The UK Competition and Markets Authority (CMA) recently launched its campaign to “crack down on cartels” with a press release1 promising whistleblowers the chance to “earn a reward of up to £100,000”. The potential whistleblower must not be involved in the cartel itself. If involved, the CMA has threatened prison, fines and disqualification as permitted under the Enterprise Act 2016.
This reward scheme is quite unique amongst European and U.S. competition authorities. For crossborder cartels, rather than leading to antitrust-agency-shopping, it could arguably have a knock-on effect for an increase in leniency applications in other European jurisdictions and possibly abroad.
More importantly, as the reward scheme is geared towards individuals (rather than corporates), companies will have to consider how it will impact their internal whistleblowing procedures to ensure they themselves can still benefit from fine immunity and/or reductions in the event of detected cartel behaviour.
1. A breath of new life2
Following the CMA’s study last year3 , which showed that less than a quarter of UK businesses understood the consequences of forming cartels, the CMA on 20 March 2017 launched its first-ever advertising campaign to raise awareness. This campaign breathes new life into a programme originally initiated by the CMA’s predecessor, the Office of Fair Trade, in 2008.
The programme provides for a financial reward of up to £100,000 (approx. $110k) for information on cartel activity. It is aimed to incentivise employees and contractors of a business to come forward with information on a cartel where they have not been directly involved.
Although it seems an attractive proposition at first glance, the financial reward will only be paid out in “exceptional circumstances” and the size of reward will depend on various factors, including: (i) how valuable the information was to the investigation, (ii) the risk associated with the whistleblower’s disclosure of the information, (iii) the level of cooperation by the whistleblower, and (iv) the amount of harm to both the economy and the consumer that the information helped to prevent. The size of the reward cannot be negotiated and it is at the discretion of the CMA whether to make use of the information or not. Even if the CMA does decide to use the information, it may still decide against actually paying out the reward. No public information is available on whether in practice the financial reward has yet been paid out. Although, the fact that it is now being widely publicized would suggest uptake has historically not been high as desired by the CMA.
Those who have been directly involved in a cartel cannot benefit from the financial reward, but should instead make use of the CMA leniency policy. The CMA leniency policy grants civil and, more importantly, criminal immunity from sanctions for the first leniency applicant to report a cartel, confess, and fully cooperate throughout the investigation.4
2. The right incentive to crack down on cartels
The reward scheme is quite unique amongst European and U.S. competition agencies. The European Commission as well as the U.S. antitrust authority, the DOJ, currently do not have a reward scheme in place. They prefer to rely on their respective leniency programmes to uncover cartel conduct. Most recently, the European Commission focused on the altruistic value of whistleblowing when it introduced a new tool that enables individuals to anonymously report on cartels. The Spanish competition authority has highlighted that the new tool will increase the likelihood of a disenfranchised worker not directly involved in cartel conduct to notify authorities. In Spain, its whistleblower programme has been very successful, triggering 94 applications since 2008. In addition, the CMA itself in the past two years has opened 24 new investigations. Coupled with the fact that the CMA may be tasked after Brexit with further cartel investigations that are currently being handled by the European Commission it seems questionable whether the reward scheme brings much added value to an already effective leniency programme.5
Yet, the experience by the U.S. Securities and Exchange Commission (SEC) with a comparable reward programme would suggest a rise in tip-offs. The SEC introduced a reward scheme for whistleblowers to tackle violations of securities laws. The reward can amount to 10-30% of the total money collected where sanctions exceed $1m. The SEC has found that since its introduction, it has received approximately 10 tips a day. The new tool is expected to increase the likelihood of detection and prosecution of cartels by complementing and reinforcing the effectiveness of the existing leniency programme.
3. Possible unforeseen consequences
While the impact of the CMA’s reward scheme on UK enforcement levels remains to be seen, the campaign is commendable for recognising a deficiency in public awareness surrounding cartels. The heavy caveats for claiming the reward may, however, hinder the tool’s usefulness, acting as a chilling effect on potential whistleblowers. In addition, it is unclear who will pay for the reward scheme. Although the CMA has increased its annual spend on cartel enforcement between 2014 and 20166 , if the tool proves effective, the CMA may have to allocate a separate pot of money purely for paying out rewards. Nevertheless, the campaign shows a pragmatic approach to dealing with the deficiency and is a worthy effort by the CMA to continue towards its goals set out in its 2016-17 Annual Plan.
There are, however, a couple of immediate unforeseen consequences that companies should consider:
- The CMA’s campaign to raise public awareness may impact a company’s compliance programme and, in turn, the ability of companies benefitting from leniency, i.e. fine immunity. In the UK, a company is incentivised from financial and criminal immunity in cartel investigations when it is first to submit a leniency application and before the CMA starts its own investigation. Therefore, companies may wish to incentivise employees to report infringements first internally before engaging with the competition authorities. Indeed, the potential fine level – or more accurately, the opportunity to receive immunity thereof – in most cases will greatly outweigh the benefit of the £100k reward.
- Another possible unforeseen impact on a company’s compliance programme stems from a possible increase in the number of UK cartel investigations with cross-border effects. More than 80 competition authorities worldwide have adopted leniency programmes. The EU leniency framework benefits from one application that covers all Member States. Although, in practice, concurrent applications to individual Member States are not uncommon (and often prudent to avoid “leniency gaps”). While the relevant individual would only be incentivised to approach the CMA, no similar incentive for individuals exists in other jurisdictions. In other words, while a company may find themselves in a position where they have “lost the race” to apply for leniency with the CMA, they would still be in a position to apply for leniency in other jurisdictions. Again, internal policies should consider these new dynamics.