Adoption of leniency programme
Leniency programme
Immunity from fines
Reduction in fine
Notice
Comment
Following a period of consultation between interested stakeholders, on June 19 2013 the now-defunct National Competition Commission (NCC) issued a notice on the leniency programme, with the aim of increasing transparency and legal certainty in relation to the programme, which has been in place for more than five years.
Adoption of leniency programme
Articles 65 and 66 of the Competition Act (15/2007) establish the legal basis for the leniency programme, which was implemented on February 28 2007 by Royal Decree 261/2008.
The purpose of the leniency programme was to improve the competition authority's effectiveness in discovering (and subsequently punishing) illicit cartels between competitors. Its drafting was heavily influenced by the content of both the 2006 European Commission notice on immunity from fines and reduction of fines in cartel cases and the European Competition Network Model Leniency Programme.
Before the effective entry into force of the leniency programme, there were doubts about its potential effectiveness, as commentators argued that the traditionally minded Spanish entrepreneurial culture would not accept a system based on whistleblowing. Neighbouring Portugal did not serve as an encouraging example in this regard: during the two first years of application of its leniency programme, the Portguese competition authority received only one formal application. However, such fears were allayed when several potential leniency applicants queued overnight on the doorstep of the NCC's registry in Madrid on the eve of the programme's entry into force.
Since then, the leniency programme has become the competition authority's most successful and effective tool in the fight against cartels. As a result of leniency applications, the NCC adopted 17 sanctioning decisions, imposing fines totalling more than €450 million. However, approximately one-fifth of that figure (€92 million) has been either exempted or reduced under the leniency programme, and thus has not been paid by the infringing companies.
The new National Commission on Markets and Competition (NCMC),(1) which commenced operating on October 7 2013 (for further details please see "The new National Commission on Markets and Competition"), is expected to apply the programme in the same way as its predecessor.
The content of the leniency programme largely mirrors that of the European Union. The notice provides further detail, in particular relating to the administrative practicalities and procedures to be followed, resulting in even stronger alignment with the EU system.
In this respect, according to Articles 65 and 66 of the Competition Act, the NCMC may grant total immunity from or a reduction in fine to companies that contribute to the detection of cartels and have successfully sought leniency under the programme.
Although time is of the essence in order to be the first company to apply for leniency, the introduction of an electronic submission system has eliminated the early tradition of queuing at the NCMC registry.
Article 65 of the Competition Act foresees that immunity from fines will be granted by the NCMC to the first company that provides relevant insider information and evidence relating to cartel practices.
Specifically, the NCMC will grant total immunity from fines to:
- the first cartel member to submit evidence which, in the NCMC's view, will enable it to conduct targeted dawn raids in connection with the alleged cartel (under Article 65(a)). Such Article 65(a) immunity will be granted only if, at the time of the submission, the NCMC had not conducted an inspection or did not already have sufficient evidence to decide to conduct such an inspection;(2) or
- the first cartel member to submit evidence which, in the NCMC's view, will enable it to find an infringement of Article 1CA (under Article 65(b)). Article 65(b) immunity will be granted only where the NCMC has insufficient evidence to prosecute an infringement and no other cartel member has applied for Article 65 immunity.(3)
In addition, in order to benefit from any of such immunities, the applicant must cooperate with the NCMC "fully, continuous and duly" by:
- ending its involvement in the cartel, unless the NCMC orders otherwise to ensure the effectiveness of the inspections;
- providing all relevant information or evidence relating to the cartel which comes into its possession or is available to it;
- not destroying, falsifying or concealing relevant information or evidence. This duty arises from the time that the member contemplated making a leniency application;(4) and
- not disclosing, directly or indirectly, to third parties other than the European Commission or other competition authorities the fact of its contemplated application or any of the content.
Immunity will be unavailable to any company which has adopted measures to coerce other companies into joining or participating in a cartel.
A leniency applicant which fulfils the conditions for immunity will promptly receive a letter confirming that immunity will be granted at the end of the sanctioning proceedings, provided that the conditions set out in the regulation are observed (so-called 'conditional immunity').
If it becomes apparent that an undertaking does not meet the conditions for immunity, the NCMC will inform it accordingly; the applicant can subsequently request the NCMC to consider its application for the purposes of obtaining a reduction in fine.
According to Article 66 of the Competition Act, if immunity has already been granted or if the NCMC already has sufficient evidence to uncover a cartel, a reduction in fine remains available to those companies which comply with the requirements of cooperation set out in the bullet points above(5) and provide evidence that represents "significant added value" to that already in the NCMC's possession.
The first company to fulfil these conditions will receive a reduction of between 30% and 50% of the fine which would otherwise have been imposed; the second successful applicant will be granted a reduction of between 20% and 30%; subsequent successful applicants will receive a reduction of up to 20%.
Within each of these bands, the final amount of any reduction will depend on the time at which evidence was provided and the extent to which it represents added value (in the NCMC's opinion).
The reduction in fine that a company receives shall also apply to any fine that may be imposed on its representatives or directors that took part in the agreement or decision, provided that they have fully cooperated with the NCMC during the investigation.
The notice clarifies and develops several aspects concerning the way in which the leniency programme is to be applied by the NCMC in practice.
In particular, companies seeking to benefit from the leniency programme should take into account the following elements:
- Objective scope of the leniency programme – the notice provides that the leniency programme applies to 'cartels', which are defined by the Competition Act as "secret agreements between one or more competitors with the aim of fixing prices, production or sales quotas, the sharing of markets, including bid-rigging or restrictions against imports of exports" in breach of Article 1 of the Competition Act and, if applicable, Article 101 of the Treaty on the Functioning of the European Union.(6) The fact that the leniency programme has been expressly limited to the uncovering of cartels has caused some controversy in a number of cases, since it excludes the possibility of requesting such leniency in case of infractions by effect. In many cases in the past the granting of a leniency reduction was contested by the other participants on the basis that the specific nature of the infraction at hand did not allow leniency (because it was not an infraction per se). Although cartels must be secret by nature, the notice clarifies in this regard that not all elements of the practice must necessarily have a secretive character in order to be considered a cartel for these purposes. It also clarifies that, in line with the NCC's recent practice,(7) the notion of a cartel can also encompass secret information exchanges between competitors on future prices and quantities.
- Subjective scope of the leniency programme – the notice also indicates that leniency applications can be filed – either directly or through legal representatives – by companies and natural persons which could be held liable for a cartel. Such liability may derive from direct participation in the cartel, decisive influence exerted by the parent company or succession of the company originally involved in the cartel. The benefit of immunity from or reduction in fines will cover the company which applies for leniency, as well as its legal representatives and directors implicated in the cartel (provided that they collaborate with the NCMC). The leniency application can also be filed either by the parent of the subsidiary involved in the cartel or jointly by both of them. Notwithstanding the above, the benefit of immunity from or a reduction in fine will not be extended to other companies involved in the cartel or trade associations to which the leniency applicant belongs. According to the notice, trade associations are not permitted to apply for leniency on behalf of their members.
- Application of the programme to the calculation of fines – the notice also clarifies that the reduction under Article 66 of the Competition Act applies to the final amount of the fine which would have been imposed by the NCMC in the absence of leniency application – that is, after adjusting the fine (if needed) to 10% of the infringing company's total turnover during the preceding year. Although this point could seem rather obvious, in the past there have been some hesitations by the NCC
- in this regard.
- Confidentiality and access to leniency applications – another interesting aspect of the notice is the confidential treatment of the information included in leniency applications and its potential disclosure to third parties. For the purposes of ensuring the effectiveness of the leniency programme, the notice stresses that the parties to sanctioning proceedings initiated (or developed) as a consequence of a leniency application will be entitled to access and even make copies of leniency applications (following receipt of the statement of objections). They will nevertheless be precluded from obtaining physical copies of any corporate statement (if any) that is submitted as part of the leniency application. This limitation is in line with the protection granted by the European Commission to leniency applications in the framework of its recently published package on private actions for antitrust damages. Moreover, the NCMC will guarantee the confidentiality of leniency applications and their corresponding documentation in the context of judicial appeals against sanctioning decisions adopted by the NCMC or private damages actions as a result of cartel infringements.
To date, the application of the leniency programme by the NCC has been consistent with the European Commission's decision-making practice. Notwithstanding this, there were certain aspects of the practical application of the programme that were unclear and which created insecurity among leniency applicants.
The decision to request leniency is relevant for companies, since it puts the applicant in a complex situation. Anything that increases the clarity, certainty and legal security of the implementation of the programme – as is the case of the adoption of the notice – represents a positive step.
For further information on this topic please contact Casto Gonzalez-Paramo or Alfredo Gomez at Hogan Lovells by telephone (+34 91 349 82 00), fax (+34 91 349 82 01) or email ([email protected] or [email protected]). The Hogan Lovells website can be accessed at www.hoganlovells.com.
Endnotes
(1) The NCMC is responsible for all the merger control and antitrust enforcement functions previously carried out by the National Competition Commission. The substantive content of the Competition Act remains unaffected.
(2) In order to obtain Article 65(a) immunity, the leniency applicant must provide:
-
a corporate statement setting out the following information, where it is known to the applicant:
- a detailed description of the cartel arrangements (eg, its aims, activities and functioning; affected product or services; geographic scope, duration and estimated market volumes; specific dates, and locations, content of and participants in alleged cartel contacts);
- names and addresses of the applicant and other cartel members;
- names, positions, office locations of individual cartel members; and
- other competition authorities that have been approached; and
- any other evidence, including contemporaneous evidence, in the applicant's possession or available to it at the time of the submission.
(3) In order to obtain Article 65(b) immunity, the applicant must be the first to provide contemporaneous, incriminating evidence of the alleged cartel and a corporate statement setting out the information as noted above for Article 65 immunity.
(4) There have been several cases where a leniency applicant destroyed evidence before the decision to apply for leniency had been taken. The National Competition Commission has consistently decided in those cases that such destruction did not preclude the company to request leniency.
(5) The company must also cooperate with the NCMC "fully, continuous and duly".
(6) As defined in Provision 4.2 of the Competition Act.
(7) See the NCC Decisions of March 2 2011, Case S/10086/08 Professional Haircare; and June 24 2011, Case S/0185/09 Bombas de Fluidos.
