Leniency Regimes

1. What is the relevant legislation containing the leniency policy and what is the enforcing body?

The leniency policy is very new in Mexico. It is included in the Federal Economic Competition Law (the ‘Law’), which is the main antitrust statute. The Law was enacted by Congress and was published in the Official Gazette of the Federation on 24 December 1992. The leniency policy was part of an amendment to the Law enacted just last year, that was published in the Official Gazette of the Federation on 28 June 2006, and entered into force the following day.

Monopolies are prohibited in Mexico by Article 28 of the Political Constitution of the United Mexican States. The Law is therefore a ‘Constitutional Law’ that further implements the provision of this Article of the Constitution. There are no state or municipal antitrust legislation or enforcing agencies.

The Law distinguishes between absolute monopolistic practices, that are prohibited per se, and relative monopolistic practices, that are prohibited when the economic agent responsible for such practice has substantial power over the relevant market.

Article 9 of the Law defines absolute monopolistic practices as follows:

Absolute monopolistic practices are contracts, agreements, arrangements, or

combinations among competing economic agents, whose aim or effect are any of the

following:

The acts mentioned in this article will not have any legal effects and the economic agents engaged in such acts will be subject to the penalties established under this law, notwithstanding any criminal liability that may ensue.

The leniency programme, contained in Article 33 bis 3 of the Law, applies only in respect

of absolute monopolistic practices: Any economic agent that has incurred or is incurring in an absolute monopolistic practice, might acknowledge it before the Commission, accepting the benefit of reduction of penalties established in this Law, provided that:

I. It is the first, among the economic agents involved in the [relevant] conduct, to submit sufficient conviction elements in its possession and those that it can obtain, that at the consideration of the Commission evidence the existence of the [absolute monopolistic] practice;

II. It cooperates fully and continuously with the Commission in the administrative investigation that the latter carries out and, if applicable, in the court proceedings; and

III. It takes those actions required in order to end its participation in the illegal practice that infringes the Law. Once the above requirements have been met, the Commission shall issue the corresponding resolution, imposing a minimum fine. No administrative or judicial procedure might be filed against the resolution issued by the Commission in terms of this paragraph. Those economic agents that do not meet the requirements established in section I above, may obtain a reduction in fines up to 50, 30 or 20 per cent of the highest possible amount, provided that they submit, in the course of the investigation, additional elements of conviction to those already in possession of the Commission, and meet the other requirements established in this article. In order to determine the percentage of the reduction [in fines], the Commission shall take into consideration the order in which the application was filed, and the elements of conviction submitted. The Commission shall keep in confidentiality the identity of the economic agent that seeks to receive the benefits of this article. The Regulations of the Law shall establish the procedure to be followed in order to request and to resolve on the application of the benefit established in this article, as well as for the reduction in the amount of the fine.

To this date, the Regulations of the Federal Economic Competition Law (the ‘Regulations’) do not cover the leniency policy, as they have not been revised since the Law was amended in 2006, although there is a pending amendment to these Regulations that further implements the leniency policy. Some references will be made to the draft revised Regulations, although of course the revised Regulations have not been issued by the President yet, and are therefore subject to further reviews/changes before they are enacted.

The Federal Competition Commission (‘FCC’) was established by the Law as a federal administrative agency within the Ministry of Economy, with technical and operative autonomy, responsible for preventing, investigating and combating monopolies, monopolistic practices and concentrations. The leniency policy, as part of the economic competition law, is also enforced by this Commission. The Board of the Commission is composed of five Commissionaires, who adopt their resolutions by majority vote.

2. What are the basic tenets of a leniency/immunity programme?

The leniency programme is based on Article 33 bis 3 of the Law, and it grants a benefit in the reduction of the penalties for incurring in absolute monopolistic practices, to those economic agents that obtain protection under it and satisfy the following requirements:

• to have incurred in an absolute monopolistic practice;
• to submit all the elements in its possession, and those that it may gather that, at the consideration of the Commission, evidence the existence of such practice;
• to cooperate fully and continuously with the Commission in the administrative investigation that the latter carries out and, if applicable, in the court proceedings;
• to take the actions required in order to end its participation in the illegal [absolute monopolistic] practice that infringes the Law; and
• to submit the information before the administrative investigation has concluded.

Relative monopolistic practices and illegal concentrations

The reforms to the Law enacted in June 2006 also included a ‘policy’, somehow similar to the leniency programme, that applies to those economic agents that participated in a relative monopolistic practice or in an illegal concentration1.

According to Article 33 bis 2 of the Law, an economic agent might agree in writing to suspend, suppress, correct or refrain from carrying out the relative monopolistic practice or prohibited concentration at any time during an administrative investigation on these anticompetitive practices.

In this case, such economic agent shall evidence that:

• the economic competition process might be restored to its original state once the effects of the monopolistic practice or illegal concentration have finished; and
• the means proposed in order to terminate or cease the effects of the monopolistic practice or illegal concentration are adequate and economically viable, specifying the timetable and the terms required for its verification by the authorities.

The Commission would suspend the administrative investigation for a period of 15 days, during which it would study the request and adopt a resolution. If the request is accepted, the administrative investigation could be terminated, and the Commission would impose a fine equivalent to one daily wage in Mexico City, and would order the termination of the illegal practice. Failure to comply with this resolution would trigger a fine in the amount of 1.5 million times the minimum wage prevailing in Mexico City.2

Relative monopolistic practices are defined in Article 10 of the Law, as follows: Subject to verification of articles 11, 12 and13 of this Law [eg that the economic agent has substantial power over the relevant market], relative monopolistic practices are deemed to be those acts, contracts, agreements or combinations, which aim or effect is to improperly displace other agents from the market, substantially hinder their access thereto, or to establish exclusive advantages in favour of one or several entities or individuals, in the following cases:

I. Between economic agents that do not compete among themselves, to fix, impose, or establish the exclusive distribution of goods and services, by means of subject, geographical location, or specific periods of time, including the division, distribution or assignment of customers and suppliers; as well as the obligation not to manufacture or distribute certain goods or services for a certain, determined period of time or that may be determined;

II. To set the prices or other conditions that a distributor or supplier has to abide by when marketing or distributing goods or providing services;

III. The sale or transaction conditioned to buy, acquire, sell or provide another additional good or service, normally different or that can be differentiated, or on the basis of reciprocity;

IV.

The sale or transaction subject to the condition of not using or acquiring, marketing or providing goods or services produced, processed or distributed or sold by a third party;

V.

The unilateral action consisting in refusing to sell or provide to specific individuals, goods or services available and normally offered to third parties;

VI. The agreement reached among several economic agents or the invitation extended to them to exert pressure against an economic agent or to refuse to sell commercialise or acquire goods or services to or from such other economic agent, in order to discouraging it from a specific behaviour, or as retaliation, or to force it to act in a specific manner;

VII The systematic sale of goods or services below their average total cost or their occasional sale below their average variable cost, when there are elements to presume that those losses will be recovered in future price increases, as determined in the Regulations of this Law. Regarding different goods or services produced jointly, or that might be divided for their commercialisation, the total average costs and the variable average costs shall be distributed among all the sub-products or by-products, as determined in the Regulations of this Law.

VIII.Granting discounts or incentives by producers or suppliers to the buyers, with the condition of not using, acquiring, commercialising or rendering goods or services produced, processed, distributed or commercialised by a third party, or the purchase or transaction subject to the condition of not acquiring, commercialising or rendering to a third party, those goods or services acquired under such sale or transaction.

IX.

Using the profits obtained by an economic agent, in the sale, commercialisation or rendering of goods or services, to finance losses suffered in the sale, commercialisation or rendering of other goods or services.

X.

To establish different prices or different sale or purchase terms and conditions for different buyers or sellers in the same condition.

XI. The action by one or several economic agent whose aim or effect, direct or indirect, is to increase the costs, create difficulties in the productive process, or reduce the demand of their competitors.

In order to determine if the practices established in this article must be penalised in accordance with this Law, the Commission shall analyse any efficiency advantages deriving from such conduct, that the economic agents involved demonstrate, and that have a favourable incidence in the economic competition and free market process. Such efficiency gains may include the following: the introduction of new products in the markets; the distribution of defective or perishable products; costs savings deriving from the creation of new techniques and production processes, the integration of assets, any increases in the scale of production, and the production of different goods or services using the same assets; the introduction of technological improvements that produce new or improved goods or services; the combination of productive assets or investments, and their return, improving the quality or expanding the benefits of goods or services; any improvements in the quality, investments or in their return, opportunity or service that have a favourable impact on the distribution chain; that do not cause a significant price increase, or a significant reduction in the options available to consumers, or an important reduction in the degree of innovation existing in the relevant market; as well as other efficiency gains that demonstrate that the net benefits for the consumers, deriving from such practices, are greater than their anticompetitive effects.’

Although the benefit under both programmes is similar (reducing the potential fine to the equivalent of one day of minimum wage), their scope and procedures are different. The basic purpose of an immunity programme is to create uncertainty among the participants in a cartel, by granting immunity to the first one to cooperate with the authorities. In a relative monopolistic practice, the economic agent is either acting unilaterally, or at least it is not usually an agreement between competitors, and thus the scope of this ‘policy’ established in Article 33 bis 2 is to facilitate the conclusion of a relative monopolistic practice, and of the corresponding administrative investigation. The procedure differs as well, as there is no ‘order of precedence’ in the case of relative monopolistic practices.

3. How many cartels have been unveiled and punished since the adoption of the leniency policy?

Even though the Law establishes that information about the beneficiaries of the leniency programme is confidential, we understand, from unofficial information from the Commission, that it hasn’t been used yet. This is probably the result of the legal provisions being quite new (as mentioned above the Law was amended in order to include the leniency programme a year ago) and not very extensive (only one article). Besides that, the Commission has not yet conducted a campaign to publicise the new leniency programme. One important factor preventing a wider use of the leniency programme is the lack of clearer rules implementing the provisions of the Law, in the Regulations of the Federal Economic Competition Law.

Besides, the Commission is conducting an internal reorganisation of its Directorate of Investigations, in order to separate the investigations on relative monopolistic practices from the investigations on absolute monopolistic practices (that will handle the leniency programme). The Director of this new area of absolute monopolistic practices has not been appointed yet.

This year, the Commission initiated an investigation on absolute monopolistic practices, in the corn-tortilla market, although the leniency programme was not used in this investigation.

4. What is needed to be a successful leniency applicant? Is documentary evidence required or is testimonial evidence sufficient?

The Law does not require documentary evidence to apply for protection under the leniency programme, although it is foreseeable that the Commission would be much more strict in its analysis before granting immunity to an applicant providing only testimonial evidence.

TIMING

5. What are the benefits of being ‘first in’ to cooperate?

The Law establishes that the first economic agent, among those involved in the cartel, that submits sufficient conviction elements in its possession and those that it can obtain, and that at the consideration of the Commission evidence the existence of the absolute monopolistic practice, shall receive a minimum fine [of approximately $4.60 US dollars].

It is interesting to note that although the Law only requires the applicant to submit information evidencing the existence of the absolute monopolistic practice, the web page of the Commission (www.cfc.gob.mx) states that protection under the leniency programme will be granted to the economic agent that submits enough evidence to allow the Commission to prove the existence of said practice.

6. What are the consequences of being ‘second’? Is there an ‘immunity plus’ or ‘amnesty plus’ option?

Article 33 bis 3 of the Law establishes that those economic agents participating in the absolute monopolistic practice that are not the first to seek protection under the immunity programme, might nonetheless receive a reduction in fines, provided they submit additional information that is not already in possession of the Commission, cooperate fully and continuously with the Commission, and terminate their participation in the relevant absolute monopolistic practice.

The Law establishes that the fine reduction may be up to 50, 30 or 20 per cent of the highest possible amount. The general interpretation of this provision (although the Law is not absolutely clear on this point) is that the economic agent that applies in second place might receive a reduction in fines up to 50 per cent, the third applicant might receive a 30 per cent fine reduction, and any other applicant after that might receive up to a 20 per cent fine reduction.

The Law refers to ‘the highest possible amount’. However, this is not generally interpreted to refer to the maximum possible fine that the Commission might impose for participating in an absolute monopolistic practice (1.5 million times the minimum wage prevailing in Mexico City3, according to Article 35, section IV of the Law), but rather to the maximum fine that the Commission eventually applies in the course of that specific administrative investigation.

7. Are subsequent firms given any beneficial treatment if they make a useful contribution? How are ‘useful contributions’ defined?

As mentioned in the answer to question 6, subsequent firms might obtain protection under the leniency programme, receiving up to a 30 per cent fine reduction for the third applicant, and a 20 per cent fine reduction for any applicant after that.

The Law establishes that the Commission shall determine the percentage of reduction in the fines applicable to such economic agents, taking into consideration the order in which the respective applications were filed, as well as the elements of conviction submitted.

The Law does not define ‘useful contribution’, and therefore leaves to the discretion of the Commission to determine which fine-reduction benefits, if any, it would grant to a firm that comes third or fourth, up to the fine-reduction limits established in the Law. It should be noted, however, that any subsequent applicant must provide additional information that is not already in possession of the Commission, and therefore the risk of not being able to obtain protection under the leniency programme increases significantly for those economic agents applying too late.

SCOPE/FULL LENIENCY

8. Is it possible to receive full leniency? And, if so, what are the conditions required to receive full leniency?

The Law establishes that the first economic agent that obtains protection under the leniency programme might receive a ‘minimum fine’, equivalent to one minimum daily wage (approximately $4.60 US dollars).

Congress might have considered that granting full leniency, with no penalty at all, to those economic agents that received protection under the leniency programme, might raise legal and constitutional issues, and might be more easily challenged by other economic agents fined in the same investigation, which probably explains why it established this minimum fine.

One consequence of this, however, is the fact that even the economic agent that receives protection under the leniency programme would be fined for its participation in an absolute monopolistic practice, which means that, if the same economic agent participates in another absolute monopolistic practice in the future, such economic agent might be deemed to have participated in a repeat offence, in which case the maximum fine that might be imposed is equivalent to the double of the maximum fine that might be imposed to first-time offenders, or ten per cent of its total sales during the prior year, or ten per cent of its assets, whichever is higher (Article 4 of the Law).

9. How many companies have received full immunity from fines to date?

Although the information on recipients of immunity under the leniency programme is confidential, our understanding is that no company has received immunity since the leniency programme was incorporated into the Federal Economic Competition Law in June 2006.

PROCEDURE/CONFIDENTIALITY

10. What are the practical steps required to apply for leniency?

The procedure to apply for protection under the leniency programme is not established in the Law. It will be included in the amended Regulations that are expected to be issued soon.

Currently, the procedure established by the Commission starts with the applicant requesting protection under the leniency programme by leaving a voice mail at a telephone number at the Commission, dedicated to this purpose, or by way of an email message to a specific email address (inmunidad@cfc.gob.mx), expressly stating its intention to receive protection under this programme, and providing its contact information. The Commission will automatically establish a code identifying this application, and any further communication will be made using this code. This code will be used to determine the order of precedence, in case more than one applicant approaches the Commission.

The Commission will, within two business days, contact the applicant, to inform him of the date and hour of the meeting to be held at the Federal Competition Commission, in order to review the information to be submitted. If the applicant fails to attend this meeting, the Commission will cancel the code and the application.

After this meeting, the Commission has 15 business days (which might be extended if needed), in order to inform the applicant if the information provided is deemed sufficient for initiating an investigation into the corresponding absolute monopolistic practice, as well as the order and percentage of fine reduction of the application. If the information provided by the applicant is deemed to be insufficient to initiate an investigation, the Commission shall return it to the applicant, cancelling both the application and the code.

11. Is there an optimal time to approach the regulatory authority?

The Law only establishes that the economic agent interested in receiving protection under the leniency programme must approach the Commission before the relevant investigation has concluded. Therefore, an economic agent might approach the Commission even if it has already started an investigation. The optimal time in any event is before the administrative investigation has started, as the applicant would have a better chance of being first, and therefore receiving ‘full’ leniency.

12. What guarantees of leniency exist if a party cooperates?

The Law specifies that ‘full’ leniency will be granted to the first economic agent that seeks protection under the leniency programme and complies with the applicable legal requirements.

However, the Commission has broad discretionary authority to determine if the applicant has met said requirements or not, including the obligation to cooperate fully and continuously with the Commission in the administrative investigation that the latter carries out and, if applicable, in the court proceedings, and to take the actions required in order to end its participation in the absolute monopolistic practice.

In particular, the applicant must submit all the elements in its possession, and those that it may gather that, at the consideration of the Commission, prove the existence of such monopolistic practice, at the consideration of the Commission.

Therefore, the Commission does have discretionary powers to determine if the elements provided by the applicant are enough to prove the monopolistic practice, and might refuse to grant protection if it deems they are not enough.

As mentioned in the answer to question 10, if the Commission decides to grant protection under the leniency programme, it will notify the leniency applicant within 15 days after their initial meeting. This procedure, however, is currently only an internal policy of the Commission, but it is expected to be included in the amendments to the Regulations to be published soon (probably in the second part of 2007).

13. Is confidentiality afforded to the leniency applicant and other cooperating parties? If so, to what extent?

The Law establishes that the identity of the economic agent that applies for protection under the leniency programme shall be kept confidential.

In accordance with the Law, the identity of those economic agents that apply for protection under the leniency programme is confidential and shall not be revealed by the Commission.

However, as mentioned before, the immunity programme was enacted recently, and therefore the competent courts (the Federal Courts of Administrative and Tax Justice and/or the constitutional courts) still need to determine if such confidentiality also applies during the court procedure that is likely to follow a resolution from the Commission concluding the administrative investigation (imposing fines on the rest of the economic agents that participated in the monopolistic practice).

In similar cases (like, for example, in nullity trials deriving from an antidumping investigation), these courts have determined that the parties involved in the nullity lawsuit have the right to review all confidential information that is in the administrative file, even though the corresponding law established that certain information was ‘confidential’.

14. What effects does leniency granted to a corporate defendant have on the defendant’s employees?

Until now, the Commission has only imposed penalties on corporations, and not on their employees, for infringements of the provisions of the Federal Economic Competition Law.

However, as part of the reforms carried out in 2006 to the Law, new fines were established against those individuals participating in monopolistic practices.

The revised Article 35 of the Law, in its section IX, establishes a fine of up to the equivalent of 30,000 days of minimum wage (approximately US$138,000) against those individuals that directly participate in a monopolistic practice or illegal concentration, on behalf of a legal entity, and on its section X establishes a fine of up to the equivalent of 28,000 days of minimum wage (approximately US$129,000) against those economic agents or individuals that cooperated, facilitated, induced or participated in a monopolistic practice, illegal concentration, or in any other undue restriction to the efficient functioning of the markets, in terms of the Law.

The Commission has expressed its interest in fining those employees that participated in the monopolistic practice. Thus, in order to be covered by the protection granted to a corporation under the leniency programme, the corporation must identify those employees that participated. Leniency granted to a corporation therefore does not automatically protect its employees.

The reverse is also true of course. Leniency granted to an individual that participated in an absolute monopolistic practice does not automatically cover his/her employer.

15. Does leniency bar further criminal or private enforcement?

Article 38 of the Law establishes that: “The economic agents that have suffered damages or losses resulting from the monopolistic practice or illicit concentration, may file a legal claim to obtain compensation for the damages and losses sustained. In that event, the court may request the Commission to estimate the amount of said damages and losses.”

The maximum fine that the Commission might impose on those economic agents that participated in an absolute monopolistic practice, is approximately $7 million. Therefore, by establishing the possibility of private enforcement to seek indemnification for damages or losses, the Law is establishing a further element that might help deter those practices, particularly regarding the largest corporations, where the fine alone might not be enough.

However, Mexican civil law makes it significantly difficult to seek indemnification for damages (a loss of patrimony, as a consequence of a breach of an obligation – Article 2108 Civil Code for the Federal District) or losses (any loss of any expected licit profit, that should have been obtained as a consequence of the fulfillment of an obligation – Article 2109 Civil Code for the Federal District) sustained as a result of an absolute monopolistic practice, as the claimant would have to demonstrate that those damages and/or losses are a direct consequence of such absolute monopolistic practice. There are no treble or punitive damages in Mexico.

In any event, the benefit granted by the leniency programme is limited to the reduction in fines, and therefore the leniency programme does not grant any legal protection against private enforcement.

REFORM/LATEST DEVELOPMENTS

16. Is there a reform underway to revisit the leniency policy? What are the latest developments?

Since its creation in 1993, the Federal Competition Commission has had a significant success in the protection of the process of competition and free access to markets, punishing different monopolistic practices that were quite common in Mexico, and that severely hampered economic competition.

However, even though, as stated by one former Commissionaire “from the experience of the Commission it is possible to deduce the existence of cartels in a large number of sectors4” its success in fighting cartels has been limited.

This Commissionaire identified two factors in explaining this limited success: (i) the fact that the Commission lacked the authority to conduct verification visits in the course of its investigations, in order to obtain the evidence required to sanction cartels; and (ii) by the lack of an immunity programme that “might assist the Commission in increasing its capability to fight these conducts without using additional resources. For several years, the Commission has considered that a programme of these characteristics is crucial in fighting absolute [monopolistic] practices, as these conducts are the most difficult to detect and prove as a consequence of the extreme secrecy in which the cartel participants operate. Immunity programmes might break this link and encourage the economic agents to denounce them to the authorities.”

The reforms made in 2006 to the Federal Economic Competition Law address both issues. They not only included a leniency programme, but also granted new powers authorising the Commission to carry on verification visits into any domicile where it presumes there is information required in an investigation.

Even though these reforms to the Law established that the Commission must request the authorisation from the competent courts in order to carry on said visits, the Supreme Court has just recently established, while deciding on a constitutionality lawsuit initiated by the Attorney General of the Republic against several provisions of the Law (including those regarding verification visits), that it was unconstitutional to require the Commission to request the authorisation of the competent courts.

Thus, it is clear that the Commission will increase its actions against absolute monopolistic practices in the future.

The following step is to further implement the leniency programme in the Regulations of the Federal Economic Competition Law. The Commission published a draft Regulation for comments, that has been circulating for several months. The Regulations are currently under the final steps of review at the Federal Commission on Regulatory Improvement (‘Comisión Federal de Mejora Regulatoria’), and therefore it is possible that they will be enacted in the second part of 2007.

FOOTNOTES