A race to blow the whistle - Implications of the Commerce Commission's new Leniency and Cooperation Policies

The Commission's new Leniency Policy for cartel behaviour creates a race for cartel whistle-blowers.

The Leniency Policy represents a significant change for the Commission - the first person to inform the Commission of cartel behaviour will be granted immunity from any Commision proceedings brought in relation to that cartel behaviour.

The Cooperation Policy is, to all intents and purposes, identical to the Commission's previous leniency policy under which the Commission will consider taking a lower level of enforcement action against a cooperating person who is not entitled to first person immunity.

First person immunity

Under the new policy, the first person to inform and cooperate fully with the Commission on cartel activity receives immunity from proceedings brought by the Commission.

The Commission has taken this step to increase the inherent tension associated with maintaining cartel behaviour. This is a significant change from the previous policy, which did not provide actual immunity and brings the Commerce Commission's procedures into line with the ACCC's leniency policy in Australia.

However, the Commission will not grant leniency if it is already aware of the cartel through its own intelligence.

As only the first person to inform the Commission can receive immunity under the policy, cartel participants would seem to have much to gain from approaching the Commission at an early stage.

However, would-be whistle blowers could be thwarted by existing Commission knowledge or 'pipped at the post' by a colleague or another cartel participant - thereby missing out on immunity, identifying themselves to the Commission and opening themselves up to penalty.

Tension between company and individual immunity

As in Australia, immunity can now be granted to an individual or to a company. Where granted to a company, immunity can extend to current or former directors or employees of the company.

However, the provision for individual immunity creates a tension for any company involved in cartel behaviour. One of its officers could be granted immunity but this immunity will not extend automatically to the company, unless the initial approach is clearly made with the official sanction of the company.

Importantly, immunity granted to an individual officer will prevent the company from receiving immunity.

As the Commerce Act:

• directs a court to impose a pecuniary penalty on an individual involved in a breach of any of its provisions unless there is a good reason not to; and
  
  
• prevents a company from indemnifying an individual for any penalty imposed as a result of a finding of price fixing,

the Commission's Leniency Policy means that individuals aware of cartel behaviour and fearing exposure to prosecution and penalty if their company is slow or reluctant to make a Leniency application, have much to gain personally from blowing the whistle on colleagues and the company, thereby avoiding prosecution and the resulting penalties.

Conditions of immunity

Under the policy, in order to be granted immunity, the person seeking immunity must be the first to come forward and must also cooperate fully with the Commission. Such cooperation will include:

• providing all information requested by the Commission;
  
  
• being available for interviews with the Commission or, where the person is a body corporate, undertaking best endeavours to ensure that relevant officers are available to be interviewed by the Commission;
  
  
• appearing in court should the commission instigate proceedings; and
  
  
• confirming that the person has ceased involvement with the cartel.

In addition, the person cannot inform any third party of any involvement with the Commission.

However, unlike the ACCC's leniency policy, the Commerce Commission's policy does not prevent a person from applying for leniency on the basis that it led the cartel or encouraged or coerced others to participate in it.

Applying for immunity

The Commission has outlined a four-stage procedure for applying for leniency. As an initial step, a person can approach the Commission on an off the record basis to find out whether the leniency policy will apply to them.

In order to be granted leniency, a person must make a formal application to the Commission. On receipt of a formal application, the Commission will inform the person whether he, she or it is the first person to volunteer information (and whether the Commission was already aware of the behaviour).

If the person is first, the Commission will require the person to sign an agreement that confirms the conditions under which immunity will be granted. It is not clear whether a person would find out whether or not they are the first person to volunteer information at the initial off the record stage, but one would expect that you would.

Immunity is finalised with a formal letter from the Commission.

Potential risks of immunity

While immunity will protect an informant from Commission proceedings, the policy does not prevent a third party that has suffered loss from commencing proceedings against all members of the alleged cartel - including those with first-person immunity.

The Leniency Policy states that the Commission will endeavour to keep the identity of applications for leniency confidential. However, in practice this would seem difficult, particulary where the Commission commences court proceedings.

This fact should be weighed up by those considering whether to seek leniency, as an application for, and grant of, leniency will be cogent evidence that a breach has occurred. In such cases, it will be much easier for a third party to recover damages for any loss it has suffered.

Cooperation policy

Even if a person does not qualify for immunity under the Leniency Policy, the Commission may agree to a lower level of enforcement where a person cooperates fully with the Commission during its investigation.

This approach is consistent with the Commission's previous leniency policy and is similar to the ACCC's cooperation policy.

Enquiries and information

For more information on any of the cases, articles and features in Competition Update, please email Phil Taylor or call on 64 9 916 8940.