When the stick doesn’t work, the carrot is the easier option. Plea-bargaining, consent orders are outcomes of this approach. Section 46 of the Competition Act contemplates a regime in providing that the Commission may, if satisfied that any producer or seller alleged to have violated Section 3 has made a true and full disclosure, impose a lesser penalty than the Act prescribes. A draft Leniency Programme has been posted on the website of the Competition Commission of India (CCI) recently.
The aim of market economies is to promote and maintain healthy competition and eliminate all restrictive practices, anti-consumer and anti-competition behaviour. Cartelisation needs no introduction, and the ruling of the CCI in the cement cartel case will be the true test of the effectiveness of the processes followed.
Leniency programmes exist in several jurisdictions as an alternative strategy. In the US, after the first jurisdiction to introduce this programme, the initial mechanism of amnesty failed to work, as it was conditional. To give an example, only the first disclosing party was permitted to qualify, as was permitted, to avail of this benefit. The US policy has evolved substantially over the years, with disclosures being permitted even after investigation, and complete amnesty being accorded to the first party to self-report. Initially, only corporate leniency was permitted, but in 1994 the Individual Leniency Policy was introduced with protections provided to the whistle-blowers.
The Indian leniency programme, described as a ‘Quick Guide’, is issued as a part of the CCI’s advocacy and awareness programme, and intends to be a tool, based largely on the US and EU models, in combating cartel cases. The Quick Guide is positioned as an incentive to encourage cartel members to voluntarily and honestly share information and cooperate with the Commission. The preconditions include providing information prior to the issue of the DG’s investigation report, to cease and desist from further participation in the cartel, unless required otherwise by the CCI, total and continuing cooperation, sharing of information and transparency.
The first mover may get a total waiver of fine. Available to both enterprises and individuals, the Indian leniency programme promises reductions, as well as total amnesty from penalty, on a case-to-case basis.
Draft regulations are ready in the form of Leniency Regulations, 2009, but not yet activated. It is possible this is an indicative message, to be sent to cartelists, including potentials, and to be followed by an engagement with the public on the programme and the situations under which parties can be induced to expose cartels.
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Empirical data indicates leniency programmes mop more inflows by way of fines and penalties than a fully fledged investigation process. The US Anti Trust Amnesty Program in 1999 secured more fines than the total amount imposed and recovered under the Sherman Act, since its inception more than a hundred years ago. In India, amnesty and settlement initiatives for taxes and compliances get an overwhelming response.
A leniency regime has to be broadened with time; in both the US and the UK this was followed to cover individuals. Detection of cartelisation is heavily reliant on information, and other than a vigilant media or consumer protection groups, the only other source is the cartelist organisation or an employee. An investigation into the existence of a cartel, obtaining and analysing data is not only very expensive, but also requires highly -pecialised skill sets.
A successful prosecution is not an easy task. But, ensuring the leniency regime is effective in securing the right returns requires many checks in the system, particularly an administrative procedure that secures continuing cooperation. It’s not easy to pierce the cartelist veil. Members of a cartel, or any legal collusion, are usually strong in their unanimity. Corporations have the option to select whichever is more profitable, competing or colluding.
If even one organisation is induced not to collude, the earn-out drops and the collusion loses its incentive — which is why the carrot has to be a very attractive one. Assuming the cartelist corporation seeks leniency, the reduced fine has to be commensurate with the loss of a permanent business for all times to come. Indeed, why would a cartel member opt for a leniency programme if the going is good, unless there is reason to believe the risk of detection and punishment is so severe that exposing the cartel is a better option, than being caught and convicted? If one or more self-reporters are induced to provide the entire information, the costs can be reduced substantially.
The bottom line is inducement has to be substantial. Certainly, the first whistle-blower should be promised absolute amnesty. It’s not just exemption from the penalty, an individual whistle-blower may need physical protection and possibly rehabilitation as well.
There are other economic and social flipsides going forward. An individual whistle-blower’s future in moving forward in the corporate may be impacted adversely, probably even permanently, resulting in loss of livelihood, unless the law can protect the individual from getting fired. Currently, this is not provided for: It’s virtually impossible to enforce. An ethical choice carries with it a latent stamp of betrayal, however unjustified.
The CCI programme will not attract any individuals, unless they are rewarded in real terms. Frankly, I don’t see too many takers. This carrot needs to be a winner to succeed.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum.sen@bharucha.in