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The Perks of Being a Whistleblower: Designing Efficient Leniency Programs in New Antitrust Jurisdiction
50 Vanderbilt Journal of Transnational Law 5 (2017)
Year published: 2017
"In 1978, the United States Department of Justice (DOJ) introduced a new method to detect cartels known as the Corporate Leniency Policy. The rationale behind the system, also referred to as amnesty or immunity program, was rather straightforward: the DOJ would vow not to punish a company involved in an illegal cartel in exchange for a confession and cooperation which would enable the indictment of other cartel members. Although the policy was largely unused in its original formulation, it planted the seed of what would arguably become the most influential leniency programme in the world. The current policy, fruit of a revision that took place in the 1990s, has helped enforcers obtain evidence against a myriad of cartels, and has inspired multiple other countries to follow suit. To date, leniency has brought down collusive practices in over 50 jurisdictions, including the United States (US), Canada and the European Union (EU). Leniency has even made it to Hollywood. The movie The Informant! (2009), directed by Steven Soderbergh, stars Matt Damon as Mark Whitacre, an employee at Archer Daniels-Midland (ADM) who worked undercover for the FBI for three years and helped expose a major price-fixing conspiracy in the lysine industry.

In the secret recordings of the conversations inside ADM, the president is infamously heard talking about the company’s motto: '[o]ur competitors are friends. Our customers are the enemy.' Cartels — understood broadly as arrangements between competitors 'designed to eliminate competition' — are widely considered to be the “supreme evil of antitrust”. If successful, the total profits of cartel members ought to be higher than the sum of individual profits in a competitive market, and yet there is neither an increase in efficiency, nor in the quality of the products. The result of this is that collusive practices inflict 'considerable damage on the economy'. The fight against cartels is hampered by how difficult they are to detect. Since they are both highly lucrative and systematically illegal in most jurisdictions, cartel members, eager to see their profits rise while avoiding the legal consequences of their actions, have been known to go to great lengths to hide their behaviour from the eye of the enforcer. The secrecy of cartels means it is also rare for the parties affected by the conduct to be in possession of the proof needed to start proceedings in order to bring the infringement to an end, or to claim compensation. Final consumers, often indirect purchasers of the cartelists, are unlikely to even be aware that they have been harmed. Unsurprisingly, the (few) studies that have been conducted on the detection rate of cartels paint a bleak picture when it comes to the chances of busting collusion.

The low detection probability, coupled with the high profits that may be obtained through collusion, make it very difficult for competition law to deter companies from engaging in such conduct. Intuitively, it would appear that a solution which employs techniques that bring down cartels from inside, by breaking the trust among their members, should do the trick. The value of leniency resides precisely in that it helps to solve what Rey has described as an information acquisition problem faced by competition agencies: 'firms know whether they collude; the agencies do not.' The proliferation of effective leniency regimes has been deemed the single most significant development in cartel enforcement. However, in this assertion one important caveat stands out: not any leniency program will enhance cartel exposure, only an effective policy will achieve that result. A poorly designed leniency program might have adverse effects, as colluding firms could work out ways to use the system to their advantage.

The abundant literature on leniency tends to focus on experienced antitrust jurisdictions, particularly the US and the EU. To date, little attention has been paid to the merits of amnesty programs in competition law regimes that are only just taking off, and yet around two thirds of competition laws around the world are under twenty-five years old. The present paper attempts to fill in this notorious gap by focusing on the prospective effectiveness of leniency programs in young antitrust jurisdictions which have limited or no experience enforcing neither competition law nor amnesty policies. Newcomers treat leniency as part of the ‘antitrust package’. While it took the US over a century and the EU more than four decades to adopt operational leniency programmes, younger jurisdictions tend to introduce leniency policies within 15 years of the implementation of their antitrust laws, oftentimes much earlier. The rush to embrace leniency is a testimony to their reliance on the efficacy of the established jurisdictions on which their antitrust legislation is largely modelled. However, ‘on the shelf’ competition law is not prêt-à-porter: it needs to be tailored to factor in the environment in which the law is to be applied. While there are striking similarities in the fundamental principles of modern competition law regimes, context is paramount both at the time of legislating and when it comes to enforcing the law. Overlooking the peculiarities of the region in which the legislation is to be applied can easily jeopardize the success and adequacy of any antitrust regulatory attempt, and this extends to the adoption of rigorous leniency programs.

The principal aim of this study, therefore, is to develop a framework for effective leniency policy design in jurisdictions with limited antitrust experience. Such a structure will be nurtured by the fundamental principles laid down in theoretical, empirical and experimental studies of leniency carried out by legal and economic scholars, as well as the experience of veteran leniency programs. At the same time, the paper will endeavour to adapt these principles to settings in which a competition culture is only just starting to bud. Any attempt to put forward normative and policy suggestions for the sound development of leniency in young jurisdictions is complicated by the sheer volume and diversity of new regimes. However, an observation of law and policy developments in these jurisdictions reveals common challenges that can equally be tackled with analogous solutions. Some issues ought to be addressed through the learning process given by the accumulation of experience, and require a methodological enforcement strategy and time. Others however might need the re-adjustment of either leniency programs or the antitrust systems they help to enforce. The paper focuses on leniency design, and identifies three specific challenges affecting the amnesty programs of young antitrust jurisdictions that deserve specific attention. Firstly, it is necessary to determine the magnitude of the reward that entices self-reporting in the context of jurisdictions that only contemplate relatively modest punishment for collusion. Secondly, achieving transparency and predictability without enforcement experience is particularly intricate, and requires careful policy-drafting on the part of antitrust agencies. Thirdly, the paper considers how to attain a sufficient degree of confidentiality that makes leniency enticing without hampering international cooperation efforts to break cartels.

The usefulness of each new leniency program resides not only in its fundamental role in enhancing regional prosperity through the protection of competition in local markets. Given the prominent absence of global antitrust rules, increasing “glocalized” efforts to tackle cartels can create an invaluable joint deterrent effect, paramount to combatting the biggest and most harmful collusive practices in the world. In order to address these issues, the paper relies principally on comparative theoretical and practical research, with some elements of interdisciplinary analysis, as it draws on the principal legal and economic studies of leniency. Accordingly, the paper is structured into five main parts. Part 1 provides the theoretical framework necessary to assess leniency programs, and lays down the parameters by which to evaluate policy design. Part 2 covers the practical experience of leniency by examining the evolution of amnesty programs in the US and the EU. Part 3 focuses on the implementation of leniency in young jurisdictions, and refers to the recent adoption of leniency in Hong Kong to illustrate the principal issues that emerge when using amnesty without antitrust enforcement experience. In part 4, an assessment of the challenges of leniency in new jurisdictions, as evidenced through the analysis carried out in previous sections, is conducted, and suggestions as to how to tackle these issues are proposed. Finally, conclusions are drawn in part 5."