Leniency—What Exactly are the Implications for the Applying Undertaking in the European Union?

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Marcin Trepka, Sep 16, 2015

Leniency programs are one of the most revolutionary solutions introduced into cartel detection and prosecution systems in the last few decades. Leniency has increasingly become a powerful tool at the disposal of the antitrust authorities who frequently rely on it in fighting cartels. Due to the fact that many of the large global cartels have been identified and investigated as a result of immunity applications, leniency is very often considered as the most effective tool for detecting cartel activity.

The antitrust authorities benefit significantly from leniency programs. Thanks to cooperation with former cartelists they are afforded an opportunity to obtain insider evidence on cartel infringement, which otherwise may be difficult to detect because of the secret nature of cartels. Conversely, a cartel participant reporting itself, and providing evidence of a cartel, can obtain total immunity from a fine or a reduction of such penalty.

Examples of recent high profile European Commission  antitrust investigations in which leniency played a significant role are recent cartels in euro and yen interest rate derivatives. Barclays’ revealing of the existence of the euro cartel meant it obtained full immunity and thereby helped it to avoid a fine of around EUR 690 million for its participation in the infringement. At the same time, UBS received full immunity for revealing the existence of the yen cartels and thereby avoided a fine of around EUR 2.5 billion for its participation in five of the seven infringements. Citigroup received full immunity for one of the infringements in which it participated, thereby avoiding a fine of around EUR 55 million. Jointly, between 1998 and 2013, leniency applications contributed to the opening of 93 investigations by the EC in which 71 existing cartels were detected and fined with the participation of over 610 businesses.

Leniency also had its share in major cartel investigations conducted in other Member States, e.g. the one closest to the author, the Polish antitrust authority. In the biggest cartel case to date involving almost all the cement producers in Poland (the cement cartel case), two entities applied for lenient treatment, namely Lafarge and the Heidelberg Group. The former was granted full immunity, the latter a 50 percent reduction of its fine. The remaining cartel members ended up with approximately EUR 100 million in fines. In another high profile case, a leading DIY chain store, Castorama, received full immunity for revealing the existence of anticompetitive practices in the domestic paint wholesale market and thereby avoided a fine of approximately EUR 55 million.

Model leniency programs provide immunity to businesses from any antitrust fines that would otherwise have been imposed. In most cases in the European Union the following conditions have to be met:

  1. The applicant is the first to submit evidence that, in the authority’s view, at the time it evaluates the application will enable such authority to carry out inspections or enables the finding of an infringement of competition law in connection with an alleged cartel.
  2. The authority did not, at the time of the application, already have sufficient evidence to adopt an inspection decision, or had not already carried out an inspection, or did not have sufficient evidence to find an infringement of competition law in connection with the alleged cartel arrangement.
  3. The conditions attached to leniency are met.

Companies that do not qualify for immunity may still benefit from a reduction of a fine. However, depending on the leniency program, there might also be some exclusions from immunity from fines. The most common reason of exclusion is coercion of another undertaking into participating in the cartel.

Leniency is a tempting offer when infringing conduct is likely to be detected and punished—in particular when detected internally in terms of routine risk monitoring or a whistleblower notification without prior knowledge of the existence of cartel behavior in the first place. A company threatened with an antitrust investigation might want to consider a leniency application, at least as part of its risk management. Professional management of the company’s reputation and financial risks will certainly include reasonable assessment of all the circumstances of this solution including taking into account all advantages and disadvantages of an application for leniency.

Self-reporting can have also a downside for a company’s business activity. It could represent an opportunity for a company but, on the other hand, it involves some risks that each future leniency applicant should take into account.

Obviously, opting for leniency should never merely involve a simple cost-benefit analysis. This article is not intended to encourage or discourage a business from filing a leniency application—that should be always a deliberate choice of the companies concerned. It is to indicate the most significant, standard implications of a leniency application presented in an objective comparative manner based on the SWOT analysis method and aims to present a full picture.