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Cartels, Subsidiaries, and International Law

Company X, a US company sets up Company Y, a subsidiary holding company in the Cayman Islands.

Company Y in the Cayman Islands entered into a cartel agreement outside of the US.

The United States government has brought suit against bother company X and Y for violating the US Sherman Antitrust Act.

Company X answered that it was not a party of the cartel agreement and it doesn't affect the US market. Company Y answered that it is not subject to the jurisdiction of the US courts.

1. Are Company's X and Y correct?
2. Explain

Solution Preview

Basically, there are 2 questions here:

1. What is the responsibility of a Parent to a Subsidiary?

2. What is the nature/effect of the cartel and does the Sherman Anti-Trust act apply to Foreign Corporations?

(I'm not sure if you need sources or if you want to learn some more about this, so I added some links and tried to quote some good web material for you)

1. The Supreme Court tested the responsibility of a Parent Organization for their respective subsidiary. The test basically comes down to - Who controls the actions of the subsidiary? Are their actions dictated by the Parent? Are they made to follow certain procedure? Or are they fully independent? (kind of self-explanatory eh?)

So, in this case you could argue either way. Since the information provided seems limited, you could argue that the sub was set-up specifically by the parent to do its business with other countries and is ultimately controlled by the Parent - or that they are independent. Your call.

2. Ok, ...

Solution Summary

Understanding international and domestic law influence on cartels and subsidies. Application of Sherman Anti-Trust Act as part of a 2 fold test. Examples and web resources provided for more information.