Assessing Efficacy of Competition Leniency in India Vis-A-Vis Other Jurisdictions - Law Assignment Help

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Assessing Efficacy of Competition Leniency in India vis-a-vis other Jurisdictions

Introduction
“A cartel is an informal group of manufacturers or retailers whose primary objective is to increase their collective profits by means of economic tools such as, limiting supply, price fixing or other restrictive practices. This practice of corporate collusion has become increasingly prevalent over the span of past three decades. Such collusions have an adverse effect on competition, preferably domestic industries, as they deter the sustenance and growth of other competitors. This consequently harms the interest of benefit to consumers by a ‘forced’ regulation of competition and not allowing customers for scope of real choice and fair deals. Cartels also reduce the incentives for new and existing enterprises to provide better products and services at competitive prices. Due to this deterrence for consumer harm, the vast majority of jurisdictions around the world have made laws which prohibit cartels to form. However, competition authorities often struggle to investigate and detect such behaviour. Accordingly, a recent World Bank study found that up to one percent of the GDP of some states can be attributed to the results of harmful cartel activities.”
“In order to break the code of silence among the co-conspirators and cartel members, leniency programmes have been introduced in various jurisdictions to identify and target cartel conduct. These programmes are designed with the goal to provide conspirators who take the initiative; an opportunity to confess their role in cartels through a leniency application a reduction in penalties. The results have proven to be an effective tool in solving the problems faced in investigation of cartels.Drawing inspiration from the United States (US) and the European Union (EU), enforcement authorities and in stride with most developed and developing economies, India introduced its own leniency programme, the Competition Commission of India (Lesser Penalty) Regulations 2009 (Regulations). Although being in force for over 12 years, its implementation has seen little result. On the other hand, in the US over 90% of penalties imposed by the US Department of Justice (DOJ) have been linked to investigations assisted by leniency applicant, and up to 80% for the EU. This article seeks to study the programmes from which India drew inspiration for its own Regulations. Consequently, the paper shall explore the reasons behind the difference in experiences between those programmes and the Indian jurisdiction.”

The need or requirement for leniency towards cartels
“It is generally difficult for anti-collusive authorities to prove the existence of cartels. Such proof is often set out solely on circumstantial evidence such as any direct or indirect form of correspondence or communications among the members of the cartel or minutes of meetings held with their competitors. Due to thislimitation, authorities worldwide have sought to supplement regular cartel detection and enforcement efforts with robust leniency policies. These are put in place to incentivize the participants of cartels to approach authorities voluntarily and assist them ‘by providing information and evidence of the infringement in exchange for absoluteimmunity or a reduction in antitrust penalties’. Studying from these initiatives, the three requiste elements for building an effective leniency programme are: (i) inculcating a genuine fear of detection, (ii) instilling the threat of severe sanctions for those who do not want to co-operate, and (iii) transparency. If firms perceive the risk of being caught by antitrust authorities as very small, then stiff maximum penalties will not be sufficient to deter cartel activity. Likewise, if cartel members do not fear detection, they will not be inclined to report their wrongdoing to authorities in exchange for amnesty. Therefore, antitrust authorities must cultivate an environment in which business executives perceive a significant risk of detection by antitrust authorities if they either enter into, or continue to engage in, cartel activity. If the profits from participating in cartels outweigh the fear of getting caught and imposition of penalties, leniency programmes will not be sufficient to deter cartel activities.”

2. Leniency Programmes across Global Jurisdictions
i. The US Leniency Policy
“The concept of leniency was first introduced in the US in 1978, primarily as a solution to the challenges faced by the enforcement authorities in relation to identification of cartels and provision of evidence against them. After the 1993 amendment in the US legislation, the nation saw a twofold increase in identification of cartels within the first three years. Research demonstrates that leniency programmes of the US reduced the rate of cartel formation by 59% and increased the rate of cartel detection by 62%. More than 50 countries have now adopted leniency programmes for cartel conduct. In the US, cartel activity is treated as a criminal offence, thereby leading to a legitimate and strong fear of sanctions. The maximum penalties provided for violations in The Sherman Antitrust Act of 1890 were revised in 2004, increasing the maximum jail term up to 10 years and fines of up to $100 million. Further, the US has been successful in creating an environment which makes companies vulnerable to higher chances of detection by using traditional investigative tools such as search warrants, subpoenas and wiretaps to detect cartels effectively.”
“The increased chances of uncovering of cartels through leniency applications effectively inculcate the fear of detection in companies.The US leniency policy, divided into two sections - Part A and Part B, also ensures that there is transparency in the process followed after a leniency applicant comes forward. The stage at which the applicant chooses to come forward determines which Part is to govern his/her application. If the applicant volunteers to disclose information before the investigation has started, Part A of the policy comes into effect and leniency is granted automatically if they can meet a six-pronged criteria. If, however, the applicant comes forward after the investigation has started, they have to fulfil a pre-requisite list of seven requirements -the ‘Alternative Requirements for Leniency’, in order to gain immunity. It is interesting to note that under the US leniency programme, only the first applicant gets complete immunity, thus creating a true race to the enforcer’s door. Other applicants who are ready to cooperate may turn out to be eligible for reduction in fine, but this falls outside the purview of ‘pure’ leniency and are confined through the process of negotiation talks of plea agreements by the DOJ.”

ii. The European Union’s Leniency Programme
“In the European Union (EU), cartels are prohibited under Article 101 of the Treaty on the Functioning of the European Union (TFEU), which provides for limitation on anti-competitive agreements. The Union notified its first Leniency Notice on the non-imposition or reduction of fines in cartel cases in 1996, which is now been replaced by the 2006 Leniency Notice.The programme provides for full immunity for those companies which disclose information about cartels, which then figuratively empower the European Commission (EC) to launch a targeted inspection or find an infringement listed under Article 101 of TFEU. In order for immunity to be granted, the company has to provide a documented statement which includes information enlisted in paragraph 9 of the notice. In addition to that, the company should not have taken steps to coerce other parties to participate or get involved in the cartel, and should end its own involvement in the cartel as soon as it moves towards an application for leniency.As long as these conditions are satisfied with and the company co-operates in full capacity with the EC on a continued basis, they will be granted immunity.”
“The EC , as reiterated earlier, has the power to grant immunity for the provision of incriminating information; enabling it to establish an infringement of article 101 TFEU. This is provided that no other company has been granted immunity for submitting information that enabled the EC to carry out an inspection. The Notice also envisages leniency in the form of reduction in fines for those companies which decide to submit evidence after the investigation has already started. On the basis of the stage at which a company approaches the EC and the ‘significant value added’ by the information it provides, up to 50% reduction in fines is granted. Since the EU cannot impose criminal sanctions on the offenders involved, it seeks to create deterrence by imposing fines as high as up to 10% of the total turnover of each member active on the market affected by the infringement of the association. In 2019, the EU also issued a directive for protection of persons who report breaches of law, known as the Whistleblowing Directive.”

iii. The United Kingdom’s Leniency programme
“In the United Kingdom (UK), participation in any form of corporate collusion or cartel is prohibited by chapter 1 of the Competition Act of 1998. The UK Leniency model is similar to that of the EU model, adding for the fact that in the UK criminal sanctions can be imposed on individuals who are found involved in ‘hard core’ cartels under the purview of the Enterprises Act. It is worth noting that UK did not see its first criminal case until about 2008, and even thereafter it had limited impact towards the curbing of the cartels. However, in 2014, reforms were made to the Enterprises Act in order to reduce the quantum of evidentiary burden in such cases to effectively facilitate criminal prosecutions in cartels.”

“The UK leniency policy offers three types of leniency, a similar approach to the US: Types A, B, and C. Under Type A and B, companies shall be eligible for immunity and reductions in fine for penalties up to 100%, respectively, while under Type C they would be eligible for reductions up to 50%. There are provisions for individual and blanket immunities to save from criminal sanctions. Individual immunity may be granted when an individual voluntarily approaches the authority of his own accord, independent of his employers or the company. Blanket immunity, on the other hand, is automatically granted to the employees of a company which is undertaking benefits of immunity (Type A/B leniency). Further, the UK’s Competition Regulator recently launched its ‘Cracking down on Cartels’ campaign, which is aimed at encouraging individuals to report anti-competitive conduct and arrangements.Any individual who comes forward with relevant information on cartels that leads the competition regulator to open up an investigation can receive a reward of up to £100,000. This policy is not in the same bracket as leniency. This is to incentivize the individual whistle-blowers who are not involved in the cartel activity. However, individuals could also profit from this policy if their degree of involvement in the cartel can be demonstrated to be ‘relatively peripheral’, meaning they should have no direct involvement with or contribution to the cartel.”

3. The Indian Leniency Programme
“Cartels are prohibited in India under the Competition Act, 2002 by virtue of section 3(1) read with section 3(3) of the Act. Section 3(1) of the Act restricts undertakings from entering into agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC). Section 3(3) of the Act creates a presumption that, once it is proved that a cartel exists, it is presumed to create an AAEC on the market without the need for an explicit investigation into the effects.”
“India has only recently begun to witness leniency applications, ten years since the Regulations were first enacted. Section 46 of the Act gives the power to the Competition Commission of India (CCI) to impose lesser penalties and lays down certain requirements of disclosure to be fulfilled by the applicant to avail leniency. The Regulations govern the procedure and lay down the reduction in penalties that is granted to the companies or individuals who choose to come forward and disclose information regarding cartels. Previously, the reduction was based on a marker system, wherein only the first three applicants to apply for leniency were accorded fine reductions. However, the 2017 Amendment removed this limitation on the number of markers: the ‘first-in’ applicant is eligible for a 100% fine reduction if it enables the CCI to take cognizance of a case or carry out an investigation solely on the basis of the information provided. The second applicant can get a reduction of up to 50% and the third and subsequent applicants can be granted up to 30% reduction in fines. The Regulations define ‘added value’ as the extent to which the evidence so provided by the concerned applicant enhances the ability of the CCI or the Director General (DG) to establish the existence of a cartel, which is alleged to have violated section 3 of the Act.”

i. Leniency cases in India
“The first leniency order passed was the Brushless DC Fans case by the CCI in January 2017. The CCI granted a 75% penalty reduction in this case to the first applicant who had filed a leniency application because the evidence provided by the applicant had added significant value to determining the existence of the cartel. Even though the applicant was a ‘first-in’, they were not provided with the benefits of complete immunity as the CCI had already formed a prima facie opinion when the applicant had came forward. This is in similarity to the EU regime, where the foremost applicant is accorded with immunity; only if the information helps in launching a targeted inspection or is useful in finding infringement under Article 101, TFEU.”
“On an application by Panasonic Energy India Co., an investigation was commenced which included entities of Nippo, Eveready and the Association of Indian Dry Cell Manufacturers (AIDMC). Panasonic was granted complete amnesty, whereas Eveready and Nippo were granted 30% and 20% reduction respectively, because of the co-operation extended by them. In a subsequent application by Panasonic Corporation, Geep and Godrej were also implicated for price-fixing. Again, Panasonic was granted a 100% reduction because it helped CCI form a prima facie opinion and made additional vital disclosures.”
“Further, in the Nagrik Chetna Manch case, seven companies were accused of restrticted communication before finalizing their bid prices and size for earmarked tenders and deciding amongst themselves as to who was to win the ‘bid war’ and at what price. The CCI has passed the order in May of 2018, allowing for 50% penalty to the first and the third applicant as the co-operation provided by the applicants helped in proving the existence of the cartel. Two more applicants were given similar penalty reductions on the basis of added value of their evidence, co-operation and their priority status. Further, despite of the admission that the value addition by Opposite Party (OP)-2 was ‘minimal’, the CCI granted it a reduction in penalties, in consideration with their co-operation during the investigation and submission of all evidence available to them. However, OP-1 was denied the reduction even though they had f co-operated in completion and provided all evidence because it did not add any significant value to the evidence which was seized by the DG. The inconsistencies present within a single case are glaring - allowing benefits of leniency to one applicant while denying the same to the other, and applying different elements of ‘significant value addition’ and ‘good value addition’ for different applicants in the same case point towards the loopholes in the Regulations.”

ii. Analysis of the Competition Leniency policy in India
“The effectiveness of the leniency policy, or rather the absence of it thereof, can be observed from the fact that after more than ten years of enactment of the regulations, only twelve leniency orders have been passed. On the other hand, after the 1993 revision of its’ leniency policy, the US antitrust department saw about an average of at least one leniency application per month by 2003, whereas the EU saw a total of 21 decisions under its leniency policy from its introduction in 1996 until 2005. It can be inferred that the major reason behind this ‘ineffectiveness’ is the excessive discretionary powers of the CCI. The regulations state that the CCI may grant lesser penalties to the applicant who ceases to be a cartel member. However, at the same time, applicants are required to disclose all relevant documents, continue co-operation and comply with any conditions - which CCI may deem fit for grant of immunity/lesser penalty. This gives in for a layer of uncertainty which adds as a deterrent element for the companies who are participating in cartelization from coming forward and giving information. Contrary to this, under the US system, the first-in company is automatically granted immunity, provided it fulfills the six objective criteria. Furthermore, under the Indian regime, immunity and lesser penalties can also be withdrawn if CCI finds that the conditions upon which such leniency was granted are not complied with, the applicants had given false evidence, or the disclosure made was not vital.”
“The leniency provisions which suffered from inherent limitations, were somewhat have been mitigated by the 2017 amendments, as discussed in the preceding sections. However, aspects like the satisfaction of the CCI and what constitutes vital information are left open for judgment. Coming to another facet, despite the presence of the leniency provisions, the CCI had not given practical application to the same until as recently as 2017 when it decided in the Brushless DC fans case.”
“Next, the very limitation of such provisions is predictability. If comprehensive patterns and uniformity are not maintained in the decisions, the ability to predict whether a reduction will be granted or not is highly impaired. CCI’s orders are seen as lacking predictability with respect to the requirement of corroborative value vis-a-vis mere co-operation in order for a later applicant to secure leniency. While in some instances, the CCI has given some reductions for extending co-operation, in other cases, the veracity of the information has been scrutinized, and the waiver is not provided even after minimal value addition. Further, while the same applicant in different cases has been penalized in subsequent cases too (dry cell battery case), the fact of having been penalized already has served as a reason to forgo penalty in the next case (PMC case). Therefore, it is desired that the CCI attempts to bring in some consistency in these aspects.”
“Another issue lies in the fact that the information as to whether any reduction has been granted can only be obtained at the end of the entire investigation. This provision, in my view, can be modified. There are two sides to this- on the one hand, it is only possible to obtain a correct and comprehensive assessment of the value of contributions made by a particular applicant once the entire process has been completed. On the other hand, the applicant must have at least some certainty of the reduction of penalty. This is because the applicant is, in essence, implicating themself by disclosing sensitive information. Providing such certainty to the applicant at an earlier stage would, in fact, enable an increased number of applicants to come forward making use of the provisions.”
“In fact, this becomes even more necessary after the 2017 amendment that increases the powers of the DG to make disclosures if required for the investigation. It is important to keep in mind that the parties involved in such investigations are ones whose reputation is generally of extreme importance. In this light, if information about the on-going investigation is made public, it may adversely affect the concerned party. This would cause further reluctance among members to approach the CCI in the absence of any certainty as to a reduction in penalties.”

Conclusion
“The last two years have seen the CCI pass leniency orders more proactively. However, the passing of such orders has lacked the consistency and predictability required to encourage applicants’ participation. While the initial leniency orders have failed to provide such consistency and predictability, the 2017 Amendment to the Regulations is a step in the right direction. The Amendment seeks to extend the benefit of the leniency programme to individual employees who could be held responsible for the infringement and be penalised in their individual capacity in accordance with section 48 of the Act. The removal of the marker system is significant, considering it could potentially deter companies from disclosing information as they had to run the risk of submitting self-incriminating evidence of involvement in cartels without the certainty of being amongst the first three markers for leniency. The introduction of more targeted policies in this regard, for example the UK ‘Cracking down on cartels’ campaign, or the EU whistle-blower tool launched in 2017, would help in encouraging more leniency applicants to come forward. Agreements to co-operate with other jurisdictions to share information about cartels can also prove to be effective to tackle cross-border cartels while also exposing cartels to a genuine fear of detection. The International Competition Network seeks to facilitate and further such international cooperation by encouraging competition agencies of different countries to exchange experience on international cooperation in case-related enforcement activities.”

“Despite the continuing debate as to the efficacy of criminalisation of cartels, there is evidence supporting its deterrence. While India does provide for stiff penalties for cartels, criminalising cartel activity could also potentially bring about a change, as the fear of prison sentence may prompt members to act pre-emptively. Better experiences have been evidenced in the EU and US, and this is likely owing to their ever-evolving policies and identification of gaps in their respective leniency regimes. This seems to have won the confidence of the market players through transparent, consistent, and predictable decisions. The Indian leniency programme must strive towards the same. Such a programme which enables companies to safely predict how the leniency policy will be applied in their individual cases would greatly encourage them to self-report their behaviour.”

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