, like the passenger carrier industry, developed through national airlines in
most of the world (the German Government owned the majority share of Lufthansa until
1997). Routes and pricing were regulated through bilateral treaties between nations which gave
reciprocal rights to their respective airlines. The air cargo carriers were not viewed as
competitors. The governments required the national air cargo carriers to agree on pricing via the
bilateral Air Service Agreements, which they submitted to the two governments for
approval. Pricing was always reciprocal between the parties. Pricing was always set as the
minimum price that the air cargo carriers could charge. The need to submit a single price for a
route required the air cargo carriers to regularly confer with each other regarding pricing. The
culture of price negotiations among air cargo carriers became embedded in the culture of the
industry worldwide.

The air carrier industry was deregulated and many of the national airlines privatized in the
1990's. Deregulation and privatization occurred quickly. But the culture of price negotiations
among air cargo carriers remained. The participants in the industry did not think of their
activities as illegal, since those activities had recently been required by their governments. The
legal rules had changed but the industry participants were not effective in transmitting a change
in the regulatory regime into daily operations for compliance purposes.

The air cargo industry continues to operate based on bilateral agreements between nations. But
pricing is no longer regulated and no longer requires approval. While the industry remains very

11
DD Sokol, Policing the Firm (2013) 89 Notre Dame Law Review785.
12
Scott D. Hammond, Deputy Assistant Attorney General for Criminal Enforcement, Antitrust Div., U.S. Dept.
of Justice, The Evolution of Criminal Antitrust Enforcement Over the Last Two Decades, Address before the 24th
Annual National Institute on White Collar Crime (February 25, 2010).
13
A Popescu, P Keskinocak, I al Mutawaly The Air Cargo Industry (2011) Intermodal Transportation
Moving Freight in a Global Economy, LA Hoel, G Giuliano, MD Meyer (eds) (Washington, DC: Eno
Transportation Foundation).

4

regulated in some markets, there is no longer a legal requirement to fix prices. Open skies
treaties provide the freedom to offer services between any two points in the respective countries,
and for any carrier that operates under an Aeronautical Operational Control (AOC) of that
country. On the contrary, ASAs (Air Service Agreements) provide for passenger services only
for the designated carrier on the designated routes and in restrictive cases they had required
agreement on prices.

The market today is very transparent. Global computer systems allow customers (and
competitors) to see pricing for every route offered by every carrier in real-time.

History of the Cartel

In early 2000, various air carriers began colluding on the price of fuel surcharges. Over time, the
conspiracy grew, both in the number of participants and the scope of the price fixing.

In September 2006, Lufthansa announced it was cooperating with investigators, and the
dominoes began to fall. One by one, many of the world's largest and best-known airlines agreed
to plead guilty to fixing prices. British Airways, Korean Air Lines, Qantas, Japan Airlines,
Martinair Holland, Cathay Pacific, SAS Cargo Group, Air France, KLM, EL AL, LAN Cargo,
Aerolinhas Brasileiras, Cargolux, Nippon Cargo Airlines, Northwest and Asiana Airlines each
pled guilty to their role in the cartel.

The contacts on prices between the airlines concerned initially started with a view to discuss fuel
surcharges. The carriers contacted each other so as to ensure that worldwide airfreight carriers
imposed a flat rate surcharge per kilo for all shipments. The cartel members extended their
cooperation by introducing a security surcharge and refusing to pay a commission on surcharges
to their clients (freight forwarders).

The aim of these contacts was to ensure that these surcharges were introduced by all the carriers
involved and that increases (or decreases) of the surcharge levels were applied in full without
exception. By refusing to pay a commission, the airlines ensured that surcharges did not become
subject to competition through the granting of discounts to customers. Such practices are in
breach of the antitrust law.


Lufthansas Position

Deutsche Lufthansa AG is an aviation company with global operations and a total of more than
400 subsidiaries and associated companies. Its activities in the areas of passenger transport,
airfreight and airline services are divided into five business segments: Passenger Airline Group,
Logistics, and the aviation services segments Maintenance, Repair and Overhaul (MRO), IT
Services and Catering. They hold leading positions, or even global market leadership, in their
sectors.

The strategic focus of this case is on the airlines in the Lufthansa Group. These airlines are
positioned in their segments as quality carriers. Their growth and the ongoing consolidation of

5

the industry brought Lufthansa a much stronger market position in Europe, its home market.
Measured by passenger numbers and revenue it is now the largest airline in Europe. The
Logistics segment is also a market leader in international airfreight.
14
For example, in 2013,
Lufthansas total revenues were 30 billion, of which 2.4 billion was generated by its logistics
(cargo) business. Lufthansa Cargo competes with other international cargo airlines. In altogether
intense competition, Lufthansa Cargo is traditionally one of the largest cargo airlines in the
world.

Lufthansas Compliance Program

In the late 1980s and early 1990s European Competition (antitrust) Law was limited in the
Lufthansa context. Even state-owned companies can be subject to competition-law (as long as
they do not act under their sovereign power). However, there had been only been a limited
applicability of EC Competition Law to Lufthansa/ the air transport sector because of EC
Regulation No 3975/87.
15
This regulation stated that EC Competition Law only applied to intra
EU traffic. All third country traffic, i.e. services from Germany to the rest of the world, had only
been subject to national competition law. Lufthansa had - wrongly but in good faith assumed
that it was not subject to German competition law either as the Federal Cartel Office has not
been interested in the air transport sector before. Though in good faith, Lufthansa was at fault to
believe that its worldwide traffic was not subject to Competition and cartel law as a state owned
company. This changed in early 1993 when the German antitrust authority (Bundeskartellamt)
informed Lufthansa in light of the ongoing liberalization of the EU air transport sector that
indeed it fell under the purview of competition law. The company added an antitrust lawyer to
its in-house legal department at that time.

By the late 1990s the word compliance turned up more and more in discussions of general
counsel. Compliance as a specific activity began among in-house corporate legal organizations in
the United States, soon followed by those in the U.K. The goal of compliance is to set policies
and procedures that ensure corporate activities do not violate laws or appropriate ethical
standards; to train employees to ensure that they understand how to comply with those policies
and procedures (and motivate them to do so); and to maintain corporate contacts who can
respond to questions or concerns, including reports of violations.
16
Other issues in compliance
include but are not limited to: discipline, incentives, communications, conducting audits,
monitoring, evaluating the program, and conducting investigations.

Nico von Ruckteschell joined Lufthansa as Rechtsdezernent in 1990 and became Chefsyndikus
(General Counsel) in 1997. As general counsel, Nico decided to make corporate compliance an
important part of the general counsels role to bring Lufthansa in line with international
compliance best practices. From the organizational learning standpoint, Nico understood that a
corporate compliance system was important to proactively prevent bad and illegal business
decisions. The system would require that the board, management and staff of the company

14
Lufthansa Annual Report 2013, available at http://investor-
relations.lufthansagroup.com/fileadmin/downloads/en/financial-reports/annual-reports/LH-AR-2013-e.pdf.
15
Council Regulation (EEC) No 3975/87 of 14 December 1987, Official Journal L 374, 31.12.1987.
16
See generally A Riley and DD Sokol, Rethinking Compliance (2015 forthcoming) Journal of Antitrust
Enforcement.

6

receive appropriate training regarding the specific legal requirements that the company had to
follow.

At first, the board did not fully appreciate the importance of compliance as a separate activity
from providing legal counsel, especially as this would add an additional staff function.
However, Nico persisted and received board approval to create a compliance function with the
legal department of Lufthansa and authority to hire a lawyer to develop the program. The
Compliance Office was created in 2003 with Nico as head.

Competition Compliance

Nico decided that competition law compliance would be the first priority for the Compliance
Office. Many of the competition related legal requirements applied to companies that are
dominant in their market, and Lufthansa could be considered such an entity.

Nico received important support from Dr. Kley, who became Lufthansas CFO in 2003. Dr. Kley
was a lawyer himself and understood the risks that could result from engaging in anti-
competitive behavior. DG Competition had stepped up antitrust enforcement. As a result
companies faced the risk of increasingly large fines and conduct remedies against abuse of
dominance by firms (those firms that had been found to have monopolized a market). This
regulatory shift created potential business risk for Lufthansa, which had a significant market
share in certain markets.

Wolfgang Mayrhuber was named Lufthansas new CEO, also in 2003. Nico and Dr. Kley
approached Mayrhuber to obtain his support for the competition compliance program. They
observed that competition compliance was critical for a company the size of Lufthansa and that
to implement an effective compliance program, the tone had to be set at the top (as part of a
broader compliance program).
17
Moreover, the failure of a CEO to support the compliance
program could leave the CEO responsible for failing to implement an effective program.
However, even an effective compliance program under does not provide for penalty mitigation
according to DG Competition or DOJ Antitrust.

Mayrhuber was open to their arguments and supported the introduction of the compliance
program by adding a foreword to emphasize the importance of the policy. By doing so, he
signaled that top management was behind the training and ensured that mid-level managers
would go along with the change and ideally internalize and accept as part of a change in the
business culture. The competition compliance policy was implemented as binding company
policy in 2004. In addition to his letter to all managers, Mayrhuber highlighted the importance
of compliance in every speech and made clear that Lufthansa preferred to lose business than to
obtain business improperly.
18



17
On top management teams and their influence on corporate culture, see DC Hambrick & PA Mason, Upper
Echelons: The Organization as a Reflection of Its Top Managers (1984) 9 Academy of Management Review 193;
DC Hambrick, Upper Echelons Theory: An Update (2007) 32 Academy of Management Review 334.
18
See http://presse.lufthansa.com/fileadmin/downloads/de/pressemappen/LH-2010-09-22/Vita-Wolfgang-
Mayrhuber-2010-09-e.pdf.

7

The acceptance by the top executives at Lufthansa, along with a general movement in German
corporate governance toward compliance, were the factors which helped make possible the
organizational changes needed for competition compliance to become part of the Lufthansa
corporate culture. Change came from the top this tone of top management encouraged the
creation of an ethical and pro-compliance oriented culture.

Key elements of the compliance program included the development of compliance policies and
employee training. The competition policies consisted of the general rules of competition law.
The competition compliance training was both in-person and web based training. The web
training was put in place in 2004 along with competition compliance guidelines. Live training
began in the fall of 2004. It was the first time that employees received formal training about
competition law and potential violations, including price fixing.

Changing the culture

The willingness of company management to open itself to the legal office demonstrates the
importance of the very open culture at Lufthansa. People often are encouraged to speak up if
they see any issues which have room for improvement without any pressure. This open culture
created opportunities to form a pro-compliance organizational ethos.

Lufthansa has a very open corporate culture which is not very hierarchical. An important factor
that allowed the Lufthansa legal team to uncover the Air Cargo cartel activities was the
relationship that the business teams have with the legal department. There is regular in-person
interaction among the businesses and the legal department, which creates trust in the legal
department. Lawyers are trained to find creative solutions to help the businesses achieve their
goals, taking into account the nature of the legal risks involved; they do not simply say no. The
lawyers are accepted as members of the business team, helping the business teams balance their
risks, and they are seen as important to the success of Lufthansas operations. As a result of the
trust that the business has in their lawyers, the business teams are proactive in getting the advice
of their counsel and following it.

Though it was the Air Cargo case itself that enabled Lufthansa to increase the size of the
compliance team, the legal office had already convinced the management team that it needed to
undertake more compliance work.

Some of the changes of firm culture had to do with aligning of incentives. Anti-competitive
behavior puts an employee at risk of getting their job terminated and not to receive any bonus.
There is a target setting procedure for the sales people. At that time when the Air Cargo cartel
occurred, no one ever thought of getting these goals in anti-competitive illegal ways. The target
system is undertaken on an annual basis. Employees need to fulfill their personal targets.
Moreover, the bonus system is tied to overall company performance. Depending on ones
seniority the weight of the two factors change. The lower you are in the company hierarchy the
more the individual performance gets weighed higher. The ratio varies from 20/80 company
performance to 80/20 company performance through the management. There is also a long term
incentive program which is based upon personal investment in company shares. The shares need
to outperform that of a certain number of competitors and the share price performance has to

8

reach a certain level over during three years. This program is called Lufthansa Performance
program, which is detailed in the annual report. In the United States personal performance is
much more linked to short term results. The bonus for overall is some 20% of yearly income.
Only a very small portion of the overall income is affected by the bonus.

Employee Disclosures and Decision to Seek Leniency

Soon after the training began, employees came voluntarily to their compliance officers to
disclose that price fixing with other air cargo carriers was a normal part of their operation. They
had been negotiating prices with competitors under the bilateral treaties and did not realize that
these negotiations had become violations of law, instead of being required by it.

Nico and his team realized that they needed to understand quickly whether these disclosures
represented isolated incidents or more systematic activities. They collected e-mail and other
documents and had employees show them how the price fixing worked. The large volume of e-
mails describing price-fixing activities demonstrated that the practice was widespread and well
accepted in the organization.

The Lufthansa legal team conferred with outside counsel who identified three possible courses of
action:

1. Continue current practices and hope no one else becomes a whistleblower;
2. Stop the current practices but not disclose the past violations; or
3. Blow the whistle and seek amnesty.


Nico personally attended an Executive Board meeting in December 2005 to present the issue and
the options. When asked for his opinion, he strongly recommended the third option, painting
potential horror scenarios if either of the other options were selected. The Board took no more
than 10 minutes to authorize Nico to hire outside counsel to help seek amnesty. He was urged to
go as fast as possible. It is likely that the fines imposed by the EC in recent cartel cases (cement,
elevator, vitamins) influenced the boards decision.

There was no separate crisis management team set up to address Air Cargo. Essentially, the
Lufthansa legal department functioned as the crisis team. Nico began working with attorneys at
the law firm of Wilmer Hale on December 6, 2005 to develop and implement their plan for
seeking amnesty. One of the reasons Lufthansa selected Wilmer Hale was the global scope of
their practice they would be able to coordinate disclosures to antitrust authorities around the
world and ensure they occurred simultaneously.

It was clear the Lufthansa legal team needed to move very quickly having uncovered their
violation, Lufthansa wanted to be the first to disclose their participation in the cartel to the
antitrust authorities and have the advantage of the amnesty/leniency programs.


9

The attorneys at Wilmer Hale identified 15 20 key antitrust authorities that Lufthansa needed
to approach, including the European Commission, the US DOJ, the German Bundeskartellamt,
and antitrust authorities in South Africa, Australia, and New Zealand, among others.

The Wilmer Hale attorneys generally met with the various antitrust authorities without the
participation of Lufthansas legal team, although the Lufthansas in-house legal team was very
involved with outside counsel in developing strategy for the meetings. Following their initial
meetings with the authority, Wilmer attorneys managed the day to day operations of dealing with
the various antitrust authorities. Following each meeting with the authorities, they would report
back to the Lufthansa lawyers to develop the next steps. This activity required close coordination
between outside counsel and Lufthansas legal team.

Once the legal work began, Nico reported to the executive board whenever important
developments occurred. This included, for example, the U.S. class action suits that were filed
immediately after the dawn raid. Nico gave the board written information on what happened in
all of the jurisdictions. Nico distilled the knowledge he received from outside counsel and then
brought it to the board.

The Supervisory board only received reports about important developments once the case was
ongoing. If something was truly worth reporting on the supervisory board level, such as the
closing of the class action settlement, it was reported to the supervisory board, which needed to
approve of the settlement because of the amount involved.

Dawn Raids

The antitrust authorities worked together through the International Competition Network to
coordinate their actions. On Valentines Day, 14 February, 2006, the authorities conducted dawn
raids on participants in the air cargo cartel.

Nico was attending the annual meeting of general counsels of IATA members in Hong Kong
when the dawn raids took place. Cell phones of the general counsels at the meetings began
ringing with calls from home offices asking for advice. Their advice was unanimous bring in
outside counsel. There was no longer time to consider alternative strategies.

Nico quickly understood what the phone calls were about and realized that he would be the only
attorney who would not receive a phone call. To avoid an uncomfortable situation, Nico called
his girlfriend and asked her to call him.

Internally, Lufthansa executives communicated to employees their message that it had been
involved in the cartel and that participation was unacceptable.

Legal Actions

When the Lufthansa teams disclosed their participation to the authorities, it appeared that the
authorities were unaware of a possible cartel among air cargo carriers. Lufthansa was offered

10

amnesty/leniency in all jurisdictions, together with Swiss Air which had been recently acquired
by Lufthansa, so long as they cooperated in the investigations.

Following the dawn raids, Lufthansa participated in the investigations conducted by the antitrust
authorities. They produced all of their documents; their employees cooperated in interviews.
The process took three years and required a significant effort by the Lufthansas business and
legal teams and their outside lawyers.

As a result of Lufthansas total cooperation, the European Commission reduced the fine it would
have imposed against Lufthansa from 380 million to zero; the US DOJ granted amnesty. No
individuals were charged with criminal activity - their cooperation was important for the success
of the investigation and the antitrust authorities apparently recognized that the employees had not
knowingly violated the competition laws.

Two days after the dawn raid, 20 class action lawsuits were filed against Lufthansa in the US.
Lufthansa disclosed its involvement in the dawn raids and the investigations in its annual report
of 2007. At the time, it was able to state that there were no legal actions pending against it as a
result of the investigation, as at that time the US class actions has already been settled.
19


The class action strategy was conducted in a similar way with Wilmer Hale taking the lead and
continuously reporting back for direction as to strategy. Ultimately, a settlement for the class
action was reached. The discussion at the Executive Board about the settlement amount
essentially was a cost benefit analysis based on the amount of risk of settling immediately
compared to settling later, with the cost of legal fees playing a large role in the analysis. The
Executive Board was initially hesitant to settle, but eventually accepted Nicos argument that
early settlement reduced exposure and risk to the company.

The class actions were consolidated into a single class action led by the Hausfeld law firm. With
the large number of cartel participants, discussions regarding settlement were demanding, since a
settlement by one defendant would prejudice the negotiations with the other defendants. The
Lufthansa legal team was able to negotiate a settlement for $85 million. Lufthansas Supervisory
Board initially resisted accepting the settlement, which they thought overstated the damages
suffered by the class members. In the end, they were persuaded that the costs of proceeding with
the class action lawsuit and the potential damages outweighed the cost of the proposed
settlement. A similar class action was settled in Canada.

Lufthansas outside legal costs averaged $12 million per year since 2005 regarding the cartel.
And the amount of work required by the business teams and in-house counsel has been
extremely heavy. However, by being the first cartel member to seek amnesty, Lufthansa
estimates that it saved 800 million in fines, penalties and damages.
20
Leniency also saved
Lufthansas reputation as it was seen by others in the industry as having blown the whistle and
doing what was right.

19
The settlement was disclosed in the 2006 Lufthansa annual report. See http://investor-
relations.lufthansa.com/fileadmin/downloads/de/finanzberichte/geschaeftsberichte/LH-GB-2006-d.pdf.
20
For an analysis of the impact of non-compliance on other air cargo cartel members, see V Ghosal and DD
Sokol, Compliance, Detection, and Mergers and Acquisitions (2013) 34 Managerial and Decision Economics 514.

11



Today

Lufthansa was able to avoid significant fines and penalties because its legal team took quick
action to uncover the level of Lufthansas involvement in the cartel and the Supervisory Board
recognized the importance of promptly notifying the antitrust authorities.

Lufthansa recognizes the value of its strong compliance programs. It continues to enjoy full
support at all management levels, and especially at the top. Executives continue to reinforce the
importance of compliance to Lufthansas business model and the expectation that all employees
will comply. Training is on-going. In addition, Lufthansa takes corrective action against
employees involved in violations of the compliance policy, including termination and loss of
compensation.

The training program has been successful. It is tailored to the internal audience, with a different
emphasis depending on the department. The managers in the pricing department receive face-to-
face presentations that deal with issues they face; similarly, for sales people and others. As a
result, mid-level management and staff understand how the competition laws affect their day-to-
day activities. Of course, the training for those implicated in Air Cargo focused on basic antitrust
rules, such as it is illegal to agree on prices with competitors. After the training presentations,
managers raise factual situations -- if something happens, how should they behave and what
should they do? The Lufthansa legal team provides follow up to these questions as part of its
compliance training.

In addition, Lufthansa has implemented web-based competition compliance training. All
employees who work in risky departments must take the web-based training once per year. To
ensure active participation by employees, there is a short compliance test at the end of the
training session.

The air cargo cartel enforcement activities had an important impact on Lufthansa employees.
Lufthansa employees are now sensitive to potential competition law issues, especially when
working on programs with alliance partners. In fact, they might have become overly sensitive,
seeking advice from legal counsel on issues that do not require legal analysis, putting additional
pressure on the legal department. There is a fine line between under-using legal counsel and
over-using it.

At present, there are two full time competition lawyers in the legal department in the central
office and five overall within the competition practice group across all the subsidiaries of the
Lufthansa group. Overall, there are roughly 100 attorneys in Lufthansa across all of its
subsidiaries. Within its central office there are 29 attorneys and 10 paralegals.

Conclusion

Robust and effective compliance does not mean that that all potential wrongdoing will be
eliminated in a given company. Rather, such a compliance program, when part of an ethical

12

culture and well-functioning organization can help to reduce the risk of a compliance problem.
The Lufthansa example provides an in-depth analysis of how to build a strong and credible
compliance program to take advantage of leniency.