CORPORATE LENIENCY – SEEKING REFUGE FROM THE CONSEQUENCES OF CARTEL ACTIVITY BY OMESHNEE PILLAY

Cartels are, in essence, agreements between competitors not to engage in competition with each other.  Indeed, cartel activity, which involves price fixing, market allocation and collusive tendering, is seen as the most serious of competition law contraventions by competition authorities globally.  
In order to discourage and prevent cartel activity and to encourage cartel activity disclosure, the Competition Commission published its corporate leniency policy (CLP) in 2004.
The 2004 CLP identified the procedure for the Commission to grant immunity to the first cartel member to disclose cartel activity information to the Commission, provided the cartel member fulfilled the specific requirements set out in the policy. 
By successfully applying for leniency, a firm escapes prosecution in terms of the Competition Act as well as the consequences of prosecution under the Competition Act, including heavy administrative penalties potentially reaching 10% of the firm’s annual turnover. 
The 2004 CLP did not elicit the type of response anticipated. By 2007 the Commission had only received 14 applications for leniency. This led to a review of the policy, which, in 2007, culminated in the publication of a discussion paper that identified six areas of concern:
• The 2004 CLP was merely a guideline, which did not have the force of law and was not binding on the competition authorities;
• A firm was not guaranteed immunity, even where it fulfilled all of the requirements set out in the policy, as the Commission retained a discretion to grant immunity to an applicant firm;
• Firms were compelled to make written applications for leniency even in instances where they would prefer to make oral submissions;
• Instigators of cartel activities, or firms that coerced other firms to join or remain in a cartel, were excluded from applying for immunity;
• A mechanism was required in terms of which a firm could reserve its place in line while it collected all the necessary information to submit to the Commission in support of its leniency application; and
• There was no clear indication as to the exact person at the Commission to whom leniency applications or queries should be directed. 
In 2008 the Commission exercised its right to amend the provisions of the policy and on 23 May 2008 the revised policy, or 2008 CLP, was published in the government gazette. 
The 2008 CLP has yet to enjoy the force of law and an applicant firm is still obliged to make its application for immunity in writing. However, the amendments to the policy of granting leniency to applicant firms saw the unfettered discretion of the Commission revoked. In terms of the 2008 CLP, the Commission is obliged to award an applicant firm total immunity once it has completed its investigation and referred the matter to the Competition Tribunal and a final determination has been made by the Tribunal or the Competition Appeal Court, provided the applicant has met the conditions and requirements set out in the policy.
The ambit of the 2008 CLP is wider than its predecessor in that it makes no distinction between firms that instigated cartel activity, or coerced other firms to join or remain in a cartel, and other members of the cartel. Any member of a cartel is now expressly entitled to approach the Commission for leniency. 
The 2008 CLP allows an applicant firm to apply for a “marker”, a mechanism allowing a firm to reserve its place in line while it collects all the necessary information to submit to the Commission in support of its leniency application. The policy also specifically provides details of whom applicant firms may direct their 2008 CLP inquiries. 
The 2008 CLP substantially addresses the concerns raised in the 2007 discussion paper.  Although the policy does not currently have the force of law, the competition authorities have consistently adhered to and applied its provisions. As a result, there has been an increase in the number of leniency applications.  
The 2008 CLP makes it clear that the immunity granted in terms of the CLP does not protect the directors or managers of the applicant firm from criminal liability resulting from participation in cartel activity.
The pending amendments to the Competition Act provide for criminal prosecution of individual directors or managers involved in cartel activity. 
If these amendments to the Competition Act come into force, the efficacy of the CLP may be significantly reduced. Although the Commission may not request the prosecution of any director or manager who has co-operated with the Commission in terms of the CLP, there is nothing precluding a third party from doing so.
Since it is often directors and managers who have the most influence in the decision of a firm to apply for leniency, their incentive to do so may be significantly reduced by the risk of criminal sanctions, including imprisonment. 

Omeshnee Pillay is an associate in the Corporate Department at Bowman Gilfillan.