Leniency Plus: A Potential Minus To The Indian Competition Framework?

[Vedantha Sai is a 4th year student at the National University of Advanced Legal Studies (NUALS) Kochi, India]

Acting upon the Report of the Competition Law Review Committee, the Ministry of Corporate Affairs on 20 February 2020 introduced the Draft Competition (Amendment) Bill with the object of filling several gaps and revamping the competition law framework in India. It incorporates several substantial changes to the Competition Act, 2002, including the introduction of the United States (US) Antitrust Division’s brainchild, the “Amnesty or Leniency Plus”. In this post, I argue that this successful cartel-detecting tool in the US would not translate well to the Indian competition landscape and, further, it could potentially have cartel-stabilizing, pro-collusive effects in India, where there exist several huge multimarket corporations and conglomerates.

Leniency or Amnesty Plus

It is a mechanism that allows a cartelist who is cooperating with the competition or antitrust authorities for leniency, to disclose the existence of another cartel in an unrelated market in the course of the original leniency proceedings for an additional reduction in the fines or penalty. The rationale for such an approach is that it enables cartel detection, which is usually a colossal task for authorities without whistleblowing from the part of any cartelist. By utilizing this plus approach, the party involved shall receive leniency not only with respect to its participation in the newly disclosed cartel, but also benefit from gaining an additional reduction of penalty in the original cartel, which it otherwise would not have received; thereby the notion of “plus” arises. This tool is aimed at multimarket companies that operate in several markets, and are thereby capable of participating in numerous cartels across varied relevant markets.

Leniency Plus as Envisaged by the Amendment Bill

Leniency Plus is proposed to be incorporated into the Competition Act by inserting sub-section (3) to section 46, which reads as follows:

“Where during the course of the investigation, a producer, seller, distributor, trader, buyer or service provider who has disclosed a cartel under sub-section (1), makes a full, true and vital disclosure under sub-section (1) with respect to another cartel in which it is alleged to have violated section 3, which enables the Commission to form a prima facie opinion under sub-section (1) of section 26 that there exists another cartel, then the Commission may impose upon such producer, seller, distributor, trader, buyer or service provider a lesser penalty as may be specified in regulations, in respect of the cartel already being investigated, without prejudice to the producer, seller, distributor, trader, buyer or service provider obtaining lesser penalty under sub-section (1) regarding the newly disclosed cartel.”

This makes clear that the nature of operation of leniency plus is in line with the universal standards, subject to the amendment to the Lesser Penalty Regulations. It is pertinent to note that this “plus” factor for the original cartel is without any prejudice to the newly disclosed cartel.

Illustration: If A has filed a leniency application under section 46(1) disclosing the existence of a cartel of price-fixing, and is the second applicant under the marker system, it shall be entitled to leniency up to 50%. In the course of the leniency proceedings, A can make a fresh disclosure under section 46(1) read with section 46(3), disclosing a cartel that exists for bid-rigging in another market. Consequentially, A would be able to receive the “plus”, and can attain leniency over and above the cap of 50% for the price-fixing cartel, while still being the first applicant for the bid-rigging cartel and capable of receiving leniency of up to 100%.

Amnesty Plus to Indian Leniency Plus – A Poor Translation

It is necessary to note at the outset that the concept of Leniency Plus is not widely accepted and internationally followed. Several states have steered clear of it and the EU Leniency framework itself does not include leniency plus. Some countries have removed it after enacting it, due to its adverse effects. Moreover, this plus model is an element not so commonly occurring internationally in leniency programmes. This model is unique to the US and would not translate well into the Indian competition framework. Several reasons underscore this assertion.

Dearth of criminal sanctions fail to serve as an effective deterrent

In the US, those who breach antitrust law and the code face criminal sanctions; culpable individuals even face jail sentences. Antitrust authorities themselves view this as the most effective tool of deterrence. However, in India, wherein there is no such criminal sanctions or jail sentences, companies do not need to fear individual whistleblowers as they are not deterred in view of the dearth of such sanctions. Thus, any cooperation extended from firms is questionable and, more often than not, adopted for their own strategic purposes. The profits from the cartel, the loss they would face if the cartel is detected suo-moto and the relative gains they can make by coming forward based on leniency and the losses faced by their competitors, are all elements that shape this strategic move (on the lines of game theory). However, the true effect of deterrence would be met only in the context of a criminal sanction regime such as that of the US. In its absence, the inclusion of Leniency Plus into the Indian competition framework is ill-thought-out and does not serve any true benefit in practice, nor can it be expected to reap the impact it has had in the US in the past few decades. 

Interplay between amnesty and penalty plus

Further and crucially, amnesty plus comes with the corollary ‘penalty plus’ which, as rightly put by Hammond, is the ‘stick’ to the ‘carrot’ that is amnesty plus. Under penalty plus, if a company is undergoing leniency proceedings and cooperating with the authorities and fails to disclose it being a member in another cartel, and such cartel is eventually discovered by the authorities, then this failure is treated as a critical omission and operates as an aggravating sentencing factor. It could convert a fine into a heavier one or even into a jail sentence. Thus, amnesty and penalty plus go hand in glove and are bundled and inseverable. It is this conjoined operation that has made amnesty plus effective in the US. There is nothing in the Amendment Bill to provide for penalty plus. One cannot expect a tree to provide fruits, with water alone and no sunlight. Thus, in India, the introduction of leniency plus sans penalty plus would be a futile exercise.  

  Adverse Effects of Leniency Plus

Economic considerations

Economists have argued that leniency plus will, in effect, stabilize cartel formation and lead to the creation of certain cartels that might not have existed in the traditional leniency framework without the plus factor. In effect, in order to achieve equilibrium, companies will naturally stabilize the weaker cartel and make both cartels sustainable and extend their duration and have pro-collusive effects.

Moral considerations

In cases of leniency plus, the party in question is receiving a “plus” benefit in the first cartel for disclosing another cartel, without prejudice to the leniency in that cartel as well. Thus, this plus has no foundational quid-pro-quo to meet halfway (at least in system where penalty plus is absent, such as India, potentially) as it is a reward for the same act, not once but twice and, further, a plus benefit is awarded in the first cartel violation, where no additional plus disclosures or evidences were extended.

Practical considerations

In a practical sense, where a company is undergoing leniency proceedings for the disclosure of a single cartel, the non-disclosure of additional cartels is not penalized nor is it mandatory to make such disclosures following the US’s omnibus approach. In this circumstance, there is no significant gains that the company stands to make from making a leniency plus disclosure, nor is it going suffer any losses. If anything, the company stands to profit from the second undiscovered cartel and multiples of the gain (the plus reduction in fines) for making a second disclosure to the authorities. Thus, in such circumstances, as it would be the Indian context following the adoption of leniency plus, there is no true incentive to report the second cartel, at least practically.

Conclusion and Suggestions

At one level, the adoption of one of the most successful tools from the toolbox of the most effective competition authority in the world seems like a prima-facie fool-proof plan. However, there exits various design flaws in the process of transplantation. The fundamental reason as to why amnesty plus worked effectively in the US is the introduction of amnesty plus + penalty plus + the omnibus question. Thus, when adopting leniency plus and not taking with it the penalty plus nor identifying the fundamental distinct regime of deterrence as has been cultivated in the US, due to the lack of criminal sanction, which is inapplicable to India, all of these are warning signs. Thus, this mechanism, in its present draft form, would not translate well to the Indian landscape, where there exist several multimarket conglomerates that operate. Therefore, leniency plus could potentially have adverse pro-collusive and cartel stabilizing efforts. Further, leniency plus would only benefit the cartelists as they can strategically misuse the mechanism. However, it is true that an effectively designed leniency plus regime would serve the purpose of promoting competition, and the first step of which  would be to incorporate penalty plus into the framework and, in that circumstance, the model would be feasible and abuse can be reduced to a minimum and potentially meet the objectives of the Competition Act.

Vedantha Sai

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