Cartels represent a serious threat to competition, innovation, and consumer welfare. Leniency programmes on the other hand play a crucial role in the battle against cartels by providing a strong incentive for cartel members to expose their illegal activities. 

These programmes have proven their worth by detecting and dismantling cartels, imposing fines, and creating a culture of competition compliance within the business community. However, ongoing international cooperation and effective enforcement are essential to ensure that leniency programs continue to serve as a powerful deterrent to cartel behavior, ultimately fostering a fair and competitive business environment.

So why are cartels bad and frowned upon by Competition authorities. 

This is because Cartels result in market distortion (by artificially manipulating prices and reduce competition); bring economic inefficiency; do consumer harm (inflating prices) and stifle innovation.

Put simply, a cartel is a group of independent companies that collaborate to reduce or eliminate competition in a specific market. 

Cartels can take various forms, such as price-fixing, bid-rigging, market allocation, or the exchange of sensitive business information. The fundamental objective of cartels is to manipulate market conditions in their favor, allowing them to raise prices, restrict output, and maximize profits at the expense of consumers.

Cartels inflict severe damage on the economy and consumers. Firstly, they lead to inflated prices, causing consumers to pay more for goods and services. Second, cartels restrict innovation and hinder technological advancement because they have little incentive to invest in research and development when they control the market. Third, they deter new entrants from entering markets, stifling competition and limiting consumer choice. This harm to competition is why competition authorities are dedicated to dismantling cartels and preventing their formation.

ANTIDOTE TO CARTELS 

Competition authorities around the world have used Leniency programmes to address the Cartels menace. 

These programs offer reduced penalties or immunity to cartel members who come forward with information about their illegal activities. Now several jurisdictions have gone one more step forward in adopting “Leniency Plus” as part of their arsenal to tackle Cartels.

A leniency plus regime is expected to further incentivize applicants to come forward with disclosures regarding multiple cartels, thereby enabling the CCI to save time and resources on cartels investigation. 

This will result in faster market corrections, according to experts. This “leniency plus” regime is already recognised in jurisdictions like the UK, US, Singapore and Brazil.

WHAT IS LENIENCY PLUS?

The current Competition Act 2002 already has a leniency programme, which allows companies that provide sufficient information about a cartel in which they have participated to receive partial immunity from penalty. Such a programme helps competition authorities to discover secret cartels and to obtain insider evidence of the infringement. 

Under the existing leniency (lesser penalty rule) framework, CCI may impose a lesser penalty on a person involved in a cartel if such person has made a full and true disclosure in respect of alleged violations and such disclosure is vital.

Under ‘Leniency Plus’, a cartelist who is cooperating with CCI for leniency, can disclose the existence of another cartel in an unrelated market in the course of original leniency proceedings in exchange for an additional reduction in penalty.

Leniency Plus is a proactive antitrust enforcement strategy aimed at attracting leniency applications by encouraging companies already under investigation for one cartel to report other cartels unknown to the competition regulator. 

The benefit that would entail from such disclosure is reduction of penalty in the first cartel to the person disclosing the information, without prejudice to the company obtaining lesser penalty regarding the newly disclosed cartel.

CCI’s MOVE

Now with the CCI looking to introduce a ‘Leniency Plus’ framework, BusinessLine spoke to M M Sharma, who heads the Competition Law and Policy Practice at Vaish Associates Advocates in our BL State of the Economy Podcast to get a deep dive into the proposed Leniency Plus programme and understand the shortcomings of the current Leniency regime.

Sharma came up with solid reasoning to conclude that “Leniency Plus” in India is a welcome and desirable initiative, but may not yield results in the absence of rewards and a whistleblower programme besides stressing the need for immunity from private damages.

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