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Brussels, 29th September 2006

Competition: Commission proposes changes to the Leniency Notice – frequently asked questions

(see also IP/06/1288)

On the Leniency Policy

How many applications for immunity and for reduction of fines has the Commission received under the 2002 Leniency Notice?

In the period from 14 February 2002 until the end of 2005, the Commission received 167 applications under the 2002 Leniency Notice (see IP/02/247 and MEMO/02/23). Of these applications, 87 were requests for immunity and 80 were requests for reduction in fines.

Where several immunity applications have been received for the same alleged infringement, the first application is counted as an immunity application and the subsequent ones as applications for a reduction of fines unless the first application for immunity is rejected. In the latter situation the second application will be considered as an immunity application. In practice immunity applications are normally made for immunity from fines, or in the alternative, reduction of fines. Where immunity is no longer available, such applications are treated – and for statistics recorded – as applications for a reduction of fines.

What is the number of applications granted, withdrawn and not followed?

In the period from 14 February 2002 until the end of 2005, the Commission has granted 51 decisions for conditional immunity. Over the same period, the Commission rejected or decided not to deal any further with 23 applications and had under scrutiny 13 more recent applications.

From which sectors have leniency applications been made under the 2002 Leniency Notice?

The Commission has received leniency applications in a wide variety of sectors including agriculture, steel, construction, chemicals, transport, services, paper and forestry industry as well as graphite products and electrical appliances.

In how many cases has the Commission received a leniency application and subsequently transferred the case to a national competition authority?

In the period from 14 February 2002 to the end of 2005, 6 cases have been transferred to national competition authorities.

In how many cases has a national competition authority transferred a case to the Commission after having received a leniency application?

There are no cases where an application was only made to a national competition authority that then transferred this case to the Commission.

In how many cases has the Commission received a leniency application under the 2002 Leniency Notice where the applicant has made a leniency application also to the competition authorities of the United States?

In the period from 14 February 2002 to the end of 2005, this occurred, to the Commission knowledge, in relation to 10 different cartel investigations.

How many leniency applications resulted in a final decision unveiling and punishing a cartel?

Since the entry into force of the current Leniency Notice on 14 February 2002 until the present, the Commission has taken formal decisions in 5 cartel cases in which companies co-operated with the investigations under the 2002 Leniency Notice.

All 5 cases together represent a total amount of fines of € 1,131 million.

Have conditional immunity decisions been withdrawn?

In the period from 14 February 2002 until the end of 2005, there was 1 such case. This case concerns cartel investigation on the raw tobacco sector where conditional immunity was granted at the beginning of the procedure under the terms of the Leniency Notice. The prohibition decision taken on 20 October 2005 (see also press release IP/05/1315) withholds final immunity due to a serious breach by the immunity applicant of its co-operation obligation. Having received conditional immunity, the applicant revealed to its main competitors that it had applied for leniency with the Commission. This occurred before the Commission could carry out surprise inspections, so that when these took place, most companies concerned were already aware of the existence of the Commission investigation.

On the proposed amendments to the Leniency Notice

What has been the experience with the current immunity threshold in the 2002 Leniency Notice?

Until the end of 2005 the Commission had received 87 requests for immunity and granted a conditional immunity only on 51 applications. These figures reflect the fact that numerous immunity applications have not given the necessary insider information and evidence on the alleged cartel to meet the immunity threshold. In addition, there have been cases where immunity has been granted after an applicant has supplemented its application, but the process has taken a lot of time. The reason behind this is that the 2002 Leniency Notice does not give enough guidance to the applicants as to what to submit in order to qualify for the immunity threshold. This has been perceived as a major problem by the business and legal community and has often resulted into a lot of time being spent on supplementing the applications.

How do the proposed amendments to the Leniency Notice provide more guidance on the immunity threshold?

The Commission is proposing to pronounce explicitly and clearly in the Leniency Notice what type of information and evidence the immunity applicants should submit. This includes both a corporate statement describing the functioning and participants to the cartel as well as documentary evidence available to the applicant at the time of its submission, including in particular all contemporaneous evidence. Adding these clarifications to the Leniency Notice gives the required clarity for the applicants and allows the Commission to streamline handling of the applications.

Why has a requirement that the applicants need to disclose their participation in the cartel been added to the immunity threshold?

The immunity applicants have this requirement already implicitly under the current point 11 requirement on full and continuous cooperation. This has not, however, been in all cases clear for the applicants and in some cases the applications have not described clearly enough the participation of the applicant in the alleged cartel. Therefore the Commission is proposing that this requirement is stated explicitly in the Leniency Notice.

Why is the duty of full and continuous cooperation with the Commission also extended to the reduction of fines applicants?

The requirement on full and continuous cooperation with the Commission investigation is an essential feature of the Leniency Notice. The cooperation has to be sincere and there is no reason to distinguish between applicants for immunity and those for reduction of fines. While the 2002 Leniency Notice does not specifically require the reduction of fines applicants to continuously cooperate with the Commission the spirit of cooperation under the leniency notice, as interpreted by the Court of Justice, covers also those applicants. The Commission considers that for the reasons of legal certainty this needs to be explicitly stated in the Leniency Notice.

Why are the applicants set an obligation not to destroy, falsify or conceal information? Why must this obligation also cover the period when the applicant is contemplating making an application?

It is important to avoid any uncertainty concerning the scope of the conditions that the applicants must meet under the duty of continuous cooperation as of the time of the application. In practice the Commission’s competition department has specified in its acknowledgement of receipt of an application various facets of the cooperation obligation. In particular, the acknowledgement of receipt says that the duty of continuous cooperation encompasses not destroying, falsifying or concealing information that is of relevance for the investigation as well as not revealing the facts or the contents of the application during a period when doing so can jeopardise the investigation. It is necessary that this condition covers also the period when a company prepares to come forward with a leniency application. It cannot be tolerated that an applicant destroys, falsifies or conceals information and can still be entitled to get immunity or reduction of fines. Such actions can seriously undermine the investigation of the case and are flagrantly against the spirit of cooperation under the Leniency Notice.

Why is it regarded as necessary to introduce flexibility as to the point of time when applicants should terminate their participation?

The requirement in the 2002 Leniency Notice to terminate participation in the alleged cartel at the latest at the time of the application has in practice raised concerns that in some cases the termination may alert other cartel participants and endanger a planned Commission inspection. The result could be that other cartel participants are alerted by absence of the applicant from meetings and other contacts and start destroying evidence before an inspection is launched. While as a general rule undertakings that apply for leniency should terminate all cartel activities as soon as possible, it is in the public interest to delay the complete termination until the point in time necessary to safeguard the Commission inspection.

Why is a new concept of “compelling evidence” added to the description of the concept of “added value”?

The degree to which evidence provided by the reduction of fines applicant would need corroboration is an essential element in assessment of whether that evidence represents significant added value. Therefore, it is explained in point 25 that “the degree of corroboration from other sources required for the evidence submitted to be relied upon against other undertakings involved in the case will have an impact on the value of that evidence, so that compelling evidence will be attributed a greater value than evidence such as statements which require corroboration if contested”.

This qualification is added also to point 26, last paragraph, which aims at ensuring that an applicant qualifying for reduction of fines would not have its fine increased only because it happened to provide itself the evidence which the Commission uses to establish additional facts that increase the gravity or the duration of the infringement. It is important to qualify the kind of evidence deserving to be rewarded in such generous fashion. Adding these clarification increases the legal certainty for the applicants.

Why has the Commission introduced a marker? Why does the Commission consider that it is necessary to have discretion as to when to grant a marker?

The Leniency Notice provides for immunity for the first applicant that meets the threshold and for each subsequent successful applicant a reduction of fines. The aim of this system is to encourage a race between cartel members to report cartels to the Commission and to provide the best information and most useful evidence on the cartel that is available to them. If a company does not provide to the Commission enough information, its application will be rejected and it would need to apply again. In between, another applicant would then have a possibility to qualify for immunity. However, there are some circumstances in which it can be justified to protect the first applicant’s place in the queue for immunity for a short period. In particular, if a new management after having taken over a company realises that the acquired company was involved in a cartel and decides to apply for immunity. The introduction of a marker system, whereby an applicant’s place in the queue is protected for a limited period of time, would take care of such situations. The marker would allow for the applicant a short time period (exact time allowed will be specified on case by case bases) to complete its internal investigation to gather the necessary information and evidence in order to meet the immunity threshold.

Why is a specific procedure established for corporate statements?

In February 2006, the Commission published for comments a proposed procedure to protect corporate statements, which are made pursuant to the Commission Leniency Notice, from discovery in civil damage proceedings, in particular in third country jurisdictions. In such corporate statements which are made especially for the Commission to help it in its investigation, leniency applicants describe in detail their own involvement as well as that of other undertakings. While the Commission strongly supports effective civil proceedings for damages against cartel participants, the production in such proceedings of corporate statements made under the Leniency Notice would create a considerable disincentive for companies to come forward and hence would seriously undermine the effectiveness of the Commission leniency policy and ultimately jeopardise the effectiveness of the Commission’s fight against cartels.

In general the respondents to the February 2006 publication strongly supported the proposed procedures. It is now proposed to include in the Leniency Notice the essential elements of the procedure to protect corporate statements, taking into account the comments submitted by the respondents.

Why would the Commission not take any position on applications concerning infringements covered by the limitation period for imposition of penalties?

If an infringement is time barred for imposition of penalties due to the fact that the infringement has ceased more than 5 years before the Commission started investigating the case, this means that fines would in any case not be imposed irrespective of whether there is a leniency application. Treating leniency requests in such situations would create unnecessary administrative workload detracting resources form action against other cartels.

Why does the Commission not take the opportunity of this review to exclude repeat offenders from the benefit of immunity?

It may be argued that it is not fair to grant immunity to repeat offenders. But the same argument could also apply to any immunity from or reduction of fines given under the Leniency Notice to companies involved in a cartel. It should be taken into account that the main purpose of the Leniency Notice is to detect and terminate cartel infringements for the ultimate benefit of the economy and consumers. Secret cartels are by their very nature difficult to detect and investigate without the cooperation of the undertakings implicated in them. Therefore it is in the interest of consumers and of the economy as a whole to reward companies that cooperate with the Commission action to bring cartels to the end. Excluding repeat offenders from the benefit of immunity could lead to a significant reduction in the amount of immunity applications and therefore work against the whole purpose of the Leniency Notice. In practical terms it would also be difficult to determine when a recidivist would have to be excluded or not. For instance, when a multiple repeat offender changes management and the new management decides to report all cartels in which the company is (or has been) involved, the Commission would not like to discourage such applications.

This position is shared by the other European Competition Network (ECN) members (see below on the ECN Model Leniency Programme) and other major jurisdictions in the world. Finally, the recently revised Commission guidelines on fines provide for more severe sanctions on recidivists. Therefore, recidivist who report cartels and benefit from immunity would be exposed to higher sanctions in other (future) cartels they had not reported.

What would be the result of these changes to the Leniency Notice?

The proposed changes to the Leniency Notice aim at providing more guidance and clarity for the companies applying for immunity from and reduction of fines. The purpose is also to streamline the procedure for handling of the applications. As a result the applicants are expected to receive quicker replies to their applications. The clarifications made to the Notice would also make it easier to submit applications as the companies would now have more explicit guidance as to what the applications should contain. Overall, the effectiveness of the Commission cartel investigations would be enhanced and the action against cartels increased for the ultimate benefit of consumers.

What impact would the changes to the Leniency Notice have on actions for damages?

Any person or firm affected by anti-competitive behaviour may bring the matter before the courts of the EU Member States and seek damages. Often such actions take place as a follow-up on Commission decisions finding an infringement of EC competition rules. Elements of a published Commission decision can be used in the actions for damages as evidence that the behaviour took place and was illegal. As the improvements proposed to the Leniency Notice are expected to lead to increased action against cartels, this can also foster the action for damages.

Even though the Commission has fined participants to a cartel, damages may be awarded without these being reduced on account of the Commission fine. For more information, see the Green Paper on private enforcement (see IP/05/1634 and MEMO/05/489).

Is the Commission Leniency Notice in line with other leniency programmes?

The proposed amendments to the Commission Leniency Notice are fully consistent with the ECN Model Leniency Programme, which is also launched today. For further information on the ECN Model Leniency Programme, see MEMO/06/356.

The main features of the Commission Leniency Notice are also common to other major leniency programmes across the world (for instance the possibility to get immunity, reduction of fines, the possibility to grant a marker etc.).

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