Costs and risks of cooperation: the global downturn in immunity and leniency applications

Leniency and immunity programs are a key enforcement tool adopted by over 80 jurisdictions around the globe to detect and prosecute anti-competitive criminal cartel conduct.¹ Immunity and leniency applications drive the majority of cartel enforcement decisions in the European Union, Canada, Brazil, Japan, Singapore, India and Germany.² But in recent years, immunity leniency applications have declined in the United States and the European Union, and there is concern of a global decline.³ As the number of jurisdictions offering leniency programs increases, so too does the expense for multinational cartelists. At the same time, the rise in availability of and exposure to private damages disincentivizes companies to apply. In turn, competition agencies around the world have updated their leniency programs with the goal to enhance their effectiveness, but whether these updates will incentivize cartelists to apply for immunity or leniency remains to be seen.

Increasing jurisdictions with immunity and leniency programs

New immunity and leniency programs are being established in jurisdictions around the globe with enhanced cartel enforcement as a result.  For example, last year, the Philippine Competition Commission launched its new leniency program, offering immunity or reduced fines to those who provide information on price-fixing, bid-rigging and output restriction, while the Competition Commission of India released its first decision to grant full immunity to Panasonic in a price-fixing and output restriction scheme involving the supply of zinc-carbon dry cell batteries.⁴

However, the more jurisdictions a company must apply to for immunity or leniency, the more expensive the overall leniency process is for an applicant. Lack of a unified program and harmonization creates uncertainty and increased costs for companies who navigate varying leniency program frameworks. This is the case for cartel participants applying across member states in the European Union, and resonates on a global scale, particularly for participants in international cartels.⁵ Consequently, there is a need for efficient cross-border investigations as immunity and leniency applicants seek to reduce costs of multijurisdictional enforcement, including the risk of duplicative fines and penalties.

A number of competition agencies have signed agreements and Memoranda of Understandings with their foreign counterparts to facilitate information sharing and cross-border enforcement in respect of international cartel behaviour. In late 2018, the competition authorities of Brazil, Mexico, Peru, Argentina and Chile signed a joint statement on shared principles to ensure coordination and harmonization of the implementation of their leniency programs.⁶ In March 2019, Canada’s Commissioner of Competition, Matthew Boswell, spoke at a U.S. Federal Trade Commission event about the Competition Bureau’s “long history of cooperation with the FTC and many other international competition authorities around the world.”⁷ He cited the bureau’s cooperation and coordination with the U.S. Department of Justice in the investigation of an international bid-rigging conspiracy. Nishikawa Rubber Co., Ltd., a Japanese company, pled guilty in the US and paid a fine of US$130 million for a conspiracy that primarily affected U.S. consumers, but involved products sold to car makers who manufacturer cars in Canada for the U.S.⁸ Further, in September 2019, the U.S. DOJ announced a project to work with its foreign enforcement counterparts to develop “practical guidance on best practices for cross-border leniency coordination”.⁹

Growing exposure to private damages

Participation in an immunity or leniency program, particularly for those who contemplate seeking first-in leniency or immunity, risks exposure to private damages claims in a growing number of jurisdictions, including the US, the EU and its members states, and Canada. Participation in leniency programs does not shield companies from private damages claims, but rather invites such claims as affected consumers pursue them on the basis of information provided in the leniency process. In jurisdictions where the program’s rules enable third parties to gain access to documents submitted by applicants for use in a private action prior to a public trial, applicants have a greater disincentive to apply. Moreover, in the case of an international cartel, participation in multiple jurisdictions’ leniency programs can risk mirrored exposure to follow-on civil damage claims around the globe. In tandem with and in addition to the risk of liability arising from private enforcement, companies that apply for immunity or leniency risk significant reputational harm.

The scope and availability of private damages for cartel conduct is likely to continue expanding globally. In Canada, for example, the Supreme Court’s recent ruling in Pioneer Corp. v. Godfrey¹⁰, confirming umbrella purchasers have a cause of action under s. 36(1)(a) of the Competition Act for conspiracy and allowing loss to be certified as a common issue in competition class actions, may possibly impact the number of immunity and leniency applications made to the Competition Bureau.

Updated leniency programs

In view of these challenges, competition authorities around the world have updated their immunity and leniency programs, with Canada and Australia revising their programs substantially in the past year.

Among the updates to Canada’s program in September 2018 was an amendment to allow a cooperation credit of up to 50% off the base fine, regardless of when an applicant comes forward. ¹¹] This minor change may serve as a minor incentive for applicants. However, the majority of the updates are key changes that may serve as significant disincentives for applicants; particularly (i) additional requirement to disclose all documents and witnesses’ evidence during an interim stage as opposed to after immunity or leniency has been confirmed, and (ii) lack of automatic guaranteed immunity for directors, officer and employees of a corporate applicant. These updates could further expose immunity and leniency applicants to civil liability and private damages as plaintiffs bring third party disclosure applications against competition authorities to obtain evidence from parallel criminal proceedings for use in class actions.¹²

Following suit, Australia announced an overhaul of its cartel and immunity cooperation policy in September 2019, which came in force the following month. Australia’s program now requires applicants to enter into a cooperation agreement early in the process that sets out the steps required for immunity, including eligibility, level of cooperation, how information is used and confidentiality.¹³

The EU and Japan have made smaller adjustments to improve the effectiveness of their existing programs. The EU endeavoured to make its program more user friendly by instituting “eLeniency.” Launched in March 2019 by the European Commission, it is an online platform that allows companies and their counsel to directly upload documents to the Directorate-General for Competition.¹⁴

As an example of an amendment made to attract a greater field of applicants, in April 2019, Commissioner Reiko Aoki announced that the Japanese Fair Trade Commission would expand its leniency program to make fine reductions available to all companies that self-report cartel conduct—not only the first five companies that come forward.¹⁵

Conclusion

As cartels become more international in scope, and an increasing number of jurisdictions enforce cartel behaviour and adopt immunity and leniency programs, coordination and cooperation among competition authorities for cross-border enforcement and the harmonization of leniency programs will be important to ensure immunity and leniency programs remain viable and effective cartel detection and enforcement tools. The expansion of private damages claims combined with immunity and leniency programs that demand early documentation and evidentiary disclosure potentially allowing claimants to gain access to documents and evidence in support of a civil claim, increase risk of liability and reputational harm for leniency applicants. The concern of a global decline in immunity and leniency applications may continue to rise unless authorities consider alternative ways to reduce the costs and risks of cooperation to potential applicants.

D. Michael Brown is a Partner and Anisha Visvanatha is an Associate at Norton Rose Fulbright Canada LLP.