Transcript Criminalization and Leniency – Will the Combination Favourably

Criminalization and Leniency – Will
the Combination Favourably Affect
Cartel Stability
Patrick Massey
Director
Compecon Limited
www.compecon.ie
What do we mean by leniency?
•
•
•
•
•
Waiver of all penalties = immunity
Reduction of fines = leniency
Implications are quite different.
De facto leniency often used to refer to both of
these options which may give rise to some
confusion.
In discussing combination of criminalisation and
leniency – really talking about immunity.
www.compecon.ie
Individual Criminal Sanctions
Necessary to Deter Cartels.
• Cartels involve decisions by company
executives – who may gain personally
• Moral hazard if company is fined
• Fine a cost of doing business
• Cartels are not a crime passionelle
• Fining individuals ineffective – firm may
pick up the tab.
www.compecon.ie
Leniency Programmes Aim to
Encourage Whistleblowing by Firms
www.compecon.ie
Impact of Leniency Programmes.
• Leniency programme – attempt to tilt
incentives in “prisoners’ dilemma” type
games in favour of competition agencies.
• Counter-arguments – Risk of reduced
penalties can actually increase incentives
to collude (see e.g. Motta and Polo, 2003)
• Threat of criminal sanctions can
strengthen cartel discipline. (Spagnolo)
www.compecon.ie
Does Leniency Increase Incentive
to Collude?
• Not if only one firm can obtain leniency –
no one can be sure they will be first –
unlikely to reassure would be conspirators.
• Many programmes involve reduced
penalties for those who are not first in reduces potential penalty for most if not
all cartel participants.
www.compecon.ie
Impact of Leniency Programmes
Difficult to Quantify
• In case of many types of crime can measure
•
•
•
•
impact of initiatives both in terms of detection
rates and deterrence i.e. reduction in incidence
of criminal activity
Cannot directly measure impact of cartel
leniency programmes:
No way of knowing how many cartels exist.
Cannot measure detection rate.
Cannot observe deterrent effect.
www.compecon.ie
Results of Leniency Schemes
US 1978-93. 1 application per year
US programme reformed 1993 applications increased to
20 per annum approx.
EU programme introduced 1996. Initial low level of
applications. Increased significantly following revisions.
UK – 16 Applications in 2003/4.
Korea programme introduced 1997. 1997-2001 1
application.
Ireland programme introduced December 2000.
Authority will not disclose number of applications
received – but no signs of prosecutions.
www.compecon.ie
• Results suggest that leniency schemes can make a
•
•
•
•
difference.
US results indicate that properly designed scheme will
increase detection.
Applications 20 times higher since 1993 – unlikely that
there are 20 times the number of cartels.
50% of applications involved cartels not previously
known to authorities.
Mixed outcomes suggest other factors important also.
www.compecon.ie
Reform of Leniency Programme Not
the Only Change in US.
• Lysine cartel case and those that followed
•
•
resulted in substantial increases in fines
compared to previous cases.
Cases also signaled intention ‘to apply tough,
“blue-collar” investigative techniques to hat had
formerly been treated as a gentle ‘white-collar’
activity”
J.M. Connor Global Cartels Redux: The Amino
Acid Lysine Antitrust Litigation (1996) in White
and Kwoka: The Antitrust Casebook
www.compecon.ie
• “The variable record of the Justice
Department in prosecuting big
cartel cases in the past was on
one view at least attributable to
its then (possibly overgentlemanly) preference for using
enquiry methods more
appropriate to civil litigation over
crime detection tools.”
• J. Joshua, (2000), The Criminalisation of
Antitrust Leniency and Enforcement: the
Carrot and the Stick. A View from Europe,
International Bar Association, Amsterdam,
mimeo p.7.
www.compecon.ie
Does EU Experience show that
Leniency does not need criminal
penalties?
• Outcome cannot be viewed in isolation.
• What happens in other jurisdictions
matters.
• World wide or EU only cartels.
www.compecon.ie
Leniency boosted Commission
enforcement activity
• “Without perpetrators coming forward, the
Commission was only starting
investigations when it had the virtual
certainty of obtaining the ‘hot’ documents”
(J. Joshua, Leniency in US and EU Cartel
Cases, Antitrust, summer, 2000).
www.compecon.ie
Role of Courts Important in
Criminal Cases
• Judges may be skeptical of evidence that
is perceived as “self-serving”.
• Such witnesses likely to be exposed to
detailed scrutiny.
• If courts dismiss evidence of former
conspirators – leniency programmes may
not be sustainable.
www.compecon.ie
On balance threat of imprisonment is
likely to concentrate the mind.
www.compecon.ie
US and EU Experience Show that
Detail Matters
• Leniency programme must provide the
right incentives.
• Poorly designed programmes don’t work.
• Illustrates need to evaluate results and
learn from mistakes.
• Why Irish Authority’s refusal to disclose
number of applicants is misguided.
www.compecon.ie
Penal Sanctions Must be Credible
• Ireland has had criminal sanctions since 1996 – to date
•
•
•
•
•
no prosecutions have been brought on indictment.
Flaws in former legislation and lack of resources
undoubtedly a problem in the past.
Competition Authority Annual Report 2003 – Authority
capable of referring one case per year to DPP
Authority Chairman “never intended that powers to
arrest suspects to be used”.
Indicates that criminal sanctions are not serious.
Leniency programme unlikely to work in those
circumstances.
www.compecon.ie
Thank You
www.compecon.ie