INTERNATIONAL BAR ASSOCIATION ANTITRUST COMMITTEE WORKING GROUP

Transcription

1 INTERNATIONAL BAR ASSOCIATION ANTITRUST COMMITTEE WORKING GROUP COMMENTS ON THE COMPETITION COMMISSION OF SOUTH AFRICA DISCUSSION PAPER: Corporate Leniency Policy Review November 2007

2 Introduction 1.1 The Working Group of the Antitrust Committee of the International Bar Association (the Working Group of the IBA ) is grateful for the opportunity to comment on the Competition Commission of South Africa (the Commission ) s September 2007 Discussion Paper: Corporate Leniency Policy Review (the Discussion Paper ). 1.2 The IBA is the world s leading organisation of international legal practitioners, bar associations and law societies. The IBA takes an interest in the development of international law reform and helps to shape the future of the legal profession throughout the world. 1.3 Bringing together antitrust practitioners and experts among the IBA s 30,000 individual lawyers from across the world, with a blend of jurisdictional backgrounds and professional experience spanning all continents, the IBA is in a unique position to provide analysis in this area. Further information on the IBA is available at < The Submission 1.4 In the Discussion Paper, the Commission has identified six main points for discussion in the Corporate Leniency Policy (the CLP ). The Working Group has limited its commentary to the issues outlined in the Discussion Paper, with the exception that it identifies two further, related area of potential improvement, which concern: removing the exclusion from immunity for applicants who have been previously found guilty of engaging in cartel activity in terms of the Act; and providing for partial leniency for the second and third applicants for leniency in respect of a particular cartel. 1.5 The Working Group looks forward to discussing these and any other relevant issues with the Commission, as well as providing such further input as the Commission may find of assistance in its review of the CLP. In particular, the Working Group would welcome the opportunity to provide further input in relation to the implementation of proposals to make the CLP a more effective tool for the Commission in its endeavour to eliminate cartels. Applicable International Principles for Leniency Policies 1.6 The CLP, like its counterparts around the world, acts as a tool to assist the Commission in the detection, investigation and prosecution of cartel conduct, which is regarded as one of the most serious breaches of competition laws. Competition agencies frequently rely heavily on information provided by cartel participants in their fight against cartels. To this end, the goal of the CLP is to provide an incentive for cartel participants to self-report and to co-operate with investigations carried out by the Commission by providing as much information of as high a probative value as possible. The CLP also aims to de-stabilise

3 - 3 cartels by creating distrust and anxiety between cartel members. These aims are consistent with effective leniency policies which aim to maximise the incentives for cartel participants to report to the authorities and to cease the cartel conduct. 1.7 The issues raised in the Discussion Paper touch on a number of the core principles that international experience has found to underpin the success of leniency policies, namely: Certainty and transparency: Cartel participants are likely to be encouraged to approach competition agencies to apply for leniency or immunity where they have certainty about their treatment by those agencies. Certainty of treatment also reinforces the strength of leniency policies, adding to their de-stabilising effect. This requires, first, clear drafting of leniency policies so that applicants and their legal representatives may readily understand their obligations in advance of any application for leniency. Secondly, consistent and transparent application of the policies over time can be expected to increase potential applicants confidence in leniency processes and to assist leniency policies to be effective tools in competition agencies endeavours to eliminate cartels. Consistency with international practice: Different jurisdictions vary in their approach to competition law and its enforcement, on the basis of, for example, differences in legal systems or public policy considerations. However, where possible, ensuring consistency between leniency policies in multiple jurisdictions can encourage cartel participants to come forward by: avoiding imposing requirements that, if complied with by the applicant, would disadvantage the applicant in another jurisdiction; and enhancing the ability of a cartel participant, at the same time, to apply to multiple enforcement agencies as part of facilitating the interaction of cartel leniency policies of the various cartel enforcement agencies. 1.8 The Working Group comments on the issues raised in the Discussion Paper in light of these relevant principles.

4 Executive summary 2.1 In this submission, the Working Group sets out its comments on each of the issues raised, in the order in which they are raised in the Discussion Paper, and provides its comments on two additional issues not canvassed in the Discussion Paper. The issues and comments can be summarised as follows: 2.2 Providing for the CLP in the Act or the Rules: The CLP is not provided for in either the Competition Act, No 89 of 1998 (the Act ) or the Rules for the Conduct of Proceedings in the Competition Commission (the Rules ). It has been proposed that recommendations be made to the Department of Trade and Industry to amend the Act to specifically make provision for the CLP. 2.3 In the interests of certainty for applicants and to ensure that a grant of immunity has the effect of preventing actions against the successful applicant (other than damages claims), the Working Group recommends that the Act be amended to empower the Commission to adopt a leniency policy that is binding on the Commission and to define the details of the leniency policy. The Act should also provide that a grant of immunity precludes any prosecutorial action being taken against the successful applicant. 2.4 The Commission s discretion in the granting of immunity: The current wording of the CLP has been interpreted by some stakeholders to give the Commission unfettered discretion in the granting of immunity. It is proposed that certain clauses that may create uncertainty on the part of firms considering applying for immunity be deleted or amended to remove the uncertainty. 2.5 The Working Group considers that the Commission should ensure that the CLP prescribes clear criteria for eligibility for immunity and provide an appropriate assurance that a party that clearly meets the prescribed criteria will receive immunity. 2.6 Oral submissions: The CLP currently requires applicants to make written submissions in order to be considered for immunity. It is recommended that this requirement be removed and immunity applicants be permitted to make oral submissions. 2.7 The Working Group considers that this is not likely to be a significantly contentious proposal and strongly supports provision for oral immunity applications, in line with best international practices. 2.8 Immunity for instigators: The CLP excludes from qualification for immunity an applicant who was the instigator of the cartel activity or coerced other firms to either join or remain in the cartel. It is recommended that this requirement be removed from the policy.

5 The Working Group agrees that this requirement can act as a deterrent to potential applicants and supports its removal A marker system: The CLP does not make provision for markers where an applicant can contact the authority to establish whether leniency would be available and put down a marker to reserve its place in line whilst it puts together all the necessary information. It is recommended that the CLP be amended to make provision for the marker system The Working Group notes that the adoption of a marker system has become increasingly common around the world. It is regarded as effective in eliciting information about potential offences from cartel participants as early as possible A point of contact for immunity applicants: Practitioners have expressed a concern that there is no clarity on the policy regarding who potential applicants should approach regarding a possible application. It is recommended that parties wishing to apply for immunity approach the Enforcement & Exemptions Manager The Working Group does not regard this recommendation as significantly contentious on the basis that a clear contact point is fundamental to a transparent and effective CLP process in which applicants can be confident Additional comments: exclusion from immunity for applicants previously found guilty; system of partial immunity: Finally, although not addressed directly in the Discussion Paper, the Working Group wishes to take this opportunity to comment on two additional issues that may arise under the CLP First, the Working Group recommends the removal of the exclusion from immunity for applicants who have been previously found guilty of engaging in cartel activity in terms of the Act. The Working Group considers this exclusion to place an unnecessary deterrent on use of the CLP by a significant number of potential applicants. Removing the exclusion might also pave the way for the Commission to consider introducing an amnesty plus element to the CLP Secondly, the Working Group is of the view that the CLP could be enhanced by greater clarity around the offer of partial leniency for second and third applicants.

6 Providing for the CLP in the Act or the Rules Issue: The CLP is not provided for in either the Competition Act, No 89 of 1998 (the Act ) or the Rules for the Conduct of Proceedings in the Competition Commission (the Rules ). It has been proposed that recommendations be made to the Department of Trade and Industry to amend the Act to specifically make provision for the CLP. Comment: In the interests of certainty for applicants, and to ensure that a grant of immunity has the effect of preventing actions against the successful applicant (other than damages claims) the Working Group recommends that the Act be amended to empower the Commission to adopt a leniency policy that is binding on the Commission and to define the details of the leniency policy. The Act should also provide that a grant of immunity precludes any prosecutorial action being taken against the successful applicant. 3.1 Internationally, it is not uncommon for leniency policies to be issued by competition agencies without an explicit basis in statute or other legislative instrument. 3.2 However, the Working Group recognises that transparency and certainty are fundamental principles of a successful leniency policy. Uncertainty that may have arisen regarding the legal status of the CLP could potentially, as set out in the Discussion Paper, make firms reluctant to approach the Commission for leniency. This cuts across the underlying policy of the CLP to enhance the Commission s effectiveness in investigating and prosecuting cartel behaviour by encouraging cartel participants to supply information. 3.3 It should also be borne in mind that making specific provision for the CLP in the Act or Rules: has the potential to reduce the Commission s flexibility in applying and amending the CLP in the light of changed circumstances. This point is expanded in relation to issue 2, below; and opens up the possibility of judicial challenge of the Commission s decisions under the CLP, thereby further reducing its discretion and flexibility. 3.4 Moreover, the Working Group considers that it is possible for competition agencies to build up the trust of applicants and their legal representatives and mitigate their concerns regarding the policy s uncertain legal status, through uniformly consistent and transparent application of their immunity or leniency policy over time. 3.5 To address the uncertainty outlined in the Discussion Paper, it may be appropriate to make specific provision for the CLP in either the Act or the Rules. However, in determining whether to give the CLP formal legal status, the advantages of increased certainty must be weighed against the potential disadvantages of reduced flexibility.

7 International experience suggests that flexibility should be regarded as a key value in order to ensure leniency policies remain effective in the fight against cartels. Cartel behaviour is complex and changing and it is important that competition agencies retain sufficient flexibility to be able to respond and adapt. International Competition Network experience shows that many countries have faced difficulties in amending and updating competition legislation once passed by the legislature. In contrast, guidelines, which are prepared by and within the control of competition agencies, have been easier and more effective to update in response to changing circumstances. 3.7 The Working Group recognises that, in South Africa, a complainant is able to institute an action against a cartel participant who has been granted immunity under the CLP, and that the Competition Tribunal may impose a fine in those proceedings. The Working Group considers that successful immunity applicants should remain potentially liable in respect of damages claims by third parties that have suffered loss as a result of the cartel conduct. However, it is fundamental to the CLP s effectiveness that a grant of immunity prevent regulatory fines being imposed on successful applicants. 3.8 In order to balance the competing considerations of certainty for applicants and flexibility for the Commission, the Working Group recommends that the Act be amended to empower the Minister of Trade and Industry to: adopt a leniency policy as part of the rules of the Commission; and determine the details of the policy. 3.9 If legislation is adopted, the Act should also provide that the leniency policy adopted by the Commission will be binding on the Commission, the Competition Tribunal and the Competition Appeal Court, and that a grant of leniency will finally dispose of any prosecutorial actions against the successful immunity applicant.

8 The Commission s discretion in the granting of immunity \ Issue: The current wording of the CLP has been interpreted by some stakeholders to give the Commission unfettered discretion in the granting of immunity. It is proposed that certain clauses that may create uncertainty on the part of firms considering applying for immunity be deleted or amended to remove the uncertainty. Comment: The Working Group considers that the Commission should ensure that the CLP prescribes clear criteria for eligibility for immunity and provide an appropriate assurance that a party that clearly meets the prescribed criteria will receive immunity. 4.1 The absence of automatic leniency or immunity for the first eligible applicant has been raised in other jurisdictions as potentially impeding the take up of leniency by cartel participants. Consequently, other jurisdictions have implemented clear eligibility criteria for qualifying for immunity. The Working Group would recommend that this international experience be followed. 4.2 The Working Group considers that a leniency policy should prescribe clear eligibility criteria for qualifying for immunity and, in general, supports proposals for clarification of the leniency requirements, particularly the information that will be required in support of an application. 4.3 It is the view of the Working Group that, in the interests of clarity and predictability, the CLP should contain an explicit assurance that immunity will be granted if an applicant clearly furnishes all of the required information. This should be echoed in implementation of any marker system, which is discussed in further detail below. 4.4 Likewise, the CLP should contain an assurance that revocation of leniency is only possible in the case of a clear and compelling breach of a condition of leniency and after the party in question has been given an opportunity to remedy its breach. 4.5 Further, as noted above, it is submitted that transparent and consistent application of the CLP will, over time, allow potential applicants to predict with a sufficiently high degree of certainty how they will be treated if they report their conduct and what the consequences will be if they do not. The Commission s evaluation of any application should take into account the overriding need to provide certainty to applicants.

9 Oral submissions Issue: The CLP currently requires applicants to make written submissions in order to be considered for immunity. It is recommended that this requirement be removed and immunity applicants be permitted to make oral submissions. Comment: The Working Group considers that this is not likely to be a significantly contentious proposal and strongly supports provision for oral immunity applications, in line with best international practices. 5.1 It has become increasingly common, internationally, for competition agencies to provide for a paperless process in respect of applications for leniency. Many jurisdictions have acknowledged that requiring applicants to make submissions in writing can act as a deterrent to potential applicants because of the risk that written submissions might be discovered in civil damages litigation by private parties, whether within the jurisdiction in question, or elsewhere. This can expose the leniency applicant to greater financial risk in private litigation than non-reporting cartel participants. 5.2 In addition, as acknowledged in the Discussion Paper, requiring an applicant to make written submissions can give rise to the perception that the immunity applicant is disadvantaged as compared with other cartel participants, which would not be required to put in writing their involvement in a cartel. As a matter of principle, the Working Group submits that the immunity applicant should not, as a result of its co-operation with an enforcement agency, be placed at a disadvantage relative to other cartel members that have not chosen to co-operate. 5.3 The CLP should seek to avoid the risk of leaving the leniency applicant in a worse position in related proceedings than organisations that do not receive leniency. 5.4 Given that many jurisdictions provide for oral submissions, adopting this approach in South Africa would facilitate internationally co-ordinated immunity applications, which would also encourage participants in international cartels to submit an application under the CLP. 5.5 In the Working Group s view, providing for oral rather than written submissions is a commendable proposal. In light of the concerns expressed in the Discussion Paper and in other jurisdictions, the Working Group agrees that the CLP should provide for oral submissions.

10 Immunity for instigators Issue: The CLP excludes from qualification for immunity an applicant who was the instigator of the cartel activity or coerced other firms to either join or remain in the cartel. It is recommended that this requirement be removed from the policy. Comment: The Working Group agrees that this requirement can act as a deterrent to potential applicants and supports its removal. 6.1 Many jurisdictions exclude from qualification for immunity an applicant that was the instigator, or ringleader of cartel activity, or that coerced other firms to join or remain in the cartel. 6.2 As discussed above, the CLP s ability to elicit information from cartel participants depends on it providing potential applicants with sufficient predictability regarding the treatment they can expect when making an application. For this reason, many jurisdictions err on the side of inclusiveness rather than disqualification in applying their leniency policy, in all but the most serious of circumstances. 6.3 Additionally, some competition agencies have had difficulty determining when the instigator or ringleader test should apply. This results in increased uncertainty for applicants. For example, as noted in the Discussion Paper, a participant s role in a cartel may change over time. Moreover, proving that an applicant was, or was not, the instigator adds an extra evidentiary burden and layer of complexity. 6.4 Finally, since many jurisdictions no longer apply the instigator or ringleader test, its removal from the CLP would be in line with international practice. The Working Group considers that such convergence would enhance the ability of a cartel participant, at the same time, to apply to multiple enforcement agencies, which would also facilitate the interaction of cartel leniency policies worldwide. 6.5 If the Commission chooses to take an inclusive approach to the application of the CLP, in line with international practice, then the Working Group supports consideration of removing the exclusion for instigators from the CLP.

11 A marker system Issue: The CLP does not make provision for markers where an applicant can contact the authority to establish whether leniency would be available and put down a marker to reserve its place in line whilst it puts together all the necessary information. It is recommended that the CLP be amended to make provision for the marker system. Comment: The Working Group notes that the adoption of a marker system has become increasingly common around the world. It is regarded as effective in eliciting information about potential offences from cartel participants as early as possible. 7.1 The Working Group would welcome the introduction of a marker system, which would parallel the best practices of other jurisdictions. In particular, a marker system would enhance the CLP by encouraging applicants to come forward and begin to provide information about potential offences as early as possible. 7.2 In establishing an effective marker system, the potential for the system to be used by an applicant to create strategic delay should be taken into account. That is, once a party has qualified as the first leniency applicant, it may wish to delay providing full details of the conduct. This factor is recognised in the Discussion Paper, which refers to a specific period within which an applicant must provide the Commission with full details of the conduct. 7.3 International experience has shown that this consideration, while valid, risks placing undue pressure on applicants that may be prejudicial to their ability to carry out an internal investigation in an appropriate and thorough manner, and to deal in a co-ordinated manner with all competition agencies that may be concerned with the cartel. This may, in turn, reduce the probative value and completeness of the information ultimately supplied to the Commission - information which in many instances will be crucial to the success of any enforcement steps that the Commission wishes to pursue. 7.4 In light of these factors, the Commission may wish to consider making clear that its timeframe for provision of details of the conduct will not be enforced in a way that disadvantages an applicant that is seeking to co-operate with the Commission in good faith. Moreover, the CLP should allow the Commission to extend the timeframe on request of an applicant. 7.5 To alleviate a risk that seems implicit in cases of delay, the marker system should provide unequivocal assurance that the initial applicant will not be displaced by a later party, while the initial application is being perfected. 7.6 Finally, the effectiveness of any marker system relies on the Commission providing a transparent process for immunity applicants, including a clear contact point. Details of each immunity application,

12 - 12 including the time it is made, must be accurately recorded by the Commission to ensure consistent and effective administration of the CLP. This point is discussed further below.

13 A point of contact for immunity applicants Issue: Practitioners have expressed a concern that there is no clarity on the policy regarding who potential applicants should approach regarding a possible application. It is recommended that parties wishing to apply for immunity approach the Enforcement & Exemptions Manager. Comment: The Working Group does not regard this recommendation as significantly contentious on the basis that a clear contact point is fundamental to a transparent and effective CLP process in which applicants can be confident. 8.1 The Working Group agrees that a clear contact point is essential in ensuring the success of a leniency programme. It is important for potential applicants to be able to understand and follow the process set out in the CLP. 8.2 As noted above, it is fundamental to the CLP s effectiveness that applicants are able to have confidence in the appropriateness of the contact point and that the contact point will administer the CLP in a consistent and efficient manner. Where a marker system and partial immunity are in place, accurately recording the time and order of applications under the CLP becomes particularly important.

14 Additional comments Issues: Although not addressed directly in the Discussion Paper, the Working Group wishes to take this opportunity to comment on two additional issues that may emerge under the CLP, namely the exclusion from immunity of applicants who have previously been found guilty of cartel conduct, and a system of partial leniency for second and third applicants. Comments: There is a risk that exclusion from immunity for applicants previously found guilty would act as a deterrent to use of the CLP and be inconsistent with the development of an immunity plus or amnesty plus program. The Working Group is of the view that the CLP could be enhanced by greater clarity around the offer of partial leniency for second and third applicants. Exclusion from immunity for applicants previously found guilty 9.1 The Working Group recommends that the exclusion from immunity for applicants who have previously been found guilty of engaging in cartel activity in terms of the Act be removed. This exclusion places an unnecessary limit on the companies and individuals who are eligible for immunity, thus imposing a potentially significant deterrent on use of the CLP. Secondly, it creates no incentive for a party that has been implicated in a cartel in one product area to fully investigate other business lines and report further misconduct that it may find. 9.2 Moreover, this exclusion is particularly restrictive in that it would appear to apply to cartel activity engaged in, for example, by a foreign subsidiary of an applicant, or a substantial period of time prior to the conduct in question. 9.3 Finally, it should be noted that, as it stands, the disqualification of those responsible for previous offences would appear to preclude the adoption of an immunity plus, or amnesty plus, element in the CLP. The amnesty plus concept provides a specific application of leniency. A party that is implicated in a cartel for which immunity is not available, perhaps because it is not the first to apply, may nonetheless be a participant in, and be able to disclose, a previously unknown cartel. Under the policies administered by numerous cartel enforcement agencies, that party would qualify for immunity for the new cartel it discloses, as well as receiving a substantial reduction in the penalty to be imposed for the original offence. Amnesty plus has been a key element in the discovery and the sanctioning of a number of important cartel investigations, including the sodium gluconate investigation, several of the investigations that were downstream from the original graphite electrodes case, and in several components of the international vitamins investigation. Amnesty plus is widely considered to be one of the most productive means of encouraging self-reporting in cartel cases internationally. The introduction of such a concept into the CLP would also have the advantage of promoting

15 - 15 coherence in international immunity procedures, thereby reducing the uncertainties faced by a party involved in an international cartel that is seeking to address its position in all jurisdictions concerned, before proceedings with an immunity application anywhere. Having regard to these considerations, the Working Group would therefore recommend that the Commission consider the adoption of an immunity or amnesty plus element to the CLP, in addition to the matters raised in the Discussion Paper. Partial leniency 9.4 As a corollary to the introduction of a marker system, the Working Group considers that the effectiveness of the CLP could be further enhanced by clarifying the offer of partial leniency for the second and third applicants for leniency under the CLP (currently contained in clause 5.6 of the CLP). The Working Group suggests that, in the interests of certainty for applicants, the CLP set out that a 50% discount from the total penalty for which the applicant would otherwise be liable will be made available to the second eligible applicant to qualify under the CLP, and 25% to the third, subject to their ongoing co-operation with the Commission s investigation. 9.5 Partial leniency in these circumstances can encourage the provision of information in two ways. First, the prospect of partial leniency provides an additional carrot to cartel participants that are considering notifying the Commission of their conduct. Cartel participants are more likely to decide to come forward to resolve their exposure on a consensual basis, even though they will not become the successful immunity applicant, since failure to secure first place in the leniency queue will not eliminate their chances of reduced penalties. 9.6 Secondly, the prospect of lenient treatment gives unsuccessful leniency applicants an incentive to co-operate with and provide information to the Commission on an ongoing basis. As well, it reduces the incentives to force the Commission to litigate, by offering a reduction in penalties in return for early co-operation. 9.7 There are several approaches to dealing with partial leniency in various international jurisdictions. For instance, the United States' Department of Justice Sentencing Guidelines provide a formula that considers the co-operation provided by parties that agree to settle early, and the Leniency Notice of the European Commission provides specific levels of penalty discounts which are stipulated for the second and third leniency applicants. On the other hand, there is no specific formula provided in Canada for early settlement, but as a matter of sentencing practice, the earlier a party settles, the more lenient the penalty, relative to later parties. The Working Group recommends that the Commission considers which of these approaches would be the most appropriate in the South African context. 9.8 Of course, encouraging a greater number of cartel participants to co-operate with the Commission is likely to result in more and better information becoming available to the Commission in its attempt to prosecute cartel conduct. In light of the complexity of cartel

16 - 16 investigations, and difficulties obtaining evidence, such information is likely to be invaluable and to discourage other parties from litigating, in the face of co-operation by multiple co-conspirators. 9.9 The Working Group considers that a clearer and more detailed statement of the offer of partial immunity would provide the CLP with greater certainty and transparency, encouraging the provision of information and thus assisting the effectiveness of the CLP as a tool in the Commission s endeavour to eliminate cartels. A grant of partial immunity should be conditional on the recipient s ongoing co-operation with the Commission. [ ] November 2007