Leniency programs

Leniency can be defined as granting of immunity from penalties or the reduction of penalties for antitrust violations in exchange for cooperation with the antitrust enforcement authorities (Wils, 2007).

Thanks to the cooperation of one or more offenders, leniency programs help competition agencies detect and sanction the participants of a cartel or collusion, granting the whistleblower(s) a benefit of exemption or reduction of the sanction (which may be criminal or administrative, depending on the jurisdiction).

Currently, leniency is the most widely used tool for cartel detection worldwide. Today, almost all OECD countries have adopted this type of program in their competition legislation.

In the European Union, since 2009, almost all cartel investigations have been initiated through the use of this tool (Wils, 2016), and in the United States, the Department of Justice (DOJ) has repeatedly stated that leniency is the most important investigative tool for detecting cartels. As for Latin America, most countries in the region have followed suit: Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Uruguay are among those that already have a program of this kind.

Cartels tend to be the most difficult anticompetitive conduct to detect. Unlike other anticompetitive behavior, cartels are not directly observable, as is the case with unilateral abuses, which usually occur within the context of contractual relationships.

In terms of evidence, there are two major ways to prove the existence of collusion: hard or direct evidence, consisting of material proof such as documents, emails, or other communications showing direct contact between firms; and circumstantial evidence, which refers to the firms’ commercial behavior in the market, which can be explained “only by an explicit agreement between the firms” (González, 2011).

While both types of evidence are useful for proving a collusive agreement, courts tend to give greater probative value to direct evidence than to circumstantial evidence (González, 2011).

However, considering that most collusive agreements are carried out in secrecy and their participants are extremely cautious not to leave traces, material evidence is increasingly difficult for competition authorities to obtain.

In this regard, although the culture of compliance in competition matters has helped reduce these types of infringements, it has also led to new practices in which those who collude nowadays do not use letters, emails, instant messaging, or registered telephones, something that makes proving them more difficult each day (Grebe, 2020).

It is in this context that leniency plays a key role in detecting and sanctioning cartels, as it is the colluding companies themselves that provide the enforcer with the evidence to prove the collusion, facilitating both proof and sanction.

However, for cartel members to approach the authority to disclose the infringement, it is crucial that the proper incentives exist.

The effectiveness of a leniency program largely depends on a well-designed incentive scheme.

Accordingly, the guiding principle or “golden rule” of a leniency program should be to never place the whistleblower in a worse position than a non-cooperating party, thus encouraging the disclosure of the infringement to the authority.

When considering the possibility of self-reporting, it is likely that the firm will carry out a cost-benefit analysis to determine whether to remain in the cartel, enjoying the associated economic benefits, or to self-report to the authority and obtain the corresponding immunity.

In this regard, for one (or several) cartel members to approach the authority and report their participation in the infringement, three elements must be present: first, the existence of severe sanctions; second, a high probability of detection by the authority; and finally, a leniency system that is sufficiently transparent and predictable, so that those who participate in it are certain that the process before the authority will work effectively (Hammond, 2010).

An important element to encourage the use of leniency and to provide transparency and certainty to the whistleblower, is the so-called “marker” system.

This is a mechanism through which applicants may “book” or reserve a place in line for a defined period of time while conducting internal investigations to refine their application to the leniency program. In the meantime, the applicant retains its priority position until the agency makes a final determination regarding the granting of leniency to the first whistleblower.

Comparative experience has shown that the implementation of leniency programs brings a series of benefits in cartel enforcement. Evidence is obtained in a more expedited fashion, which reduces the administrative burden on agencies and leads to a more efficient delivery of justice.

As noted by the International Competition Network, the main benefits of implementing a leniency program are:

• Deterrence, by making cartel formation less attractive due to the risk that one of its members may blow the whistle and the others be sanctioned.
• Detection, since the program creates incentives for colluding firms to approach the authority, thereby increasing the likelihood of discovering the infringement.
• Termination of the unlawful conduct, as one of the members may cease participating out of fear of being discovered and sanctioned, or the cartel may dissolve because of the whistleblowing.

The first antecedents of immunity programs in comparative law date back to 1978 in the United States, the first country to implement such a program. However, the program did not yield many results until 1993, when the Antitrust Division of the Department of Justice (DOJ) published its Corporate Leniency Policy and Individual Leniency Policy.

The U.S. leniency program applies only to so-called “hard-core cartels,” exempting from all criminal liability (i) the first company or (ii) the first individual who approaches the DOJ, provided they meet certain requirements.

Currently, the U.S. program is structured around two pillars:

• Type A Leniency: Full criminal immunity, only if the whistleblower approaches the authority before the investigation begins. This immunity is available to senior executives, directors, and employees of the firm, all of whom must fully cooperate with the DOJ during the investigation.
• Type B Leniency: Full immunity for those who come forward after the investigation has begun, as long as the DOJ does not yet have sufficient evidence to secure a conviction. This immunity is available to the same individuals covered under Type A.

Members of the cartel who come in second —or even later— may still receive a reduction in their sanction, if they admit to the violation and cooperate with the investigation. This decision is made by the DOJ on a case-by-case basis.

Furthermore, these companies may also access the Amnesty Plus program, which allows them to receive an additional reduction in their sanction if they cooperate in the investigation of another infringement in which they were involved.

The company or individual seeking to benefit from the program must not have organized the cartel or coerced others into joining it.

Once the application for leniency is submitted, the company or individual receives a conditional leniency letter. If the applicant fulfills all obligations (typically after the conclusion of the investigation and legal proceedings) and their eligibility is verified, the DOJ issues a final letter confirming the grant of immunity.

The success of the DOJ’s revised program led other jurisdictions to implement similar schemes. In the case of the European Union, it adopted its first leniency program in 1996, which has been amended twice: first in 2002 and then in 2006, following the publication of the current “Leniency Notice”.

The leniency benefit applies only to cartels and covers only companies, since the European Union does not impose sanctions on individuals who take part in collusive conduct.

The European Commission grants full immunity to the first applicant that enables the Commission to:

• Carry out an inspection or raid related to the cartel that would not have been possible without the applicant’s contribution; or
• Become aware of a new infringement of Article 101 of the Treaty on the Functioning of the European Union (TFEU) related to the cartel.

Similar to the U.S. program, the applicant must not have coerced other companies into joining or remaining in the cartel.

Other cartel participants may qualify for fine reductions if they provide evidence that constitutes “significant added value” to the Commission’s investigation. The first company to meet these conditions may receive a reduction of 30% to 50%; the second, 20% to 30%; and subsequent applicants, up to 20%.

Leniency was introduced in Chile in 2009, following the enactment of Law No. 20.361, which amended Decree Law 211 and reformed various aspects of the Chilean competition law system. According to Article 39 bis of DL 211, the leniency benefit applies to collusive agreements or concerted practices falling under Article 3(a) of DL 211.

According to the Internal Guide on Leniency in Cartel Cases (2017) published by the National Economic Prosecutor’s Office (FNE), the first whistleblower to approach the FNE may receive a full exemption from fines, while the second may obtain up to a 50% reduction.

Additionally, following the introduction of the new criminal offense of collusion under Law No. 20.945 in 2016, individuals who provide information in the context of the first leniency application may be exempted from criminal liability, while those who contribute in the second application may be eligible for a reduced sentence by one degree.

Those who organized the unlawful conduct or coerced others into participating in it are excluded from eligibility (for the recent debate on the notion of “coercion” in the Tissue Case, see CeCo’s Note).

To access these benefits, Article 39 bis of DL 211 establishes that an individual involved in the conduct must:

• Provide accurate, truthful, and verifiable information that effectively contributes to the gathering of sufficient evidence to support a complaint before the Tribunal;
• Refrain from disclosing the leniency application until the FNE has either filed the complaint or decided to close the case;
• Cease participation in the unlawful conduct immediately after submitting the application.

In any case, leniency has been widely recognized by Chilean competition law experts as a powerful tool for cartel deterrence (see 2020 Survey on Competition Authorities’ Perception, Deloitte).

Furthermore, when leniency has been involved, the average duration of FNE investigations has significantly decreased compared to those without leniency. For the period 2014–2020, the average was 848 days for cases with leniency and 1,600 days for those without it (see CeCo UAI, 2020).