New Fault Lines In International Cartel Enforcement And Administration Of Leniency Programs - Disclosure Of Immunity Applicant Statements

Article by Marc Hansen, Luca Crocco, and Susan Kennedy1

INTRODUCTION

Recent rulings by courts in a number of jurisdictions (UK, Australia, United States, and the European Union) are resulting in increased disclosure of oral statements and interview materials produced by leniency applicants.2 Increased disclosure of leniency material may affect the willingness of immunity applicants to report cartel conduct in certain jurisdictions, create disincentives for comprehensive internal investigations, and cause immunity and leniency applicants to circumscribe more narrowly statements of collusive conduct provided to enforcement authorities.

These developments – when combined with an increasing number of jurisdictions with immunity and amnesty policies – may lead amnesty applicants away from parallel applications in multiple jurisdictions, and instead to focus on those countries where there is the greatest net benefit in applying. This may in turn lead enforcement efforts again to become focused on the major enforcement jurisdictions, and may marginalize "newer" cartel enforcement jurisdictions. In the medium term, applicants will be faced with a more complex analysis of immunity and leniency incentives, with substantial differences between jurisdictions.

1. Immunity incentives and protecting statements of leniency applicants against disclosure

   It is a generally accepted tenet of cartel enforcement since the introduction of amnesty and immunity programs in the US in 1993 and the EU in 1996, that leniency applicants will only come forward if they can be certain that their position, having revealed the cartel conduct, is at least no worse than the expected outcome in the absence of the leniency or immunity application. This is said to require that the leniency program provide for certainty, predictability, and critically, protection of the leniency applicant against disclosure of admissions that it would not have made, but for the leniency application.

   The protection of the confidentiality of leniency applicant statements against disclosure in Court is commonly seen as a cornerstone of leniency regimes. As an example, the most recent official statement in this sense by the Commission is in the Observations submitted to the UK High Court pursuant to Article 15(3) of Regulation

   1/2003 in the National Grid litigation:

   "The Commission's policy [is] that undertakings which voluntarily cooperate with DG Competition in revealing cartels should not be put in a significantly worse position in respect of civil claims than other cartel members that refuse any cooperation. In practical terms, this means the Commission's long established practice is that the corporate statements specifically prepared for submission under the leniency programme are given protection against disclosure both during and after its investigation".3

   Similarly in the US, Scott Hammond, director of Criminal Enforcement at the Department of Justice, described in the following terms the long-standing policy of the department in the field:

   "The Antitrust Division's policy is to treat as confidential the identity of leniency applicants as well as any information they provide. Thus, the Antitrust Division will not disclose a leniency applicant's identity, absent prior disclosure by or agreement with the applicant, unless authorized by court order. [...] [T]he confidentiality policy is a necessary inducement to encourage leniency applications. If jurisdictions shared information obtained from an amnesty applicant with other competition and prosecuting authorities without the applicant's permission, then it would create a significant disincentive to entering the leniency program that would lead to fewer leniency applications. Such a result would not be in anyone's interest. First, lost applications would mean that no one would have the information and the conduct would go unpunished. Second, it is important not to lose sight of the fact that amnesty applications lead to cases against other cartel members that result in public filings detailing aspects of the cartel conduct that can assist other competition authorities as well as victims to develop their own cases, even if they do not have direct access to the leniency applicant's information."4

   Over the years, enforcement authorities have gone to great lengths to protect, against disclosure to third parties, the various forms of statements or materials that are prepared by leniency applicants, whether in the form of lawyer proffers in the US, Australia, UK, and Canada, or statements of corporate leniency applicants in EU and civil UK proceedings,5 or legally privileged records of internal investigations.6

   Even if the protection of such materials has not been perfect,7 the general consensus in the private bar has been that the occasional failures to protect leniency applicant statements have not undermined incentives for corporate entities to seek immunity or leniency. Recent developments in some jurisdictions may, however, change this analysis and are therefore the focus of this paper.

2. Recent International Developments in Disclosure Practices

   The remainder of the paper examines four recent judgments and enforcement authority positions in the United Kingdom, Australia, the United States, and the European Union, and seeks to identify possible consequences of these recent developments. The four situations raise different issues for immunity and leniency applicants, each of which may affect the incentive to apply for immunity, in one or more jurisdictions.

   The UK Office of Fair Trading ("OFT"), in October 2011, published its proposed new leniency guidance setting out the circumstances where it will require a leniency applicant to waive legal privilege8 over legal advisors' interview notes from an internal investigation. In August 2011, the Australian Federal Court ruled that the Australian Consumer and Competition Commission (the "ACCC") could not in the specific circumstances of a case rely on public interest immunity or similar principles to avoid disclosing to defendants the notes of the ACCC taken during proffer meetings with corporate immunity applicants. In response to recent high profile criminal trials where the government allegedly failed to disclose certain exculpatory material, in 2010 the United States Department of Justice ("DOJ") issued new criminal discovery guidance to ensure that all federal prosecutors meet their discovery obligations to criminal defendants, including those accused of cartel conduct.9 As more cartel cases go to trial in the U.S., this new discovery policy has the potential, and as recently as August 2011, actually led to the disclosure of virtually all of the attorney proffers provided to the government by cooperating companies and individuals in a major cartel investigation.10 In June 2011, the European Court of Justice ruled in Pfleiderer11 that European Union competition law rules do not prevent a person adversely affected by a cartel infringement, who is seeking to obtain damages, from being granted access to leniency documents submitted by the perpetrator of that infringement and that it was a matter for national courts to perform the balancing exercise required. The uncertainties created by the Pfleiderer case were compounded by an even more recent judgment by the General Court in the case CDC v Commission,12 which arguably dismisses the expansive theory of confidentiality of investigation materials put forward by the Commission in several cases. Individually and collectively, these four recent developments may lead to a shift in how leniency applicants will approach immunity and leniency applications.

   United Kingdom – Requirement placed on immunity applicant to waive legal privilege in respect of applicant's internal investigation

   Since the collapse in May 2010 of the prosecution brought by the OFT against four British Airways ("BA") executives, the OFT's policy in regard to disclosure requirements placed on leniency applicants has been the subject of considerable public discussion and legal commentary.13

   The BA case was the first contested prosecution of the cartel offence in the UK, and was the result of information provided by Virgin Atlantic Airways ("Virgin") under the leniency policy of the OFT. The Virgin information alleged participation by certain BA and Virgin employees in anti-competitive discussions to fix passenger fuel surcharges. On the basis of the information provided, Virgin obtained full (civil and criminal) immunity under the OFT's leniency program. Following an investigation, the OFT brought criminal charges against four BA executives, alleging an offence under Section 188 of the Enterprise Act 2002 (the criminal cartel offence in UK law).

   During trial, a substantial volume of electronic communications (which had been in Virgin's possession, but had not been provided to the OFT) came to light shortly before a key witness from Virgin was called. The judge, Owen J, was already cognitive of disclosure difficulties in the case and refused an OFT application for an adjournment. As a result, the OFT was forced to offer no evidence against all defendants in the case and the prosecution came to an end.

   The collapse of the prosecution, and the events leading up to it and in particular a ruling by the judge in the case on disclosure by the OFT to defendants of "unused material" that may be exculpatory, have called into question the OFT's approach to the interaction between legal privilege, disclosure and leniency.

   Prior to the BA case the leniency guidelines14 were...