Amnesty: Can it be used as a weapon against cartels?

By Arvind Gurumurthy, Udwadia Udeshi & Argus Partners

Cartelization is considered an antithesis to free and fair competition and the watchdogs have for decades tried to clamp down on cartels. Leniency programme has become an effective weapon used by regulators to tackle the menace of cartelization.

Cartels are inherently unstable and leniency programmes work by luring one suspect to offer information against another suspect in return for amnesty from fine and/or incarceration. To lure such a person, the authority induces what is commonly referred to as prisoner’s dilemma.

Arvind Gurumurthy
Arvind Gurumurthy

Prisoner’s dilemma

“Prisoner’s dilemma” as a concept starts from the premise that two individuals suspected of a crime are arrested and interrogated separately. The interrogator plays the prisoners against each other by an offer like this: “Give evidence against your partner and, if he does not confess, we’ll put him away for 10 years and you’ll serve no time in jail; however, if both of you confess, then you’ll each receive a five-year sentence.”

Prisoner A faces a dilemma. If Prisoner B does not confess and A does, then A will receive no jail term. If B confesses, but A does not, then A will receive a 10-year sentence. Therefore, A is forced to adopt confessing as his rational choice to receive no jail time or at least only five years. B’s position will be the same. While both parties are worse off by confessing instead of remaining silent, the prosecutors succeed in handing out five-year sentences by inducing prisoner’s dilemma.

Leniency provisions in India

Section 46 of the Competition Act, 2002, empowers the Competition Commission of India (CCI) to issue a lesser penalty. Accordingly, the CCI (Lesser Penalty) Regulations, 2009, have been framed.

To benefit from reduced penalties under the regulations, an applicant’s disclosures should be full, true and vital, and the applicant should provide all relevant information, documents and evidence required by the CCI. Further, the disclosures should be made before the CCI starts to investigate or institute proceedings under section 26 of the act.

Regulation 4 provides for up to 100% reduction in penalty for the first applicant making “vital disclosure” and up to 50% and 30% reduction for applicants marked as second and third in the priority status.

Under regulation 5, priority status is accorded based on time of receipt of application along with certain minimum information and evidence and the priority status is not confirmed until the details are verified. An applicant can move up the priority ladder only after a prior application is verified and dismissed.

Other jurisdictions

In the US, a cartel participant must provide information and at all times assist the prosecution. A participant that has lost the race for full immunity may immediately initiate plea negotiations with the Department of Justice to arrive at a negotiated settlement which includes reduction of prison term. In the famous TFT-LCD case, the department provided Samsung amnesty and fined AU Optronics up to US$1 billion along with criminal conviction for senior executives. The US amnesty plus programme allows fine reduction in one product area if a party discloses violations in another product area. This was seen in the auto parts case (involving price fixing of wire harnesses).

In the EU, a participant is required to provide evidence which is of “significant added value”. The EU’s “sliding window” system grants up to 100%, 30-50% and 20-30% reduction for parties coming first, second and third respectively; and those coming subsequently are granted up to 20% reduction. In the same auto parts case, the European Commission handed down penalties of €141 million (US$195 million) after granting 20-50% reduction to all parties and Sumitomo was granted full immunity.

Countries such as the UK and Canada temporarily accord priority status even to anonymous applicants who provide basic information.

India’s lesser penalty regulations appear slightly less flexible. They provide for reduction of fine only to applicants who come first, second and third and not to subsequent applicants. They do not allow anonymous applicants and require certain minimum information and evidence to be provided up front and before trial or investigation commences. There is no room for negotiation or plea bargaining and the amount of reduced penalty is disclosed after conclusion of the trial.

India’s leniency programme implementation is still at a nascent stage. Notwithstanding how effective the policy looks on paper, it is a different story when it comes to effectively administering it and gaining from it. Authorities in other developed jurisdictions have found some success only after decades of trials and tribulations. Therefore, it is imperative for the CCI to constantly evolve new strategies and administer the provisions strategically and flexibly, without corruption and bureaucracy, in order to achieve success.

Udwadia Udeshi & Argus Partners is a full-service law firm with offices in Mumbai, Delhi, Bangalore, Kolkata and Chennai. Arvind Gurumurthy is a managing associate at the firm. The views expressed by the author are personal and do not reflect the views of the firm.


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