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Competition Law

17 Mar 2010

Hard Core Cartels: Whistleblowers Wanted

The Commerce Commission has released new Cartel Leniency Policy and Process Guidelines (guidelines).

The guidelines, which apply from 1 March 2010, set out the way in which companies and individuals can apply to the Commerce Commission for conditional immunity from prosecution, if they have knowledge of a cartel and are willing to assist the Commission's investigation.

The purpose of the leniency policy is to create an incentive for cartel participants to whistle blow on other cartel members, in order to uncover "hard core" cartel conduct such as price fixing, market allocation, output restrictions and bid rigging.

The policy is also intended to deter participation in cartels by encouraging fear that other cartel members will blow the whistle.

The guidelines replace the original November 2004 leniency policy guidelines. Since then, the Commission has made 14 grants of leniency. The Commission says the guidelines have been the catalyst for all their current major cartel investigations.

The new guidelines introduce new features to the leniency policy in an attempt to align the policy with that of other international regulators.

Key Changes to the Leniency Process

Widened Eligibility

A key feature of the original leniency policy was that leniency was only available for cartels that the Commission did not know about.

Under the new guidelines, an application for leniency is now possible even when the Commission is already aware of the particular cartel, as long as the Commission does not yet have sufficient evidence to initiate proceedings.

This brings the policy into line with that of Australia and the United States.

This widened eligibility opens the door to applications for leniency by a cartel participant where the Commission is already investigating a cartel based on information from a party who is not a leniency applicant, for example, a customer of a cartel participant.

The first way a company usually finds out about a Commission investigation is when they receive a request from the Commission to provide documents or information. This can either be a voluntary request or a mandatory request known as a "section 98 notice".

Previously, by the time a company received a voluntary request or a section 98 notice, it was already too late to apply for leniency. This was because leniency applications could only be made if the Commission was unaware of the cartel.

Now when a company becomes aware of a cartel investigation involving them, and their own inquiries indicate that the investigation has merit, they will have the option of contacting the Commission regarding whether leniency is available. This inquiry can be made on a hypothetical "no name" basis.

If there is no existing leniency applicant, they can then ask the Commission to determine whether conditional immunity is available to them. Availability will depend on whether the Commission already has enough evidence to launch proceedings.

The Commission will make this decision based on the information and documents they already have. They will not ask the prospective leniency applicant to provide any documents of their own at this stage.

No Coercion

Leniency will now only be granted if the company or individual has not coerced others to participate in the cartel.

The guidelines state that coercion includes "conduct such as threats of physical or serious economic harm, or intimidation, to compel or force persons to take part in the cartel".

The Commission considers it inappropriate for a company who played such a role to be eligible for immunity.

This condition may cause difficulties given that it is unlikely to be clear at the outset of a cartel investigation whether a company has "coerced" another cartel participant. If it later transpires that the leniency applicant was involved in coercion, they will lose their conditional immunity. All documents provided by them up to that point can then be used against them in proceedings.

Marker Process

Under the old guidelines, you could not apply for conditional immunity unless you had sufficient information about the cartel to give to the Commission.

However, under the new guidelines, you can now apply for a "marker" to secure your place in the queue while you gather enough information to apply for conditional immunity.

Once you have gathered enough information to "perfect" the marker, you must then provide this information to the Commission. This is called a "proffer".

The proffer will need to deal with a list of issues agreed with the Commission on a case by case basis. The Commission has indicated that one critical aspect of the proffer will be information showing that the cartel has affected New Zealand.

The guidelines indicate that applicants will usually be given 28 days to present a proffer to perfect the marker, although the Commission has discretion to extend this timeframe.

The provision of the proffer does not automatically mean conditional immunity will be granted. The Commission may decide that an applicant has not perfected the marker, either because it has not provided the necessary information or because it has not provided the information within the prescribed time. In this case, the leniency application will be declined and the next applicant in line will be given the opportunity to apply.

The next applicant in line will be assessed on the same criteria as the first applicant, meaning that leniency will only be available to them if the Commission does not yet have enough evidence to bring proceedings.

Oral Applications Only

Given that timing is a critical aspect of the new marker system, applications for a marker or for conditional immunity can now only be made orally, by telephone or in person, to the General Manager of Enforcement of the Commission or an authorised delegate, during working hours.

The time and date of that contact will be recorded and will secure your place in the queue should others also apply.

Paperless Process

The guidelines now specifically refer to the Commission's willingness to run a "paperless process", where communications between the leniency applicant and the Commission are kept oral (rather than written) where at all possible.

The purpose of a paperless process is to prevent sensitive documents becoming available to any third parties who may wish to bring their own claim against the leniency applicant.

The paperless process is particularly important where the leniency applicant is a multinational company who is exposed to civil claims from customers in multiple countries around the world.

Amnesty Plus

Amnesty Plus is new to New Zealand but is already used in other countries such as the United States.

Amnesty Plus allows a company or individual to obtain penalty concessions in respect of a cartel for which the Commission is pursuing proceedings against them, if they inform the Commission of their participation in a separate cartel of which the Commission is unaware or does not have enough evidence to file proceedings. They also have the opportunity to gain conditional immunity for the second cartel.

The Commission has acknowledged that the key issue in the decision to grant Amnesty Plus is determining whether the second cartel is in fact separate from the one they already know about, or whether it is simply another aspect of the same cartel.

The Future

Investigating whether leniency is available is often the first step for companies who find out about cartel conduct in their industry.

The ability to apply after an investigation has commenced, along with the introduction of the marker system, means that there is now a much greater chance of leniency being available.

The Commission hopes that this will result in increased leniency applications, and consequently, increased detection of cartel conduct.

However, it will be at least a few years before we can see whether the new guidelines make any significant difference to the Commission's detection and enforcement powers.

Simpson Grierson's competition partners are experienced in advising potential leniency applicants and assisting them in applying for leniency. Should you have any queries about the leniency policy please contact Anne Callinan or James Craig in the first instance.

For a copy of the Commerce Commission's Cartel Leniency Policy and Process Guidelines, click here.