Comparing The Deterrence Effects of Leniency Programs Between India & USA

[By Anshula Sinha & Aashish Gupta]

The authors are students of NLU Jodhpur.

 

Introduction

Leniency programmes [“LP”] incentivise companies/firms to report collusion leading to anti-trust violations through reduced sanctions or even immunity from fines and legal penalties. LP aims to uncover and dismantle cartels by providing incentives for cartel participants to self-report their involvement in cartel activities. There are two types of scenarios that may arise when an adjudicating authority [“AA”] adopts an LP. Firstly, collusion and do not reveal when investigated, which is referred to as Collusion and No Reporting [“CNR”] second situation is when there is a collusion and reveal when investigated, which is Collusion and Reveal [“CR”].  The former is such that firms do not reveal collusive information to the AA even if the investigation takes place. The latter is that firms reveal collusive information to the AA once the investigation is opened.[i] Leniency programs are designed to encourage companies to reveal collusion and cooperate with authorities, which can help uncover and dismantle cartels more effectively.. This approach aims to create a stronger deterrent against collusion and promote fair competition in the market. The Competition Commission of India has inconsistently granted reductions and maintained anonymity. These concerns have hampered the leniency program’s goals. The article compares the leniency programs targeting anticompetitive behavior in India and the US, focusing on cartel activities. It separately reviews the cartel leniency programs in both countries and conducts a comparative analysis. Additionally, it explores how India can enhance its framework by adopting specific elements from the US program.

Overview of Cartel LP in the USA

The notion of leniency first emerged in the United States as a means to address the challenges encountered by law enforcement agencies in detecting cartels and subsequently gathering compelling evidence to construct a legal argument against them.The US Department of Justice [“DOJ”] Antitrust Division’s leniency programme is not governed by statute. The programme is run by the Antitrust Division at the prosecutor’s discretion. The programme includes the Antitrust Division’s Corporate Leniency Policy as well as its Individual Leniency Policy [“US LP”].[ii] Corporations that do not qualify for full immunity under the US Leniency Programme but cooperate with the Antitrust Division can profit during the charge or sentence stages of criminal antitrust prosecution. Furthermore, a separate federal statute, the Antitrust Criminal Penalty Enhancement and Reform Act [“ACPERA”], which was re-enacted in October 2020, provides measures to reduce an applicant’s civil responsibility in subsequent private antitrust actions.[iii] Thereby providing immunity from both criminal and civil actions. The Corporate Leniency Policy encompasses two distinct categories of leniency, namely Type A and Type B. Leniency of Type A is exclusively accessible in cases when the Antitrust Division has not obtained any information regarding the reported action from any other source. Leniency under Type B might be sought even subsequent to the initiation of an inquiry by the Division. Both forms of corporate leniency necessitate comparable levels of cooperation and corporate acknowledgements.[iv] However, it is important to note that only Type A leniency ensures immunity for all directors, officers, and employees of the corporation who confess their participation in the violation and actively assist the Antitrust Division in its investigation.[v]

The US Leniency Programme only applies to criminal antitrust violations, which, per Antitrust Division policy, include only agreements between competitors to fix prices, rig bidding, restrict output, or allocate markets and customers.The Antitrust Division is devoted to not prosecuting leniency recipients for criminal offences integral to the antitrust violation (such as mail or wire fraud offences in conjunction with the antitrust violation). However, the US Leniency Programme will only safeguard a leniency applicant from criminal prosecution by the Antitrust Division and not from any other divisions or agencies within the DOJ.[vi]

Overview of Cartel Leniency in India

Cartel formation is a pernicious offence under the Act. The Commission can inquire into any cartel and impose penalties as per Section 4 of the Competition Act, 2002 [“the Act”].[vii] Further, the Commission has the power, under Section 27 of the Act to pass orders for discontinuation, modification of the agreement, direction to abide by the order, etc.[viii]Section 46 of the relevant legislation confers authority upon the Competition Commission of India [“CCI”] to impose reduced fines and establishes specific criteria for disclosure that must be satisfied by the party seeking leniency.[ix] Previously, under Regulation 4, the reduction was determined by a marker system in which only the first three applicants for leniency received its benefits. With the 2017 Amendment, this restriction on the number of markers has been removed: the ‘first-in’ company/applicant is eligible for immunity, i.e., a reduction of 100%, the second applicant can receive a reduction of up to 50%, and subsequent applicants can receive a reduction of up to 30%.[x] Section 64 authorises the Commission to design regulations for matters covered by regulations to implement the Act’s leniency provisions. In August 2009, the Competition Commission of India (Lesser Penalty) Regulations, 2009[xi] [“Regulations, 2009”] were issued under such powers. [xii] These Regulations allow the Commission to reduce cartel punishments below statute. Under the Regulations,2009, there is no complete anonymity or confidentiality that is accorded to the applicant and it is contingent only upon the three conditions specified wherein the identity of the applicant, as well as information obtained from it, shall be treated as confidential and it shall not be disclosed.[xiii]

Analysis of the major leniency orders passed by the CCI highlights various aspects of the leniency regime. In the Brushless DC Fans case[xiv], the CCI issued its first leniency order in January 2017. Initiated suo motu, the investigation revealed potential cartelization between manufacturers and suppliers of brushless fans. The CCI granted only a 75% penalty reduction to the first applicant who filed a leniency application and did not grant complete immunity.[xv] In the case involving the Zinc-carbon dry cell manufacturers cartel, Panasonic India received a 100% penalty reduction after disclosing collusion with Eveready Industries and Indo National to fix zinc-carbon dry cell battery prices. Immunity was granted to Panasonic as it exposed a new cartel. The other companies also applied for leniency, receiving 30% and 20% penalty reductions. Notably, the CCI’s approach to value addition and cooperation varied within the same case.[xvi] In the Nagrik Chetna Manch case, entities faced accusations of bid rigging. The CCI’s rulings exhibited inconsistencies, granting leniency to some applicants while denying it to others, leading to a closer examination of the regulatory framework.[xvii] Further in the case of Cartel in relation to electronic power steering systems originated from a leniency application by NSK, which implicated itself, JTEKT Corporation, and their Indian subsidiaries—Rane NSK Steering Systems India and JTEKT Sona Automotive India. This concerned a cartel involving the supply of column-type electronic power steering systems to certain original equipment manufacturers. The CCI initiated proceedings based on NSK’s leniency application, prompting the DG to investigate NSK, RNSS, JTEKT, and JTEKT India. JTEKT subsequently also filed a leniency application. NSK and RNSS were granted a 100% penalty reduction as their application formed a prima facie opinion, while JTEKT received a 50% reduction for significantly contributing valuable evidence during the investigation.[xviii]

The above analysis is reflective of the fact that different leniency orders have granted varying levels of penalty reductions or immunities to different applicants, even within the same case. This variability can create uncertainty and make it challenging for potential applicants to predict the outcomes of their leniency applications.Furthermore, some other challenges and inconsistencies have resulted in the LP in India not being as successful as the USA’s cartel leniency programme.

Comparative Analysis between the US and India

The US introduced leniency to aid enforcement officials in detecting cartels and gathering evidence to prosecute them. Within three years of the 1993 Corporate Leniency Programme amendment, cartel detection doubled. In the late 1990s, the DOJ received 25 amnesty applications every year. Studies show that the US leniency programme reduced cartel formation by 59% and increased detection by 62%. The leniency policies worked because more than half of US cartelization cases were started by a company’s leniency application, and 90% of them were filed to help the Antitrust Division investigate.[xix]There are no decisions or statistics that demonstrate the unique advantages of the corresponding Indian system. In fact, despite the fact that India’s LP has been in operation for well over a decade, the CCI issued its first decision under the leniency regime in 2017 and a dozen more since.However, India has not been able to achieve this kind of success and multiple reasons can be accorded to this.

Firstly, the problem lies in the inconsistency persisting in the decisions of different leniency orders that have granted varying levels of penalty reductions or immunities to different applicants, even within the same case. This variability can create uncertainty and make it challenging for potential applicants to predict the outcomes of their leniency applications.[xx] Secondly, in practice, the distinction between complete immunity and penalty reductions is not always distinct. The decision regarding whether to grant immunity or reduction can occasionally appear arbitrary, leaving applicants uncertain of the potential outcomes as there is conditional anonymity accorded. In India, as discussed above, the disclosures are conditional and are contingent upon the fulfilment of specific conditions in contrast to US regulation, where complete anonymity is granted. This further acts as a barrier for a regime that would have been capable of creating deterrence for the collusive behaviours. Thirdly, the Indian competition regime only mandates civil liabilities and is yet to adopt criminal sanctions. This is a reduced incentive for the applicant coming under the LP as CCI often imposes monetary penalties and companies and individuals find it more beneficial to be part of the collusion rather than go under the LP wherein they will not be granted full immunity and penalties, though reduced would be levied. This particularly becomes important in the scenario wherein the companies having huge turnovers are accrued liability for the collusive behaviour and they would prefer giving the penalties rather than reporting the collusion for a lesser penalty. Unlike India, US LP only applies to criminal antitrust violations which acts as a driving force for applicants to report the collusion under the LP. Fourthly, there are no safeguards for individuals who report competition violations/ cartels. However, the CCI maintains complete confidentiality regarding the identity of whistleblowers.

Conclusion: The Way Ahead

Some noteworthy provisions can be incorporated from the US LP to the Indian LP. Like in the United States, engaging in cartel activities is considered a criminal offence, instilling a genuine apprehension of facing penalties. Amendments made in 2004 to The Sherman Antitrust Act of 1890 amplified maximum penalties, elevating the imprisonment term to 10 years and allowing fines of up to $100 million. Additionally, the US has effectively established an atmosphere where companies are exposed to a higher probability of being detected by utilizing conventional investigative methods like search warrants, subpoenas, and wiretaps to identify cartels efficiently. The increased potential of unveiling cartels through leniency applications further intensifies companies’ concerns about being discovered.[xxi] Another factor that has been successful in creating deterrence in the US is only the first applicant gets immunity, thus creating a true race to the enforcer’s door. Other applicants ready to cooperate may be eligible for a reduction in fine, but this falls outside the purview of leniency and is conferred through the process of negotiation of plea agreements by the DOJ. Thereby, certain modifications can be made to encourage them to self-report their behaviour.

To enhance deterrence, India should consider introducing criminal penalties and disqualifying cartel-involved directors from management roles. Additionally, addressing unpredictability in the Competition Commission of India’s enforcement practices is crucial for effective anti-cartel measures.

 

[i] Ishibashi, Ikuo, and Daisuke Shimizu. “Collusive Behavior under a Leniency Program.” Journal of Economics, vol. 101, no. 2, 2010, pp. 169–83. JSTOR, http://www.jstor.org/stable/41795709. Accessed 28 Aug. 2023.

[ii] US Leniency Programme, including the Model Leniency Letters, a list of Frequently Asked Questions, and Leniency Policy Speeches (update published on January 3, 2023) at https://www.justice.gov/atr/leniency-program.

[iii] John Friel, Celeste Koeleveld, Peter Mucchetti, Jordan Passmore, Sabine Kobienia, Cartel Leniency in the United States: Overview, (Thomson Reuters) available at https://uk.practicallaw.thomsonreuters.com/w-006-7098?transitionType=Default&contextData=(sc.Default)&firstPage=true

[iv] Rahim, Mohsin, A Critical Analysis of the Leniency Regime in India (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=4145176 or http://dx.doi.org/10.2139/ssrn.4145176

[v]Id.

[vi]Supra at 4.

[vii] Section 4 of the Competition Act, 2002.

[viii] Section 27 of the Competition Act, 2002.

[ix] Section 46 of the Competition Act, 2002.

[x] Competition Commission of India Report on “Study of Cartel Case Laws in Select Jurisdictions (2008)”, at https://www.cci.gov.in/sites/default/files/cartel_report1_20080812115152.pdf  (last accessed 31st August 2023).

[xi] Competition Commission of India (Lesser Penalty) Regulations, 2009

[xii] Farhad Sorabjee, Vaibhav Choukse, Ela Bali and Aditi Khanna, The Cartels and Leniency Review: India, The law Reviews (14th February 2023).

[xiii] Competition Commission of India Report on “Study of Cartel Case Laws in Select Jurisdictions (2008)”, at https://www.cci.gov.in/sites/default/files/cartel_report1_20080812115152.pdf  (last accessed 31st August 2023).

[xiv]Case No. 03 of 2014.

[xv] Case No. 50 of 2015

[xvi] Case No. 2 of 2016

[xvii] Case No. 50 of 2015, Case No. 50 of 2015 & Case No. 2 of 2016.

[xviii] Case No. 07(01) of 2014

[xix] S. Muralidharan and C. Deshpande, “Scope for Intersection between Antitrust Laws and Corporate Governance principles vis-à-vis cartel deterrence in India”, (2016) 9 NUJS L. Rev. 93.

[xx] Case No. 50 of 2015,

[xxi] Angela Dua, 10 Years of the Indian Leniency Programme: Lessons to be Learned from the US and EU Experience, KSLR COMMERCIAL & FINANCIAL LAW BLOG (June 8, 2020)

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