South Africa’s Corporate Leniency Policy: A Five-Year Review

By Chantal Lavoie

I. INTRODUCTION

Created in 1999, South Africa’s Competition Commission (the “Commission”) has already made a marked contribution to promoting South Africa’s economy and to establishing itself as a respected competition authority of international caliber. Most notably, the Commission’s policy approach in the area of cartel enforcement is already reaping benefits by enhancing competitiveness in various sectors of the economy and improving consumer access to product choice at competitive prices.

The focal point of the Commission’s policy approach to cartel enforcement is its corporate leniency policy (the “CLP”) which came into force on 6 February 2004 upon publication in the Government Gazette1. The CLP was drafted and adopted by the Commission to assist it in its task of enforcing cartels under the Competition Act 89 of 1998, as amended (the “Act”). The CLP has played a critical role in enabling the Commission to uncover cartels operating in significant sectors of the economy, such as the milk and bread industries. The CLP serves to attract members of cartels to disclose information on a cartel in return for immunity from prosecution and fines.

This paper examines the structure and guiding principles of the CLP, the achievements to date and challenges to come.

II. BACKGROUND TO CLP

A. The Act

The Act was adopted in 1998. Whilst some of the provisions of the Act were applicable as early as 30 November 1998, the remaining provisions of the Act came into effect on 1 September 1999. Cartels are dealt with under section 4 of the Act, dealing with horizontal restrictive practices.

Chantal Lavoie (LL.M (’91) Harvard Law School and LL.M in International Business Legal Studies (’90) University of Exeter) is a consultant for the Competition Commission of South Africa and was previously senior associate at Freshfields Deringer, Brussels, and director and senior assistant general counsel at Euroclear Bank, Brussels. The views expressed in this article are those of the author and do not engage nor represent the views of the South African Competition Commission. The author wishes to thank Ms. Kate Morris for her assistance in the compilation of data.1 Notice 195 of 2004, Government Gazette No. 25963 of 6 February 2004.

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“4. Restrictive horizontal practices prohibited

(1) (…)

(a) (…)

(b) it involves any of the following restrictive horizontal practices:

(i) directly or indirectly fixing a purchase or selling price or any other trading condition;

(ii)dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii) collusive tendering.”

As cartels are particularly damaging to consumers and the economy as a whole, the prosecution of cartels under the Act is based on a per se rule. This means that the anticompetitive effects of cartels are presumed under the Act and, accordingly, no defenses are available to cartel members. In terms of procedure, the Commission is empowered under the Act to conduct investigations relating to alleged collusive practices and to refer such matters to the Competition Tribunal for prosecution. Cartel members found guilty of contravening the Act are subject to an administrative penalty of up to 10% of the firm’s annual turnover in South Africa in the preceding financial year. No criminal sanctions apply to firms or individuals for contravening the cartel provisions of the Act.

B. The pre-CLP period

It is a widely recognized fact that the South African economy is highly concentrated. Even though concentrated markets are conducive to collusion, only a small percentage of complaints made under the Act related to collusive practices during the pre-CLP period, whilst the majority of complaints involved allegations of abuse of dominance.2

Indeed, until adoption of the CLP in February 2004, few cartels were investigated and prosecuted under the Act. This is due essentially to two reasons. First, prior to the adoption of the CLP, competition law enforcement focused essentially on the review of mergers and acquisitions. As stated by the Minister of Trade and Industry in its foreword to the Commission’s Annual Report 2003-2004, “the Commission’s focus has for the past five years been the evaluation of mergers and acquisitions as well as enhancing public awareness of the Act and its implications”.3

Second, the intrinsic secret nature of cartels renders both its detection and investigation difficult. Collusive practices were investigated to a limited extent, namely in the

2 The highest percentage of complaints relating to collusion was obtained in the first years of operation of the Commission, with 17% and 17.6% of complaints alleging collusion in the financial years 1999-2000 and 2000-01, respectively (see Table 1, Competition Commission Annual Report 2000, at p.38 and Table 10, Competition Commission Annual Report 2001, at pp. 33 and 34). In the financial years 2001-02 and 2002-03, less than 1% and 3%, respectively, of the cases under investigation related to collusive practices as the sole allegation (see Table 3, Competition Commission Annual Report 2002 (Our Business), at p.21 and Figure 5, Competition Commission Annual Report 2002-03). Although the data is not available, these percentages for the financial years 2001-02 and 2002-03 are likely to be higher since complaints involving multiple allegations of contraventions of the Act (where collusion might have formed the basis for one of the allegations) were not taken into account in the calculations. Data is not available for the financial year 2003-04. 3 Competition Commission Annual Report 2003-04, at p. 1.

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healthcare sector4, in the automobile industry5, and in the market for the supply of cullet (broken glass used for recycling)6.

Pre-empting on the Commission’s adoption of the CLP in 2004, the Commissioner highlighted in its Annual Report 2002-03 the need for the Commission to focus on cartel enforcement by stating that: “In our efforts to eliminate and prosecute cartels, more attention and resources will be dedicated to this area.”7 In the following financial year, the Commission developed the CLP.

III. THE CLP

The CLP was adopted as a tool to assist the Commission in prosecuting cartels under section 4(1)(b) of the Act. The CLP provides for a member of a cartel to receive immunity from prosecution and fines in return for disclosing all relevant information and documents relating to the cartel activity.

A. Structure and concepts

The CLP is a policy document issued by the Commission. As such it states the Commission’s approach to granting immunity to applicants choosing to disclose information regarding its participation in cartel conduct. The CLP applies only to cartel conduct, not to other restrictive practices contravening other sections of the Act. It is based on a number of guiding principles which are set out below.

1. First principle: “First to the door”

Only one member of a cartel may be granted immunity. As a result, the CLP creates a race to the door by rewarding the first member of the cartel to provide evidence on the cartel. A number of other competition authorities in the world offer immunity based on the same principle in order to create an incentive for members to break away from a cartel. 8 Application of this principle under the CLP gives rise to a number of practical considerations regarding the ability to qualify for immunity.

a. Nature and form of CLP applicant

The CLP provides that “only a firm that is ‘first to the door’ (…) would qualify for immunity” and that a firm includes a person, partnership or a trust. 9 As a matter of practice, a firm constituted as a legal entity will be eligible for immunity. Where a corporate group is involved, immunity should be available to any firm – but only one firm - within the group. A division of a firm would be eligible for immunity only through the legal entity of which it

4 See Competition Commission vs International Healthcare Distributors (Pty) Ltd and Others, referred to in the Competition Commission Annual Review 2003-04, at p. 18. See also Competition Commission vs Board of Healthcare Funders (BHF), the South African Medical Association (SAMA) and the Hospital Association of South Africa (HASA), referred to in the Competition Commission Annual Review 2003-04, at p.20. 5 See motor vehicle investigation against 13 manufacturers/importers of new motor vehicles, referred to in the Competition Commission Annual Review 2004-05, at p. 15 and Competition Commission Annual Report 2005-06, at pp. 10-11.6 See Enviroglass vs Consol, Nampak, referred to in the Competition Commission Annual Review 2004-05, at p.15.7 See Competition Commission Annual Report 2002-03, at pp.5-6.8 e.g. the U.S. Department of Justice’s “Corporate Leniency Policy” (1993), online: http://www.usdoj.gov/atr/public/criminal/leniency.htm (the “US Corporate Leniency Policy”).9 See paragraphs 5.6 and 5.7 CLP.

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forms part and which controls its decision-making process. If a subsidiary applies, it would be eligible for immunity in relation to its participation in cartel conduct but not in relation to its parent’s own participation in cartel conduct (as this is not under the control of the subsidiary).10 Conversely, a parent company of a subsidiary would be eligible for immunity in relation to its own participation in cartel conduct as well as its subsidiary’s participation in cartel conduct (as this is under the control of the parent). The level at which a CLP application is made is therefore important.

The treatment of joint venture entities under the CLP gives rise to similar considerations. Immunity can only be granted to one of the legal entities involved in the joint venture. As a result, a joint venture company constituted as a separate legal entity under the joint control of two parent companies should be eligible for immunity. However, the direct involvement of the parent companies in the cartel conduct would not be covered by the immunity since the joint venture does not exercise control over its parents. Conversely, if one of the parent companies applies for immunity, neither the other parent company nor the joint venture should be eligible for immunity. In particular, the involvement of the joint venture in the cartel conduct should not be covered by the parent’s application because control over the joint venture does not rest solely with the parent applicant. Specific considerations of a case may warrant a departure from this principle. However, any such departure could lead to abuse from joint ventures involved in collusive practices with their controlling parent companies, thus incentivizing, or at least condoning, cartel behavior.

b. Importance of indentifying cartel conduct

Applications for immunity must be carefully examined to consider whether a CLP application made by different entities relates to the same contravention. This involves identifying the product or service which forms the subject of an application, as well as comparing the nature of the conduct by reference to the section of the Act being contravened (i.e. allegation of price fixing, market allocation or collusive tendering) and the competing firms involved in the alleged conduct.

c. Reduction in fines for subsequent applicants and for cooperation

The “first to the door” principle does not necessarily preclude granting a form of partial immunity to subsequent applicants. A number of other jurisdictions offer partial leniency to applicants who have not secured first place in the queue but who are willing to cooperate. This may take different forms. For example, in the European Union, the leniency process sets out a mechanism for granting partial reduction of fines for second and third applicants.11

10 Where the parent company has not been directly involved in the cartel conduct, other than as a result of the control it exercises over the subsidiary which participates in the cartel, the practice of the Commission and Competition Tribunal has been to apply section 4(1)(b) of the Act to the subsidiary and to fine only the subsidiary. See for example, Adcock Ingram (a subsidiary of Tiger) in relation to its participation in collusive conduct in the pharmaceutical sector, Commission Press Release of 9 May 2008. However, should there be evidence of direct involvement by the parent in the cartel conduct, then a finding of infringement and consequential fine would apply to the parent. In this latter case, a CLP application would need to be made at the level of the parent for immunity to provide wider coverage over the collusive conduct. 11 See European Commission, “Commission Notice on Immunity from fines and reduction of fines in cartel cases” (the “EU Leniency Notice”) (2006) OJ C 298, pp.17-22, at points 23 to 30.

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In South Africa, the CLP does not make provision for granting second or third applicants partial immunity and for determining the applicable reduction in fine. In fact, the amount of the fine and reduction in fine is determined ultimately by the Competition Tribunal pursuant to its powers under the Act. Nevertheless, the Commission does recognise in the CLP the value of cooperation and the possibility for other members of a cartel who are not ‘first to the door’ to receive a reduced fine. The CLP does make clear that such reduction in fine is a process to be pursued with the Commission on an ad hoc basis, outside the scope of the CLP.

Recent investigations by the Commission in the bread industry and fertilizer industry highlight the importance which the Commission attaches to cooperation in determining an appropriate fine for settlement (which must then be confirmed by the Competition Tribunal). In the bread case for example, the Commission agreed to a reduction in fine in its settlement agreement with Tiger given its early cooperation in providing information on the bread cartel.12

In the recent settlement reached with Sasol as regards collusion in the fertilizer industry, the Commission emphasized the importance of “timeous and full disclosure of conduct” in rewarding cooperation from cartel members. In this matter, a settlement penalty of 6% was initially agreed to with Sasol on 6 May 2009, taking into account Sasol’s recent offer to cooperate.13 However Sasol subsequently disclosed to the Commission that new evidence had been uncovered as part of its ongoing internal investigation, thus leading to a full admission of contravention of section 4(1)(b) of the Act. This resulted in an increase in Sasol’s fine to 8%, given Sasol’s delay in fully cooperating with the Commission, five years after the Commission initiated its investigation and also after having reaching an initial settlement.14

Flexibility in rewarding cooperation is critical in cartel enforcement in order to achieve the right balance between encouraging cooperation and ensuring that cartel members are justly sanctioned for their illegal conduct, taking into account the value which their cooperation brings for the successful prosecution of cartels.

Diverging views exist as to whether a strict “first to the door” principle should be applied or whether leniency programs should also admit partial leniency. The advantage of a strict “first to the door” principle is that it destabilises a cartel by providing a huge incentive to cartel members to be the first applicant and therefore it creates a strong sense of distrust amongst cartel members. Arguably, partial leniency may dilute the effectiveness of the “first to the door” approach by reducing the incentive to “race to the door”. Nevertheless, partial leniency does provide added flexibility to competition authorities, in particular by widening the “net” of accessible information (which may be lacking in certain investigations to secure successful prosecution). This suggests that a “first to the door” approach, combined with partial leniency can provide a balanced approach for cartel detection and enforcement, by facilitating access to a wider scope of information and

12 See Commission Press Release of 12 November 2007. The Commission imposed a settlement fine of 5.6% of Tiger’s turnover. However another cartel member, Foodcorp, only agreed to cooperate with the Commission after the matter was referred to the Competition Tribunal for prosecution in May 2008. A settlement agreement was reached with Foodcorp in January 2009 resulting in the imposition of a fine of 6,7% (see Commission Press Release of 5 January 2009). Foodcorp’s delay in offering its cooperation accounts at least in part for the difference in the percentage of the fine imposed.13 See Commission Press Release of 6 May 2009.14 See Commission Press Release of 19 May 2009.

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obtaining support from “insiders” in the prosecution of other cartel members, whilst still creating sufficient distrust and incentive for cartel members to be the first to self-report.

2. Second principle: Admission of contravention of Act

The CLP explicitly requires that applicants confess their participation in a cartel in return for immunity.15 It is therefore implicit in such requirement that immunity should only be granted to applicants admitting to a contravention of section 4(1)(b) of the Act. As a matter of practice, this is important to ensure successful prosecution of cartels. Indeed, in the absence of an admission of a contravention by a CLP applicant, the Commission’s investigation and ability to prosecute other cartel members could be adversely affected. This would defeat the purpose of a leniency process which seeks to facilitate prosecution of cartel members with the full cooperation of a cartel member in return for immunity. A similar stance has also been taken by competition authorities in other jurisdictions.16

The requirement of admission to a contravention raises some practical considerations. Indeed, applicants are arguably not always in a position to admit to a contravention of the Act at the time of submission of a CLP application. Nevertheless, the applicant is only required to admit to a contravention of the Act upon signature of a conditional immunity agreement, that is once the Commission has examined the CLP application and is of the view that the applicant’s case qualifies for immunity.17 At this stage, the CLP applicant should have had sufficient time to investigate internally its conduct more thoroughly and be in a position to admit to its involvement in cartel conduct contravening the Act.

3. Third principle: Cartel activity covered by leniency

The CLP is applicable to any cartel conduct infringing the Act, subject to certain parameters relating to the timing of the application. The CLP provides that CLP applications may be made in relation to (i) cartel activity which the Commission is not aware of; (ii) which the Commission is aware of, provided the Commission does not have sufficient information or no investigation has been initiated yet; or (iii) pending investigations where the Commission does not have sufficient evidence to prosecute.18 In addition, the applicant must be the first to provide information sufficient to allow the Commission in its view to institute proceedings.19

15 See paragraphs 3.5 and 5.6 CLP.16 In the United Kingdom, the pro forma corporate leniency agreement adopted by the OFT states that leniency is granted in return for the applicant accepting that the described conduct infringed the relevant provisions of the competition rules. In addition, leniency is conditional on the applicant “continuing to accept that the reported cartel activity infringed” the relevant competition provisions. See U.K. Office of Fair Trading, “Leniency and no-action, OFT’s guidance note on the handling of applications” (OFT 803, December 2008) (the OFT’s Guidance Note”), in Annex A, pp. 74 and 77. The OFT’s position is that an applicant must have a ‘genuine intention to confess”, which would not be the case if the applicant provided all relevant information relating to its participation in a cartel but denied that its participation constituted cartel conduct. Similarly, in the United States, the Department of Justice’s FAQs clarify that an admission of participation in a criminal antitrust violation is required to obtain a conditional leniency letter. In the past, applicants were only required to admit to a “possible” criminal violation. See US Department of Justice, Frequently Asked Questions Regarding the Antitrust Division’s Leniency Program and Model Leniency Letters (November 19, 2008) (“FAQs”), question 5 at http://www.usdoj.gov/atr/public/criminal/leniency.htm.17 See below under section III.B.3 the procedure for granting immunity to CLP applicants.18 Paragraph 5.5 CLP.19 Paragraph 10.1(b) CLP.

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Other jurisdictions draw a distinction between applications made prior to opening an investigation and applicants made thereafter.20 Indeed, granting immunity to applicants once an investigation is already on-going should be subject to a stricter review process to ensure that immunity will not be granted freely unless the information is shown to contribute to the successful prosecution of a case.

Whilst the CLP does not explicitly put in place two different processes for dealing with applications made before or after the opening of an investigation, the CLP does condition the eligibility of an application to similar considerations. The Commission has in the past rejected applications regarding cartel activity which it was already aware of and where the Commission had sufficient evidence to prosecute the cartel members. By extension, the Commission would not be expected in principle to grant immunity to an applicant in relation to cartel conduct which has already been referred to the Competition Tribunal. Arguably, such applications should only be accepted if the evidence provided through the application was not already in the hands of the Commission and would be valuable for the successful prosecution of the other cartel members.

As a matter of principle, applicants should approach the Commission as quickly as possible. Nevertheless, CLP applications are sometimes triggered as a result of inspections carried out in the context of investigations by the Commission.21 Applying for CLP once an investigation is already ongoing should be viewed with circumspection and should involve considering the value of the information to be provided by the applicant (relative to the information already in the hands of the Commission) and whether it will contribute to the successful prosecution of the cartel members. Otherwise, a cartel member could benefit from immunity without having itself contributed information towards the prosecution of other cartel members, thus actually “free-riding” on the Commission’s ongoing investigation. Such result would defeat the purpose of the CLP.

4. Fourth principle: Conditional immunity

As in many other jurisdictions, the CLP provides for immunity to be granted on a conditional basis. The grant of immunity is indeed a continuous process which reaches finality upon final determination being made by the Competition Tribunal, or the Competition Appeal Court (“CAC”), if the decision is appealed. This is important to ensure continued and full cooperation from the applicant whilst the infringement proceedings run their course.

The grant of conditional immunity implies that the applicant must meet on a continuous basis a series of conditions22 which focus on three aspects:

20 See the OFT’s Guidance Note, supra note 16, where type A immunity is not available to applicants once there is a pre-existing criminal or civil investigation. The OFT has retained discretionary power to grant immunity to applicants once an investigation has commenced (so-called type B immunity). See also the US Corporate Leniency Policy, supra note 8, where type A leniency is available before a division investigation has begun and type B leniency is available even after a division investigation has begun but based on different conditions. In the EU, point 14 of the EU Settlement Notice, supra note 11, provides that the Commission may reject applications submitted after the statement of objections has been issued. 21 For example, raids conducted by the Commission in 2008 as part of its investigation into price fixing and exclusive dealing in the steel industry led to CLP applications. See Commission Press Release of 17 July 2008.22 Paragraph 10 CLP.

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a. Disclosure of information

The applicant must provide complete and truthful disclosure of all information regarding any cartel conduct. This also implies not destroying, falsifying or concealing information nor misrepresenting any material facts of any cartel activity. It is important to note that the applicant’s obligation regarding disclosure extends not only to the reported cartel activity but also to any cartel activity. Applicants active in several sectors of the economy must therefore have a thorough understanding of their internal practices and be aware that immunity granted in relation to its participation in a cartel could be revoked for failure to disclose information regarding its participation in another cartel.

The applicant must also be the first to submit information sufficient to allow the Commission to institute proceedings. Accordingly, an applicant may be denied immunity if it provides information which on its own is deemed insufficient to give grounds for initiating an investigation or for prosecution.

b. Applicant’s cooperation

The applicant must provide full and expeditious cooperation until proceedings are completed. Any attempts by an applicant to delay the provision of information or to prevent, for example, employees from testifying could lead to revocation of the conditional immunity.

c. Conduct of applicant with other cartel members

The applicant must immediately stop the cartel activity or act as directed by the Commission. This condition may pose some practical difficulties where the decision to stop participation in a cartel could result in the applicant being in breach of contractual obligations and therefore could alert other cartel members to its application, as prohibited in paragraph 10.1(e) of the CLP. Prior consultation with the Commission may therefore be required and guidance from the Commission may be provided where needed.

In addition, the applicant must not alert other cartel members or third party that it has applied for immunity. This condition may also give rise to some practical difficulties, particularly with respect to disclosure requirements applicable to publicly-quoted companies. Public disclosure of information regarding approaches to competition authorities should therefore be carefully drafted and may require prior consultation with the Commission.

The Commission will revoke immunity if any of the conditions mentioned above are not met.

B. Procedural aspects

One of the fundamental features of a CLP process is that its procedure be transparent and predictable. This is important to provide certainty to applicants. The CLP must nevertheless retain sufficient flexibility in its procedure to adapt to circumstances and specificity of each application.

The CLP sets out the procedure for submitting CLP applications and for reviewing applications. A three-step approach is used, consisting in the submission of the

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application to the Commission (paragraph 11.1.1 CLP), the review of the application following a first meeting (paragraph 11.1.2 CLP) and the grant of immunity in a conditional immunity agreement to be entered into between the Commission and the applicant at a second meeting (paragraph 11.1.3 CLP).

1. Submission of the application

The applicant is not required upon submission of its CLP application to provide all information concerning the cartel activity. It suffices that enough information be provided to enable the Commission to determine whether the applicant is “first to the door”. Applications must be submitted in writing. Whilst the CLP does provide for an oral statements procedure23, applications cannot be made orally. The Commission will advise the applicant in writing or telephonically if another firm has already made an application in respect of the same conduct.

2. Review of the application

Upon receipt of an application and confirmation that the applicant is “first to the door”, a meeting is typically arranged in order for the applicant to bring all relevant information on the cartel activity. Following the meeting, the Commission will decide whether the applicant meets the conditions for immunity. In practice, more than one meeting may be necessary to discuss the application and underlying information. The Commission’s review is based on the conditions set out in paragraph 10 of the CLP. To provide maximum transparency and predictability, the CLP gives explicit assurance that conditional immunity will be granted if the conditions and requirements are met.

3. Conditional immunity agreement

Once the Commission has decided to grant immunity to the applicant, it will prepare a conditional immunity agreement to be entered into between the Commission and the applicant. The conditional immunity agreement is a standard document which contains two important features: (i) the grant of immunity in respect of a defined cartel activity in return for an admission of contravention of the Act; and (ii) a reiteration of the principles contained in the CLP that immunity is granted on a conditional basis and is subject to a series of conditions being met on a continuous basis. A second meeting may be convened if the terms of the conditional immunity agreement require discussion.

C. Amendments to CLP

The Commission amended the CLP in 200824 following a review process undertaken in the previous financial year. Drawing on over four years of experience in applying the CLP, the purpose of the amendments was aimed at optimizing the effectiveness of the CLP. The review process was undertaken in consultation with stakeholders and interested third parties, taking into account international best practice.

The amendments to the CLP became effective on 23 May 2008 (the “CLP amendments”). The CLP amendments focus on the following five main areas:

23 See section III.C.4 below.24 Notice 628 of 2008, Government Gazette No. 31064 of 23 May 2008.

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1. Legal certainty

The drafting of the CLP has been amended to remove the discretion which the Commission had in granting immunity. In particular, the CLP makes clear that the Commission will grant immunity if the conditions of the CLP are met. This is important to provide applicants with the desired transparency and predictability expected from the CLP process.

Nevertheless, the CLP continues to lack express statutory basis. Indeed, the Act makes no specific provision for the CLP, save to refer to the Commission’s responsibilities and to its general power to adopt guidelines.25 However, legislation has been proposed to amend the Act in order to strengthen the effective enforcement of the Act, including by making provision for the CLP in the Act and by authorising the Commission to grant immunity to firms “deserving of leniency”.26 Whilst the parliamentary process is complete, the Competition Amendment Bill has yet to be given assent by the President of the Republic, as a result of delay encountered based on ongoing allegations of unconstitutionality. At the time of writing, it is yet unknown if or when the Competition Amendment Bill will receive Presidential assent.

2. Role in the cartel

Whereas in the past the CLP was not applicable to instigators and leaders of a cartel, all cartel members are now eligible to apply for immunity under the CLP. Removal of this restriction follows international best practice, although some jurisdictions continue to exclude instigators or coercers from the scope of eligible applicants27. The advantage of removing this restriction is that it enables any member of a cartel to self-report and therefore creates greater instability and distrust among cartel members. The entry into force of this amendment has since opened the door to CLP applications from cartel leaders, thus resulting in the detection of cartels which could otherwise have gone undetected.

3. Marker procedure

The CLP amendments introduce a marker procedure.28 This procedure enables a potential applicant to request the Commission to reserve its place in the queue of applications whilst it conducts its internal investigation and collects the information necessary to make a formal application for immunity. The applicant will be granted a period of time within which to perfect the marker by making a formal CLP application containing the necessary supporting information. Since the CLP provides for CLP applications preceded by a marker to be backdated to the date on which the marker was granted, the marker gives the applicant precedence over any application for immunity made during the marker period. The marker procedure is relatively common in other jurisdictions.29

25 See sections 21 and 79 of the Act.26 See the Competition Amendment Bill, B31D-2008.27 See for example the US Corporate Leniency Policy, supra note 16, at point A.6: “The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity”. See also the EU Corporate Leniency Notice, supra note 11, point 13 and the OFT’s Guidance Note, supra note 16, at paragraphs 3.15 and 6.28 See paragraph 12 CLP.29 For example, a marker procedure exists in the EU, supra note 11, at points 14 and 15 and in the US, supra note 16, question 2.

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The grant of a marker by the Commission is a discretionary process. It requires a marker application to be made in writing to the Commission. In its application, the marker applicant is required to identify its name and address, the alleged cartel conduct and the participants and justify the need for a marker. Part of this information is important to establish any overlap with other CLP (or marker) applications and, if so, precedence and order of priority as between applications.

The marker procedure optimises the CLP process by encouraging early disclosure of cartel conduct and by providing a means for potential applicants to approach the Commission as soon as it suspects that it may be involved in cartel conduct. The applicant is not expected at the stage of the marker to be in a position to admit that its conduct contravenes the Act.

Since the marker procedure was introduced, applicants have been taking significant advantage of the procedure. In fact, most CLP applications made since adoption of the marker procedure have been preceded by a marker application. This has also enabled the Commission to detect cartels at an earlier stage.

4. Oral submissions

The CLP amendments introduce an oral statements procedure to enable applicants to submit orally information regarding the alleged cartel.30 This procedure affords applicants added protection from discovery of documents produced in the context of CLP applications for use in proceedings before other jurisdictions. Nevertheless, it does not replace the need to submit a written application for immunity. In addition, applicants are still required to provide the Commission with all existing written documents in its possession relevant to the cartel conduct under investigation.

The oral statements procedure is a discretionary process, such that the Commission may, on a case-by-case basis, accept or refuse a request for oral submissions. The procedure provides for oral statements to be recorded and transcribed at the premises of the Commission. These oral statements then form part of the Commission records and amount to restricted information pursuant to the Commission’s rules for the conduct of proceedings.

This amendment is in line with international best practice and is particularly intended to encourage firms participating in cartels of international dimension to submit applications under the CLP whilst addressing concerns regarding risks of discovery in other jurisdictions. The CLP’s oral statements procedure is however not as far reaching as the procedure put in place in other jurisdictions which accept paperless applications31 or an entirely paperless leniency process32. This may change over time as experience with implementing this procedure grows.

30 See paragraph 15 CLP.31 See the EU Leniency Notice, supra note 11, point 32.32 See the OFT’s Guidance Note, supra note 16, paragraph 3.18.

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5. Point of contact

The CLP amendments clarify that the Enforcement & Exemptions Division of the Commission is the responsible division for receiving and dealing with applications made under the CLP. This ensures that applications are sent to a single point of contact, thus facilitating the task of receiving and dealing with applications.

IV. IMPACT OF CLP ON CARTEL ENFORCEMENT

With the adoption of the CLP in 2004 and clear impetus given by the Commission since then to detect and prosecute cartels, combined with the increasing public awareness of the Act, cartel enforcement has been steadily and significantly growing in various respects. Adoption of the CLP has changed the dynamics of cartel enforcement by encouraging cartel members to come forward and self-report. This has necessarily led to the detection of the more secretive cartels which operate without the knowledge of outsiders.

A. Significant increase in CLP applications

Since its adoption five years ago, 54 CLP applications have been received by the Commission33. Over 68% of these CLP applications have been made in the previous 12 months ending 30 June 2009. A sharp increase in CLP applications has been noted since 2008, notably in 2009 with the receipt of more CLP applications over a 6-month period than in the whole of the year 2008. In addition, the marker procedure has been applied consistently since adoption of the CLP amendments in May 2008, resulting in most CLP applications being preceded by a marker application.

The first CLP application was submitted in 2004 by Comair with respect to its participation in a price-fixing cartel relating to fuel levy charges in the airline industry. 34 However, it was the Commission’s cartel investigations into the milk and bread industries (greatly assisted by CLP applications) and resounding public support for these investigations which gave significant impetus to the CLP and triggered a tide of CLP applications in other sectors of the economy, such as in the construction industry (including steel) and the transport and energy industry.

CHART 1: CLP APPLICATIONS RECEIVED AS AT 30 JUNE 200935

33 See Chart 1 in this section IV.A below. Calculations are based on CLP applications received between 6 February 2004 and 30 June 2009 and exclude marker applications, save for marker applications granted but awaiting submission of a CLP application. 34 See Commission’s Annual Review 2004-05, at p. 18. See also Commission Press Release of 24 May 2006.

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1 2 11

4 51

8 8

2

26

22

3

4

1

1

0

5

10

15

20

25

Pharmaceuticals

Transport & energy

Other

Construction & Infrastructure

Industrial products

Food

Total applications:54

B. Impact of CLP on industries

The CLP and its usefulness in dismantling cartels have been felt in a number of industries. Indeed CLP applications have been critical in identifying the existence of cartels in several sectors of the economy, such as the airline industry36, and most notably, in the milk industry37 and the bread industry38.

By encouraging cartel members to disclose information on “any cartel activity”39, the CLP has also facilitated the dismantling of cartels in other closely related sectors of the economy. For example, the Commission’s ongoing investigation into the milling sector was triggered as a result of information received in CLP applications relating to the bread cartel40. The uncovering of cartels in the milk, bread and milling industries have also had wider repercussions in leading the Commission to conduct a wider study into the entire food value chain. This has itself resulted in new investigations being initiated in areas such as poultry41 and supermarkets42 and confirms the Commission’s view of the food industry as a priority sector.

35 Data based on date of receipt of CLP application and excludes marker applications, save for marker applications granted but awaiting submission of CLP application. 36 Supra note 34. Several other CLP applications have also been made in the airline industry.37 In 2005, Clover applied for immunity for price-fixing in relation to the removal of surplus milk. In 2006, the Commission announced the referral of a cartel case against milk producers (see Commission Press Release of 7 December 2006). At the time of writing, the matter is still before the Competition Tribunal. 38 In 2007, Premier Foods applied for immunity in relation to its participation in a cartel in the bread sector. Settlement has since been reached with Tiger and subsequently with Foodcorp who agreed to cooperate with the Commission. See supra note 12. The matter is ongoing against Pioneer, the remaining cartel member. At the time of writing, the matter is being heard by the Competition Tribunal.39 Paragraph 10.1(a) CLP.40 In 2007, Premier Foods and Tiger were granted immunity for collusion in the milling industry. The matter is currently under investigation by the Commission. See Competition News, June 2008, at pp. 4-6.41 See Competition News, September 2008, at pp. 4-6.42 See Commission Press Release of 29 June 2009.

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Other sectors of the economy have undergone (or are undergoing) scrutiny for collusive practices, most notably construction and infrastructure43 (including steel44), as well as transport and energy (including petroleum45). Information regarding collusive practices in these industries has been obtained mostly through CLP applications, which in turn has been prompted by raids46 or internal investigations conducted by firms47. Whilst most of the investigations in these sectors are still on-going, the size and scope of these investigations is expected to contribute significantly to enhancing the competitiveness of these industries. The Commission’s efforts in dismantling cartels in these sectors of the economy must be viewed as long-term priorities which are expected to yield results progressively as these sectors are rid of the cartels which inhibit them.

The construction and infrastructure sector is a good example where much effort has been - and continues to be - deployed by the Commission to eradicate cartels, largely based on information received through CLP applications. In 2008 and 2009 to date, over 40% of the CLP applications received related to construction and infrastructure (including steel).48 Since 2008, this has resulted in the Commission initiating several investigations, leading to date to the detection of cartels in relation to several steel products at different levels of the value chain, as well as in relation to other products such as pre-cast concrete and PVC and HDPE pipes.

C. Impact of CLP on investigative process and on outcome of investigations The information provided in CLP applications not only assists in the detection of cartels but also in the investigative process. One of the significant contributions of the CLP has been to streamline the Commission’s investigative process and to reduce the time to complete investigations. In addition, the CLP process has also assisted in reducing the number of cases referred for prosecution whilst increasing the scope for settling cases. This has allowed additional resources to be freed up for the benefit of other more complex investigations.

A significant number of cartel investigations involving a CLP applicant have led to settlement agreements being reached with at least one of the respondents in a case. These are as follows:

(i) Tiger and Foodcorp for participation in the bread cartel (with Premier Foods as CLP applicant)49;

(ii) Lancewood for participation in the milk cartel (with Clover as CLP applicant)50;43 CLP applications in relation to pre-cast concrete products and PVC and HDPE pipes have assisted the Commission in uncovering cartels in the construction and infrastructure industry. These cases support the Commission’s decision to focus on this industry as a matter of priority. See Competition News, March 2009, at pp. 1-5 and 8-9.44 More than 5 CLP applications have been received in the steel sector as a result of raids conducted by the Commission on 19 June 2008. See Competition News, December 2008, at pp. 4-6.45 CLP applications have been received from Sasol in relation to piped gas and a range of petroleum products. See Competition News, March 2009, at pp. 5-6.46 See Commission Press Release of 17 July 2008 and supra note 44.47 CLP applications made by Sasol in relation to piped gas and petroleum products were the result of internal investigations leading to findings of participation in these collusive practices. See supra note 45. 48 See Chart 1, section IV.A above.49 Supra note 12.50 See Commission Press Release of 16 January 2009.

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(iii) Infraset (Aveng) for participation in a pre-cast concrete cartel (with Rocla as CLP applicant51;

(iv) South African Airways for collusion in the airline sector in relation to fuel levy charges (with Comair as CLP applicant)52;

(v) Sasol for collusion in relation to phosphoric acid supply (with Foskor as CLP applicant)53; and

(vi) Adcock Ingram (Tiger), Dismed and Thusanong for collusion in the pharmaceutical sector (with Fresenius Kabi as CLP applicant) 54.

CLP applications have therefore contributed to reducing the workload of the Commission and of the Competition Tribunal by reducing the number of case referrals. In addition, in determining the amount of the fine for settlement, the Commission has shown that it will attach importance to the level of cooperation of the settling party and reward early and full cooperation.55

D. CHALLENGES FACING THE CLP PROCESS AND CONCLUSION

As shown above, the CLP’s track record to date has been impressive. Since its adoption, it has proved to be a formidable tool for cartel detection and enforcement. The CLP truly forms part of the cartel enforcement process and its existence is now widely known in all sectors of the economy as a transparent and reliable tool available to all cartel members. Although the CLP appears to have reached “cruising speed” as it enters an apparent period of consolidation, many challenges still face the CLP.

One of the greatest challenges for the CLP will be the possible introduction of criminal liability for cartel conduct as a result of the eventual adoption of the Competition Amendment Bill. The proposal to introduce criminal sanctions is government’s response to public calls to punish individuals responsible for involving their firms in cartel conduct, particularly in the light of recent investigations into cartels in basic food industries such as bread and milk.

The Competition Amendment Bill provides for directors or persons in a position of management authority, causing its firm to participate in cartel conduct, to be liable to a fine of up to R500,000 or imprisonment not exceeding 10 years, or both.56 Provision is also made for the CLP to be applicable to both firms and individuals subject to criminal liability, such that the Commission may certify a firm or an individual subject to criminal liability as deserving of leniency. The Commission may also make submissions to the NPA in support of leniency.57 The leniency process will therefore be available to both firms and individuals.

Whilst it is yet unclear whether the Competition Amendment Bill will be adopted in its current form,58 the CLP process will be significantly affected. The introduction of criminal

51 See Commission Press Release of 13 February 2009.52 See Commission Press Releases of 24 May 2006 and 5 June 2007.53 Supra note 13. 54 See Commission Press Releases of 9 May 2008 and 6 February 2009.55 See supra notes 12, 13 and 14.56 Section 13 of the Competition Amendment Bill, supra note 26.57 Sections 8 and 12 of the Competition Amendment Bill, supra note 26.58 Supra, III.C.1.

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liability will add a new dimension to competition law enforcement, namely the jurisdiction of the National Prosecuting Authority and criminal courts in the enforcement of criminal sanctions against individuals. As such, this will require a modus operandi to be developed with all relevant authorities for the effective implementation of both cartel enforcement under the Act and criminal prosecution of individuals.

In order to remain effective, one of the issues for consideration will be to offer firms and individuals a CLP process which provides sufficient clarity and assurances regarding the risk of criminal prosecution of individuals in the event of a CLP application. The Commission does not have jurisdiction to guarantee individuals immunity from criminal prosecution. However, some form of assurance – in cooperation with other relevant authorities – will need to be offered to CLP applicants, otherwise the risk of criminal sanctions will become a disincentive to self reporting and will make the CLP derisory.

The objective must therefore be to offer individuals some form of protection against prosecution and fines which firms and individuals will view as sufficient to encourage self-reporting. The issuance of a certificate by the Commission that an individual is deserving of leniency is not likely to provide individuals and firms with sufficient comfort as jurisdiction for criminal prosecution will not lie with the competition authorities. This is why it is essential that an understanding be reached among all relevant authorities to provide individuals, keen to approach the Commission with information regarding its firm’s participation in a cartel, with certainty and transparency as regards effective protection from criminal prosecution. Otherwise, the CLP will be left only with a “stick” and no “carrot” to lure cartel members. This will be a difficult balance to achieve.

The merits of criminal liability as a powerful deterrent against cartel conduct cannot be denied. However, criminal liability can also, in parallel, have the effect of encouraging more secretive cartel behavior, in which case the CLP would be the only effective tool for detection of cartel conduct conducted by firms undeterred by the threat of criminal liability. This is why it is vital that the effectiveness of the CLP is not affected or diluted by the introduction of criminal liability.

As is the case in many other jurisdictions, the CLP has changed the face of cartel enforcement in South Africa. Its usefulness is beyond question. The CLP must now be kept continuously under review and be amended, where necessary, to ensure that it remains an effective tool for cartel enforcement in the light of the changing legal, regulatory or economic environment. This requires the Commission to continuously engage with applicants and strive to achieve transparency, predictability and consistency in its approach whilst maintaining sufficient flexibility in the process. This is a continuous, long-term challenge.

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