August 28 2003 First Movers Gain Advantage Under Cartel Leniency Policy Ashurst | Competition & Antitrust - Australia Competition & Antitrust Requirements for Immunity Cartel Conduct Subsequent Applications for Leniency No Immunity for Ringleaders Application Process Criminal Penalties Global Cartels Affecting Australia On June 30 2003 the Australian Competition and Consumer Commission's (ACCC) Leniency Policy for Cartel Conduct was announced and entered into force. It aims to encourage corporations and their executives to blow the whistle on hard-core cartel behaviour, such as price fixing, bid rigging and market sharing.Australia is one of the last key competition law jurisdictions to adopt a leniency policy for hard-core cartel conduct. The policy bears a strong resemblance to its US and Canadian counterparts. Requirements for ImmunityThe degree of immunity afforded under the cartel leniency policy depends on the ACCC's knowledge of the cartel at the time of making the application for immunity. The ACCC will grant a person (corporate or individual) immunity from ACCC-instituted proceedings where the ACCC is unaware of the cartel. However, the immunity will only extend to relief from pecuniary penalties where the ACCC is aware of the cartel, but has insufficient evidence to institute proceedings in respect to the cartel. In order to be eligible for immunity, the cartel participant must: be the first person to disclose the existence of the cartel; give full and frank disclosure, providing the ACCC with all evidence and information in its possession or available to it relating to the cartel; cooperate fully, on a continuous basis and expeditiously, throughout the ACCC's investigation and any ensuing proceedings; cease all involvement in the cartel; and not have coerced other persons to participate in the cartel or been the clear leader in the cartel. In addition, for a corporation to be granted immunity, (i) the admissions and cooperation must be truly corporate acts (as opposed to the isolated confessions of individual representatives), and (ii) where possible, the corporation must make restitution to injured parties. Cartel Conduct The cartel leniency policy only applies to 'cartel conduct', which includes any of the following categories of conduct engaged in by two or more competitors: price fixing; market allocation, including bid rigging and customer sharing; and setting of production and sales quotas between competitors. Such conduct contravenes Section 45(2) of the Trade Practices Act 1974. Subsequent Applications for LeniencyIf a whistleblower fails to meet the conditions for immunity, is a subsequent applicant eligible for immunity under the cartel leniency policy? The Canadian Immunity Programme, for example, explicitly provides for this possibility. Under the ACCC's cartel leniency policy this is not possible, because the subsequent applicant would not meet the requirement to be the first person coming forward and thus the ACCC would already be aware of the cartel. However, any subsequent application for immunity would be considered pursuant to the ACCC's Cooperation Policy for Enforcement Matters, published in July 2002. Such leniency decisions will be made on a case-by-case basis in the exercise of the ACCC's discretion. Leniency is most likely to be considered where a person provides valuable and important information of which the ACCC is unaware, or where the ACCC has insufficient evidence to initiate proceedings, and the person then fully cooperates with the ACCC.In this regard, the cartel leniency policy is stricter than the UK and EU leniency programmes, under which total immunity can be granted after the regulatory authority has become aware of the cartel but before it has commenced a formal investigation. No Immunity for RingleadersThe exclusion of clear leaders in the cartel from immunity may be a significant practical impediment to cooperation. If potential applicants have any doubts as to whether the ACCC may regard them as clear leaders in the cartel, they may be reluctant to come forward.In its interpreting notes on ringleadership, the ACCC focuses on the aspects of coercion and market power. For example, there will be no clear leader if (i) in the case of a cartel between competitors with equal market shares, one company suggested the cartel arrangement and subsequently maintained the records of the cartel, but the other companies were willing and active participants, or (ii) two or more parties are considered joint leaders.If persons contemplating an immunity application are unsure whether the cartel leniency policy will apply, the ACCC is willing to discuss the issue on a hypothetical basis.Application ProcessThe process of obtaining immunity involves the following steps: The initial application for immunity should be made by fax and must include the full name and contact details of the applicant as well as an outline of the cartel conduct, including (i) details of the industry, product and market affected by the cartel, (ii) the names of the participants, and (iii) the duration of the cartel; As soon as possible thereafter, the ACCC will advise whether the applicant is the first person to make an application and what form of immunity will be available; Within one week of the initial application, the applicant must, to the best of its ability, provide the ACCC with detailed information and evidence relating to the cartel; and The ACCC will then grant the appropriate conditional leniency to the applicant in writing and set out the next steps the applicant must reasonably take. Applicants may find it difficult, if not impossible, to provide detailed information and evidence within the one-week deadline, given that applicants may be rushing to be the first one in. Applicants should be careful not to provide the ACCC with any information or evidence which may subsequently turn out to be false or misleading. This may cause the ACCC to deny the application for immunity because of a lack of frank disclosure. It remains to be seen how far the ACCC will be prepared to extend the time limit if applicants cannot provide reliable detailed information and evidence in relation to the cartel within the one-week deadline. Criminal PenaltiesThe cartel leniency policy only applies to the existing civil penalties in the act. On April 16 2003 the government adopted recommendations by the Dawson Committee for the introduction of criminal penalties (jail terms) for hard-core cartel behaviour and increased maximum civil pecuniary penalties (to be the greater of A$10 million, three times the gain from the contravention or 10% of the turnover of the group of companies to which the corporation belongs).The ACCC has foreshadowed a review of its cartel leniency policy if criminal penalties for cartel conduct are introduced into the act.Global Cartels Affecting AustraliaIn the context of a global cartel, persons contemplating approaching the ACCC should bear in mind that the ACCC is likely to become aware of the cartel from foreign regulators if the cartel is being investigated by regulators in other jurisdictions. Thus, where a cartel affects multiple jurisdictions including Australia, multinational participants should contact the ACCC either simultaneously or immediately after having approached any overseas competition law authorities for immunity. Another important issue in the international context is confidentiality. For example, if a person wishes to disclose a global cartel to the ACCC to be first, but has not yet made a decision as to whether or when to contact the relevant foreign jurisdictions, will the ACCC afford confidentiality to that person? If a cartel has an international dimension, an important issue to clarify with the ACCC in the initial hypothetical discussion is the ACCC's willingness to maintain the confidentiality of any information communicated to it in confidence. Will the ACCC be willing not to disclose any information to overseas regulators (at least until the whistleblower has decided whether to apply for immunity in other jurisdictions), in order to preserve the whistleblower's chance to obtain full immunity under leniency policies in other jurisdictions? This is especially relevant for the US and Canadian leniency policies, which grant full immunity only if the regulator is unaware of the cartel at the time of the application for immunity. For further information on this topic please contact Bill Reid or Wolfgang Hellmann at Blake Dawson Waldron by telephone (+61 2 9258 6000) or by fax (+61 2 9258 6999) or by email ([email protected] or [email protected]).