Why cartel participation leads to financial statement fraud and market abuse

ABSTRACT

In an attempt to hide from the competition authorities colluding firms risk committing financial statement fraud and market abuse. When colluding managers set the conditions for their cartel the resulting increase in profitability and ability to pay outstanding debt enables the firms to attract more investors, get access to larger loans and at a lower interest rate. The natural reluctance to disclose the firm’s cartel participation creates financial reports with misleading content, increases the likelihood of insider dealing and the ability to attract more funds diverts needed capital from otherwise more eligible firms and will endanger the integrity and efficient functioning of the financial markets. The conclusion is that firms and individuals involved in cartel offences should be investigated for financial statement fraud and market abuse although when persons may be subject to criminal sanctions it will decrease the attractiveness for individuals to use the leniency framework.

KEYWORDS:

• Cartels
• financial statement fraud
• market abuse

1. Introduction

If the main objective of a firm’s management is to increase the stockholder’s wealth through an increase in the firm’s stock price,¹ then the purpose of a cartel is not only to increase profit as economists like to say but also to set the conditions for increasing the attractiveness of the firm to investors and to gain access to cheaper and more abundent finance than otherwise would be possible.

How firms in a cartel use their ill-gotten gains is therefore an important issue that has both legal and economic consequences beyond the normal competition policy framework. The higher profit could just benefit the owners through higher dividends, but the gains can also be used to prop up the firm’s valuation and the owners’ wealth. This has the effect of making the firm more attractive to potential investors and enables the firm to borrow more at a lower interest rate than otherwise. This implies that the firm is committing new illegalities not covered by the competition law framework.

When a firm tries to hide the cartel activity from the competition authorities it is naturally reluctant to report the misdeeds in the annual reports or financial statements. This means that the firm will likely be misreporting the true state and nature of the conditions affecting it. By omitting such important information the firm could be committing financial statement fraud according to most national legislation. It would also be violating the intentions of the Accounting Directive 2013/34/EU.² A second issue relates directly to market abuse such as problems of insider information according to the Market Abuse Regulation 2014/57/EU.³

The incomplete and predominantly positive information that will necessarily be disclosed in the financial statements of cartel firms will convince investors to invest and lenders to give loans to the firms. Exclusive knowledge about the collusion activity will provide strong incentives to persons within the firms to take advantage of the situation. In both cases the omission of important information as a direct cause of the cartel activity involvement leads to misinformation of financial market participants which is likely to be market abuse as defined in Regulation 2014/57/EU.⁴

As part of the investment decision, investors will analyze the content of annual reports and the financial statements of firms paying special attention to their liquidity and profitability in an attempt to assess the future growth potential. This could for example be through a financial ratio analysis, which is used to investigate firms’ present financial conditions and functioning and to make predictions about the firm.⁵ If the information in the reports is distorted it also distorts the decision-making of the investors, and this is likely to be market abuse.

Managers of firms in a cartel will in an attempt to increase their rewards make sure that the firm shows continuously higher or even increasing profitability and improved liquidity. They will do so because it will attract more investors. This leads to an even higher valuation of the firm and higher rewards for the managers. This distorts the efficient functioning of the capital markets by allocating funds to firms that under normal circumstances would not have access to it. Moreover, managers and other employees with knowledge about the firm’s wrongdoings will have significant information that when acted upon is similar to insider dealing, which is a market abuse offence.⁶

It is certainly reasonable to discuss if firms in a cartel commit financial statement fraud by omitting their cartel involvement from the statement. Undoubtedly it is an important piece of information to disclose and it does have both negative and positive consequences for those who use the financial report in good faith. Even in the case where the firm uses numbers that verifiably make a true account of all relevant financial information the financial statement itself is based on false premises, similar to a manager including the income from a building in the income statement before it is sold. In the case of firms in a cartel, all their numbers are only true because the firms are colluding and not as a result of competition and when the cartel is broken up by competition authorities it will have negative consequences for both investors and lenders.

The purpose of this article is to provide insight into what happens to the profitability and liquidity of firms belonging to a cartel and how it is likely to affect the decisions of investors and lenders with a special focus on the information provided in the financial statements and the potential effects on the financial markets. Moreover, the legal framework in the EU on financial statements and market abuse is used to discuss to what extent cartel members commit financial statement fraud and violate the EU regulation on market abuse, which both could be criminal offences.

The remainder of the article is organized into the following sections: in section 2 the expected impact on the profitability ratios from being in a cartel is discussed. Moreover, the impact on lenders and investors is assessed from an economic point of view. The legal framework for the EU’s competition policy towards cartels is explained in section 3. Followed by the legal framework for financial statement fraud and market abuse and their relation to cartel activity is discussed in Sections 4 and 5. And finally, the conclusions are made in section 6.

2. The effects of collusion on firms’ liquidity and profitability and relevance for investors and lenders

Cartels set conditions that enable them to charge a higher price than otherwise would be possible to sustain under competition. The higher price leads to higher profit for the involved firms. This implies that the profit margin (PM), a measure of the profits to sales, will be higher. The same will be the case for other profitability ratios that a firm documents in its financial reports, such as the return on equity (ROE), which is the profit margin compared to the firm’s equity, or the return on capital employed (ROCE), i.e. the profit compared to the working capital or assets after debt. The improved profitability conditions will also affect the liquidity of a firm, which is its ability to turn assets into cash to enable it to pay creditors. This means improved short- and long-term liabilities respectively reported in the annual reports and financial statements as the current ratio (CR) and the solvency.⁷

For investors, profitability ratios such as the PM, ROE and ROCE make it possible to compare firms. A high constant or even growing profit margin may be a strong influence on investors’ decisions to invest in a firm through the stock market. It also affects the decision of a lender to provide a loan to a firm.⁸ A constant high or growing PM is a sign of good financial health for a firm as it shows an increasing ability to pay on outstanding short and long-term debt. It is usually also regarded as a sign of good management skills and a firm with a high growth potential.⁹ The PM is required or expected to be shown in the financial and annual reports and it is an important benchmark indicator for publicly traded firms.¹⁰ In most cases, banks will set conditions on the firm’s margins or make demands on the firm to disclose information about its current ability to service the loan or other important information including information about any outstanding obligations that affect its ability to pay.¹¹

The return on capital employed (ROCE) measures a firm’s profitability as well as its capital efficiency. It measures how well a firm is at generating a profit by using its capital while ignoring current liabilities. Capital is used by firms to grow and improve their production facilities, land, patents, or brands. The better they are at growing the more efficient they use their capital to improve their market conditions. This means that the higher the ROCE the more valuable the firm is to owners, potential investors, and potential lenders.¹²

A higher profit margin may therefore enable firms to attract more investors as it lures them into believing that the firm is high-profitable even though the premise is more obscure. On the other hand, given that a firm is in collusion with other publicly offered firms it may be the case that all firms in the industry seem to be able to attract large profits, thus making one firm seem average among all the potential firms to invest in. In any case, we could expect to see an increase in the value of the firm as it attracts investors. Alternatively, the managers are good enough to set conditions that ensure that the numbers for the firm are sufficiently convincing.

The profitability and exposures of a firm are used by lenders to assess the credit risk and to determine the firm’s credit rating. This in turn is the basis on which the size of the loan and the size of the interest is determined.¹³ The interest rate on loans to large corporations is set based on two interest rates; a benchmark rate and a markup that depend on the credit rating of the firm. The benchmark rate could for example be the prime rate of the US Federal Reserve if the loan is in USD or the discount rate of the European Central Bank if the loan is in Euros. The credit rating could be based on internal assessments made by the lender or be based on assessments made by large accredited credit risk assessment firms such as Moody’s, Fitch, or Standard and Poors.¹⁴

Whether the firm is large or small the profit margin is one of the main financial ratios used by banks when considering whether they should provide loans and at what interest rate.¹⁵ This means that a decrease in the profit margin may result in the firm paying a higher interest than otherwise. It also means that when the cartel can provide a higher PM to its members, it leads to improved conditions for the firms’ existing and new loans, since their credit score or rating will be improved as a result.

An important aspect of this is that when it becomes easier to borrow and to get access to a larger amount for a cartel member, it is likely to prevent other firms from getting access to loans from the lender as the bank’s funds are not an infinite source. In other words, the cartel firm will gain an advantage that other firms under normal circumstances cannot get and receive funds that are not allocated in a way that ensures the efficient functioning of the financial markets.

There is also a balance sheet effect from a higher PM. It leads to higher ROE and higher stock value which in turn leads to a necessary adjustment of the firm’s balance sheet. As the value of the firm’s stocks increases, this increase in an asset element must be balanced by an increase in liabilities.¹⁶ This means that cartel firms will likely be asking for more funds than they necessarily need given their unchallenged market conditions, which in turn will reduce the efficiency of the financial markets.

3. The legal considerations towards cartels

The EU’s competition policy aims to protect consumers and the level of competition by creating a level playing field for all firms. This will help to enhance economic welfare and drive the harmonization of the EU’s economies at the same time.¹⁷ Beyond the overarching objectives of competition policy lies the reality of competition policy enforcement. The European Commission (EC), together with the national competition authorities, directly enforces the EU’s competition rules, which are Articles 101–109 of the Treaty on the Functioning of the EU (TFEU).

Article 101(1) of the Treaty of the Functioning of the European Union (TFEU) bans agreements and concerted practices between companies and groups of companies that may affect trade between EU countries. At the same time, these practices must have the purpose of preventing, restricting or distorting competition within the EU’s single market. Article 101 (2) determines that all types of agreements that fall within the scope of Article 101(1) are void unless they are exempted under Article 101(3). Agreements and practices allowed must benefit the production or distribution of goods; promote economic or technical progress; and allow consumers a fair share of the resulting benefit.

The European Commission defines a cartel as a group of similar, independent companies which join together to fix prices, to limit production or to share markets or customers between them.¹⁸ The majority of cartels focus on limiting production by sharing markets geographically to price fixing. They do so because it is easier to set up, monitor and maintain.¹⁹ Firms participating in a cartel can get immunity from fines or have them reduced if they help in the investigation of the cartel offence.²⁰ Individual persons cannot be sanctioned according to EU competition law, but in some EU member states, for example, Germany and the Netherlands, persons can face criminal, administrative, or civil sanctions.²¹

4. Financial statement fraud: rules and implications for cartel offences

Financial statement fraud is regulated primarily through national legislation.²² Although the issue surely could have effects on the internal market when large firms are involved and therefore seems to be a natural candidate for EU-wide regulation. Some steps have already been taken by the EU towards creating such a framework.

The first step was taken in 2002 when Council Regulation (EC) No 1606/2002 came into force.²³ It required all listed companies to prepare their consolidated financial statements using the same internationally accepted methodology the so-called IFRS accounting standards. These standards are used in more than 100 countries and make the company accounts comparable and understandable for all intended users of company information, such as investors, lenders, and regulators.

The framework has also been applied to non-EU countries’ companies with operations affecting the EU. Commission Decision 2008/961/EC requires third-country issuers of securities in the EU to follow the IFRS accounting standards.²⁴ Regulation 1569/2007/EC established a mechanism for determining the equivalence of accounting standards applied by third-country issuers of securities.²⁵

In 2013 the Accounting Directive (2013/34/EU) came into force.²⁶ The Directive streamlined the rules for making financial statements in the EU-member states by requiring all publicly listed companies (limited liability companies) not only to follow the international financial reporting standards but it aimed to harmonize the national requirements on the actual presentation and content of the companies’ annual and financial statements at a consolidated level, the measurement basis used by companies to prepare the financial statements, the audit of the statements, the publication of the financial statements and who had the responsibilities to do so.

In 2023 an updated version of the 2002 regulation was adopted as Regulation (EU) 2023/1803. It codifies the IFRS accounting standards and clarifies that every time the IFRS standards are updated or amended the new standards will be endorsed at the EU level by the European Commission by publishing an amended regulation.²⁷

The unlawful falsification or manipulation of financial information provided to investors is considered to be fraud.²⁸ The reason is the importance of information for making correct decisions by investors, lenders and regulators. Information is what investors and lenders rely on to make their decisions for example buying stock in a company. It is also of huge importance for lenders when providing a loan, determining the risk of doing so, setting a reasonable interest and determining the eligible size of the loan. Without the correct information, it would be impossible to assess the risk of the financial commitment. It would also make it impossible for financial regulators to have any reasonable amount of oversight on the risks involved to the investors and lenders and ultimately to the financial markets and it would therefore undermine the confidence in and efficient functioning of the financial markets if no adequate regulation or sanctions are imposed on companies reporting fraudulent information.

This means that the information in firms’ financial reports should provide adequate and truthful information on issues that can affect the decisions of the financial market participants. This includes information that relates to the firm as it is now and about the future state of the firm.²⁹

To prevent financial statement fraud national legislation addresses the many problems that may cause or enable the fraud to be successful and undetected. Since the disclosure of adequate and accurate information is essential national legislation sets disclosure requirements that aim at preventing situations that lead to serious information asymmetries in the financial markets.³⁰ This would be legislation that ensures that all issuers of financial instruments and providers of financial services disclose to the financial markets and their counterparties all relevant information in a timely and equal manner. Since financial market participants do not have the same expertise exploitation of such persons by more experienced participants may lead to fraud. This is why national legislation requires the latter to provide easily accessible information that enables the former to understand the situation. In addition to these two types of legislation, additional protection exists that directly addresses types of conduct that are perceived to be fraudulent. This could be legislation that targets the type of information provided in the banking or insurance sector, fraud made using mail or other types of mass communication. What characterizes these types of legislation is that they can appear in both civil and criminal laws.³¹

To establish whether something is criminal fraud in the US legal system the misrepresentation made by a company or an individual has to have had the effect “ … to influence, or is capable of influencing, the conclusion of the decision-making body to which it was addressed”.³² Moreover, it has to be established in court that the misrepresentation has been made knowingly and with intention to deceive. It further has to be established that the misrepresentation is directly related to the transaction made and relied on by the victim. In other words, the victim must have had good reason to trust that the statement was true. A final requirement is that the victim must show that an injury was a consequence of the misrepresentation.³³

Fraudulent financial statements can have two objectives: they can be used to cover up the misappropriation or misapplication of funds or to mislead investors or regulators about the true profitability and the prospects of the company.³⁴ The techniques used to misrepresent information in this regard can in the scientific literature be placed into five broad categories such as revenue-based, expense-based, asset-based, liability-based, and other financial statement schemes.³⁵ Companies also engage in temporary schemes where information is misrepresented to persuade for example banks to provide better conditions for a loan or simply to make sure that the bank does not refuse to give out a loan. The typical factors that are misrepresented in this respect are the company’s income, assets, or liabilities.³⁶

The purpose of a cartel may for the involved persons simply be a way to increase profit for the owners and ensure their bonuses, but the activity has far-reaching effects. The activity also affects demand and supply conditions throughout the industry and the related markets. It creates an artificiality that can not exist without the coordination efforts. The increase in profit will increase the attractiveness of the firm to investors and lenders. Even if the numbers in the financial accounts are true to the last digit the very foundation on which they were calculated misrepresents the true state of the firm at the time of the statement and for all future projections. The financial statements will misinform and deceive investors and lenders intentionally and although not all the investors may be harmed by the constant or even increasing stream of profit generated under these conditions their investment is at risk and lenders may not be able to get their lent funds back when the cartel is detected and the firm is sanctioned.

5. Market abuse: rules and implication for cartel offences

The objective of the EU’s market regulation is to have integrated, efficient, and transparent financial markets. This implies creating rules that can assure market integrity and public confidence in the financial markets.³⁷ To achieve this means deterring and punishing market abuse and in other ways ensuring the trustworthiness of using the financial markets by all investors. This means that certain types of behaviours are improper and incompatible with the objective. Such behaviours are primarily but not exclusively insider trading, unlawful disclosure of inside information, and market manipulation.³⁸

The first EU initiative on the matter came in 2003 as the Market Abuse Directive.³⁹ It was later amended in 2008 specifying insider dealings and the implementing powers of the EC⁴⁰ and again in 2014 to become the Market Abuse Regulation.⁴¹ The latest amendment introduced extended coverage to new markets, new financial instruments, and the inclusion of an extraterritorial reach. The oversight responsibility was placed on the member states’ financial authorities. Although the Regulation has a list of different abusive behaviours, the list is specifically not exhaustive and places the responsibility to anticipate and investigate unlisted potential market abuses with the financial authorities.⁴²

Directive 2003/6/EC laid out the principles for ensuring the integrity of the European financial markets and investor confidence.⁴³ It had the objective of creating a level playing field for all economic operators in the EU, combating market abuse, and preserving the smooth functioning of the EU’s financial markets.

The conditions for market abuse in Directive 2003/6/EC “ … may arise in circumstances where investors have been unreasonably disadvantaged either directly or indirectly by others who: have used information which is not publicly available (insider dealing); have distorted the price-setting mechanism of financial instruments; or have disseminated false or misleading information”.⁴⁴ This means that any conduct that can undermine the general principle of creating a level playing field for all investors is prohibited. An exception to this is when a person trades in their shares in buy-back programmes or to stabilize the financial instrument.

In particular, the directive mentions any person who has information and who disclose privileged information to any person outside of their employment; recommend other persons to acquire or dispose of financial instruments for which the information relates; or engage in market manipulation. The consequence for a wrongful conduct is penalties for legal persons and criminal sanctions for natural persons.⁴⁵

A special focus was placed on the amended version of the regulation in 2019.⁴⁶ The market abuse regulation rules now also encompass certain types of trading venues surrounding small and medium-sized enterprises in growth markets. These are firms that because of their large potential often seek finance as fast as possible by going public.

Regulation (EU) No 596/2014 defines market abuse as behaviour by a person or persons in concert that occurs concerning trade that takes place on financial markets for example with shares, bonds, or other financial instruments.⁴⁷ The abuse takes place whenever a person is trading in the financial markets based on personal information that is not disclosed to other investors or where the information is used in advance of such disclosure for personal gain or to mitigate a personal loss, which is exactly what we would expect managers engaging in collusion will be able to do.

Another case of abuse that has relevance for cartels has to do with the dissemination of information which is designed to give a false or misleading impression of the real value of the financial instrument.⁴⁸ The behaviour that can cause abuse is when the firm is making statements, representations, or assimilating information that regular users such as investors or existing shareholders are likely to find relevant to use as the basis for determining the price of the share or other things related to the evaluation of the financial instrument.⁴⁹ This means that as managers are in full control of the disclosure of such information in colluding firms they can use the beneficial results to improve the eligibility of the company for a loan. And since loans are financial instruments which normally are coupled to bonds and the bond market the ability to persuade lenders to provide loans on false conditions will distort the market and constitute market abuse.

A person with privileged information is a person who engages in cartel activity. That person will know what the outcome of the cartel will be and what the immediate and future effects it will have on the firm. They know that in the future the activity will have to stop either because of cheating within the cartel or detection by the competition authorities. In either case, the future effects on the firm will most likely be very negative. The formation of the cartel means that the persons within it know that the profitability of the firm will be much higher and that it leads to higher dividends and a higher stock value. At the same time, they also know that in the future the firm may be sanctioned up to 10% of its global turnover causing a large decrease in the stock value.⁵⁰

This means that the involved person or persons have inside information about the true state of the firm and this will lead to a distortion of the price-setting of the firm’s shares in the financial markets. The tragedy of it all is that firms can prevent market abuse by disclosing what it is they are hiding from the competition authorities in for example the firm’s financial reports. On the other hand, withholding information about the cartel activity and disclosing only the positive information about the cartel’s effects on profitability in the firm’s financial reports is disseminating false and misleading information about the true state of the firm and is likely to mislead investors.

It is also noticeable that the persons involved in the cartel will know that to personally gain from it they will have to buy shares when the price is relatively low which would be before the first reports on the firm’s earnings and sell before the cartel breaks down or is broken up by the competition authorities. This timing aspect will enable investigators to discover if such persons have personally benefitted from the collusion and provide evidence on a case of likely market abuse which may result in criminal sanctions.⁵¹

The leniency programme that exists to enable the competition authorities to destabilize any existing cartel and help the authorities to unravel those that are detected may work to decrease the direct cost of being part of a cartel, but it also helps to protect the investors.⁵² If the cartel firms can avoid fines or reduce them then it also serves to protect those investors who unknowingly thought the firm was a better investment. Even if the firm is not fined, the stock value will decrease temporarily because of the reputational effects, whereas a fine would have more long-lasting effects on the value of the firm.

The fact that persons may be subject to criminal sanctions from market abuse may decrease the attractiveness for individuals to use the leniency framework. Being a helpful participant will imply revealing that you have been personally involved in the cartel. At the same time, the fact that individuals can be criminally indicted can provide greater personal disincentives for senior managers and others to be directly involved in forming and running a cartel and instead allocating such responsibilities to juniors or better yet discouraging the formation of a cartel altogether.

6. Conclusion

The higher profit from being in a cartel can when used to prop up the firm’s valuation make the firm more attractive to potential investors and enable the firm to borrow more at a lower interest rate than otherwise. There is no doubt that colluding firms firm will try to hide this from competition authorities. This includes all official statements such as annual reports and financial statements. This means that the firm will be misreporting the true state and nature of the conditions affecting it.

The information in the reports will intentionally misinform and deceive investors and lenders and despite that, not all investors will be harmed their investment is at risk and lenders may not be able to get their funds back when the cartel is detected and the firm is sanctioned. Based on this it seems appropriate for the relevant authorities to investigate whether cartel activity leads to financial statement fraud.

All persons who have been involved in the cartel activity will have inside information about the true state of the firm. And when they do not inform the financial markets about it or whenever they act upon the information for personal gains, then they will commit a market abuse offence. As financial authorities have the responsibility to investigate such cases it is hardly a surprise that no cases have been made on the issue so far. Nevertheless, it seems appropriate that the authorities scrutinize instances where the publicly offered firms have engaged in cartel activity.

The fact that persons may be subject to criminal sanctions from market abuse may decrease the attractiveness for individuals to use the leniency framework. Being a helpful participant will imply revealing that you have been personally involved in the cartel.

Ethical statement

The author did not receive support from any organization for the submitted work. No funding was received to assist with the preparation of this manuscript. No funds, grants, or other support were received.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 I Satria and A Husna, ‘Effects of Return on Asset, Debt to Asset Ratio, Current Ratio, Firm Size, and Dividend Payout Ratio on Firm Value’ (2019) 9(5) International Journal of Economics and Financial Issues 50–54.

2 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC Text with EEA relevance. OJ L 182, 29.6.2013, p. 19–76.

3 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC. OJ L 173, 12.6.2014, p. 1–61 and Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive). OJ L 173, 12.6.2014.

4 Regulation (EU) No 596/2014 (n 3).

5 R Mao, ‘Verify the Relationship Between A Company’s Earnings Per Share, Return on Equity, Return on Asset, Sales Growth, Price-To-Earning Ratio, Current Ratio, Gross Profit Margin, Quick Ratio, Asset Turnover and Stock Price’ (2023) SHS Web of Conferences, 163, 4 pages, and MK Mudzakar and IP Wardanny, ‘The Effect of Return on Asset, Return on Equity, Earning Per Share, and Price Earning Ratio Toward Stock Return (Empirical Study of Transportation)’ (2021) 12(8) Turkish Journal of Computer and Mathematics Education 387–92.

6 The intention was to harmonize financial reporting by firms in the EU by adopting the IFRS international auditing standards. The main aim was to create a transparent framework in which unlawful falsification or manipulation of financial information provided to investors could easily be detected and to enable investors to qualified comparable decisions. Directive 2008/26/EC of the European Parliament and the Council of March 2008 amending Directive 2003/6/EC on insider dealing and market manipulation (market abuse), as regards the implementing powers conferred on the Commission, OJ L 81/42, 20.3.2008, and Directive 2003/6/EC of the European Parliament and the Council of 28 January 2003 on insider dealing and market manipulation (market abuse), OJ L 96, 12.4.2003.

7 JR Dyson, Accounting for Non-Accounting Students (8th edn, Pearson Education Ltd. 2010).

8 See MK Mudzakar and IP Wardanny, ‘The Effect of Return on Asset, Return on Equity, Earning Per Share, and Price Earning Ratio Toward Stock Return (Empirical Study of Transportation)’ (2021) 12(8) Turkish Journal of Computer and Mathematics Education 387–92.

9 Dyson (n 8).

10 TN Nariswari and NM Nugraha ‘Profit Growth: Impact of Net Profit Margin, Gross Profit Margin and Total Assets Turnover’ (2020) 9(4) Finance & Banking Studies 87–96.

11 TM Yhip and BMD Alaghband The Practice of Lending: A Guide to Credit Analysis and Credit Risk (Palgrave Macmillan 2020).

12 Dyson (n 8).

13 Yhip and Alaghband (n 12).

14 ibid.

15 ibid.

16 Nariswari and Nugraha (n 11) and Yhip and Alaghband (n 12).

17 European Parliament study for the ECON committee. Challenges for competition policy in a digitalised economy. Directorate General for Internal Policies, IP/A/ECON/2014-12, July 2015.

18 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003. OJ C 210, 1.9.2006, p. 2–5.

19 JF Huric-Larsen, ‘Cartel Formation and the Business Cycle’ (2023). European Competition Journal. doi:10.1080/17441056.2023.2234233.

20 Commission Notice on immunity from fines and reduction of fines in cartel cases. OJ C 298, 8.12.2006, p. 17.

21 Van Bael and Bellis, Competition Law of the European Union (8th edn, Kluwer Law International 2021).

22 For example in Sweden this is regulated by law ARF 2023:1 and administered by the Swedish Economic Crime Authority. In their information to businesses they say that “the accounting in a business must give a picture of how the business is doing financially. It can be of interest to many different actors, not least the creditors who have lent money to the business. If you do not take care of your bookkeeping, you may be guilty of bookkeeping offences.” Minor offences result in fines or imprisonment for a maximum of six months. Normal-degree crimes result in imprisonment for a maximum of two years. Serious accounting offences result in imprisonment for six months up to six years. So far no cases have been made against firms that participated in a cartel.

23 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards. OJ L 243, 11.9.2002, p. 1–4.

24 Commission Decision of 12 December 2008 on the use by third countries’ issuers of securities of certain third country’s national accounting standards and International Financial Reporting Standards to prepare their consolidated financial statements (notified under document number C(2008) 8218). OJ L 340, 19.12.2008, p. 112–114.

25 Commission Regulation (EC) No 1569/2007 of 21 December 2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament and of the Council. OJ L 340, 22.12.2007, p. 66–68.

26 Directive 2013/34/EU (n. 2).

27 Commission Regulation (EU) 2023/1803 of 13 August 2023 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, C/2023/6067. OJ L 237, 26.9.2023, p. 1–992.

28 According to Association of Certified Fraud Examiners (ACFE). Occupational Fraud 2022: A Report to the Nations (ACFE).

29 A Reurink, ‘Financial Fraud: A Literature Review’, MPIfG Discussion Paper, No. 16/5, 2016.

30 See Reurink (n 31) for a general characterization of national legislation in this respect or ARF 2023:1 (n 23) for a specific country perspective.

31 Reurink (n 31).

32 From p. 851 in MJ Shepherd, SN Wagner and NM Williams, ‘Financial Institutions Fraud’ (2001) 38 American Criminal Law Review 843–90.

33 G Finan, J Hutcher, J Shanklin and AP Tanenbaum, ‘Securities Fraud’ (2011) 48 American Criminal Law Review 1129–200 and B Harrington, ‘The Sociology of Financial Fraud’ in K Knorr and A Preda (eds), The Oxford Handbook of the Sociology of Finance (Oxford: Oxford University Press), 393–410.

34 According to T Leap, Dishonest Dollars: The Dynamics of White-Collar Crime (Ithaca, NY, Cornell University Press 2007).

35 Reurink (n 31).

36 ibid.

37 Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse). OJ L 96, 12.4.2003, p. 16–25, art. 1 and 2.

38 ibid, art. 15.

39 ibid.

40 Directive 2008/26/EC of the European Parliament and of the Council of 11 March 2008 amending Directive 2003/6/EC on insider dealing and market manipulation (market abuse), as regards the implementing powers conferred on the Commission. OJ L 81, 20.3.2008, p. 42–44.

41 Regulation (EU) No 596/2014 (n 3).

42 EJ Swan and J Virgo Market Abuse Regulation (3rd edn, Oxford University Press 2019). It is worth noting that no financial authority in any of the EU member states have so far adressed whether firms participation in a cartel constitute market abuse.

43 Directive 2003/6/EC (n 4).

44 From summary of Directive 2003/6/EC (n 4).

45 Directive 2014/57/EU (n 3).

46 Regulation (EU) 2019/2115 of the European Parliament and of the Council of 27 November 2019 amending Directive 2014/65/EU and Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets. OJ L 320, 11.12.2019, p. 1–10.

47 Regulation (EU) No 596/2014 (n 43).

48 Swan and Virgo (n 44) 32.

49 ibid.

50 Guidelines on the method of setting fines (n 20).

51 Directive 2014/57/EU (n 3).

52 Commission Notice on Immunity from fines and reduction of fines in cartel cases. OJ C 298, 8.12.2006, p. 17–22 and OJ C 144, 23.4.2016, p. 23–28.