10 Years of the Indian Leniency Programme: Lessons to be Learned from the US and EU Experience
by Angela Dua
Introduction
A cartel is an association of manufacturers or sellers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices.[1] This practice of corporate collusion has become increasingly prevalent over the past decades. Such associations have an adverse effect on competition as they hamper the sustenance and growth of other competitors. This consequently harms the interest of consumers by regulation of competition and depriving customers of real choice and fair deals. Cartels also reduce the incentives for companies to provide new or better products and services at competitive prices.[2] Due to this capacity for consumer harm, the vast majority of jurisdictions around the world prohibit cartels. However, competition authorities often struggle to investigate and detect such corporate behaviour. Accordingly, a recent World Bank study found that up to one percent of the GDP of some states can be attributed to the results of harmful cartel activities.[3]
To break the code of silence among the co-conspirators and cartel members, leniency programmes have been introduced in various jurisdictions to identify and target cartel conduct. These programmes are designed to give conspirators who take the initiative and confess their role in cartels through a leniency application a reduction in penalties. They have proven to be an effective tool in combating the problems faced in investigation of cartels.[4] Drawing inspiration from the United States (US) and the European Union (EU) enforcement authorities and in stride with most developed and developing economies, India introduced its own leniency programme, the Competition Commission of India (Lesser Penalty) Regulations 2009 (Regulations).[5] Despite being in effect for over 10 years, its implementation has seen little result. Conversely, in the US over 90% of penalties imposed by the US Department of Justice (DOJ) have been linked to investigations assisted by leniency applicant, and up to 80% for the EU.[6] This article seeks to analyse those programmes from which India drew inspiration for its own Regulations. Consequently, the paper shall explore the reasons behind the difference in experiences between those programmes and the Indian jurisdiction.
1. Why leniency?
It is generally difficult for authorities to prove the existence of cartels. Such proof is often set out solely on circumstantial evidence such as communications among the firms or minutes of meetings held with competitors.[7] Due to this difficulty, authorities worldwide have sought to supplement regular cartel detection and enforcement efforts with robust leniency policies. These are designed to incentivise members of cartels to approach authorities and assist them ‘by providing information and evidence of the infringement in exchange for full immunity or a reduction of antitrust penalties’.[8] Three prerequisites for building an effective leniency programme are: (i) instilling a genuine fear of detection, (ii) the threat of severe sanctions for those who fail to co-operate, and (iii) transparency.[9] If the profits from participating in cartels outweigh the fear of getting caught and imposition of penalties, leniency programmes will not be sufficient to deter cartel activities.[10]
2. Successful Leniency Programmes
i. The US Leniency Policy
The concept of leniency was first introduced in the US in 1978 as a solution to the hardship faced by the enforcement authorities relating to detection of cartels and provision of evidence against them.[11] After the 1993 amendment to the US legislation,[12] the country saw a twofold increase in cartel detection within the first three years.[13] Studies demonstrate that leniency programmes of the US reduced the rate of cartel formation by 59% and increased the rate of cartel detection by 62%.[14] More than 50 countries have now adopted leniency programmes for cartel conduct.[15]In the US, cartel activity is treated as a criminal offence,[16] thereby leading to a genuine fear of sanctions. The maximum penalties for The Sherman Antitrust Act of 1890[17] violations were revised in 2004, increasing the maximum jail term to 10 years and fines of up to $100 million.[18] Further, the US has been successful in creating an environment which exposes companies to high chances of detection by using traditional investigative tools such as search warrants, subpoenas and wiretaps to detect cartels effectively.[19]
The increased likelihood of uncovering of cartels through leniency applications enhances the fear of detection in companies.[20] The US leniency policy, divided into Part A and Part B, also ensures transparency in the process followed after a leniency applicant comes forward. The stage at which the applicant chooses to come forward determines which Part is to govern his application. If the applicant volunteers before the investigation has started, Part A of the policy comes into effect and leniency is granted automatically if they can meet a six-pronged criteria.[21] If, however, the applicant comes forward after the investigation has started, they have to fulfil a list of seven requirements, the ‘Alternative Requirements for Leniency’, in order to gain immunity.[22] It is worthwhile to note that under the US leniency programme, only the first applicant gets immunity, thus creating a true race to the enforcer’s door. Other applicants ready to cooperate may be eligible for reduction in fine, but this falls outside the purview of leniency and are conferred through the process of negotiation of plea agreements by the DOJ.[23]
ii. The European Union’s Leniency Programme
In the European Union (EU), cartels are prohibited under article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits anti-competitive agreements.[24] The Union notified its first Leniency Notice on the non-imposition or reduction of fines in cartel cases in 1996, which has now been replaced by the 2006 Leniency Notice.[25]The programme envisages full immunity for those companies which disclose information about cartels, which enable the European Commission (EC) to launch a targeted inspection or find an infringement of Article 101[26] TFEU.[27] For immunity to be granted, the company has to provide a corporate statement which includes information enlisted in paragraph 9 of the notice.[28] In addition, the company should not have taken steps to coerce others to participate in the cartel, and should end its involvement in the cartel as soon as it moves an application for leniency.[29]As long as these conditions are fulfilled and the company co-operates fully with the EC on a continued basis, it will be granted immunity.[30]
The EC can grant immunity for the provision of incriminating information enabling it to establish an infringement of article 101 TFEU. This is provided that no other company has been granted immunity for submitting information that enabled the EC to carry out an inspection.[31] The Notice also envisages leniency in the form of reduction in fines for those companies which decide to submit evidence after the investigation has already started. On the basis of the stage at which a company approaches the EC and the ‘significant value added’ by the information it provides, up to 50% reduction in fines is granted.[32] Since the EU cannot impose criminal sanctions on the offenders involved, it seeks to create deterrence by imposing fines as high as up to 10% of the total turnover of each member active on the market affected by the infringement of the association.[33] In 2019, the EU also issued a directive for protection of persons who report breaches of law, known as the Whistleblowing Directive.[34]
iii. The United Kingdom’s Leniency programme
In the United Kingdom (UK), participation in a cartel is prohibited by chapter 1 of the Competition Act of 1998. The UK Leniency model is similar to the EU model, save for the fact that in the UK criminal sanctions may be imposed on individuals involved in ‘hard core’ cartels under the Enterprises Act.[35] It is worth mentioning that UK did not see its first criminal case until 2008, and even thereafter it had limited impact.[36] However, in 2014, reforms weremade to the Enterprises Act to reduce the evidentiary burden in such cases to facilitate criminal prosecutions in cartels.[37]
The leniency policy offers three types of leniency: Types A, B, and C. Under Type A and B, companies would be eligible for immunity and reductions up to 100%, respectively, while under Type C they would be eligible for reductions up to 50%.[38] There are provisions for individual and blanket immunities from criminal sanctions. Individual immunity may be granted when an individual approaches the authority of his own accord, independent of his employers or the company.[39] Blanket immunity, on the other hand, is automatically granted to the employees of a company which is undertaking benefits of immunity (Type A/B leniency).[40] Further, the UK’s Competition Regulator recently launched its ‘Cracking down on Cartels’ campaign, aimed at encouraging individuals to report anti-competitive conduct and arrangements.[41]Anyone who comes forward with information on cartels that leads the competition regulator to open an investigation can receive a reward of up to £100,000. This policy is not the same as leniency. This is to incentivise individual whistle-blowers who are not involved in the cartel activity. However, individuals could also profit from this policy if their involvement in the cartel can be demonstrated to be ‘relatively peripheral’, meaning they should have no direct involvement with or contribution to the cartel.[42]
3. The Indian Leniency Programme
Cartels are prohibited in India under the Competition Act, 2002 (the Act)[43] by virtue of section 3(1) read with section 3(3) of the Act. Section 3(1) of the Act restricts undertakings from entering into agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC). Section 3(3) of the Act creates a presumption that, once it is proved that a cartel exists, it is presumed to create an AAEC on the market without the need for an explicit investigation into the effects.
India has only recently begun to witness leniency applications, ten years since the Regulations were first enacted.[44]Section 46 of the Act gives the power to the Competition Commission of India (CCI) to impose lesser penalties and lays down certain requirements of disclosure to be fulfilled by the applicant to avail leniency.[45] The Regulations govern the procedure and lay down the reduction in penalties that is granted to the companies or individuals who choose to come forward and disclose information regarding cartels.[46] Previously, the reduction was based on a marker system, wherein only the first three applicants to apply for leniency were accorded fine reductions.[47] However, the 2017 Amendment removed this limitation on the number of markers: the ‘first-in’ applicant is eligible for a 100% fine reduction if it enables the CCI to take cognisance of a case or carry out an investigation solely on the basis of the information provided. The second applicant can get a reduction of up to 50% and the third and subsequent applicants can be granted up to 30% reduction in fines.[48] The Regulations define ‘added value’[49] as the extent to which the evidence so provided by the concerned applicant enhances the ability of the CCI or the Director General (DG) [50] to establish the existence of a cartel, which is alleged to have violated section 3 of the Act.[51]
i. Leniency cases in India
The Brushless DC Fans case[52] was the first leniency order passed by the CCI in January 2017. The CCI granted a 75% penalty reduction to the first applicant who filed a leniency application as the evidence provided by the applicant added significant value to determining the existence of the cartel.[53] Even though the applicant was ‘first-in’, they were not afforded the benefits of immunity as the CCI had already formed a prima facie opinion when the applicant came forward. This is similar to the EU regime, where the first applicant is accorded immunity only if the information helps in launching a targeted inspection or is useful in finding infringement of article 101 TFEU.
Further, in the Nagrik Chetna Manch case,[54] seven companies were accused of communicating before lodging their bids for certain tenders and deciding amongst themselves who was to win and at what price. The CCI passed the order in May 2018, granting 50% penalty to the first and the third applicant as the co-operation provided by the applicants helped in proving the existence of the cartel.[55] Two more applicants were given penalty reductions on the grounds of added value of their evidence, co-operation and their priority status.[56] Further, despite admitting that the value addition by Opposite Party (OP)-2 was ‘minimal’, the CCI granted it reduction in penalties considering their co-operation during the investigation and submission of all evidence available to them.[57] However, OP-1 was denied reduction even though it fully co-operated and provided all evidence because it did not add significant value to the evidence seized by the DG.[58]The inconsistencies present within a single case are glaring: allowing benefits of leniency to one applicant while denying the same to the other, and applying different metrics of ‘significant value addition’ and ‘good value addition’ for different applicants in the same case point towards the loopholes in the Regulations.
The effectiveness of the leniency regime, or rather the lack thereof, can be evidenced from the fact that after ten years of enactment of the Regulations only ten leniency orders have been passed.[59] On the other hand, after its 1993 revision of the leniency policy, the US antitrust department saw an average of one leniency application per month by 2003,[60]whereas EU saw a total of 21 decisions under its leniency program from its introduction in 1996 to 2005.[61] It can be argued that the reason behind this is the excessive discretionary powers of the CCI. The Regulations state that the CCI may grant lesser penalties to an applicant who ceases to be a cartel member. At the same time, however, applicants are required to disclose all relevant documents, continue co-operation and comply with any conditions which CCI may deem fit for grant of immunity/lesser penalty.[62] This adds a layer of uncertainty which acts as a deterrent for the companies participating in cartelisation from coming forward and giving information. Contrary to this, under the US system, the first-in company is automatically granted immunity, provided it fulfils the six objective criteria.[63] Furthermore, under the Indian regime, immunity and lesser penalties can also be withdrawn if CCI finds that the conditions upon which such leniency was granted are not complied with, the applicants had given false evidence, or the disclosure made was not vital.[64]
Conclusion
The last two years have seen the CCI pass leniency orders more proactively. However, the passing of such orders has lacked the consistency and predictability required to encourage applicants’ participation. While the initial leniency orders have failed to provide such consistency and predictability, the 2017 Amendment to the Regulations is a step in the right direction. The Amendment seeks to extend the benefit of the leniency programme to individual employees[65] who could be held responsible for the infringement and be penalised in their individual capacity in accordance with section 48 of the Act.[66] The removal of the marker system is significant, considering it could potentially deter companies from disclosing information as they had to run the risk of submitting self-incriminating evidence of involvement in cartels without the certainty of being amongst the first three markers for leniency. The introduction of more targeted policies in this regard, for example the UK ‘Cracking down on cartels’ campaign,[67] or the EU whistle-blower tool launched in 2017,[68] would help in encouraging more leniency applicants to come forward. Agreements to co-operate with other jurisdictions to share information about cartels can also prove to be effective to tackle cross-border cartels while also exposing cartels to a genuine fear of detection.[69] The International Competition Network seeks to facilitate and further such international cooperation by encouraging competition agencies of different countries to exchange experience on international cooperation in case-related enforcement activities.[70]
Despite the continuing debate as to the efficacy of criminalisation of cartels, there is evidence supporting its deterrence.[71] While India does provide for stiff penalties for cartels, criminalising cartel activity could also potentially bring about a change, as the fear of prison sentence may prompt members to act pre-emptively. Better experiences have been evidenced in the EU and US, and this is likely owing to their ever-evolving policies and identification of gaps in their respective leniency regimes. This seems to have won the confidence of the market players through transparent, consistent, and predictable decisions. The Indian leniency programme must strive towards the same. Such a programme which enables companies to safely predict how the leniency policy will be applied in their individual cases would greatly encourage them to self-report their behaviour.
[1] European Commission ‘Procedures: Anti-competitive practices‘ <https://ec.europa.eu/competition/cartels/overview/index_en.html> accessed 18 February 2020.
[2] European Commission, ‘Cartels: Overview’<https://ec.europa.eu/competition/cartels/overview/index_en.html> accessed 17 May 2020.
[3] Market and Competition Policy Team, World Bank Group ‘Leniency to combat hardcore cartels, Policy Guidance to strengthen the Indonesian Competition Framework’ (2 March 2018), 2 <http://documents.worldbank.org/curated/en/929311540796598810/pdf/131396-WP-PUBLIC-2018-WBG-Leniency-Note-Indonesia.pdf> accessed 30 October 2019.
[4] ibid 4.
[5] Competition Commission of India (Lesser Penalty) Regulations, 2009 (No. 4 of 2009).
[6] OECD, ‘Challenges and Co-Ordination of Leniency Programmes – Background Note by the Secretariat’ (5 June 2018), 4 <https://one.oecd.org/document/DAF/COMP/WP3(2018)1/en/pdf> accessed 4 April 2020.
[7] OECD, ‘Prosecuting Cartels without direct evidence of agreement’ (June 2007), 1 <http://oecd.org/competition/cartels/38704302.pdf> accessed 3 may 2020.
[8] United Nations Conference on Trade and Development MENA Programme, ‘Competition Guidelines: Leniency Programmes’ (22 June 2016) UNCTAD/DITC/CLP/2016/3 <https://unctad.org/en/PublicationsLibrary/ditcclp2016d3_en.pdf> accessed 26 October 2019.
[9] Scott D Hammond, Department of Justice ‘Cornerstones of an Effective Leniency Program’, (22-23 November 2004) 2 <www.justice.gov/atr/file/518156/download> accessed 10 February 2020.
[10] ibid 5.
[11] Sahithya Muralidharan and Chaitanya Deshpande, ‘Scope for Intersection between Antitrust Laws and Corporate Governance principles vis-à-vis cartel deterrence in India’ (2016) 9 NUJS L Rev 93.
[12] Corporate Leniency Policy 1993.
[13] Sathiya (n 11).
[14] Policy Guidance Framework (n 3) 4.
[15] MENA Programme (n 8).
[16] Sherman Anti-trust Act of 1980, s 1.
[17] ibid.
[18] Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA), s 215.
[19] US Department of Justice, ‘An Antitrust Primer for federal law enforcement personnel’ (August 2003, revised: 2005), 9 <www.justice.gov/atr/page/file/1091651/download> accessed 4 April 2020.
[20] Scott (n 9) 8.
[21] Policy 1993 (n 12) ‘Leniency Before an Investigation Has Begun’.
[22] ibid ‘Alternative Requirements for Leniency’.
[23] OECD Policy Roundtables, ‘Leniency for subsequent applicants’ (2012) 154 DAF/COMP (2012) 25.
[24] Treaty on the Functioning of the European Union 2012/C 326/01.
[25] Notice on immunity from fines and reduction of fines in cartel cases (2006 Leniency Notice) (OJ 2006 C298/11).
[26] Previously known as Article 81 of the Treaty establishing the European Community; Summaries of EU Legislation, ‘EU Rules on concerted practices and agreements between companies’ (8 January 2019) <https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3A4348235> accessed 20 April 2020.
[27] EU Leniency Notice (n 25) para 8.
[28] ibid para 9.
[29] ibid para 12.
[30] ibid para 18.
[31] ibid para 11.
[32] ibid paras 24, 26.
[33] Regulation No 1/2003 Article 23 (2); Council Regulation (EC) No 1 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4 January 2003, p 1) <https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32003R0001> accessed 10 March 2020.
[34] Directive 2019/1937 of the European Parliament and of the Council of 23 October 2019 on protection of persons who report breaches of Union Law [2019] OJ L 305/17.
[35] Enterprises Act 2002, s 188.
[36] Luke Danagher, ‘The Criminalisation of Cartels: A European and Trans-Atlantic Perspective’ (November 3, 2012) 33(11) European Competition Law Review 522.
[37] Enterprise and Regulatory Reform Act 2013, s 47.
[38] Office of Fair Trading, ‘Applications for leniency and no-action in cartel cases’ (July 2013) (OFT 1495), 11.
[39] ibid para 2.33.
[40] ibid para 2.38.
[41] Press release, ‘CMA launches campaign to crack down on cartels’, Competition and Markets Authority <www.gov.uk/government/news/cma-launches-campaign-to-crack-down-on-cartels> accessed 12 February 2020.
[42]Adam McCabe, ‘Exposing cartels: rewards and race to confession‘ (29 March 2017) <www.lexology.com/library/detail.aspx?g=7baa560f-b4aa-4d4d-8536-b55e5438a3d2> accessed 12 February 2020.
[43] Competition Act, 2002.
[44] Bharat Budholia, Dhruv Ranjan & Ruchi Verma, ‘Fourth Order in less than two years: The CCI’s Leniency Regime Gathers momentum‘ (Competiton Law, A Cyril Amarchand Mangaldas Blog, 26 July 2018) <https://competition.cyrilamarchandblogs.com/2018/07/fourth-order-less-two-years-ccis-leniency-regime-gathers-momentum/> accessed October 13 2019.
[45] Enterprises Act 2002, s 46.
[46] Amendment to Regulation 2 (2) of the Lesser Penalty Regulations, 2009. The definition of ‘applicant’ now includes an individual who has been involved in the cartel on behalf of an enterprise.
[47] Lesser Penalty Regulations 2009, reg 4.
[48] Amendment to Regulation 4 of the Lesser Penalty Regualtions, 2009; The information divulged by the first applicant includes naming other members involved in the cartel, however, that is not sufficient to prove their involvement in the cartel. This is where ‘vital disclosure’ and ‘significant value added’ assume great significance, the more corroborative the evidence, the more reduction in fine they are likely to get.
[49] Lesser Penalty Regulations 2017, reg 4.
[50] A Director General is appointed for the purposes of assisting the Competition Commission of IndiaI in conducting inquiry into contravention of any of the provisions of this Act.
[51] Enterprises Act 2002, s 3.
[52] In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items (2014) Suo Moto Case No 3 of 2014, Competition Commission of India.
[53] ibid [8.7].
[54] In Re: Nagrik Chetna Manch, (2015) Case No 50 of 2015, Competition Commission of India.
[55] ibid [106] and [120].
[56] ibid [113] and [126].
[57] ibid [125].
[58] ibid [133].
[59] Karan Chandiok and Ruchi Khanna, ‘Taking a lenient approach to leniency‘ (India Business Law Journal, 5 December 2019) <www.vantageasia.com/taking-a-lenient-approach-to-leniency/> accessed 15 February 2020.
[60] OECD, Directorate for financial and enterprise affairs competition committee, ‘Roundtable on challenges and co-ordination of leniency programmes – Note by the United States’ (5 June 2018) 2 <https://ftc.gov/system/files/attachments/us-submissions-oecd-2010-present-other-international-competition-fora/leniency_united_states.pdf>.
[61] Wils, Wouter, ‘The Use of Leniency in EU Cartel Enforcement: An Assessment after Twenty Years. World Competition’ (2016) 39(3) World Competition 327-388 [9].
[62] Lesser Penalty Regulations 2009, reg 3.
[63] Policy 1993 (n 12) ‘Leniency Before an Investigation Has Begun’.
[64] The Act, s 46 (n 43).
[65] Lesser Penalty Regulations 2017, reg 2.
[66] Enterprises Act 2002, s 48.
[67] CMA launches campaign to crack down on cartels (n 41)
[68] Directive on protection of persons who report breaches of Union Law (n 34)
[69] International Competition Network, ‘Anti-Cartel Enforcement Manual chapter 9: International cooperation and information sharing (2013) 18, <https://internationalcompetitionnetwork.org/wp-content/uploads/2018/05/CWG_ACEMInternationalCooperationInfosharing.pdf> accessed 3 May 2020.
[70] International Competition Network, ‘Checklist for efficient and effective leniency programmes’(2017) <www.internationalcompetitionnetwork.org/wp-content/uploads/2018/09/CWG_LeniencyChecklist.pdf> accessed 22 April 2020.
[71] Ahmore Burger-Smidt, ‘Criminalisation of cartels: a potential cure with side effects’ (2 March 2016) <www.werksmans.com/legal-updates-and-opinions/criminalisation-of-cartels-a-potential-cure-with-side-effects> accessed 22 April 2020.