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24 Oct 2013

Australian regulator consults on changes to cartel immunity policy

by Michael Corrigan

The ACCC's proposed changes to its cartel immunity policy would bring greater certainty to applicants.

On 30 September 2013, the Australian Competition and Consumer Commission (ACCC) released a discussion paper inviting comment on proposed changes arising from a review of its Immunity Policy for Cartel Conduct.

The main proposals under consideration are:

  • Better co-ordination of the "dual track" processes in Australia for the granting of both civil and criminal immunity, by the Commonwealth Director of Public Prosecutions (DPP) moving to offer conditional immunity through a letter of comfort in a similar way to the ACCC's practice;
  • deleting the requirement that an immunity applicant must not be the clear leader of the cartel;
  • confirming that in Australia, unlike some other jurisdictions, there will be no published level of discounts or guidelines for the size of recommended penalty reductions for "second in" and later immunity applicants, as these will be assessed case by case; and
  • confirming there will be some (unspecified) benefits available from reporting a second unrelated cartel, for a second in party – the so-called "amnesty plus".

DPP letters of comfort to replace formal undertakings not to prosecute?

The ACCC suggest a change in approach so that a letter of comfort will be issued upfront to an immunity applicant by the Commonwealth Director of Public Prosecutions, similar to the letters issued by the ACCC.

This will mean that both the DPP (responsible for criminal immunity) and the ACCC (responsible for civil immunity) will utilise letters of comfort to set out the scope and terms of an offer of conditional immunity.

These changes are welcome. Australia has a dual track regime whereby serious cartel conduct can attract either civil or criminal enforcement, depending on the view taken by the DPP in conjunction with the ACCC (which undertakes the investigation).
It is well recognised internally that cartels are difficult to detect without a clear and attractive immunity program which can create incentives for a member of a cartel to break ranks and seek immunity. For that reason, an effective immunity policy should as far as practicable be crafted in a way that would-be applicants can predict the likely immunity.

Where two different agencies must separately decide to offer civil and criminal immunity, as in Australia, it seems logical that both agencies should work together to provide their response within a similar timeframe so that the would-be applicant has confidence of a seamless outcome, if it decides to seek immunity.

In our experience, the current procedure – that the DPP will only issue formal undertakings against prosecution (under the DPP's statute) – is not working very well.

The formal requirements of the DPP statute to issue an immunity undertaking are onerous and require specific information about the scope of the conduct and the immunity to be identified. This can lead to delays in response and may mean no undertaking is issued at all at the early stages of an immunity application.

In turn this may mean an applicant is given a letter offering conditional civil immunity by the ACCC, but is not formally advised of the DPP's attitude.

Comfort letters however, are likely to be more flexible and generally expressed. Most applicants will prefer to seek a broad scope of immunity early on to protect their first- in position, and negotiate later, if it appears to the ACCC that the scope is overly broad.

Is there a concern that comfort letters could offer less effective and binding an assurance, compared to a statutory undertaking not to prosecute? While in theory this would appear to be so, in practice the success of the ACCC Immunity Policy rests upon relevant parties and their advisers having confidence that they can safely rely on the comfort letters. We expect the ACCC well understands this.

The utility of an immunity program would quickly be lost if the ACCC or DPP sought to revoke or amend or narrow the scope of immunity comfort letters without proper cause. The Australian agencies have much of their cartel enforcement depend on the immunity program – about 75% of all current ACCC cartel investigations resulted from immunity applications. The DPP is yet to launch the first criminal prosecution for cartel conduct. It seems to us unlikely that in a practical sense immunity applicants will be any worse off holding a comfort letter compared to a statutory undertaking setting out the conditions and scope of immunity.

We therefore believe this change is welcome.

Removing the "clear leader" exclusion

The ACCC's experience is that "the clear leader" requirement is not necessary for the policy to be effective, and it may be ambiguous. The leadership of a cartel arrangement may change over time, and in addition the current Policy has no specific definition of what constitutes "leadership". It is also inconsistent with other international immunity programs such as those in the United Kingdom, New Zealand or the European Union. However, the ACCC intends to maintain the right to exclude an offer of immunity to a party who engaged in coercion towards another participant of the cartel arrangement.

The concept of a coercion exclusion is controversial. It is not clear what the ACCC regards as true coercion, and it would be helpful if this concept was better explained in the revised policy.

"Second-in" co-operation discounts

The ACCC will not publish any guidelines nor specific levels of fine discounts for cooperation by the second or subsequent parties to a cartel arrangement.

In the ACCC's view it cannot give meaningful guidance or an assurance on a specific level of percentage discount that would be available to a second or subsequent party who provides co-operation. This is because the Australian system is court-based and any penalties are ultimately imposed by the court, not the ACCC. Each matter will be determined case by case as is the current practice, where some parties have received discounts of 25% to 30% in some cases for early co-operation.

However, the ACCC will outline factors in its revised policy which will govern the availability of co-operation discounts, including the concept of a party which "adds value" by providing information which is otherwise unavailable to the ACCC.

"Amnesty plus"

The Commission intends to provide further clarity on the factors to be considered when assessing whether "amnesty plus" is to be available to an applicant.

"Amnesty plus" is benefits which a second-in party will receive on penalty for cartel A if it is able to disclose on a first-in basis, a second unrelated cartel B which meets the immunity policy requirements.

Loss of immunity

The ACCC will also set out in more clarity its process for moving to withdraw immunity for a party which has failed to meet its obligations to co-operate. We understand that, to date, the Commission has not sought to withdraw immunity from any party which has been granted conditional immunity in Australia, but nonetheless feels it is important to clarify the process that will apply if it needs to do so.

Recording of proffers

Finally, the ACCC proposes to confirm its recent practice of digitally recording oral applications where it is clear that the applicant intends to read out a detailed statement of events. In the Commission's experience this is more efficient than requiring its staff to attempt to take down hand-written comments based on a lengthy oral proffer. The purpose of a recording will be to obtain an accurate record of the information provided by the applicant.

This may raise a number of difficult questions as to the "protected cartel information" provisions of the Australian Act if third parties later seek access to that recording for evidentiary purposes.

Timeframe to respond

Consultation will close on the revisions to the policy by Monday 28 October 2013.

If you would like assistance or to discuss any of these point please do not hesitate to contact us.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.