The European Commission pleads for leniency, but does it convince potential applicants?
With fewer cartels being reported through immunity applications, the European Commission has enhanced its leniency programme by giving refreshed guidance and updating its online submission tool. The new guidance is helpful for companies considering making a leniency publication but is unlikely to be a gamechanger in terms of realising a significant uptick in applications. In this blog post we explain why.
The context: declining leniency applications
Leniency allows companies to receive immunity from fines or a reduction of a fine for participating in a cartel if they provide sufficient information to the EC about the cartel. The leniency programme has been the EC’s main source of cartel cases since its inception in 1996. Between 2002 and 2012, the programme was particularly successful in revealing secret cartels, with the EC receiving more than 20 immunity applications per year on average. More recently, between 2010 and 2017, among the 25 cartel cases that were under investigation, 23 originated from a leniency application. However, the annual number of leniency applications made to the EC has dropped significantly since 2015. This is a global trend. In all OECD countries, applications dropped from 432 in 2015 to 163 in 2020.
A common explanation of this drop is the shift in the cost-benefit analysis that an applicant makes when seeking leniency. In 2021, EVP Vestager said that potential leniency applicants may be deterred by the growth in private damages claims and the development of cartel enforcement in new jurisdictions. She has since shown determination to continue pursuing cartel investigations, this year conducting dawn raids in a new spring in cartel enforcement. Recently, she stressed the need to streamline the leniency programme and to find other means to uncover cartels.
The EC’s response is helpful…
The EC has upgraded its e-leniency tool and published a frequently asked questions document to further clarify its 2006 leniency notice. The e-leniency tool allows the EC to grant online access to corporate statements and other leniency materials, which were previously only accessible at the EC’s premises. The FAQs document tries to win over hesitant applicants and enables them to make more informed decisions by:
- Testing the waters. A legal representative can consult the EC on a ‘no names’ basis to ascertain whether certain conduct is a cartel, without the need to disclose the sector, the applicants or other details identifying the cartel. This increased transparency may make it easier for potential applicants to take the first step towards a leniency application.
- What is “significant added value”? This criterion is used to assess whether an applicant meets the threshold for a reduction of fines. The assessment is made against the information already known by the EC at the time of the application. The EC guidance stresses that the threshold will generally be met when applicants provide all information in their possession at an early stage of the procedure and cooperate fully. For example, the applicant needs to remain at the EC’s disposal on a continuous basis and make employees and directors available for interviews. Only three applicants have failed to reach the threshold for significant added value, and they were seen not to cooperate fully. This should be a reassuring thought for potential leniency applicants who are prepared to genuinely cooperate.
- Additional leniency benefits:
- Private damages. A leniency application does not protect against private damages actions, but the Damages Directive prohibits disclosure of leniency statements submitted to the EC or NCAs. In addition, an immunity recipient is only jointly and severally liable to its direct and indirect customers. It is liable to other cartel victims only if full compensation cannot be obtained from the other cartelists.
- Disclosure in third countries. The EC vows to protect the confidentiality of leniency statements even in disclosure proceedings outside the EU, as it already successfully did in recent proceedings in the US.
- Procurement law and financial regulation. The EC reaffirms that leniency applicants may not be excluded from public procurement contracts and can avoid penalties under the Financial Regulation.
The FAQs document also warns applicants about delaying an application. They “may find that immunity is not available if a whistle-blower, including one of their own employees, has already reported the illegal cartel conduct”. Whistle-blowers face no sanctions, enjoy significant protections under EU law and may contact the EC anonymously.
… but probably not a gamechanger
The new guidance makes the leniency procedure more transparent and reflects the EC’s commitment to rebuilding its enforcement pipeline. However, it fails to substantially address a potential applicant’s likely prime concern when considering whether to make an application, i.e., the exposure to private damages claims. Some have argued for immunity from private damages claims for leniency applicants. Andreas Mundt said last year that the Bundeskartellamt is “looking at” the possibility. However, impunity from private damages would require a change of legislation as EU law accepts a right to effective and full compensation for any victim of anticompetitive conduct.
Only time will tell if the new guidance boosts the EC’s enforcement, although it already seems clear it does not significantly shift the balance of risks for potential leniency applicants. An uptick in whistle-blower notifications might have some impact but European whistle-blowers have fewer incentives to whistle blow than their US counterparts, who receive 15 to 30 percent of the money recovered and have received USD 6.7 billion in rewards since 2011.