LYUBOMIR TALEV
I INTRODUCTION
The adoption of EU leniency policy which encourages cartel participants to disclose the existence and the details of cartel activity in which they were involved in exchange of immunity from fines or reduction of fines was inspired by the remarkable success of the US leniency program. The current EU leniency policy is set out in the EU 2006 Leniency Notice. It builds on the achievements of the EU 2002 Leniency Notice which replaced the less successful 1996 Leniency Notice.
Both the 2002 and the 2006 Notices have been highly successful. Philip Lowe, the former Director General of DG Competition called the 2002 Notice a “tremendous success”. Indeed, at the end of 2008 the Commission had received a total of 107 applications for immunity and 116 applications for a reduction of fines under the 2002 Notice. This trend was preserved with respect of the 2006 Notice: the Commission received 50 applications for immunity and 30 applications for a reduction of fines under the 2006 Notice from the date of its introduction to the end of 2008. This is a stark improvement in comparison with the 1996 Notice under which the Commission received a total of 188 leniency applications, most of them made only after the Commission carried out unannounced inspections or in the so-called derivative cases, i.e. the cartels were uncovered in the US and then the cartelists sought whatever leniency options were available in Europe.
The impact of the leniency in terms of overall enforcement against price-fixing can be derived from the statistic that of the 52 statements of objection that the Commission issued between 2002 and 2008, 46 of them stemmed from evidence obtained from a leniency applicant.
The main reasons for the success of the current EU leniency policy were the reforms in the 2002 Notice. The introduction of upfront immunity increases the security and makes applying for leniency more attractive choice. The abolishment of the decisive evidence test contained in the 1996 Notice and the narrowing of the coercion test widens the field of applicants both to peripheral players and to the ringleaders which makes the whistle-blowing more possible as the cartel members are facing bigger competition in the race for leniency and the distrust element within the cartel is reinforced.
In addition, the 2006 Notice introduced the discretionary marker system which is designed to further increase the transparence and predictability for the would-be leniency applicants by allowing them the opportunity to save their place in a queue of other applicants. It also allowed acceptance of oral statements from leniency applicants which is additional incentive for them because it frustrates attempts by private litigants to seek discovery of written statements provided to the Commission.
Whereas all these reforms contributed (although to a different extent) to the success of the current EU leniency regime this paper argues that there are still many threats for its successful operation. Additional measures can (and must) be taken for the increasing of the transparence and predictability which are vital for the creation of incentives for the cartel members to apply for leniency. The level (and the type) of the existing sanctions might not be enough to persuade the cartelists to abide the law and therefore to apply for leniency. Commission’s notoriously lengthy procedures might be additional disincentive for the undertakings to engage in these procedures and are preventing the Commission from the optimal utilization of the information received through leniency. A further challenge appears to be posed by the interaction with the private litigation both in the EU and abroad. And finally the acceptance of oral statements appears to create problems from human-rights prospective.
Section II of this paper therefore examines the existing threats for the successful operation of the 2006 Leniency Notice. Section III then discuses the possibilities for the creation of additional incentives for applying for leniency. In its final part the paper provides the author’s conclusions on the questions raised above.
II THE EXISTING THREATS
1. The introduction of a subjective element into the assessment of whether immunity will be available
According to para 8 of the 2006 Notice immunity is available only where the submitted evidence will “in the Commission’s view” enable it to adopt an inspection or find an infringement of Article 101 TFEU (previously Article 81 EC Treaty). The CLP does not contain such an express subjective element. It may raise a question with the potential applicants as to the extent to which they can in fact rely on the provisions of the Notice.
The perfect answer to this concern would be reforming of the 2006 Notice and elimination of this rudimentary subjective element which does not contribute with nothing to Commission’s policy in prosecuting the cartels. If not, the Commission should commit to such a practice which to ensure the undertakings that the application of the Leniency Program will in fact be subjected to a more objective and transparent standard than the that suggested in the 2006 Notice.
2. The imperfections of the marker system
The adoption of a marker system has been long ago advocated in the theory as a way to introduce further transparency and predictability in the leniency process. Its introduction in the 2006 Notice should be therefore commended. However, it must be noted that the effectiveness of the marker system –and eventually of the entire leniency policy – is undermined by the following provisions:
a) The element of discretion as to whether or not the Commission will grant a marker
Para 15 of the Notice states that “the Commission services may grant a marker” and that the applicant should “justify its request for a marker”. As already explained the prosecutorial discretion in such cases is introducing an uncertainty into the leniency process and reducing the predictability of its outcome and therefore acts as a deterrent to the potential leniency applicants. It virtually strips the leniency applicant of the main benefits of the marker system: its awareness of where it stands with respect to other applicants and the resulting ability to assess its chances of ultimately receiving leniency which in turn increases the possibility that the cartelists will report the illegal conduct.
It is also difficult to understand why the applicant should justify its request for a marker. Given the fact that the predominant goal of a leniency program is the uncovering of cartels, the disclosure of the cartel (or the finding of infringement under Article 101) should be reason enough to justify the request for a marker. It is counter-productive to put the applicant on the defensive on that issue. The establishment of such unjustified evidential burden is a further deterrent to the leniency applicants.
b) The lack ofmarker system for applications under Section III
There is no marker system for leniency applications under Section III of the Notice (for reduction of a fine)which could lead to later applicant with more significant evidence overtaking an earlier one even if the earlier applicant was still in process of submitting evidences. Thus the co-operation method of the earlier undertaking would be undermined. Such lack of certainty will inevitably dissuade some undertakings from applying for leniency.
To be more effective a leniency policy should ensure that the number of the would-be whistleblowers is as large as possible as well as that once a company decides to report a cartel, it is not deterred from approaching the Commission as soon as possible. The Commission is therefore respectfully encouraged to amend its marker system by abolishing the discretionary element, relieving the undertakings from the liability to justify their request for a marker and introducing marker system for Section III applicants as well.
3. The “significant added value” – the uncertainty of the term and the process
One of the main weaknesses of the 1996 Notice was considered to be the requirement for provisioning of “decisive evidence” which was limiting the leniency applicants to the major cartel players and was assigning the often impossible task to provide documentary evidence to the whistleblowers.
The abolishment of the “decisive evidence” in the 2002 Notice was therefore welcomed in the literature. It must be noted however, that para 24 of the 2006 Notice requires the undertakings seeking reduction of fines to provide the Commission with evidence which represents “significant added value” with respect to the evidence already in Commission’s possession. The lengthy definition of the concept of “added value” contained in para 25 brings the suspicion that the term “significant added value” is nothing but re-introduction of the “decisive evidence” in the field of Section III applications under new name. This suspicion is reinforced by the fact that para 25 expressly states that the Commission will give priority to “written evidence originating from the time the facts pertain”. Another low point regarding the “significant added value” standard is that it appears to be open to considerable variation in each case which increases the element of unpredictability related thereto.
To make things worse para 30 of the 2006 Notice states that the Commission will not determine whether the provided evidence represents significant added value before the end of the administrative procedure and the issuing of its final decision. This provision, combined with the lack of marker system for the Section III applicants means that they will not have certainty until the end of the procedure as to whether they will actually qualify for leniency for a leniency or will be undertaken by a later applicant. Such a certainty could lead to two possible outcomes: that either the undertakings will be deterred from approaching the Commission for fines reduction or they will do so relatively later after they make sure that they will cover the “significant added value” test. None of these outcomes is desirable from Commission’s point.
It appears therefore strongly advisable that the requirement for “significant added value” is abolished or (at least) a marker system is introduced with respect of the Section III applications as well.
4. The Commission’s willingness to “prosecute” all the applicants
The Commission has made it clear that even where an undertaking has provided it with information concerning a cartel it knows nothing about and the applicant receives a full immunity under Section II of the 2006 Notice that applicant will still be “prosecuted” and run through the entire mill of the Commission’s procedure, from statement of objections, via access to file through to oral hearing. This is already a deterrent for potential applicants.
A further and even bigger deterrent is the fact that as a result of the “prosecution” full details of applicant’s activities in the cartel will be set out in the statement of objections and the final prohibition decision for all the world to see. This, of course, will facilitate the victims of the cartels both in the US and the EU to file claims against the leniency applicant. The fact that even the oral statements whose purpose is exactly to prevent private litigants from seeking discovery of these statements can be cited both in the statement of objections and the final decision could operate to negate the potential benefits of an oral process and place the co-operating entity in a significantly worse position than other cartel members. In addition, citation in a Commission decision may encourage further regulatory investigations in other jurisdictions.
In a contrast with Commission’s practice under the US CLP the Antitrust Division commits “not to bring any criminal prosecution” against the first leniency applicant as long as the latter is fulfilling its obligations under the CLP.
It therefore appears highly recommendable that the Commission should be able to formally agree not to prosecute an undertaking – e.g. through a short form decision or administrative letter indicating that an undertaking will not be prosecuted or fined.
5. The level of EU fines
It is widely recognized that the level of the fines and the ability of the competition authority to impose them are crucial for the success of the leniency policy. The higher the imposed fines the bigger the incentive for the cartelists to report their illegal activity in order to avoid paying these fines. The higher fines also bring the additional benefit of reinforcing the element of distrust within the cartels as the cartel members know that their co-conspirators are also considering applying for leniency in order to avoid the fines. This in turn is increasing the race for leniency. Conversely the low fines encourage the cartelists to disregard them and not to apply for leniency.
It is obviously very important that the competition authority has the actual ability to impose the fines as well. Accepting Competition’s assurances that it is capable of detecting and punishing the cartels this paper will focus on the amount of the available fines.
There are many calls that the maximum fine of up to 10% of the infringing undertaking’s worldwide turnover of the preceding business year that the Commission can impose under Article 23(2) of Regulation № 1/2003 is not heavy enough to support the success of the leniency policy. These concerns are confirmed by the fact that there have already been cases where the fines calculated by the Commission had to be reduced as they exceeded the 10% threshold. There are several different proposals as to how to address this problem:
a) Increasing the maximum 10% threshold
This is perhaps the most obvious solution. However, it appears to bepolitically impossible under the present EU realities. A further and perhaps even stronger argument against such proposal is that too high fines are likely often to exceed the undertakings’ ability to pay with as a result numerous undesirable side-effects (such as bankruptcy and the resulting lessening of competition in the absence of perfect markets as well as losses for the other stake-holders in the firm: employees, suppliers, customers, creditors and tax authorities). This concern is even stronger during the current world-wide economic and financial crisis which provides a further test for the undertakings’ ability to pay the antitrust fines imposed on them. Indeed, the Commission has already indicated that it is going to take into consideration the present realities when imposing its fines and has reduced the fines of some of the cartelists in its recent decisions against the bathroom fittings cartel citing inability-to-pay arguments.
b) Criminalization
The issue is being discussed further in this paper.
c) Imposition of non-criminal fines against individuals
There is one major concern regarding the effectiveness of such a measure: often nothing can prevent the companies from reimbursing their managers for the incurred fines. The individual fines, however, appear to be a useful deterrent for the so-called “rogue directors” – individuals within the companies who personally benefit from cartelization without the knowledge (or against the will) of their shareholders and therefore cannot expect the latter to compensate them for the incurred fines.
d) Directors Disqualifications
Imposition of such sanction can be effective deterrent against both individuals (for the same reasons the ones in the case of personal fines) and companies (who will be facing the risk of losing their valuable managing staff). Such possibility exists in UK where under section 9A of the Company Directors Disqualification Act 1986 company directors can be disqualified for up to fifteen years where their companies are guilty of a competition law infringement.
e) The expulsion of aliens from EU territory
Most international business executives need to be able to travel into the EU, the world’s largest single market. Prohibition from entering EU territory for a term of years would make it difficult for them to act as senior-level executives as well as significantly damage their reputations.
f) Applying the 10% threshold for each year of the violation
One existing proposition is that the Commission could retain the turnover figure but apply for each year of the infringement up to a maximum multiple, for example, three to four years, giving a maximum fine of 30-40% of worldwide turnover.
g) Abandoning the concept of a “single continuing offence”
The current EU case-law on cartels has adopted the concept of the “single continuing offence” as distinct from discrete “price fix” or “market share offence”. The former encompasses a number or network of specific acts of collusion all of them punishable together within the frame of the single continuing offence. Abandoning this concept (and extending the current five-year limitation period for fining of cartels in order to compensate the advantage in prosecution of older cartels lost due to the abolishment of the “single continuing offence” theory) would allow the Commission to prosecute each offence separately and eventually to impose higher total fines compared to the fine imposed for a “single continuing offence”.
6. The modernization and the potential for a conflict between different leniency regimes within the Community
One of the main points of the Modernization Regulation is that the national competition authorities (“the NCAs”) and the national courts of the Member States shall have the power to apply Articles 101 and 102 of the Treaty. As a logical consequence, although the Commission Notice on cooperation within the Network of Competition Authorities provides specific guidance on the allocation of cases within the ECN, it explicitly states that such allocation represents “a mere division of labor” which “does not create individual rights for the companies involved in or affected by an infringement to have the case dealt with by a particular authority”.
In practical terms this means that undertakings might be prosecuted by more than one NCA or by both the Commission under the EU law and by the NCAs under their national laws. It also means that leniency application to one ECN member is not regarded as an application to another ECN member. It finally means that even when an undertaking has filed a leniency application with a certain competition authority that does not guarantee it that the case will be handled by this authority. The undertakings should thereby make sure that they apply for leniency before all competition authorities who look “well placed” to investigate the cartel.
Currently 23 Member States operate their national leniency programs in parallel with the EU Leniency Program. Not surprisingly these programs defer on many important issues and indeed on the extent to which they provided actual immunity. A further implication is the discrepancies between the natural procedural laws which companies must take into account when applying for leniency. Such discrepancies concern essential issues such as the availability or absence of a leniency program at first place, the standard of proof required etc.
As a result the undertakings are likely to be less willing to apply for leniency where this would mean filing of simultaneous and multiple applications and subjecting to different and mutually controversial rules (or even worse – having their case dealt by an authority which has not leniency program whatsoever).
These problems are partly dealt with by the ECN Model Leniency Program which provides for harmonization of those elements that could have a direct influence on the attractiveness and effectiveness of a leniency program within a system of multiple findings. The ECN Model Leniency Program also provides for summary application system which allows the NCAs to temporarily protect immunity applicant’s position on the basis of limited information if a full application has been made with the Commission. This program, however, is not directly applicable and its adoption by the Member States is not mandatory.
There are two possible solutions of the multiple-regimes problem:
a) Harmonization
The adoption from all Member States of leniency programs and procedural rules which treat the essential issues similarly should ease much of the would-be applicants’ concerns. This process has already begun with the 2006 Notice fully reflecting the ECN Model Leniency Program. Other authorities are in the process of making similar adjustments to their respective programs or clarifying that they will be applied in a manner that is consistent with the ECN Model Leniency Program. This is a commendable fact but it must not be forgotten that it is only the first part of the harmonization process, the second one being adoption of similar national procedural rules.
b) Establishing a one-stop shop EU leniency system
As already explained the necessity for filing of numerous simultaneous leniency applications might be a major deterrent for the potential leniency applicants. Hence is the attractiveness of a system where the undertaking should apply to one authority and receive leniency in up to 28 places. Two options for the achievement of a one-stop shop could be: (i) a centralized system run by the Commission and (ii) a coordinated system run by all members of the ECN. The second option appears to be more appropriate as the first one runs against one of the main goals of the Modernization Regulation – the decentralization – and would have resource issues for the Commission. The second option, however, will pose a significant challenge and will require complete harmonization of all leniency programs and procedures within the ECN.
7. Interaction with private litigation
a) International implications
This section considers two international issues from a European prospective, both of which involve the interface with private enforcement.
(i) Could leniency applications be sought under the US discovery rules?
The acceptance of oral statements from leniency applicants is intended to frustrate attempts by private US litigants to seek discovery of leniency statements provided to the Commission. Indeed, courts can no longer compel the undertakings to produce copies of oral statements since they are not in the undertakings’ possession.
At a lower point, the fact that the Commission can cite the oral statements in its statement of objections and to give full information about applicant’s participation in the cartel activity can seriously undermine the benefits of the oral statement.
One approach to dealing with this problem would be to rely on international comity. The US federal courts as a matter of international comity should not grant discovery of documents created by EU leniency applicants that stem from requests by the Commission in pursuit of EU antitrust policy. Unfortunately, despite direct intervention by the Commission, a number of US courts have refused to take an international comity approach to requests from discovery and have ordered the discovery of documents created in pursuance of an EU leniency application.
In such circumstances, alternative approaches to protecting the Commission’s leniency procedures need to be considered. One alternative approach would be to insert into Regulation № 1/2003 a provision permitting EU leniency applicants to claw back the non-compensatory element of any foreign damages claim in member state courts, where the damages claim involved a discover order by a foreign court permitting discovery of documents generated by leniency applicants in pursuance of its leniency application before the Commission.
It has also been mentioned that the oral statements procedure is at odds with the right of due process. This problem is aggravated by the fact that Art. 19 of the modernization regulation does not provide for any penalties to ensure the accuracy of such oral statements, so there is at least a danger that the quality and integrity of oral statements could be compromised by the lack of any effective sanction for accuracy and completeness. This danger is reinforced by the need for leniency applicants to demonstrate significant added value. This incentive to embellish is compounded by the fact that the “significant added value” standard is vague and difficult to assess.
It can therefore be argued that corporate confessions written by the leniency applicant and protected by a claw-back regime are a much better source of material for the Commission with which to prosecute. There are two good reasons for this view. One is that such documents are likely to be more considered than oral statements. Another reason is that because they are protected by claw-back, they can be fully disclosed to other members of the cartel, who can if they so wish challenge the evidence presented.
(ii) Can treble damages be brought in US courts for foreign sales?
The US has by statute and judicial decisions established a bounty-based system of antitrust recoveries through treble damages that goes well beyond any policy that any European country has chosen to adopt. This system is supported by plaintiff-friendly court procedures and cost arrangements that mean that almost any plaintiff that can possibly squeeze its way into a US federal court will seek to do so. If there is a risk of US treble damages this is likely to deter leniency applications by all members of the cartel
However, the possibility for seeking damages for “worldwide” injuries has been significantly reduced after the Supreme Court’s decision in F. Hoffmann-LaRoche Ltd. V Empagran. In Empagran the Court held that a case brought by foreign plaintiffs fell outside the scope of the Sherman Act 1890 where the foreign anticompetitive conduct and injury were entirely independent of the domestic anticompetitive effects. Notably, both the DOJ and the FTC, as well as the governments of Canada, Japan, Germany and the Netherlands, filed amicus curiae briefs before the D.C. Circuit in Empagran urging a rejection of “[a] theory [that] would convert US courts into ‘world courts’, interfere with foreign sovereigns’ own enforcement regimes, and risk deterring – rather than encouraging – applications for leniency.”
b) Interaction with private enforcement in EU
Until recently, given the “total underdevelopment” of the private antitrust enforcement in Europe, this issue has been hardly considered as a problem. However, over the last years both the EU Courts and the Commission have emphasized the importance of the private enforcement for achieving of corrective justice as well as of deterrence. In its Green and White Papers on Damages the Commission went on to consider number of measures for supporting the development of private enforcement in EU such as specific disclosure rules, collective actions, binding effects of the NCAs decisions, derogation from the “loser pays” rule etc.
If private actions increase materially in Europe this is likely to reduce leniency applications unless action is taken to ensure there remains a real incentive to apply for leniency. This risk is greater for the EU program than for the DOJ one as the threat of a jail sentence is a strong incentive to apply for amnesty in the US. In addition the de-trebling of civil damages available for US leniency applicants provides with another strong incentive to blow the whistle. Conversely, treble damages do not exist in Europe and this is unlikely to change soon, which means in turn that no de-trebling is available. Also, where prejudgment interest applies, this will significantly increase the single damages compared with the US where there is no pre-judgment interest.
Aware of this problem the Commission has proposed in its White Paper on Damages the following solutions: protection for corporate statements against disclosure in private actions for damages and limitation of the civil liability of the immunity recipient to claims by his direct and indirect contractual partners. As already discussed the first option will be undermined by the Commission’s policy to “prosecute” all leniency applicants.
There are also serious doubts as to the compatibility of the second option with primary EU law, and in particular the Courage and Manfredi rulings. This jurisprudence, echoing the Van Gend en Loos line of case law, makes clear that the principle of individual civil liability creates rights and duties/obligations for individuals. It can, of course, be argued that limiting an immunity recipient’s liability to certain claims by his direct or indirect contractual partners, will not affect other victims’ EU law rights, since they could pursue their claims against the other non-immunity recipient members of cartel. However, this line of argument fails to take into account the fact that, irrespective of the victims’ rights, there is also the question of the immunity recipient’s obligations. If the Treaty itself imposes certain obligations on individuals vis-à-vis other persons, it is unclear how secondary legislation can intervene to extinguish such obligations.
8. Delays and plea bargaining
Uncovering cartels is one of the biggest benefits of the leniency programs and both the 2002 and the 2006 Notices have been very successful in that area. However, there is another potential benefit of such programs – the considerable reduction of the length of the cartel proceedings, as leniency applicants provide the necessary evidence. Such an outcome is desirable both from the undertakings’ and the Commission’s point as the former are interested in ending the procedure as soon as possible and continuing with their business, while the latter would be able to use the saved enforcement resources to prosecute more cartels.
Unfortunately the Commission has failed so far to achieve this second benefit of the leniency programs. A recent study has revealed that the usual length of a cartel investigation is well above 30 months and even often exceeds 50 months. This problem is – somehow paradoxically – exacerbated by the current success of the EU Leniency Program which means that while the Commission is seeing more leniency applications than the US per year, it is actually building up a sizeable cartel backlog that can only grow if current procedures are maintained. Therefore the adoption of a US-style practice of plea agreements which would shorten the procedures and would ease the overloaded and below-staffed Commission has been advocated in the theory for quite a long time.
The adoption of the Commission’s Direct Settlement Notice is a step in that direction. However, this step appears to be half-hearted. The “broad discretion” enjoyed by the Commission under the Direct Settlement Notice and the lack of independent judicial supervision over the settlement procedure will most likely make it unattractive for the potential applicants. Probably the most stunning lapse of the Notice is that it actually does not contain any guarantee for accelerated procedure or shorter decision – which is supposed to be rationale behind its adoption.
The Commission is therefore respectfully advised to amend its Direct Settlement Notice in line with the outlined criticisms in order to make it workable and thus to be able to reap the benefits of the settlement procedure.
9. The Oral corporate statements and the right of due process – the collusion with Art 6(1) and Art 6(3)(d) ECHR
In Unterpertinger the ECtHR held that the conviction of Mr. Unterpertinger mainly on the basis of statements made to the police by members of his family and read out at the court hearing after the latter had exercised their right under national law to refuse to give evidence meant that he was convicted on the basis of “testimony” in respect of which his defense rights were appreciably restricted. That being so, Mr. Unterpertinger did not have a fair trial and there was a breach of paragraph (1) of Article 6 of the Convention, taken together with the principles inherent in paragraph (3)(d). The Court also went on to say that the possibility to put the witnesses’ credibility in doubt was an essential part of Mr. Unterpertinger’s right of fair trial which could not be exercised absent these witnesses from the court proceeding and that this omission could not be compensated by the mere fact that he was able to submit his comments freely during the hearing.
The analysis of the current EU procedure regarding the acceptance of oral statements shows that it runs directly against the ECtHR’s judgment in Unterpertinger. According to paragraph 33 of the 2006 Leniency Notice the addressees of a statement of objections can have access to the corporate statements and therefore they could submit their comments during the oral hearing under Article 12 of Commission Regulation № 773/2004 (hereafter “the Implementing Regulation”). However, neither the Implementing Regulation, nor the 2006 Notice itself provide for the person who made the oral statement to be cross-examined at the oral hearing from the defendant undertakings with the view of putting his credibility in doubt. Moreover, given the clandestine nature of the cartels and the fact that they either do not produce much documents related to their activity or are quick to destroy them, one could envisage that prohibition decisions will often rely mainly on such – uncontested – oral statements, just like in the Unterpertinger case.
As already explained the rationale behind allowing the oral statements was to frustrate attempts by private litigants to seek discovery of written statements provided to the Commission. However, there are ways to achieve this goal without violating the fundamental right of a fair trial. The Modernization Regulation and the Implementing Regulation could be amended by permitting for witnesses (and – respectfully – the authors of the oral statements) to be cross-examined. An alternative approach would be to abolish the oral statements altogether and to replace them with corporate confessions written by the leniency applicant and protected by a claw-back regime. By doing so the Commission will head off potentially dangerous litigation in the national, EU and Strasbourg courts which could threaten the legitimacy of the EU competition regime, if not the entire EU legal order itself.
III. CREATING ADDITIONAL INCENTIVES FOR WHISTLE-BLOWERS
This section discusses four measures for further increasing undertakings’ incentive to apply for leniency proposed by the literature.
1. Higher fine reductions
It is perceived that the existing fine reductions are too low to encourage applicants to come forward. There are no fine reductions over 50%, only one undertaking can obtain the maximum 50%, the second undertaking can only obtain a maximum of 30%, and after that the maximum is 20%. According to the US experience later applicants may often provide evidence vital to any prosecution which deserves fine reduction greater than 50%.
2. “Amnesty plus” program
The US DOJ operates such program under which prosecutors can offer benefits to a cartel member who discloses previously undetected antitrust offences involving a cartel different from that cartelist to the prosecutor attention. Thus a company who was the last to confess in a current cartel investigation and could not therefore get off the hook could still provide information about other cartels with its participation and receive leniency as a reward. This has a ruinous effect on the reputation of companies who have been previously known as trustworthy cartelists. That policy is very successful because the experience shows that if a company is fixing prices in one market, the chances are good that it is doing so in the other markets. Thus the “amnesty plus” creates a “rollover effect” in uncovering the cartels. Roughly half of DOJ’s current international investigations were initiated by evidence obtained as result of an investigation of a completely separate market. Given the enormous success of the “amnesty plus” policy in US the lack of a similar procedure in EU is sometimes referred to as to a “glaring omission”.
3. Financial incentives for whistleblowers
One way to encourage whistle-blowers is by paying them. The system, known as qui tam, was introduced in the US in 1986, in Korea in 2005. It has helped for uncovering of major cartels in both countries. In UK the Office of Fair Trading has announced that it is prepared to offer financial rewards for information about cartel activity. The adoption of such policy in continental Europe appears highly unlikely in the near future given concerns over the acceptability of “informers” – particularly paid ones. But then again – twenty years ago it did not seem inevitable that most competition policy systems would come to adopt the US approach to regard cartels as worthy of severe civil and even criminal sanctions either.
4. Criminalization
The issues of whether the criminalization of the EU Competition law is desirable and possible are much broader than the scope of this paper. It will not therefore examine all the pros and contras the criminalization but will focus only on the leniency-related arguments instead. For the same reason it will not discuss whether criminalization is actually possible under the current legal regime and will use the presumption that if Constitutional amendment is necessary for that purpose – and if there is a broad consensus that criminalization is desirable – such amendment will be adopted un-problematically.
There are several powerful arguments that the leniency policy will benefit from criminalization. First, it provides an incentive for individuals to co-operate in cartel investigations against the interests of their employers, because the fear of imprisonment often changes the risk-reward analysis of businessmen. This in turn increases companies’ incentive to apply for leniency as well, because now they have to choose between reporting the cartel activity and obtaining leniency both for themselves and for all their officers or not doing so and risking that some of the latter will blow the whistle – in which case only he will receive leniency.
Secondly, as mentioned above, fear of private damages in follow-on actions can be powerful deterrent for companies to apply for leniency. It is argued that, especially in the European context – given competition authorities’ inability to protect the whistle-blowers from such lawsuits or to provide them with significant reduction of the amount of damages they would have to play – only the fear of criminal sanctions could overcome the disadvantages of the exposure to private damages and to encourage companies to apply for leniency. Thirdly, many authors point that the criminalization in US gives the DOJ a decisive leverage over the cartelists in making them to plea guilty and to accept higher fines in exchange of less jail time.
It is clear that the ultimate decision as to whether to adopt criminalization will be based on a large range of issues, the effectiveness of leniency policy being just one of them. However, given the fact that the leniency programs are often considered as “the single greatest investigative tool available to anti-cartel enforcers” a serious consideration should be given to the impact of criminalization on the leniency policy. This author is convinced that such impact would be entirely beneficial.
Such amendment, of course, would require the separation of the powers of investigation and decision currently held by the Commission, and the transfer of the latter power to an independent judicial body, such as the EU General Court.
IV CONCLUSION
This paper has shown that despite its undoubted success the current EU leniency program is still facing certain threats and has discussed the solutions for them. In 2002 an author has called for the adoption of a “global American model”. Eight years later, this call cannot be more appropriate. Indeed, most of the problems identified by this paper could be solved by further adoption of the US-style rules which have proven their successfulness (e.g. complete abolishment of prosecutorial discretion as to whether to grant immunity, not “prosecuting” the first applicant to provide information for a cartel the Commission knew nothing about, improvement of the direct settlement procedure, allowing cross-examination of witnesses, and even more radical amendments such as separation of the prosecutorial and decision powers between the Commission and the EU Courts, discussing criminalization etc.).
In addition, achieving harmonization and ultimately a “one-stop shop” between the competition and leniency regimes not only in the EU, but worldwide, would provide a bigger incentive for the members of international cartels to seek leniency and would ultimately lead to considerably better results in the prosecution of cartels worldwide.
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