This article examines the incentives motivating whistleblowers when tipping off the competition authorities about cartel conduct. It suggests that, following the guidance of the European Courts, the statements that whistleblowers provide should be assessed cautiously and supported by corroborative evidence.
Cartels are by their nature secretive. Cartel members are unlikely to keep any documentary proof of their participation, and will usually take measures to destroy any such evidence. Sometimes firms cover their tracks by creative means, such as assigning each other 'code names' to throw suspecting competition authorities off the scent. Individual participants may use dedicated mobile phones or email addresses for cartel communications. The result is that cartels are difficult to detect and even more difficult to prove.
A leniency programme is therefore an enormously powerful weapon in a competition agency's arsenal. A firm which is participating or has participated in a prohibited agreement may approach the competition authority and obtain immunity from having a financial penalty imposed upon it in exchange for its full cooperation.
To 'cooperate', a whistleblower1 must be on hand to provide any and all information relating to the unlawful activities throughout the investigation and prosecution proceedings. It must make full disclosure to the authority of its involvement in the cartel. All evidence, including statements of employees who attended cartel meetings or had knowledge of the workings of the cartel must be produced.
The evidence provided in this process often forms the central pillar of the authority's case, and is used as a springboard to invoke other enforcement techniques. These may include surprise inspections at the premises of the other participants or subpoenas of people and documents from other firms.
Apart from revealing cartels and gathering evidence, leniency policies fulfil another critical function – they destabilise or threaten existing cartel arrangements. By withdrawing from the cartel and alerting the authorities, a firm may avoid much of the cost of litigation and minimise the risks of large financial penalties. There is also the added benefit that the firm's competitors will face the full consequences of their involvement, which may confer some advantage to the whistleblower in the market as its competitors devote resources to defending themselves. A leniency policy thereby fosters mistrust within cartels and makes a stable cartel difficult for firms to manage and maintain.
Competition agencies are therefore usually only too glad to receive immunity applications accompanied by wide ranging evidence that can be used to investigate and prosecute cartels. Leniency policies have been used effectively in competition jurisdictions all over the world and the South African Competition Commission's Corporate Leniency Policy is no exception.
However, despite the effectiveness of leniency schemes, the virtue of whistleblowers themselves should not be overestimated. Firms are accurately portrayed by economists as self interested profit maximisers. A firm's decision to blow the whistle on its involvement in a cartel is more likely to be commercial rather than moral. The firm weighs the risk of ongoing participation in the cartel (potentially significant fines, costly litigation and the possibility that one of its fellow conspirators may avail itself of immunity) against the advantages that can be obtained through the leniency policy (avoiding the risk that another firm will blow the whistle and the strong possibility of a consequent fine).
This simple calculation may seem obvious, but one important consequence flows from it. Firms do not blow the whistle to help the competition authorities to bring cartels to book. This may be the result of their decision, but the firm's priority is to secure its own immunity status.
Applications for immunity are therefore typically constructed to maximise the firm's chances of being granted immunity. This may entail placing undue emphasis on particular facts, and perhaps exaggerating the conclusions which can be drawn from those facts. For example, an exchange of information between competitors which sits on the border between per se illegality and a potential effects-based infringement may be portrayed by an immunity applicant as more harmful and intentional than may be the case. Similarly, a firm may depict a historical cartel arrangement as having continued longer than it actually did, to convince the authority that it is not blowing the whistle on conduct which has prescribed and is time-barred.
This should be borne in mind when evaluating the evidence supplied by whistleblowers. Competition authorities should guard against an approach which considers the information disclosed by a whistleblower alone as decisive proof. A wholly incorrect approach would be to assume that because an immunity applicant has come forward, the legal tests for establishing the existence and duration of a cartel may be dispensed with.
This question arose in the recent case of Siemens AG v Commission2 before the General Court in Europe. The whistleblower in that case was ABB which confessed to participating in a long running cartel in the international market for gas insulated switch gears. Siemens AG challenged before the Court the evidence provided by ABB and relied upon by the European Commission on the basis that,
ABB's statements are mere assertions made for the benefit of that company and are devoid of probative value unless they are supported by precise and corroborated evidence.3
The European Commission's view, on the other hand, was that a statement from a firm seeking to obtain immunity should be persuasive, because it runs counter to the normal interests of the author of that statement.4 In other words, it is normally in the interests of a cartel participant to keep silent about its activities. Once the firm has opted to make disclosure, there is little incentive for it to make false statements.
There are a number of factors which weigh in favour of the Commission's argument. As the Court points out, an immunity applicant would probably not stray too far from the truth in describing the activities of the cartel for fear of being found not to have cooperated, which would jeopardise its potential immunity status5. A leniency applicant should also not frivolously describe events which could create difficulties in possible subsequent damages actions to which it could be a respondent.
The Court notes, however, that at the time of making the leniency application ABB would reasonably have expected to obtain immunity under the European Commission's Leniency Notice. The Court states therefore that:
...it cannot be ruled out that it might have felt inclined to maximise the significance of the infringing conduct which it was revealing, in order to harm its competitors on the market.6
In keeping with the existing European case law on the subject, the Court therefore recommended a cautious approach. Paragraph 66 of the judgment concludes:
...insofar as those statements from ABB are disputed by other undertakings which are also alleged to have agreed upon the common understanding, they must be supported by other evidence in order to constitute adequate proof of the existence and the scope of the common understanding.
The Court goes on to conduct a detailed assessment of the statements provided by ABB which were disputed by the other respondents, in the context of all other relevant available evidence, in order to establish the statements' credibility, and therefore their evidential value.
It is submitted that the South African competition authorities should have due regard to this cautious European approach when considering information supplied by aspiring immunity applicants. The immunity applicant is not always the 'white knight', as it may seem at first glance.
1. The term 'whistleblower' is used synonymously with 'immunity applicant'. This means the firm that is 'first through the door' under a leniency programme. The term 'leniency applicant' can be confusing as more than one firm may apply for leniency, but only one such applicant is granted immunity.
2. Case T-110/07, decision of 3 March 2011. The case is subject to ongoing appeals to the European Court of Justice and a damages action in the UK civil courts
3. Paragraph 63 of the judgment.
5. Paragraph 65 of the judgment.
6. Paragraph 64 of the judgment.
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