BACKGROUND
1. What is the relevant legislation containing the leniency policy and what is the enforcing body?
The relevant legislation containing the leniency policy in Brazil is the competition statute (Law 8.884/1994) as amended in 2000 (Law 10149/2000, sections 35-B and 35-C). Said amendment expressly introduced the possibility of parties entering into leniency agreements with the antitrust authorities. Besides, a complementary ruling (SDE Administrative Ruling 4 of 2006) issued by the Ministry of Justice provides details on the requirements and procedures for the leniency application.
Two main authorities participate in the enforcement of the leniency policy. SDE (Secretaria de Direito Econômico), the antitrust division of the Ministry of Justice, is in charge of negotiating and executing leniency agreements and of investigating anticompetitive practices. CADE (Conselho Administrativo de Defesa Econômica), the independent competition commission, is the decision-making authority in antitrust cases. When deciding a case, CADE verifies whether the conditions for leniency were fulfilled in order to ratify the leniency agreement executed with SDE.
Given that concerted practices can also have criminal implications in Brazil, state and federal prosecutors may also have to be involved in the leniency negotiations and agreement.
2. What are the basic tenets of a leniency/immunity programme?
The basic principle of a leniency programme in Brazil is cooperation with the authorities. The beneficiary must be the first in, cannot be the leader of the practice and must confess to the violation and bring sufficient information to the authorities before they have any knowledge about the anticompetitive practice. It must continue to collaborate and bring additional information throughout the investigation and has to abide by confidentiality rules.
3. How many cartels have been unveiled and punished since the adoption of the leniency policy?
The leniency programme has been in force in Brazil since 2000, but it really developed more recently after the new regulation of 2006. So most of the existing agreements were executed in the past two or three years and all are, as of May 2007, still under investigation or pending a decision by the competition authorities.
Although there are no official statistics or publicly available data on the number of leniency applications prior to a decision, unofficial data indicate that there are approximately ten cartel cases currently under way whose investigations were based on leniency applications. The first decisions on cases derived from leniency applications are expected later in 2007.
4. What is needed to be a successful leniency applicant? Is documentary evidence required or is testimonial evidence sufficient?
The legislation formally requires documentary evidence. The Brazilian authorities understand the burden that the delivery of written statements may represent to the applicant, and have adopted, as much as possible, oral procedures in the leniency application. However, the successful application always results in a written agreement executed between the applicant and the SDE, besides the delivery of documentary evidence.
Basic requirements for an application are:
TIMING
5. What are the benefits of being ‘first in’ to cooperate?
The benefits of being the first in include full amnesty from both (i) the administrative competition fines, which can reach up to 30 per cent of gross turnover, and (ii) the criminal penalties which may include both prison terms and fines. Immunity (both administrative and criminal) is only extended to the natural persons involved who individually and separately confess to the practice and sign into the agreement.
6. What are the consequences of being ‘second’? Is there an ‘immunity plus’ or ‘amnesty plus’ option?
Leniency is available only to the first in to cooperate. However, the programme does provide a ‘leniency plus’ option, whereby any co-participant in a cartel who comes forward with evidence regarding another concerted practice still unknown to the authorities will be granted a reduction of one-third on the penalties imposed in the first investigation. Said coparticipant also enjoys full amnesty for the second practice, for which it was the first in.
7. Are subsequent firms given any beneficial treatment if they make a useful contribution? How are ‘useful contributions’ defined?
The law does not provide for beneficial treatment for cooperation by firms other than the leniency applicant.
SCOPE/FULL LENIENCY
8. Is it possible to receive full leniency? And, if so, what are the conditions required to receive full leniency?
Yes, it is possible to receive full leniency under the Brazilian antitrust regime. As noted above, full amnesty will be granted if the ‘first in’ applicant fulfils all the requirements contained in the law. The authorities need to be unaware of the alleged infringement up to the moment the application is made, and it must result in the identification of the co-authors with the respective evidence of their infringements. Immunity will not be granted to the first applicant who is considered to be the leader of the cartel.
9. How many companies have received full immunity from fines to date?
None yet. As noted in question 3, around ten agreements granting conditional leniency have been executed with SDE, but in all of them the investigation is still underway. The decision-making authority CADE, who is in charge of granting definitive immunity upon confirmation that the conditions were fulfilled, had not yet issued a final decision based on a leniency application (as of May 2007).
PROCEDURE/CONFIDENTIALITY
10. What are the practical steps required to apply for leniency?
In order to benefit from the leniency programme, the interested party must submit a proposal through a confidential written or oral application, directly to the head of the Secretariat of Economic Law (SDE) of the Ministry of Justice, containing the following information:
11. Is there an optimal time to approach the regulatory authority?
Given that leniency in Brazil is only available to the ‘first in’, the best time to approach the SDE is as soon as practicable, or as soon as there is any evidence that the authorities are mounting a case or near the launching of a formal investigation.
Considering the data required to present the application, the company may need to carry out an internal investigation to determine what evidence of the infringement will be available, and to identify the co-conspirators and also its own employees involved. Nevertheless, for cases in which an interested corporation has not yet gathered sufficient evidence for a formal application, a leniency proposal may be presented based on very preliminary information and will be accepted by the SDE as a ‘marker’ to secure their place in line.
In such situations, the SDE will give the applicant a period of time, which will vary depending on the complexity and circumstances of the case, to complete its internal investigation and comply with the necessary requirements for a leniency application. If the applicant fails to do so, it risks losing its ‘first in’ condition and another company may be considered for the leniency programme in its place.
12. What guarantees of leniency exist if a party cooperates?
The presentation of the application launches a period of negotiations with SDE towards the execution of the agreement, which can last up to six months according to the law (and may be extended once for another six months). During this period, the SDE will assess and decide whether the applicant qualifies depending on what evidence and information it can provide. Though the position of ‘first in’ is assured while these negotiations last, there is no guarantee that an agreement will be executed and that leniency will be offered. However, once the SDE and the applicant sign the agreement, both the law and the agreement itself provide that leniency will be granted as a right to the applicant that complies with its obligations of cooperation and confidentiality.
Though there is no precedent yet as to how CADE will in practice enforce its power to review the fulfillment of the applicant’s obligations in order to confirm immunity, the authorities are aware that certainty and confidence in the procedure are crucial for the leniency programme to function properly, and the expectation is that if the applicant does reasonably cooperate according to the terms agreed with the SDE and included in the agreement, leniency will be confirmed.
13. Is confidentiality afforded to the leniency applicant and other cooperating parties? If so, to what extent?
The issue of the confidential treatment of leniency applications is a new and complex matter that is not yet settled in the Brazilian antitrust system.
In the administrative sphere, full confidentiality is afforded during the negotiations, until the execution of an agreement and for as long as secrecy is required for the investigation (such as until dawn raids, for instance). After a formal administrative proceeding is launched, then the defendants have right of access to the files. Applicants may upon justification request and negotiate with the SDE the confidential treatment of parts of the files, but the extent of that treatment is still under debate, as claims of violation of due process have been raised by defendants that could end up in court. Also, as CADE decisions are by law public and reasoned, evidence and documents not classified as confidential and which are necessary to justify the decision will become public.
The situation in the judicial sphere is more uncertain, especially in case a dawn raid is required. Besides the fact that the actual raids often become public, a special judicial proceeding is necessary for the court authorisation to be obtained. In some cases courts have requested a significant amount of evidence in order to grant the search and seizure order, even including the leniency agreement and the corporate statement, and this material – according to regular civil procedure rules – is made accessible to the defendants after a raid is conducted as part of their due process rights. Defendants often question the legitimacy of the raids and attempt to block access by the SDE to the apprehended materials, taking the case through successive appeals up the judicial structure. Though the SDE may ask for confidential treatment of the files in relation to third parties at each judicial instance and has been mostly successful, this will depend on each court and so far a standard has not been defined.
Finally, there is the criminal prosecution, which follows specific procedural rules and for which the defendants also have ample access to the charges and evidences being used against them.
The SDE is striving to preserve as wide a scope of confidentiality as possible in order to protect applicants and stimulate the use of the leniency programme. It will however take higher court decisions to settle this matter and define exactly what a leniency applicant has a right to expect regarding the scope of confidentiality.
CONSEQUENCES
14. What effects does leniency granted to a corporate defendant have on the defendant’s employees?
The effects of the leniency application will be extended to the individuals involved in the infringement provided that they also participate as co-applicants, confess individually to their violations and sign the leniency agreement together with the company. Employees not included in the agreement are vulnerable to administrative and to criminal prosecution.
This situation in practice means that the applicant must conduct a thorough internal investigation in order to identify all of its employees who may be implicated in the practice before it can execute the agreement. The corporation must then contact the identified employees and disclose the situation, so that they can each decide whether to confess and join in the leniency or not.
15. Does leniency bar further criminal or private enforcement?
The execution and confirmation of the leniency agreement, under Brazilian competition law, prevents administrative and criminal enforcement upon the corporation and individuals who have signed the agreement, as noted in question 5 above. Federal and state prosecutors, who are in charge of criminal enforcement, have in practice been included in leniency agreements in order to facilitate its execution in different criminal spheres
Leniency however does not bar private enforcement. Private parties may claim single damages on the basis of an antitrust infringement as per expressly provided for in article 29 of Law 8.884/9, and those rights are not affected by the leniency programme. So far, no private damage claims have been brought based on a cartel decision by CADE, but the accumulation of convictions in the last couple of years may serve as an incentive for victims of concerted practices to start bringing such cases to court.
REFORM/LATEST DEVELOPMENTS
16. Is there a reform underway to revisit the leniency policy? What are the latest developments?
There is no specific reform of the leniency programme underway. However, there is a draft bill under debate in the Brazilian Congress as of May 2007, which proposes reform to the antitrust statute as a whole. Such project, if and when approved, would introduce major changes to the institutional structure of the Brazilian antitrust system, and therefore impact on the leniency procedures. The SDE, for instance, would be merged with CADE and become a division of a new antitrust agency. But other than clarifying specific issues, the draft bill would not alter the basic characteristics of the leniency programme as it is being applied today.
