BACKGROUND
1. What is the relevant legislation containing the leniency policy and what is the enforcing body?
Section 36 of the Competition Act 1998 provides the Office of Fair Trading (OFT) with the power to impose a financial penalty on any undertaking which has intentionally or negligently infringed the competition provisions in the EC Treaty or the Competition Act 1998.
The OFT is required to prepare and publish guidance on the application of penalties (section 38 of the Competition Act 1998). The OFT must have regard to this guidance when setting the amount of the penalty. The leniency policy was introduced on 1 March 2000 at the same time as the Competition Act 1998 came into effect, as part of the penalty guidance.
A revised OFT guidance as to the appropriate amount of a penalty, OFT 423 (the OFT’s Penalty Guidance), which sets out the OFT’s revised leniency policy was approved by the Secretary of State for publication on 21 December 2004.
There is an equivalent policy offering individual immunity from prosecution for individuals who may be exposed to the criminal cartel offence under section 188 of the Enterprise Act 2002. The offence covers dishonestly agreeing with one or more other persons that undertakings will fix prices, limit supply or production, share markets or be involved in bid-rigging arrangements in the United Kingdom. The offence only covers horizontal infringements and only the OFT or the Director of the Serious Fraud Office is able to prosecute individuals for cartel conduct. The immunity available to individuals takes the form of no-action letters which are issued by the OFT under the OFT Guidelines The cartel offence: guidance on the issue of no-action letters for individuals, OFT 513. Section 190(4) of the Enterprise Act 2002 prevents proceedings for the cartel offence being brought against a person who has received notification from the OFT that proceedings will not be brought within the description specified in the notification.
In November 2006, the OFT published its Draft final guidance note on the handling of applications (the draft Leniency Guidance Note). The draft Leniency Guidance Note sets out the detail of how the OFT will handle leniency and immunity applications and in this respect supplements and elaborates on the procedures set out in the OFT’s Penalty Guidance and the OFT Guidelines on the issue of the no-action letters. The draft Leniency Guidance Note does not replace these documents.
The draft Leniency Guidance Note follows an Interim Note published by the OFT in July 2005. The OFT is currently consulting on the draft Leniency Guidance Note with a view to it becoming final guidance. The OFT has been unable to confirm when the draft Leniency Guidance Note will become final but has indicated that the procedures set out in draft Leniency Guidance Note will govern leniency applications and requests for no-action letters in the meantime.
The principal enforcement agency is the OFT, however non-criminal leniency applications can be submitted to the relevant sector regulator if the cartel activity occurs in one of the sectors subject to sector-specific regulation (broadcasting and telecommunications, electricity and gas, water, rail and civil aviation).
The European Commission’s leniency policy operates in parallel with the OFT’s leniency policy in respect of cartel activity which amounts to a breach of Article 81 of the EC Treaty.
Where an infringement has an effect on trade between states, prospective applicants will need to consider whether a leniency application should be submitted to the European Commission under the European Commission’s Notice on immunity from fines and reduction of fines in cartel cases (OJ C298/17, 08/12/06) (the EC Leniency Notice) instead of, or simultaneously with, an application to the OFT and/or another EU member state’s national competition authority.
Quite separate from the OFT’s leniency policy, is the availability of a reduction in fines for mitigating factors, including cooperation which enables the enforcement process to be concluded more effectively and/or speedily. The OFT has, however, made it clear that undertakings benefiting from the leniency programme (a condition of which is their full cooperation) will not receive an additional reduction in financial penalties under this head to reflect general cooperation.
2. What are the basic tenets of the leniency/immunity programme?
The OFT leniency programme covers undertakings which have participated in cartel activities and wish to terminate their involvement and inform the OFT of the existence of the cartel activity. The concept of cartel activity is defined very broadly as an agreement which infringes Article 81 of the EC Treaty and/or the Chapter 1 prohibition in the Competition Act 1998 and involves price fixing. The following agreements are classified as cartel activity (and can hence be the subject of a leniency application):
Total immunity will be automatic if the information is provided before the OFT has begun an investigation and the OFT does not already have sufficient information to establish that a cartel exists. The OFT has identified this as a ‘Type A’ case. A successful applicant in a Type A case will need to supply the OFT with information that provides the OFT with a sufficient basis to take forward a credible investigation. All current and former employees and directors of a Type A applicant will benefit from blanket immunity from the criminal cartel offence.
Type A immunity will be available until the OFT has commenced a civil or criminal investigation, the OFT has ‘sufficient information’ to establish the existence of an infringement of the Competition Act 1998 or bring a successful criminal prosecution, or, another undertaking has applied for Type A immunity (or an individual has applied for Type A individual immunity).
Total immunity is discretionary if the OFT has already commenced a civil or criminal investigation but does not yet have sufficient information to establish the existence of a cartel infringement (or, in the case of a criminal investigation is not in the course of gathering sufficient information to bring a successful prosecution). The OFT has identified this as a ‘Type B’ case. In practice, approaches to the OFT in Type B cases are most likely to be triggered by inspections (including ‘dawn raids’). In order to qualify for Type B immunity, an applicant must be the first undertaking to apply for immunity and must provide information that adds ‘significant value’ to the OFT’s investigation. In Type B cases, all current and former employees and directors of the successful applicant will benefit from blanket immunity from the criminal cartel offence.
While the OFT has indicated that the grant of total immunity will be the norm rather than the exception in Type B cases, Type B immunity is less likely to be available where there is a pre-existing criminal investigation. This is because the OFT believes that the blanket individual immunity, which follows a grant of Type B civil immunity is less likely to be in the public interest where there is a pre-existing criminal investigation. In light of this, when there is existing criminal investigation, the OFT may contemplate the grant of civil immunity (full leniency) to the undertaking without the automatic blanket immunity to its current or former employees or directors.
Partial leniency (a reduction in financial penalty of up to 50 per cent) may be available where the undertaking is not the first to come forward with information and there is a preexisting civil or criminal investigation. The OFT has identified this as a ‘Type C’ case. Partial leniency may also be available where the undertaking would have qualified for total immunity had it not coerced other undertakings to join the cartel. Employees and directors of a Type C applicant do not receive blanket immunity from the criminal cartel offence and the OFT will assess whether to grant immunity on an individual-by-individual basis.
In order for an individual to be eligible to obtain immunity via the grant of a no-action letter, the individual must meet the following conditions:
Immunity will be automatic for current and former employees and directors of an undertaking which has qualified for Type A or Type B immunity. Current and former employees and directors of an undertaking which has qualified for Type C immunity will not benefit from automatic immunity and the OFT will consider whether to grant immunity on a case by case basis.
An individual is also able to request a no-action letter directly from the OFT. An individual will be granted immunity if he or she is the first to talk to the OFT. If there is already a criminal investigation, but the individual informs the OFT before any other individual or undertaking, the individual will still be granted individual immunity provided they add value to the investigation and so long as they comply with the cumulative conditions set out above.
An application for leniency to the OFT will not count as an application for leniency to any other national competition authority within the European Community or to the European Commission. If the infringement has or had an effect on another EU member state, prospective applicants should consider whether to apply for leniency to the national competition authority of another EU member state, in addition to the OFT and/or to the European Commission. Given the importance of timing in most leniency programmes, the applicant will also need to consider whether it would be appropriate to file leniency applications with the relevant authorities simultaneously.
Where the effects of the cartel activity are felt in more than three EU member sates, the European Commission’s Notice on cooperation within the network of competition authorities (OJ C101, 27/4/04) (the EC Network Notice) indicates that the European Commission is likely to be considered best placed to carry out the investigation. A leniency application should therefore be submitted to the European Commission under the EC Notice on Immunity when this is the case. However, while a leniency application to the European Commission may address a potential Article 81 infringement, the applicant may still be exposed under UK competition law (or the competition law of another EU member state) and simultaneous applications to the national competition authorities of the EU member states where the cartel activity has had an effect may be advisable.
3. How many cartels have been unveiled and punished since the adoption of the leniency policy?
The leniency policy was adopted when the Competition Act 1998 came into force in March 2000. There have been 16 infringement decisions of the OFT relating to cartel activity, including resale price maintenance infringements (as at 1 May 2007). In most cases where leniency was sought and obtained, the application for leniency followed the commencement of an investigation by the OFT (Type B immunity). While the availability of Type A immunity appears to have had only a minimal impact in terms of infringement decisions, it is possible that there are a number of Type A immunity applications which did not result in a formal infringement decision or for which a formal infringement decision is still outstanding.
4. What is needed to be a successful leniency applicant? Is documentary evidence required or is testimonial evidence sufficient?
The conditions for obtaining leniency and individual immunity are set out in question 2. The OFT will offer an undertaking a ‘marker’, reserving the undertaking’s place in the ‘leniency queue’ following an oral request for immunity. In order to perfect the marker in a Type A case the information provided by the applicant must provide the OFT with a sufficient basis to take forward a credible investigation. In a Type B case, the undertaking must provide information to the OFT that adds value to the OFT’s investigation. In all cases, the applicant is required to provide the OFT with all information, documents and evidence available to it regarding the cartel activity. Therefore copies of any agreement, file note or correspondence which contain details of the cartel activity must be provided in order to ‘perfect’ the marker. The applicant will normally be required to produce this evidence promptly. It is also common for key personnel directly involved in the cartel activity to provide a written statement setting out the details of the cartel activity, the relevant time scale, and the undertaking’s degree of involvement, and make themselves available for an interview by the OFT.
The entire application for leniency can be oral, but if it is an oral request, all pre-existing written evidence of the cartel will need to be provided to the OFT and all witnesses will also need to be made available for interview and to sign witness statements setting out their evidence.
Individuals who have sought immunity (or on whose behalf immunity is sought) will need to be available for interview and will need to admit to the criminal conduct for which the no-action letter is granted – including an admission of dishonesty. However, individuals who performed only a peripheral role (or who were involved in a cartel which is not at the serious end of the scale) may instead be granted a comfort letter (for which an admission of dishonesty will not be required).
If the OFT determines that the conditions for individual immunity have not been fully complied with or that the applicant knowingly or recklessly provided information that is false or misleading, the OFT may revoke the grant of immunity from prosecution. On revocation, the grant of immunity will cease to exist, as if the immunity had never been granted and any information provided by the applicant may be used against him or her in criminal proceedings.
TIMING
5. What are the benefits of being ‘first in’ to cooperate?
Total immunity is only available to the first undertaking to come forward and provide the OFT with information relating to the cartel activity. Undertakings which are not the first to come forward are not eligible for total immunity. Current and former employees and directors of an undertaking that has obtained Type A or Type B are also guaranteed individual immunity from prosecution for the criminal cartel offence. This creates another incentive to come forward and seek leniency prior to another cartel member.
6. What are the consequences of being ‘second’? Is there an ‘immunity plus’ or ‘amnesty plus’ option?
Undertakings which come forward and provide evidence of cartel activity before a statement of objections but which are not the first to come forward (Type C case) may be granted partial leniency – a reduction of up to 50 per cent in the amount of the financial penalty which would otherwise be imposed. Partial leniency is also available where an undertaking does not qualify for total immunity, for example, if the undertaking is found to have coerced another undertaking to participate in the cartel activity. Current and former employees and directors of an undertaking which has received partial leniency are not guaranteed immunity from the criminal cartel offence, and the OFT will assess the position of the employee or director on an individual basis, taking into account the value that would be added by the applicant and whether the grant would be in the public interest.
The UK leniency programme does offer an ‘amnesty plus’ option. The OFT Penalty Guidance provides that an undertaking cooperating with the OFT in relation to cartel activities in one market which informs the OFT about a separate cartel in another market, will receive a reduction in fines in relation to its activities in the first market if the undertaking obtains full leniency in relation to activities in respect of the cartel in the second market. In the draft Leniency Guidance Note, the OFT makes clear that there should not be undue focus on market definition and the key issue is whether the novel evidence relates to a ‘completely separate cartel activity’ (or conspiracy). The fact that the activity is in a separate market is a good indicator but not decisive. The reduction in fines under the ‘amnesty plus’ option is additional to the reduction which the undertaking would have received for its cooperation in relation to the first cartel activity alone.
There are at least three examples of undertakings receiving the benefit of the ‘amnesty plus’ programme. In the Price Fixing of Replica Football Kit case (1 August 2003), one undertaking received a 25 per cent reduction in penalty as it had been granted total immunity from financial penalties with respect to other infringements while Pirie Group received an additional reduction under the ‘amnesty plus’ programme in both the Scottish Mastic Asphalt Flat Roofing collusive tendering case (8 April 2005) and the Flat Roof/Car Park Surfacing collusive tendering case (23 February 2006). The total reduction in penalty Pirie received in both cases was 55 per cent, but the exact amount of the uplift that Pirie Group received as a result of obtaining total immunity with respect to other infringements is not set out in either decision. These decisions were all taken prior to the introductions of the Draft Leniency Guidance Note, and the OFT’s approach to identifying separate cartel activity may differ to the approach indicated in these cases (given the indication in the draft Leniency Guidance Note that the OFT will not unduly focus on the market definition in identifying separate cartel activity).
7. Are subsequent firms given any beneficial treatment if they make a useful contribution? How are ‘useful contributions’ defined?
All undertakings which provide evidence of cartel activity to the OFT before a statement of objections is issued may be granted partial leniency: a reduction of up to 50 per cent in the amount of the financial penalty which would otherwise be imposed (a Type C case).
The grant of partial leniency is discretionary and the OFT must be satisfied that the undertaking should benefit from a reduction taking into account the stage at which the undertaking comes forward, the evidence the OFT already has, and the evidence provided by the undertaking. In the Public Schools case, the OFT declined to grant leniency to a number of schools which approached it during the later stages of the investigation.
Further, in certain instances it appears that the OFT may, once a significant amount of evidence has been received, close the door on leniency investigations. This is the case in respect of the OFT’s largest cartel investigation (on-going as at 1 May 2007), which related to bid-rigging in the construction industry. The OFT announced on 22 March 2007 that in view of the extent and quality of evidence received so far, no further applications for leniency in connection with that investigation would be accepted. The OFT has however offered a reduced penalty to all those companies implicated in the bid rigging investigation but have not yet applied for leniency and are willing to cooperate with the OFT. This fast track procedure is discussed below in response to question 18.
The employees or directors of an undertaking which obtains partial leniency will not benefit from automatic immunity from the criminal cartel offence and the OFT will consider, on a case by case basis whether to grant immunity to such individuals, taking into account the value that they add to the assessment of the case and whether the grant of immunity would be in the public interest. However, as the OFT points out in the draft Leniency Guidance Note, in most cases where a Type C approach is made, the OFT is not pursuing a criminal investigation and has no intention of initiating one, and the OFT suggests that an applicant for Type C leniency could seek confidential guidance from the OFT (on a no-names basis if required) to ascertain whether there is in fact any criminal exposure for the undertaking’s current and former employees and directors.
As at 1 May 2007 partial leniency had been granted in 11 cases. The lenient treatment granted ranged from a 20 per cent to 50 per cent reduction in the financial penalty that would have been imposed (and up to 55 per cent where the undertaking also qualified for a reduction under the ‘amnesty plus’ policy).
SCOPE/FULL LENIENCY
8. Is it possible to receive full leniency? And, if so, what are the conditions required to receive full leniency?
The conditions for receiving full leniency (and individual immunity) are set out under questions 2 and 4.
The draft Leniency Guidance Note provides further guidance on the application of the conditions and makes it clear that an applicant can still meet the second condition (the cooperation obligation) if a current or former individual employee or director fails to cooperate with the OFT’s investigation. However, an applicant will need to be able to show that it used its best endeavours to secure the cooperation of the individual, and that it overall continues to be able to provide the OFT with sufficient evidence of the reported cartel activity to pass the threshold. It should also be noted that an applicant’s general obligation to cooperate includes a positive duty to inform the OFT immediately if it has any concerns as to the level of cooperation provided by any current or former employees or director, and in particular, if it has concerns regarding the completeness and/or accuracy of any statements made.
In respect of the fourth condition (‘the coercer test’), the draft Leniency Guidance Note provides that there must be evidence of clear, positive and ultimately successful steps from a participant (the ‘coercer’) to pressurise an unwilling participant to take part in a cartel.
The OFT has indicated that there may be coercion in the following situations:
large participant organises a collective boycott of a small participant or refuses to supply
key inputs to a small participant. The OFT notes that these scenarios are more likely to
apply in cases where there is a ‘significant vertical element’ and are less likely to be
relevant when the arrangement is horizontal and there is not significant cross supply
between the parties.
The bar is high in relation to both the ‘coercive behaviour’ and the evidence necessary to prove that behaviour and the OFT has indicated that there is not coercion in the following scenarios:
The OFT has, to date, never refused corporate immunity on coercion grounds. Even if an undertaking were to lose automatic corporate immunity as a result of being found to be a ‘coercer’, the undertaking will still be eligible for up to a 50 per cent reduction in penalty; and the undertaking’s current and former employees or directors (except for the rogue coercing employee(s)) would retain their individual immunity.
Where immunity for individuals is concerned, given that the cumulative conditions also apply to such applicants, it will be clear that there is also a coercer condition which could prevent an individual obtaining immunity by virtue of his or her role in coercing another undertaking to take part in the cartel. The coercer test for individual immunity is aligned with that of the undertaking seeking civil immunity and requires there to have been an undertaking which was coerced and, in most cases, an undertaking (rather than individual) which carried out the coercion. The OFT has confirmed that if an undertaking is not found to be a coercer, no employee or director of the undertaking will be refused individual immunity on the coercer ground, save in any exceptional circumstances where somehow an employee or director enjoyed a position of power independent of their position within the undertaking and used it to coerce another undertaking. If an undertaking is found to be a coercer, it is only those individuals within the undertaking who themselves play a coercing role who will be unable to obtain individual immunity. Employees and directors who did not perform a coercing role will not be denied individual immunity on coercer grounds.
9. How many companies have received full immunity from fines to date?
As at 1 May 2007 the OFT had issued 16 infringement decisions for cartel activity (including resale price maintenance) since the Competition Act 1998 came into effect and the leniency policy has been available. Of the 16 infringement decisions, full immunity was granted to an undertaking in 11 cases. One company received full immunity in three cases involving flat roofing cartels.
Partial leniency was granted to an undertaking in 10 out of the 11 cases where full immunity was obtained, and in two other cases where full immunity was not obtained by any undertaking subject to the infringement. In at least two cases a company received the benefit of the leniency plus regime.
Even when a leniency application triggers an investigation by the OFT, the OFT may decide not to proceed to a formal decision. It is possible that a number of undertakings may have sought leniency but no infringement decision was reached. In addition, there will be a number of cases where leniency has been applied for and granted but an infringement decision is still awaited.
PROCEDURE/CONFIDENTIALITY
10. What are the practical steps required to apply for leniency?
Prior to seeking leniency, the legal representative of an undertaking or an individual can request confidential guidance from the OFT. Guidance can be sought as to:
This initial approach is always on a no-names basis and involves a discussion based on hypothetical facts. The OFT will give its view by which it will consider itself bound as long as a leniency application follows in a reasonable period of time, no false or misleading information is provided and there is no material change of circumstances.
A legal adviser seeking to ascertain (on a confidential basis) whether Type A immunity is still available will need to provide oral confirmation to the OFT that he or she has obtained conditional instructions to apply for a marker if the OFT informs him or her that Type A immunity is available to the undertaking (a professional undertaking will not however be required). The legal advisor will need to provide sufficient information to allow the OFT to determine whether there is a pre-existing civil or criminal investigation.
If the OFT confirms that Type A immunity is available, the legal adviser must disclose the identity of his or her client and apply for immunity then and there, providing the information that is necessary to secure the marker (the details of the suspected infringement and the evidence that has been uncovered). If, on the other hand, the OFT indicates that Type A immunity is not available the legal adviser and his or her client are free to consider other options.
A legal adviser may also seek to ascertain whether another undertaking has already sought immunity Type B (ie whether Type B immunity is still available). The OFT will inform the legal adviser whether Type B immunity is available in principle without requiring the legal advisor to identify the undertaking or that the undertaking make an immediate application for immunity.
The OFT will not use information provided in connection with obtaining confidential guidance and will not try to ‘reverse engineer’ the information in order to establish the undertaking’s identity. Where, however, an applicant acted in bad faith (eg a manifest failure to cooperate), the OFT reserves the right to use that information against the failed applicant.
After an undertaking has obtained confidential guidance or otherwise decided to apply for leniency, the undertaking should obtain a marker in order to secure his or her place in the leniency queue.
When an undertaking’s legal advisor has been informed that Type A immunity is available, this step must be taken immediately by the undertaking’s legal representative on behalf of the undertaking. An undertaking may also request a marker during or immediately after a ‘dawn raid’ but the OFT may have to defer providing a definite answer. However, if requested, the OFT could provisionally mark the undertaking’s position in the queue. Where an application is made during a ‘dawn raid’ or other inspection, the inspection will continue in its normal way.
In other circumstances it is usual for an undertaking to contact, by telephone, the Director of Cartel Investigations at the OFT (or if the cartel activity occurred in one of the regulated markets, contact can be made with the equivalent to the Director of Cartel Investigations at the relevant regulator). This step needs to be taken by an individual that has the authority to represent the undertaking.
In order to obtain the marker the representative must identify the concrete basis for the suspicion that the undertaking has engaged in cartel activity, specify the nature and emerging details of the potential infringement and the evidence that has been uncovered.
Crucially, in nearly all cases, the representative will be required to identify the undertaking seeking immunity. As an exception to this general rule, the OFT will allow a ‘no-names’ marker where the undertaking’s representative confirms that the undertaking intends to apply to the European Commission for immunity under the EC Leniency Notice. The undertaking’s representative will need to identify him or herself, his or her firm, and sufficient details of the affected sector in order to enable the OFT to determine whether there is a pre-existing UK civil or criminal investigation. Once the no-names marker is obtained, the applicant will be required to revert to the OFT by an agreed date to confirm that an application has been made to the Commission, the identity of the applicant and the details of the suspected infringement and underlying evidence. If Commission immunity is no longer available, the applicant may withdraw the request for the no-names marker, without revealing its identity. Alternatively, the applicant may decide to keep its OFT marker (which would need to perfected in the normal way). In other cases, the applicant will need to provide strong justification for obtaining a no-names marker.
The OFT will reserve the undertaking’s place in the queue following this initial contact. A discussion as to the timing and provision of information to perfect the marker will also take place. The OFT has indicated that it will be realistic about what information can sensibly be provided at this early stage and the scope of the information to be provided may be specified at a later point.
Once a marker has been obtained, the undertaking needs to perfect the request for immunity or leniency. The undertaking will be given a limited time in which to do this.
In order to perfect an application for Type A immunity, the information supplied by the leniency applicant must provide the OFT with a sufficient basis for taking forward a credible investigation. The OFT has indicated that in practice this means that the information is sufficient to allow the OFT to exercise its formal powers of investigation (ie provide the OFT with reasonable grounds to suspect undertakings are engaging in cartel activity).
When there is already a pre-existing civil or criminal investigation (a Type B case), the applicant will need to provide information which adds ‘significant value’ to the OFT’s investigation. An undertaking can explore whether the information it can provide would advance the OFT’s investigation by making a ‘proffer’ specifying the form and substance of the information it is likely to provide. The OFT will then confirm whether Type B immunity would be given if such evidence was provided. While this could be done on a ‘no-names’ basis, the undertaking would not secure a marker in the leniency queue until its identity had been disclosed. The OFT has indicated that it will accept some variation in comparing the information actually received with the information outlined in the ‘proffer’, provided the proffer does not turn out to be misleading and the OFT’s investigation has been genuinely advanced.
The OFT has made it clear in the draft Leniency Guidance Note that it will not rely on incriminating information submitted during a marker approach, against an undertaking which despite having acted in good faith, failed to qualify for immunity (eg if the information provided was insufficient to provide the OFT with a basis for taking forward an investigation).
However, the OFT reserves the right to use the information against an applicant if the applicant acted in bad faith, for example, if it manifestly failed to cooperate with the OFT.
While the OFT is flexible and it is possible for the entire application to be oral, it is usual for an applicant to submit a written leniency application providing the details of the cartel activity and setting out the reasons why the conditions for leniency have been fulfilled. A copy of an agreement which records the cartel activity (which may be the case with a resale price maintenance infringement) or a file note or any correspondence which details the cartel activity must be provided. It is also usual for a senior employee directly involved in the cartel activity to provide a written statement setting out the details of the cartel activity and the relevant time scale. The OFT may request, or the applicant may voluntarily offer the OFT, interviews with the key personnel involved in the potential infringement.
Provided that the undertaking is the first cartel member to approach the OFT, the OFT is likely to enter into a standard form leniency agreement with the applicant. A copy of the standard from leniency agreement is included in the draft Leniency Guidance Note and the OFT has indicated that it will not generally expect to negotiate amendments. The leniency agreement will grant the applicant provisional leniency – a grant of leniency subject to the condition that the OFT does not at a later stage of the investigation conclude that the applicant does not meet the eligibility conditions, for example the applicant is found to have coerced another undertaking to take part in the cartel or the applicant has failed to provide the OFT with all relevant information. Were the OFT to conclude that the applicant had coerced other cartel members, the applicant would only be eligible to receive partial leniency. If the applicant fails to meet the other conditions (ie does not cooperate or provide all relevant information), the applicant will not be eligible for any immunity or leniency.
If the undertaking discovers any innocent omissions after the perfection of the marker, the undertaking should inform the OFT immediately and satisfy the OFT that the omission was innocent (the relevant audit of information had been thorough) and that the complete information was subsequently provided without delay. If the information is relevant, the OFT will amend the scope of the leniency agreement and no-action letter. There is no obligation to submit information that is outside the scope of the application. However, if information relating to other cartel conduct is discovered, the undertaking should seek to take advantage of the ‘leniency plus’ option. When an undertaking obtains Type A or Type B immunity, all current and former employees and directors of the undertaking will automatically receive immunity. The undertaking does not need to produce upfront a list of names of its current and former employees and directors who may be implicated in the cartel. Rather, it can be taken as definite that any former director or employee will receive a no-action letter if they need it. The OFT will assess on an individual by individual basis whether to grant immunity to the current and former employees and directors of an undertaking which receives Type C leniency.
In addition, an individual can also approach the OFT on his or her own account to seek individual immunity. That individual will be guaranteed a no-action letter, if they need it, provided they tell the OFT about the cartel activity before any other individual or undertaking and there is no pre-existing criminal or civil investigation. If there is a pre-existing criminal or civil investigation, the individual may still be granted individual immunity provided they add value to the OFT’s investigation and the OFT is not already in the course of gathering sufficient information to bring a successful prosecution of the individual.
The legal adviser may also call the OFT and ask if a given ‘hypothetical’ scenario would, or would be likely to, lead to prosecution for the cartel offence. The OFT has indicated that in many cases it will be able to give an assurance that a prosecution would not be contemplated in a given scenario. The OFT can also be asked for an initial indication of whether it might be prepared to issue a no-action letter. If the OFT is prepared to issue a no-action letter, the individual will be interviewed. Individuals benefiting from automatic immunity as a current or former employee of an undertaking which has qualified as a Type A or Type B applicant will be interviewed in order for the OFT to obtain all relevant information. In other cases where the grant is discretionary, the interview will also enable the OFT to assess whether it is in the public interest to grant the individual immunity.
The interview may extend over several sessions. Any information the individual provides in the interviews will not be used against them in criminal proceedings unless the individual knowingly or recklessly provides false or misleading information or if a no-action letter was issued and subsequently revoked. A copy of the pro-forma no-action letter, which will need to be signed by the individual applicant, is included in the draft Leniency Guidance Note.
Individuals who cooperate fully with the OFT will not be penalised if other employees or directors of the undertaking fail to cooperate and the undertaking fails to deliver information that matches its proffer (Type B cases).
On completion of the interview(s) the OFT will advise the applicant in writing whether it is prepared to issue a no-action letter. In cases where the OFT concludes that the applicant is not at risk of criminal prosecution for the cartel offence, it will not issue a no-action letter and will confirm this in writing. If an individual, who was initially discounted as irrelevant to the investigation, later assumes more significance, then the individual will be given a no-action letter provided they meet the conditions for obtaining individual immunity.
Parallel to the usual steps to obtain leniency is the ‘summary application’ route which allows an applicant to lodge a short form summary application with the OFT in cases where the applicant has also sought immunity from the European Commission. This route which was introduced in the draft Leniency Guidance reflects the uniform summary application model proposed in the ECN Model Leniency Programme in September 2006 and is designed to minimise the burden of multiple filings on leniency applicants.
The OFT has indicated that it will accept short form ‘summary applications’ where:
The OFT will acknowledge receipt of the application and will confirm whether the applicant is the first to seek immunity from the OFT. The OFT will then determine whether it will decide to take up the case. If the OFT does decide to take up the case, the OFT will specify a date by which the applicant needs to make a full submission of relevant evidence and information to meet the threshold. If the applicant submits the required information by the specified date, the information provided will be deemed to have been submitted on the date when the summary application was made.
11. Is there an optimal time to approach the regulatory authority?
Total immunity is only available to the first cartel member to provide information to the OFT in relation to the cartel activities. In addition, full leniency is only automatically available when the undertaking provides information to the OFT before the OFT has commenced its investigation and does not already have sufficient information to establish the existence of the alleged cartel activity (Type A immunity). The applicant will also need to supply the OFT with information that provides the OFT with sufficient basis to take forward a credible investigation.
While the grant of total immunity to an undertaking which is the first to come forward in a pre-existing investigation is discretionary (Type B immunity), the OFT has indicated that total immunity will be the norm rather than the exception in these cases, provided that the information offered genuinely advances the investigation.
In order to ensure an undertaking secures a marker as the first in the queue, the undertaking should make contact with the Director of Cartel Investigations at the OFT (or the relevant sector regulator) as soon as possible identifying the basis for the suspected infringement, specifying the nature and details of the infringement and the evidence uncovered. The information required to perfect the marker can be provided at a later date as agreed with the OFT at the time the marker is obtained.
12. What guarantees of leniency exist if a party cooperates?
Immunity is only guaranteed if the undertaking seeking immunity is the first undertaking to come forward with information, the information is provided before the OFT has begun an investigation and the OFT does not already have sufficient information to establish that a cartel exists (a Type A case). The applicant will also have to comply with the four cumulative conditions for obtaining immunity.
The OFT has a discretion to grant total immunity when it is sought after an investigation has commenced (Type B) although the OFT has indicated that the grant of total immunity will be the norm not the exception, provided the information the applicant provides genuinely adds value to the OFT’s investigation. The OFT is able to grant partial leniency when another undertaking has already sought leniency, or when the undertaking has been found to have taken steps to coerce another undertaking to participate in the cartel activity, but again the grant of leniency in these circumstances is discretionary. An applicant will also have to comply with the conditions for obtaining leniency.
Individual immunity will be automatic for those current and former employees and directors of an undertaking which successfully obtains Type A corporate immunity and in most Type B cases, provided the individuals meet the conditions for obtaining individual immunity.
13. Is confidentiality afforded to the leniency applicant and other cooperating parties? If so, to what extent?
The OFT has indicated that it will endeavour to keep the identity of the undertaking disclosing information and seeking immunity or leniency confidential throughout the course of its investigation until the statement of objections is issued. However, the undertaking’s interest in keeping its identity secret must be balanced against the OFT’s statutory obligations, including its obligation to exchange information within the European Competition Network, the network of the national competition authorities of member states and the European Commission (the ECN), and also its obligation to set out all the facts in the statement of objections and to provide access to the investigation file, if requested.
In the draft Leniency Guidance, the OFT has stated that information supplied as part of an application for corporate immunity or leniency will never be passed to an overseas agency without the consent of the applicant bar one exception. The information may be disclosed to the European Commission and/or the competition authority of an EU member state but only in accordance with the provisions and safeguards set out in the European Commission’s Network Notice. The European Commission’s Network Notice provides that information voluntarily submitted by a leniency applicant can only be transmitted to another ECN member where the applicant has consented to the transfer, the applicant has also sought leniency in respect of the same infringement from the authority to which the information is to be given, or where the authority to which the information is to be given has given certain guarantees regarding the use of the information.
The OFT has also stated that information supplied as part of an application for individual immunity will never be passed to an overseas agency without the consent of the provider bar one exception. The OFT may provide information to the European Commission to pursue administrative proceedings against two or more undertakings under Article 81 EC Treaty, in which case the European Commission would be required to guarantee to the OFT that the information would not be provided to any other agency. When the OFT contemplates providing such information to the European Commission, the OFT will consult the individual who provided the information.
If a person has sought immunity from prosecution on his or her own account and can provide valuable information to the OFT as to a cartel she or he has arguably participated in, the individual may be granted immunity but remain a secret source. However, the OFT has indicated that an individual immunity source will only be treated as a secret source where the safety of the individual would be in serious jeopardy or other very serious adverse consequences would follow if the individual’s approach to the OFT became known.
The OFT has indicated that if it were to pass information deriving from an immunity applicant to another UK agency such as the SFO, it would always discuss this with the applicant or his or her legal advisor first.
CONSEQUENCES
14. What effects does leniency granted to a corporate defendant have on the defendant’s employees?
Individual immunity will be automatic for all implicated current and former employees and directors of an undertaking which obtained Type A or Type B immunity. However, an applicant should be aware that neither individual nor corporate immunity will be granted where the OFT believes that it has, or is in the course of gathering sufficient information to bring a successful prosecution. Where the OFT’s investigation has already been referred to the Serious Fraud Office (the SFO), the OFT will consult the SFO about the possible grant of criminal immunity. The OFT has indicated that in such cases, the grant of immunity may no longer be in the public interest.
It will not be necessary for the applicant to produce a list of names of its current and former employees and directors who may have been implicated in the cartel. The OFT has stated that it can be taken as ‘definite’ in Type A cases that any current or former employee and director, wherever they are in the world and whatever their role in the cartel activity, will receive a no-action letter where they need it.
When another individual or undertaking has already obtained a marker in the leniency queue (ie a Type C case), blanket criminal immunity is not available. The OFT will however consider, on an individual-by-individual basis whether one or more employees or directors of an undertaking qualifying for Type C leniency should be granted individual immunity. The OFT’s assessment will take into account the overall value added by the Type C applicant and whether such a grant would be in the public interest. A legal advisor could seek confidential guidance from the OFT on a no-names basis as to whether the OFT would be minded to grant immunity to an individual on hypothetical facts.
An employee or director involved in cartel activity may also wish to seek immunity on his or her account. The OFT has indicated that individual immunity is most likely to be granted when an individual makes an approach for criminal immunity entirely separately from an approach by an undertaking. If that individual seeks immunity before any other individual or undertaking and there is no pre-existing criminal or cartel investigation, that individual will be guaranteed a no-action letter.
If there is already a criminal investigation, but the individual tells the OFT about the cartel activity before any other individual or undertaking, the individual will still be granted individual immunity, if they provide ‘added value’ to the OFT’s investigation (the OFT will however retain a discretion to determine whether the individual adds value).
When an individual seeks immunity before his or her undertaking, the undertaking loses its guaranteed corporate and blanket individual immunity for all employees and directors.
The OFT may, however, still grant corporate and individual immunity to others in the undertaking depending on how much the evidence offered by the undertaking is likely to advance the OFT’s investigation and the stage of the investigation at which the undertaking made its approach.
When individual immunity is discretionary (ie where the applicant does not qualify for Type A or Type B immunity), the OFT will interview the applicant to determine whether it is in the public interest to exercise its discretion to grant a no-action letter in principle and to obtain information from the individual in order to advance the investigation. Even where an immunity applicant benefits from guaranteed individual immunity, the OFT will interview the individual in order to obtain all relevant information. In both scenarios, the interview will be carried out under the protections laid out in the OFT’s Guidance on the issue of no-action letter for individuals: information provided by the individual in the interviews will not be used against them in criminal proceedings provided the information is not false or misleading or, exceptionally, if the no-action letter is revoked. Information provided by an individual could, however, be used against the undertaking if the undertaking has failed as a whole to satisfy the cooperation criteria.
Individuals will not be penalised by the failure of other employees to cooperate which may render the undertaking with which they are associated in breach of its cooperation condition of immunity.
15. Does leniency bar further criminal or private enforcement?
The OFT is unable to shield undertakings who have obtained leniency from potential private enforcement claims made by third parties.
While private enforcement claims are not common in the UK, it is expected that these may increase, particularly in cases following an infringement decision by a competition authority.
Section 18 of the Enterprise Act 2002 (which inserted a new section 47A into the Competition Act 1998) provides for ‘follow on actions’ for damages to be brought before the Competition Appeals Tribunal (the CAT) where there has been an infringement decision of the OFT, the CAT or the European Commission. The new section 58A of the Competition Act 1998 (inserted by section 20 of the Enterprise Act 2002) further provides that certain competition law infringement findings are binding on courts. This means that if the OFT has made an infringement decision, a third party claimant bringing a case for damages can rely upon that decision and need only establish causation and quantum.
Total immunity granted to an undertaking does not bar criminal enforcement against an individual directly involved in the cartel activity. However, the OFT has indicated that in cases where an undertaking has been granted total immunity in accordance with the OFT Penalty Guidance or the EC Leniency Notice, the employees and directors of the undertaking will automatically receive immunity, provided the conditions for individual immunity are met. The draft OFT Guidance sets out the protection from the UK criminal cartel offence that will be afforded current and former employees and directors of an undertaking which has received immunity from the European Commission. This is detailed below in response to question 16.
RELATIONSHIP WITH THE EUROPEAN COMMISSION’S LENIENCY NOTICE AND LENIENCY POLICY IN OTHER EU MEMBER STATES
16. Does the policy address the interaction with applications under the Commission Leniency Notice? If so, how?
The draft Leniency Guidance Note includes a five page section on the interaction between the criminal cartel offence and the position of EC immunity applicants. This section attempts to allay concerns that an undertaking seeking immunity from the European Commission could inadvertently expose its employees and directors to prosecution under the UK criminal cartel offence if the cartel behaviour has an effect in the UK.
Firstly, the OFT points out that most applicants who qualify for immunity (full immunity) under the EC Leniency Notice will be able to benefit from blanket criminal immunity for all current and former employees and directors by virtue of that undertaking separately applying for Type A or Type B immunity in the UK.
However the OFT indicates that even if an undertaking is unable to obtain Type A or Type B immunity (full leniency) in the UK (and hence blanket criminal immunity for its employees and directors), an undertaking may still be able to obtain some comfort from the OFT. The OFT may be able to do this by reassuring the undertaking’s adviser, on the basis of a set of hypothetical facts, that the case would not be of a type where the OFT would contemplate bringing a criminal prosecution. Further, in a case where an undertaking has obtained immunity (full leniency) from the European Commission (but has not qualified for Type A or Type B immunity in the UK), the OFT has indicated that it will normally be prepared to grant a no-action letter to any implicated current or former employee or director of that undertaking. A no-action letter is not however likely to be forthcoming in the following situations:
In light of the uncertainty surrounding the grant of criminal immunity to the employees and directors of an undertaking that has qualified for EC (but not UK) immunity (full leniency), undertakings which have obtained immunity from the EC are, if the cartel has an effect on the UK, recommended to make a prompt approach to the OFT to try to secure Type A immunity (and hence blanket criminal immunity for its employees or directors). This could be achieved via a no-names marker (available when an EC immunity application is to be filed) or via the standard marker approach.
When an undertaking has only qualified for a reduction in fines from the European Commission (partial leniency), the OFT will not normally issue a no-action letter. However, the OFT notes that potential Commission applicants will not increase the likelihood of prosecution under the UK criminal cartel offence of any of its current or former employees and directors by making an application for partial leniency from the European Commission.
This is due to the restrictions on information sharing set out in the EC Network Notice, which as emphasised in the draft Leniency Guidance Notice, prevent the OFT from using, either as intelligence or evidence, any leniency-derived information obtained from the Commission to further its criminal cartel enforcement functions. Further, the OFT has indicated that it will employ a ‘Chinese wall’ between staff having access to information derived from the Commission leniency application and staff on a team investigating the same activity under the criminal cartel offence provisions. Staff having access to information derived from the Commission leniency application will not be permitted to pass on information directly or indirectly to the team investigating the activity under the criminal cartel offence provisions.
17. Does the policy address the interaction with applications for leniency in other EU member states? If so, how?
Neither the outline of the UK leniency policy set out in the Penalty Guidance nor the draft Leniency Guidance Note address the interaction with leniency applications made in other EU member states.
Steps have however been taken by the ECN to address the concern that has arisen as a result of the discrepancies between the leniency programmes of the EU member states, via the ECN Model Leniency Programme which sets out the treatment which an applicant can anticipate in any ECN jurisdiction once alignment of all programmes has taken place.
REFORM/LATEST DEVELOPMENTS
18. Is there a reform underway to revisit the leniency policy? What are the latest developments?
The draft Leniency Guidance Note published in November 2006 follows the Interim Note published in July 2005. It supplements and elaborates on the procedures set out in the OFT Penalty Guidance and the OFT Guidance on the Issue of No-action Letters. The OFT is currently engaged in consultation on this draft Leniency Guidance Note with a view to it becoming final guidance. The OFT has emphasised that although the guidance will then be final, it does not rule out further amendment as a result of its experience of applying the leniency and no-action policies.
One of the most important recent developments in the OFT’s practice is the OFT’s decision in the long running cartel investigation into construction industry bid-rigging to offer, for a limited period, reduced penalties to the parties under investigation that have not yet applied for leniency and are willing to cooperate with the OFT.
This is the first occasion when the OFT has sought to fast-track an investigation by offering reduced penalties to those firms willing to cooperate with the OFT in its investigation. However, the cartel investigation into bid-rigging in the construction industry is the ‘biggest ever UK cartel investigation’, and the fast track procedure is not expected to become standard OFT practice. It does, however, indicate a degree of flexibility in the OFT’s approach and a willingness for the OFT to consider pragmatic solutions in large-scale cartel investigations.
