Leniency Regimes

Webber Wentzel Bowens Anthony Norton

BACKGROUND

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

In its attempts to detect, stop and prevent cartel behaviour, the Competition Commission (‘the Commission’), in line with other international jurisdictions, introduced its own Corporate Leniency Policy (‘the CLP’) in February 2004 to facilitate the process through which firms participating in cartel behaviour are encouraged to disclose information in return for immunity from prosecution.

The CLP exists within the context of the South African competition legislation, being the Competition Act 89 of 1998, as amended (‘the Act’). The Commission was established in terms of the Act to, inter alia, investigate, control and evaluate restrictive practices and abuse of dominant position. The overriding purpose of the Act is to promote and maintain competition in the economy and to prevent any form of anti-competitive conduct by a firm or a group of firms arising from agreement. The relevant section of the Act for the purposes of the CLP is section 4(1)(b) which reads as follows:

‘4. Restrictive horizontal practices prohibited

(1) An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if –

(b)

it involves any of the following restrictive horizontal practices:

(i)

directly or indirectly fixing a purchase or selling price or any other trading condition;

(ii)

dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii) collusive tendering.’

The CLP is applicable only in respect of cartel activities – ie, conduct constituting a per se prohibition in terms of section 4(1)(b) of the Act. The exact legal status of the CLP is unclear, given that there is no express provision of the Act which enables the Commission to publish a leniency policy. Moves are currently underway to formalise the CLP as part of the Act. Notwithstanding uncertainty as to its legal status, there have been a number of successful applications for leniency in terms of the CLP.

Currently, the CLP is aimed purely at providing guidance and is not binding on the Commission, the Competition Tribunal (‘the Tribunal’) or the Competition Appeal Court (‘the CAC’).

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

The underlying purpose of the CLP is to uncover and prosecute firms involved in hardcore cartel behaviour. A cartel is an association by agreement (which would include an understanding) between competing firms to engage in price fixing, bid-rigging, customer and territorial allocation agreements, output restriction agreements, division or allocation of markets, and/or collusive tendering. The CLP was adopted in an effort to encourage self-reporting of cartel behaviour. In order to qualify, corporate applicants have to come forward prior to the Commission’s initiation of its own investigation of the conduct in question. Essentially, this means that the corporation has to apply for immunity in relation to conduct of which the Commission had previously been unaware. The goal of the CLP is to encourage increased applications for immunity from prosecution. The CLP’s architects hoped to do this by increasing the benefits to those companies which apply for immunity, while at the same time increasing the risks for those which do not.

The CLP enables the Commission, at its discretion, to grant a cartel member which is first to approach the Commission immunity or indemnity for its participation in the cartel activity, subject to agreeing to cooperate with the Commission.

It is envisaged that a leniency regime in the nature of the CLP adopted by the Commission, will lead to the detection and expeditious finalisation of cases that otherwise would have been difficult, if not impossible, to resolve. The CLP seems to be an amalgamation of immunity policies adopted from competition authorities in the European Union, Canada, Australia, the United Kingdom and the United States of America. The general requirements for granting leniency appear to be substantially the same and consistent with these jurisdictions, except that the US policies provide for automatic leniency subject to certain criteria being fulfilled, whereas both the EU and South African corporate leniency policies preserve their respective Commission’s discretion to grant leniency as they deem fit.

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

To date there have been 11 applications for corporate leniency in South Africa. As far as we are aware, only one of these has resulted in the successful conclusion of the Commission’s investigation. We understand that the other investigations and prosecutions linked to applications under the CLP are still pending.

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

An applicant for immunity under the CLP will qualify for total immunity provided it meets the following requirements:

• the applicant must honestly provide the Commission with complete and truthful disclosure of all evidence, information and documents in its possession or under its control relating to the cartel activity;
• the applicant must thereafter offer full and expeditious cooperation to the Commission concerning the reported cartel activity. Such cooperation should be continuously offered until the Commission’s investigations are finalised and the subsequent proceedings in the Tribunal are completed;
• the applicant must immediately stop the cartel activity or act as directed by the Commission;
• the applicant must not have been the instigator of, or coerced other firms to be part of, the cartel activity; and
• the applicant must not alert former cartel members that it has applied for leniency.

TIMING

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

Only a firm that is ‘first to the door’ to confess and provide information to the Commission in respect of particular cartel activity will potentially qualify for complete immunity at the Commission’s discretion.

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

If other members of the cartel wish to come clean on their involvement in a cartel to which the applicant has already confessed, the Commission may explore other processes outside the CLP, which may result in the reduction of a fine, or a consent order. In the event that the matter is referred to the Tribunal for adjudication, the Commission may consider asking the Tribunal for favourable treatment of the applicants which were not first to apply for leniency. Favourable treatment implies a substantial or minimal reduced fine from the one prescribed, which will be dictated by the nature and circumstances of each case, as well as the level of cooperation given.

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

Those members of a cartel which are not the first to confess but subsequently cooperate fully with the Commission, although not qualifying for immunity, could qualify for a reduction in the administrative penalty imposed for their contravention of the Act. There is no definition of ‘useful contributions’ in the CLP.

SCOPE/FULL LENIENCY

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

The CLP provides for conditional and/or total immunity. The levels of immunity are broadly as follows:

• Conditional immunity is a precursor to total immunity or no immunity and is normally given to an applicant at the initial stage of the application, so as to create a positive atmosphere and trust between the applicant and the Commission pending the finalisation of the leniency process. Once the Commission finalises its preliminary investigations and is of the view that it has sufficient evidence to institute proceedings in respect of the reported cartel conduct, it will grant the cooperating applicant total immunity. The Commission reserves the right to revoke the conditional immunity if the applicant does not cooperate.
• Total immunity is granted to a successful applicant which has fully met all the conditions and requirements, has not previously been found guilty of engaging in cartel activity in terms of the Act, and has not been the instigator or the leader of the cartel in question.
• No immunity refers to the situation where the Commission does not grant any immunity because the applicant failed to meet its conditions and requirements. Immunity is also not extended to applicants which are found to be dishonest in their applications, so that the process does not achieve the intended purpose. Once the Commission has decided to reject an application for immunity, it can pursue a complaint against the applicant on the basis of its unlawful behaviour. The Commission can also consider a consent order (where appropriate) or, where the matter is referred, ask for a reduction in the fine.

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

The highly confidential nature of the CLP’s process means that certain cases of granting conditional immunity or total immunity are not disclosed publicly until prosecution of the other cartel members has commenced.

To date we are aware of 11 immunity applications under the CLP. Comair Limited was the first firm to be successful in this endeavour, having provided information in relation to the Commission’s investigation into price fixing in the airline industry. Claims against South African Airways, SA Airlink, SA Express and Nationwide Airlines were referred to the Tribunal in relation to the simultaneous introduction of a fuel surcharge by each of the parties. Comair, although also a party to the introduction of the surcharge, received total immunity under the CLP and was not referred to the Tribunal for prosecution. Although no other firm has been successful in attaining total immunity, the Commission has, since Comair, extended conditional immunity to eight other CLP applicants. It may in due course grant total immunity to some of these firms.

PROCEDURE/CONFIDENTIALITY

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

The procedure to be followed is this:

• First contact with the Commission. The applicant must apply for leniency in writing to the Commission. The application must be sufficiently detailed to enable the Commission to identify the cartel conduct and its participants.
• First meeting with the Commission. The applicant must disclose all the relevant information, evidence and documents at its disposal relating to the cartel activity for consideration by the Commission and must be prepared to answer questions the Commission may ask in relation to the conduct being reported or any other incidental matters. The Commission must within five days, or within a reasonable time after the date of the first meeting, decide whether or not the applicant’s case qualifies for consideration and inform the applicant in writing. If the Commission is satisfied that the applicant qualifies for consideration, arrangements for a second meeting will be made. At this stage the applicant would officially be considered as the first applicant in respect of the cartel activity in question.
• Second meeting with the Commission. At the second meeting the Commission will discuss and grant the applicant conditional immunity, pending finalisation of any further investigations. At this stage the applicant will be required to bring forward any other relevant information or evidence that it may still have in its possession or under its control. The Commission has to maintain confidentiality over all information, evidence and documents given to it throughout the process.
• Investigations, analysis and verification. After the granting of conditional immunity, the Commission will carry out its investigations relating to the cartel activity. A final meeting is arranged once the Commission has analysed and verified all information and/or documents and is satisfied that all the conditions and the requirements are met. The Commission may at this point use all methods and tools provided in the Act including interviews, subpoenas, search and summons to investigate any firm or firms which it believes could assist.
• Final meeting. After the Commission has completed its initial investigation and is satisfied that it has sufficient information to institute proceedings against the parties which have engaged in the restrictive horizontal practice, it will convene a meeting with the applicant in order to grant total immunity, which will replace conditional immunity. Total immunity will be conveyed in writing.

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

The applicant should approach the Commission as soon as reasonably possible, even if supporting documentation has not been prepared. Obtaining conditional immunity is of the utmost urgency (rather like the US system of getting a marker). Full disclosure can be made at the second meeting with the Commission, in order to secure full immunity.

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

The Commission has a discretion whether or not to grant immunity and there are no guarantees that immunity or leniency will be granted, even if the applicant cooperates fully with the Commission. The reservation of this discretion creates considerable uncertainty for corporations wishing to utilise the CLP process.

It is often a hugely significant step for any corporation to apply for corporate leniency given the risk attached to subsequent civil litigation which may result from the application for leniency. It would seem that more corporations would be prepared to take the leap of faith and apply for corporate leniency if they were certain of being granted leniency subject to the fulfilment of specific criteria. The principal flaw in the CLP is that only the first through the door will potentially qualify for immunity and will be granted immunity, at the Commission’s discretion, and only if the Commission is of the view that it has sufficient evidence to instigate proceedings against the parties in question. Uncertainty also results from the Commission having the discretion to refuse to grant immunity where the Commission feels that it had sufficient evidence in relation to the cartel before the CLP application was made. It would be preferable if the CLP followed the example of the US leniency policy, where the applicant for leniency is certain of qualifying if they satisfy specific criteria.

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

The CLP process is undertaken on a confidential basis. The disclosure of any information submitted by the applicant prior to immunity being granted would only be made public with the consent of the applicant, provided such consent is not unreasonably withheld.

CONSEQUENCES

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

Contraventions of the Act do not carry criminal sanctions and usually the entity liable for leniency will be a corporate entity.

According to the provisions of the CLP, the reporting of cartel activity by individual employees of a firm or by a person not authorised to act for such a firm would simply amount to a disclosure by the employee concerned in his/her individual capacity and will not constitute an application for leniency under the CLP.

The CLP does not provide for the protection of an individual employee who wants to report a prohibited practice. In other words, employees cannot apply for leniency themselves, and if in their personal capacity they disclose evidence to the Commission about their firm’s cartel activity, then they are treated as whistleblowers and the firm does not qualify for leniency.

15. Does leniency bar further criminal or private enforcement?

The Act does not carry criminal sanctions. If the conduct for which immunity is granted constitutes criminal conduct or contravenes another statute, the granting of immunity under the CLP will not shield a firm from any criminal or other action that may arise from the cartel conduct in respect of which the Commission has granted immunity. In addition, immunity cannot preclude private prosecution, although it may avoid the imposition of penalties.

REFORM/LATEST DEVELOPMENTS

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

It is anticipated that the imminent amendment to the Act will provide statutory recognition for the CLP.