By Pradeep S Mehta
In the latest soap opera of cartel busting, both Procter & Gamble and Unilever were fined $457.3 million by the European Commission in April, 2011. The case was settled after another conspirator, Henkel, spilled the beans and claimed leniency. In most such cases, it is the leniency provision that enables the competition authority to nail the perpetrators with little effort. Alas, despite having such a provision in our competition law, the Competition Commission of India, in force since 2009, has not yet been able to bust a single cartel.
Unlike the MRTP Commission, CCI is fully empowered under section 27 of the Competition Act, 2002, to impose financial penalties for cartelisation, of levels up to 10% of the average turnover for each company for the three financial years preceding the busting of the cartel or up to three times the level of profit each firm enjoyed during the cartel period, whichever is higher. Two years down the line, we are beginning to lose hope as we are yet to witness the first attempt at cracking down on them.
A look at recent fines on cartels across jurisdictions reveals that in most cases investigations leading to the busting were buttressed by the invoking of the leniency programme. By being a late comer, CCI also benefited by having the corporate leniency programme, which only gained prominence after reforms in the US in 1993. Under section 46 of the Act, i.e. the leniency provision, CCI has the powers to impose a lesser penalty on cartel members for cooperation, which can lead to prosecution.
Many cases across the world benefited from the leniency programme, which saw competition authorities gaining access to critical and incontrovertible information on cartels. A study by a noted US competition expert, John Connor, showed that about 87 international cartels, affecting at least two continents during 1990-2008 were detected due to the leniency provision and about 133 cases of full leniency had been granted worldwide in connection with these cartels.
The French Competition Council’s fines on 11 steel products traders for engaging in a price fixing cartel in 2008 totalling 575 million euro was the highest fine it had ever imposed. This was also the first time for the Council to use its leniency powers to grant partial immunity to a cartel member who shared evidence and cooperated with the council after the cartel was uncovered. D&C, which applied for leniency and cooperated with the competition authority, got a 35% reduction in the fine, although it was identified as one of the three leaders of the cartel. For PUM Service Acier (subsidiary of ArcelorMittal) and KDI, the Paris Court of Appeals reduced the total fine from 575 million euro to only 74 million euro in January 2010.
The Polish competition authority’s record fine in December 2009 of 411 million zloty (almost 100 million euro) was imposed on six cement firms found to have engaged in a price fixing cartel. The firm Lafarge Polska was not fined because it fully cooperated with authorities and had also assisted in exposing the scheme. The cooperation by the firm helped close investigations that had been going on for long, leading to firms such as Grupa Ozarow, Cemex Polska, Dyckerhoff Polska and Warta i Odra being fined.
About a year ago, the Office of Fair Trading in the UK (one of the two competition authorities) announced that the 225 million pound fine it imposed on two tobacco manufacturers—Imperial Tobacco and Gallaher—and 10 retailers for a price fixing cartel was the largest total penalty it had ever imposed in a case under the Competition Act 1998. Other retailers, Asda, One Stop Stores, Sainsbury’s and Somerfield benefited from the OFT’s leniency programme by having their fines reduced, as they had cooperated in the investigations.
Even examples from other developing countries reveal that other competition authorities are making use of the leniency programme. In Brazil, the leniency programme for cartels was introduced in 2000, with the first leniency agreement being reached in 2003. The company benefited 100% from the programme and assisted in the busting of the cartel, resulting in a total of more than 40 million Real in fines. By the end of that year alone, the number of leniency agreements totalled fifteen as companies saw it in their favour to apply for leniency. Mexico introduced a cartel leniency programme in 2006, and although the programme suffered some initial setbacks due to improper procedures; during 2008, five applications for leniency were received, and by mid-2009 two more had been received.
However, it could be some time before India receives such applications if CCI continues to operate in a business as usual manner. The current record of CCI is not good enough to provoke companies into applications for leniency. First, there should be active anti-cartel enforcement for cartel members to believe that there is a significant risk of being detected and punished if they do not apply for leniency. This fear in companies is something yet to be instilled, although there are indications that some investigations into possible cartels are ongoing. Second, the members of a cartel should believe that the competition authority is competent enough to catch them. Since CCI has senior staff members seconded from the income tax department, already familiar with some methods of investigation used in tax law enforcement, we would expect some competence—and success—in raiding and catching them. However, such competence remains largely in theory as it is yet to be applied with meaningful results to cartel enforcement.
Thus, CCI has not done enough to convince the sceptical public, let alone the cartel members, that it has any teeth as far as cartel activity is concerned. CCI does not have to reinvent the wheel for both the methodology and the harvesting field. Most of the companies actioned against abroad also operate in India and surely they import both management systems and ‘business strategies’ from their affiliates abroad. It is thus in the interest of CCI to be seen to be active, lest its leniency programme remain embedded on paper with no takers.
Pradeep S Mehta Secretary General, CUTS International and Cornelius Dube of CUTS contributed to this article