News
Cartels, leniency, markers, and double-dip dobbing
First published in NZ Lawyer, 16 October 2009.
There are few areas of the law where there is formal provision for a person who has breached a statute to implicate others to escape liability themselves. Competition law is one such area, and the Commerce Commission's "leniency policy" is the cornerstone of its cartel busting toolbox, which it rightly considers "is the most effective tool to uncover cartels". The policy has been very successful. At August 2009, 13 applications had been received under the Commission's policy. Many have related to large international cartels where participants have applied for leniency not only from our Commission but also from other overseas regulators.
Following the success of leniency programmes in other jurisdictions (e.g. the US, EU, Australia), the Commission introduced a leniency policy in 2000. It strengthened that policy in 2004, tailoring it specifically to cartels and making express that the first cartel participant to report a cartel and fully cooperate with the Commission would be granted full immunity from subsequent Commission-initiated proceedings.
The major benefit of applying for leniency under the policy is that the person (corporate or individual) who obtains it is protected from penalties should the Commission issue court proceedings. However, seeking leniency is not without risk. A previously undetected cartel will become the subject of a Commission investigation and if the investigation becomes public, all participants are then subject to possible third party damages claims. There are also significant costs involved in providing the Commission with the necessary co-operation, which should not be underestimated. If the Commission determines full co-operation has not occurred it can withdraw the leniency.
With the benefit of experience, the Commission has reviewed its policy and has released for consultation a revised draft policy introducing two new features, a marker system and Amnesty Plus, which are intended to make the process more transparent and increase the incentives for cartel members to seek leniency.
The key feature of the leniency policy is that it is only the first cartel participant to come forward who obtains immunity. This creates a "race for the door" so that a person who is considering whether to seek immunity has to decide quickly. The Commission's proposed marker system operates by allowing a potential applicant who is still collating information to assess whether there has been a breach of the Commerce Act, to secure a place-holder as first applicant for a set period of time, effectively "marking their spot" while they investigate. If on subsequent investigation, it appears no application is necessary, the marker can be withdrawn. Alternatively, the marker can be "perfected" by the applicant then providing the Commission with information about the cartel and proceeding to the formal leniency application process.
The proposed marker system is a welcome addition. It will be a useful mechanism for overcoming the uncertainty that can often exist at the early stages of an investigation as to whether there is a breach of the Commerce Act. The complexity of the assessment is often compounded in cases which involve a number of overseas jurisdictions and/or historical facts. It can take considerable time for internal investigations to be completed. Parties can now protect themselves while those internal investigations continue by seeking a marker.
The Commission considers its proposed "Amnesty Plus" initiative will increase the incentive for cartel participants to approach the Commission. A participant in a cartel already being investigated by the Commission (who does not have leniency for that cartel) can obtain a significant reduction in penalty by informing the Commission of their participation in another separate cartel of which the Commission was previously unaware. The applicant would then receive both leniency for the new cartel and a lesser penalty as a cooperating party for the initial cartel. Amnesty Plus is a feature of some overseas regulators' leniency policies and is a scenario that those authorities (in particular the US DOJ) have seen arise in practice. It is a useful further addition to the Commission's policy that may encourage more co-operation and disclosure of cartel activity.
In addition to these positive new initiatives, we consider that the Commission's review of its leniency policy provides an opportunity to make additional changes to the policy:
-
To provide greater transparency around Amnesty Plus, the revised policy could include greater specificity as to the type of factors that the Commission would usually consider to determine the additional discount for co-operation regarding the first cartel and the potential level of that additional discount.
-
Further changes could be made to the conditions for leniency to bring our policy in line with those of Australia, the US and EU. At present in New Zealand, the Commission must be unaware of the existence of the cartel at the time when the leniency application is made. A more flexible approach would be to adopt one similar to Australia's which allows for leniency applications where if at the time the Australian Competition and Consumer Commission receives the application, it has not received written legal advice that it has sufficient evidence to commence cartel proceedings (i.e., there is no requirement that the ACCC is completely unaware of the alleged cartel).
-
The current leniency policy provides that immunity is not available to any person who has coerced other participants to take part in the cartel. Other jurisdictions also exclude leniency for "ringleaders". We submitted that a leader should also be excluded in New Zealand in circumstances where the party's role as leader can be clearly and objectively demonstrated.
-
The Commission could provide a greater level of comfort in its policy as to when it can be expected to assert privilege for its own written records of oral leniency applications and what specific steps the Commission would take to protect an applicant's confidential information. In our experience the confidentiality of leniency and co-operation applications and of the information subsequently provided to the Commission is a very serious concern for potential applicants. It would assist potential applicants if the Commission provided greater clarity as to the steps it would be prepared to take.
Submissions on the Commerce Commission's revised draft leniency policy close on 30 October 2009.
