Canada: Competition Bureau Releases Draft Bulletin On Sentencing In Cartel Cases

On April 28th, 2008 the Competition Bureau released for public consultation its draft Information Bulletin on sentencing and leniency recommendations in cartel cases. The Bulletin had been anticipated as a component of the Bureau's revised immunity program, that was released on October 11, 2007. The Bureau aims to encourage early resolution of cases by offering leniency in the form of a 50% fine reduction and no sanctions against individuals for the first leniency applicant and lesser reductions for later applicants. Applicants for leniency will be required to provide full disclosure and material cooperation and could face disqualification if they fail to meet the program's requirements. While there remain areas of uncertainty, the Bulletin represents a good "first step" in providing a greater degree of predictability and transparency in resolving the Bureau's most significant criminal cases. Public commentary will be accepted until July 25th.

As outlined in the October 15, 2007 Osler Update, Competition Bureau's Revised Immunity Program Increases Clarity for Applicants companies that discover potential criminal antitrust conduct in their operations can benefit from an early approach to the Bureau. The Immunity Policy addresses those who are "first in line" and who will benefit from blanket immunity for both the corporation and current co-operating individuals. The draft Information Bulletin addresses situations where entities miss the "first in line" spot but may still want to minimize their ultimate exposure to stringent sanctions under Canadian antitrust law, which could include multi-million dollar fines and terms of imprisonment for executives.

The "cartel offences" covered by this policy are the standard antitrust conspiracy offence, foreign directives provision and bid-rigging prohibition under the Competition Act (the Act).

Information Bulletin Does Not Bind DPP

The Bulletin is solely a draft Bureau policy and does not seek to bind the (DPP) of the Public Prosecution Service of Canada. This independent agency has the sole authority to conduct criminal prosecutions at the federal level. While the Bureau will undoubtedly have consulted with the DPP in the preparation of its Bulletin, it remains to be seen whether the DPP will formally adopt the principles and practices set out in it. This is no minor consideration, given that prosecutors presently have a great deal of discretion in the operation of the criminal justice system. While they are bound to consider the opinions and policy positions of the regulatory agencies with whom they work, they will nonetheless make their own decisions on individual cases. The Bulletin also notes that that the courts obviously are not bound by the Bureau's policy or even a joint sentencing recommendation made by the DPP and an accused party's counsel, although Canadian courts rarely reject such petitions.

The Sentencing Formula

The Bureau's approach to sentencing is premised upon its observation that economic harm is the measure by which cartel fines should be determined. The Bureau relies on the "overcharge," defined as the "& the amount paid by consumers over and above what would have been paid in the absence of the cartel." Noting that quantifying the actual economic harm arising from cartel behaviour will be difficult in most cases, the Bureau sets out a "proxy" which is intended to be used for fine calculations. Then, it proposes a penalty formula which is the volume of commerce in Canada (VOC) affected by the cartel, multiplied by an overcharge factor. In turn, VOC is defined as the value of sales of the product in Canada that was the object of the anti-competitive agreement over the time period that the party participated in the offence. The Bulletin notes that, in circumstances where parties participate in a cartel by omission (i.e., by not directly participating in a given market, or by refraining from participating in a given market), the VOC of other cartel participants may be considered as the basis for the economic harm element in the fine calculation.

Interestingly, the Bureau observes that "in most cases" it will include only direct sales in Canada to determine VOC; however, it notes (perhaps provocatively) that it may also be appropriate to include indirect sales "to properly reflect the magnitude of the effects of the offence in Canada."

The Bureau postulates a standard overcharge multiplier of 20% and relies on the U.S. sentencing guidelines as a reference point for this baseline. There is room for adjustment in circumstances where the 20% "proxy" would either overstate or fail to capture the economic harm resulting from the cartel.

Considerations in Setting Fines

The Bureau sets out a number of aggravating and mitigating features that it proposes to take into account in setting the ultimate fine. Among the aggravating circumstances are:

  • recidivism;

  • the presence of coercion or instigation;

  • the presence of large market shares or corporate size;

  • the degree of planning, covertness, and complexity;

  • the presence of obstruction activities;

  • lengthy duration of the illegal activity;

  • vulnerable or governmental victims; and

  • the participation by senior officers of the corporation.

To balance these considerations, the Bureau would consider the following mitigating factors:

  • co-operation with authorities;

  • acceptance of responsibility; and

  • restitution for victims.

The Bulletin also refers to the possibility of imposing prohibition orders (authorized under section 34 of the Act) that could include prescriptive terms requiring positive steps such as implementing a corporate compliance program or notifying customers of the presence of the prohibition order.

The Bureau observes that criminal sanctions for individuals will be a significant deterrent for cartel conduct. In this regard, the Bulletin refers to factors such as whether the individual obtained personal profit from the offence or was sanctioned in another jurisdiction or punished in other ways arising from the cartel behaviour. The Bureau notes that imprisonment is likely to be reserved for the most serious violations where a more severe sentence may be indicated, such as where an individual was the primary instigator or leader of the cartel, used coercion or otherwise encouraged or monitored compliance with the illegal arrangement, obstructed the investigation or personally benefited from the unlawful conduct. However, where "mitigating factors" may be more persuasive, imprisonment will not normally be recommended.

Conditions for Eligibility

To qualify for leniency, the Bulletin stipulates the following:

A lenient treatment recommendation will be made to the DPP where charges are not yet laid and where the party:

  • terminates its participation in the illegal activity;

  • co-operates fully with the Bureau's investigation and any subsequent prosecution by the DPP; and

  • admits that it has engaged in the anti-competitive conduct which might constitute an offence under the Act and agrees, if charged, to plead guilty and be sentenced for its participation in the activity.

As for factors to be considered, the Bureau states that it will consider whether co-operation is timely (based on when cooperation actually commences), the value of the evidence, and whether the applicant can offer evidence of other unrelated cartel conduct.

Reduction of the Standard Sentence

The Bulletin indicates that, where the applicant meets its program requirements, the Bureau may recommend a reduction for the first leniency applicant of "up to 50% of the fine that would otherwise have been recommended," plus a recommendation that no charges be laid against the organization's current directors, officers or employees, provided that such personnel agree to co-operate with the Bureau's investigation. Exceptions may occur where individuals may have engaged in coercion, have had involvement in other cartel offences or have engaged in obstruction.

Later applicants in the process may be eligible for reductions of up to 30% of the fine that would have otherwise been recommended; however, leeway is allowed for parties who have evidence of "exceptional value" (i.e., greater than that of the first leniency applicant). Individuals may qualify for lenient treatment if they otherwise meet the ongoing requirements of the program, notwithstanding that the organization with which they are affiliated does not meet the criteria for lenient treatment.

Procedure for Leniency

To obtain leniency, a party may make a request to the Senior Deputy Commissioner of Competition, following which the applicant must provide a "proffer" on a "without prejudice" basis in which the applicant will describe in detail the activity for which leniency is sought and the potential effect in Canada. This procedure mirrors the immunity application process and requires completion of the proffer within 30 days "and potentially sooner." All such applications are to be kept confidential by the Bureau. The proffer must include a detailed description of the illegal activity, including the evidence or testimony potential witnesses may give, the nature of any records the applicant may provide, and an indication of the probative value of the proposed evidence. In this regard, the Bureau may request interviews with one or more witnesses to make an assessment of the application.

Once its assessment is made, the Bureau may give the DPP a similar overview of the witness evidence; but, the Bulletin notes that the DPP retains full discretion on whether they will accept the Bureau's recommendation. The Bureau also notes that a leniency applicant must provide "full, frank, and truthful disclosure" of all non-privileged information, records or things in its possession, under its control, or available to it, that in any manner relate to the anti-competitive conduct. The disclosure process should typically take place within a 6-month timeframe. Applicants must make no misrepresentation of any material facts and witnesses must be expected to testify in the ultimate court proceedings.

The Bulletin indicates that co-operation is an essential element of the program. Should an applicant fail to live up to its obligations, the Bureau will so indicate to the applicant and provide a 14-day notice period within which the applicant may remedy its non-co-operation, failing which leniency may be revoked. This, again, is similar to the immunity program.

The Bureau will make a final recommendation for leniency to the DPP when the applicant fulfils its continuing obligations to co-operate (including full, frank and truthful disclosure of the behaviour constituting the offence, together with an agreement to plead guilty to the offence).

Significance of Bulletin
The publication of this Bulletin represents a welcome development in the regulation of cartel activity by the Bureau. The Bulletin aims at providing incentives to parties involved in criminal antitrust investigations to resolve their cases early, and offers a degree of predictability and transparency for those that, for one reason or another, are unable to apply for immunity and may therefore wish to consider reduced penalties available through an application for leniency.

However, a number of considerations remain to be detailed and explored by the Bureau in working out its policy, including whether:

  • the DPP will ultimately accept the Bureau's policy and procedural framework for leniency;

  • the untested "overcharge" feature will be accepted by the courts;

  • the subjective elements within the policy will work well in practice and provide sufficient predictability; and

  • evidence and information obtained by the Bureau would be used against an applicant if the leniency application fails.

The fact that the Bureau has invited public consultation on the draft Information Bulletin will be well received. This will enable both the Bureau and the practising bar to have a dialogue on the most appropriate manner of ensuring both a predictable and transparent system that will serve both the administration of justice and provide the necessary incentives for parties to consider applications for leniency.

Graham Reynolds Q.C. is a partner in the firm's highly regarded Competition/Antitrust Law Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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