Under European competition law a parent company can be held liable for a cartel infringement by its subsidiaries, irrespective of its own involvement or even knowledge of the cartel. The European Court of Justice (“ECJ”) confirms in its judgment in Goldman Sachs v Commission that The Goldman Sachs Group, Inc. (“Goldman Sachs”) is on this basis liable for its shareholding in the Prysmian group (“Prysmian”). The ECJ extends its case law on parental liability by ruling that Goldman Sachs’ decisive influence over Prysmian could be presumed when it held all the voting rights in the subsidiary’s shareholders’ meeting. Furthermore, Goldman Sachs is also held liable for when it held a minority shareholding of only 26% in Prysmian, in particular due to the control it could exercise via Prysmian’s board.

The Power Cables Cartel

In 2014, the European Commission (“Commission”) established a worldwide cartel on the market for power cables had been active between 18 February 1999 to 28 January 2009. One of the cartel participants was Prysmian, which received a fine of around EUR 104 million. The Commission held Goldman Sachs jointly and severally liable for part of Prysmian’s fine as its (indirect) parent company between 29 July 2005 and 28 January 2009.

Presumption of Decisive Influence

It is settled case law that a parent company that owns 100% or almost 100% of a subsidiary’s shares is presumed to control that subsidiary, and can be held liable for the subsidiary’s infringement. The Commission held Goldman Sachs liable on this basis.

In its appeal, Goldman Sachs argued that the Commission had been wrong to apply the presumption of control for the entire period between 29 July 2005 and 3 May 2007, when its shareholding gradually watered down from 100% to 84%.

The European Court of Justice (“ECJ”) rejects this argument. The ECJ rules that it is not the mere shareholding that gives rise to the presumption, but the degree of control over the subsidiary that the shareholding implies. In this case Goldman Sachs, even when not holding close to 100% of the shares, still kept all the voting rights in the subsidiary’s shareholders’ meeting up to 3 May 2007, and could therefore be presumed to exercise control and be held liable.

Decisive Influence Based on Control over the Board 

On 3 May 2007, Prysmian’s shares were floated through an IPO on the Milan Stock Exchange and Goldman Sachs’ shareholding decreased to 26%. The Commission still considered Goldman Sachs to control Prysmian, in particular due to its power to appoint board members and its ties to board members.

Goldman Sachs argued that it could not control the board after the IPO as it had only appointed five out of ten board members. These board members could not jointly pass a board resolution, because this required a simple majority. In addition, of the five directors appointed by Goldman Sachs, three of them were only allowed to act in Prysmian’s interest.

The ECJ rejects this argument. It agrees with the Commission that board members would still pursue the interests of Goldman Sachs, given their pre-existing links with the investment bank. In addition, the Commission did not only rely on the board composition, but also on other evidence, such as Goldman Sachs’ power to call shareholders’ meetings.

Goldman Sachs is therefore held liable for the full period of its shareholding. By doing so, the ECJ once again confirms that shareholders should not expect to escape liability for cartel behavior of companies under their control.