Impact of the European Commission’s Leniency Policy in Relation to CartelsBy Andrew Amos Published 12 August, 2016
This article assesses the European Commission’s cartel leniency policy which was first introduced in 1996 as the Commission Notice on the non-imposition or reduction of fines in cartel cases Official Journal C 207, 18/07/1996 P. 0004 - 0006. Professor Richard Whish Q.C (Hon) of King's College London states:
Tine Carmeliet (Associate at Allen & Overy) writes in Jura Falconis 2012 463 that leniency is a ‘cornerstone’ of the contemporary cartel enforcement policy , as ‘almost 60% of cartel infringements [are] discovered through leniency’. This claim is furthered by numerous academics. Professor Alan Riley of City University (Centre for European Policy Studies Fellow) opines that the European Commission has been ‘tremendously successful… in busting major European and international cartels’, and Caroline Cauffman of Maastricht University Competition Law Review 2011 181 says that leniency programmes have played an important role in requiring cartels to comply with competition rules. There has, however (as identified by American and Dutch lawyers D Jarrett & C Swaak Antitrust 59) been significant debate surrounding cartels and – more specifically – leniency programmes’ ability to ‘identify, punish, and deter hard-core international cartels’.
Whilst noting the roots, development and key critiques of leniency policy, this article assesses just how successful the leniency programmes have been in combatting compromising cartels. In conclusion it shall be shown that it is high time for a full review and modernisation of the policy incentives which are more apparent than real. They are actually, de-incentivising preventing companies from blowing the whistle at all.
Setting the Scene: The Roots and Development
Cartels are the formation and collusion of independent enterprises which seek to monopolise markets through restrictive trade practices, these may take the form of agreements re price, output, discount, credit, customer and geographical preferences, or bid rigging. There is a direct relationship between competition law and cartels within the European Union. Article 101 of the Treaty on the Functioning of the European Union (TFEU) explicitly states that:
Therefore, Article 101 does not apply to individuals; however, any anti-competitive arrangements between two companies, including cartels, could result in significant civil sanctions. The Article outlines a non-exhaustive list of prohibited practices including, but not limited to: price fixing; agreed output restrictions; and market-sharing.
In accordance with Council Regulation (EC) No. 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, the European Commission and the Competition Directorate General (DG Competition), alongside the national competition authorities (NCAs), are empowered to enforce Article 101 to cartels. Carmeliet and Riley rightly state that cartel enforcement is now one of the ‘highest points on the agenda of the European Commission’, and the remarkable success rate of the United States’ antitrust provisions has undoubtedly encouraged the European Commission to follow suit. In terms of what is at stake, this adoption or recognition of the issue is logical. According to JoaquÍn Almunia Amann cartels inflict a ‘private, hidden tax on the economy…[and it] is more vital than ever that we stamp it out.’
To remedy this sickness within the market, the European Commission introduced the 1996 Leniency Notice which in turn facilitated the learning of expertise so as to construct a leniency programme. The policy actively encourages the participants of cartels to reveal the presence of cartels in which they are participants. This was a massive step forward for the Commission. Professor C Harding of Aberystwyth University & Julian Joshua Partner at Steptoe & Johnson LLP OUP 2003 have shown that between 1958 and 1998, only approximately one or two cartels were being uncovered per year. However, in spite of this apparent advancement, the 1996 Leniency Notice was criticised. Riley for example writes in the Maastricht Journal of European and Comparative Law 2002 67 that between 1996 and 2002, 17 cases had improper fines imposed or said fines were significantly reduced. A further Leniency Notice was implemented in 2002. The differences included a lower standard of evidence and additionally, immunity could be extended to companies which were already under investigation. The 2006 Leniency Notice sets out the current EU leniency policy.
Just How Successful is the Leniency Policy?
Former Competition Directorate General, Philip Lowe, stated that the 2002 Leniency Policy was a “tremendous success”. Since the 2006 refinements of the Leniency Policy, more and more companies are beginning to blow the whistle on cartels which they are part of, in an attempt to reduce the fine imposed upon them. According to international firm Bersay & Associes the European Commission now sees the 2006 Leniency Policy as an attractive and ‘powerful tool to detect, destabilise and terminate cartels’.
The EC Competition Procedure OUP (edited by Luis Ortiz Blanco partner at Garrigues) states that in the year ending 2008, the European Commission received 107 immunity applications and 116 applications for fine reductions which were brought under the 2002 Leniency Policy. In relation to the 2006 Leniency Notice, this trend continued and from the date of implementation until the year ending 2008, the Commission received 50 immunity applications and 30 applications for fine reductions. To show the success rate of these refined leniency policies, the European Commission – under the 1996 Leniency Policy – only received 188 leniency applications. This is evidently a stark improvement. To provide context on the size of the fines imposed, Saint Gobain was fined €896 million for participating in the Car Glass cartel; whereas, Siemens was fined €396 million for participating in the Gas Insulated Switchgear cartel.
Critique of the Marker System
The European Commission aimed to enhance transparency and predictability by introducing a marker system into the 2006 Leniency Notice. The marker system allows the European Commission to grant, to an immunity applicant, a marker. In doing so, the applicant then secures their position ahead of any other applicants. Thus, if the Commission permits the granting of a marker, a deadline will be set for the leniency applicant to perfect the marker by supplying the relevant evidence in order to secure immunity.
The scholarly opinions assembled are distilled into a simple but compelling argument: Carmeliet submits that the 2006 Leniency Notice, arguably, causes legal uncertainty and unpredictability. It has also been argued that the marker system is discretionary and that the information required by the Commission must be excessively detailed. Therefore, applicants may seem wary about applying to the Commission at all due to the unreasonable evidence requirements. Although there appears to be clear positives of the marker system, whereby an applicant is likely to complete their application if they are first in line; as explained by J.S Sandhu Global Antitrust Review 2009 2 if said applicant appears to be further down the queue then it becomes somewhat unlikely that it will. This is problematic.
Further, the Commission has managed to maintain discretion and can ultimately make a decision as to whether a marker will be granted: The 2006 Leniency Notice states ‘[t]he Commission may grant a marker… [and] the applicant should [then]… justify its request for [one].’ Nevertheless, a statement, made by the Commission MEMO/06/357, states that a marker can only be approved if: ‘a new management, after having taken over a company realises that the acquired company was involved in a cartel and decides to apply for immunity’. Upon analysis, if these two statements are taken in conjunction with one another, then it becomes apparent that the same leniency practices are not the same for all cartel members. It could be argued that this does the opposite of enhancing transparency. Riley suggests that Leniency applicants are therefore likely to be deterred from seeking immunity because of the marker system’s discretionary nature. In relation to predictability, (another aim of the European Commission,) it is this discretionary nature according to J.S Sandhu that reduces the predictability of the outcome. This is a valid argument. It appears that the Commissions attempts to enhance both transparency and predictability are more apparent than real.
Problems Associated with ‘Significant Added Value’
The 2006 Leniency Notice now requires an applicant, who is seeking a reduction of a fine, to produce evidence which represents ‘significant added value’ to the evidence that the Commission already has. Assessing precisely what constitutes ‘significantly added value’ is as Cleary Gottlieb Steen & Hamilton LLP states ‘extremely difficult’ to define. However, there does appear to be some guidance: evidence which does not need to be corroborated will be given greater weight than that that does; directly incriminating evidence will be afforded greater value than circumstantial; and written, contemporaneous evidence will be considered to be of greater value also.
An undertaking that applies for a fine could see the amount exponentially reduced if it can successfully contribute a ‘significant added value’. The first undertaking to do so can see a reduction of 30-50%; the second could see 20-30%; and any subsequent undertaking can have their fine reduced by up to 20%. Despite this, ‘significant added value’ is according to Riley, ‘vague and difficult to assess’.
Referring back to the 1996 Leniency Notice, it has also been suggested by Riley that this Notice entailed weaknesses such as the ‘decisive evidence’ provision. An in-depth evaluation of this provision would be outwith the scope of this essay; however Riley asserts, the reason for this weakness was due to ‘the requirement that potential whistleblowers provide decisive evidence… [that] place[s] a very high demand on undertakings.’ Now, the relevance of mentioning the ‘decisive evidence’ provision becomes clear: is the ‘significant added value’ provision a regurgitation of the ‘decisive evidence’ provision, just worded differently? Arguably, it is. This seems somewhat counter-productive and continues to raise uncertainty. What constitutes ‘significant added value’ seems to differ from case to case and as illustrated by Professor Margaret Bloom King's College London 2006 EU Competition unsurprisingly contributes to the unpredictability that the Commission sought to avoid.
One major issue Bloom identifies surrounding ‘significant added value’ is that the European Commission will not decide whether or not the relevant evidence pertains to ‘significant added value’ until the end of the procedure, where it provides its concluding decision. This, again, contributes to the certainty argument and would mean that applicants could be deterred from informing the European Commission at all.
It has been suggested by A Ascione & M Motta Oxford Hart P 2009 that leniency programmes have the potential to significantly reduce the length of cartel proceedings.
A. Reindl Oxford Hart P 2009 succinctly outlines that reducing cartel proceedings would be somewhat beneficial to both the European Commission and to companies engaging in cartels. The scholar’s reasoning for this is because the companies would be able to carry on with normal business, whereas the Commission could prosecute more cartels. Ending the procedure sooner – rather than later – appears to be beneficial for all parties involved.
Nevertheless, the European Commission has not been able to achieve this. Ascione and Motta have revealed that cartel investigations can take anywhere from 30-50 months. Currently, the European Union has more leniency applications per year than the United States; however, Riley considers this to be ‘ building up a sizeable cartel backlog that can only grow if current procedures are maintained.’ Further, case law evidences that a delay can amount to a reduction in the fine or an annulment of the decision Baustahlegewebe v. Commission 1998 - CMACGM v. Commission 2003
It is without doubt that the Leniency Policy has been a great success in combating cartel infringement within the European Union, and leniency is becoming a cornerstone of competition law. The statistics highlighted in this article clarify that cartels are tough to uncover and leniency definitely eases that search. The substantial refinement of leniency within the EU – in the 2006 Leniency Policy – was an attempt to provide more incentives to companies to blow the whistle. Although, to a certain extent, this has been successful, the leniency programme is not without its weaknesses. If the European Commission was to further refine the Leniency Policy by assessing the marker system, the ‘significant added value’ provision, and by reducing delays, this would arguably provide more incentives for companies to blow the whistle on cartels. Despite the fact that the, what appear to be, disincentives are not detracting companies from approaching the Commission, there is an immediate need to make the leniency policy much more transparent and predictable.
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