Kenya Corporate Leniency Policy: Immunity for both Administrative and Criminal Liability on the Table

By Michael-James Currie

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines (Guidelines) as published in the Government Gazette in May 2017. This follows amendments to the Kenyan Competition Ac which now caters for the imposition of a maximum administrative penalty of 10% of a respondent’s turnover if found to have engaged in cartel conduct.

Unlike its South African counter-part, the CAK has sought to provide immunity to whistle-blowers who are “first through the door” from both criminal and administrative liability. A key proviso in respect of obtaining immunity from criminal liability, however, is that the Director of Public Prosecution must concur with the CAK.

The South African Competition Commission’s Corporate Leniency Policy only offers immunity in respect of administrative penalties. Accordingly, directors who caused or knowingly acquiesced in cartel conduct may be criminally prosecuted under South Africa’s leniency policy despite being the whistle-blower.

It should be noted that the CAK will only engage the Director of Public Prosecution when granting conditional immunity. At this stage of the leniency application, the applicant would already have had to disclose its involvement in the cartel conduct and provide the CAK with substantial evidence of the relevant conduct sufficient to establish a contravention of the Competition Act.

Accordingly, the Guidelines do not cater for the possibility that the Director of Public Prosecution may not be willing to forego criminal prosecution in respect of the leniency applicant. It is, therefore, not clear whether the evidence which was disclosed to the CAK as part of a leniency application may be used against the applicant should the Director of Public Prosecution not grant immunity in respect of criminal liability.

In this regard, it would have been useful if the Guidelines catered for this risk. For instance, by expressly affirming that the Director of Public Prosecution would abide by the CAK’s recommendations unless there are compelling reasons not to. Absent this assurance, potential leniency applicants may be reluctant to approach the CAK for leniency until there is, at the very least, a clear indication of the Director of Public Prosecutions involvement in this process.

A welcome feature of the CAK’s Guidelines, however, is that fact that the Guidelines specifically extend leniency to a firm as well as to the firm’s directors and employees. The inherent conflict which may arise between the interests of the company versus the interests of the relevant directors, therefore, has been removed.

A further significant aspect of the Guidelines is that the Guidelines do not limit the granting of leniency (in respect of administrative penalties) to the respondent who is ‘first through the door’ only. A second or third respondent would also be eligible for a reduction of the administrative penalty of 50% and 30% respectively, provided the CAK is provided with material “new evidence”. Only a respondent who is ‘first through the door’, however, will qualify for immunity in respect of criminal liability – provided the respondent is not the “instigator” of the cartel.

The Guidelines also provide a framework which sets out the process which must be followed in applying for leniency including the steps which must be taken in respect of ‘marker’ applications.

As to who may apply for leniency, it is noteworthy that while a parent company is entitled to apply for leniency on behalf of its subsidiary, the reverse is not true on the basis that a subsidiary does not control the parent company. Accordingly, in fully fledged joint ventures for example, only one of the parties to the JV may apply for leniency (to the extent that the JV contravenes the Competition Act) and, therefore, the parent company should be the entity applying for leniency and not the legal entity which is in fact the party to the JV.

[Michael-James Currie is a competition law practitioner practicing in South Africa as well as the broader African region]

The risks of seeking antitrust leniency

‘Excusing yourself from the dinner table’ – the risk in applying for immunity in terms of the Competition Act

By Mitchell Brooks, AAT guest author

cutlery (1).jpg

After reading David Lewis’ ‘Thieves at the Dinner Table’, a must read for any aspiring competition lawyer, Lewis refers to his negotiations with various cartel members as the head of the Competition Commission. Highlighting that anticompetitive conduct essentially robs the consumer of competitive pricing, hence the reference to thieves, and often this is done during informal dinners between top execs.

The question begs, what are some of the inherent risks in applying for immunity for contravening the Competition Act (“the Act”) and, in essence, excusing yourself from the dinner table.

In Brief

For purposes of this discussion, the composition of the Competition process can be described as follows:

  • The Competition Commission (“the Commission”) investigates anticompetitive conduct in contravention of the Act
  • The Commission then refers the potential perpetrator to the Competition Tribunal (“the Tribunal”);
  • The Tribunal adjudicates the matter and determines whether the Act is contravened and whether a fine is imposed.
  • In order for the Commission to investigate a potential perpetrator, either an outside party (like you and I) must submit a complaint to the Commission or the Commission must initiate a complaint itself.

What is the Corporate Leniency Policy “CLP”?

The CLP is a mechanism utilised by the Commission to uncover cartel practices, the most notorious form being price fixing. The CLP is a policy developed by the Commission and possesses no legal status. Rather, it is an expression of how the Commission will handle leniency applications. In brief, the CLP provides for the granting of “immunity” by the Commission to perpetrators who contravene the Competition Act. However, the CLP operates on a “first to the door” principle meaning that only the first member of the cartel to come clean will qualify for immunity. However, in my humble opinion this principle might not find much support in the context of hub-and-spoke collusion whereby the supplier in the upstream market facilitates collusion between competitors in the downstream market (an increasing phenomenon globally). In other words, is it acceptable that the facilitator qualifies for immunity despite being the orchestrator of the collusion?

What does immunity entail?

According to the CLP, “immunity” means that a successful applicant (otherwise a perpetrator) will not be subject to adjudication or a fine. In turn, “adjudication” entails a referral of a contravention of a chapter two provision (cartel conduct for example) by the Commission. However, Wallace JA in AgriWire (Agri Wire (Pty) Ltd and Another v Commissioner of the Competition Commission and Others (660/2011) [2012] ZASCA 134) stressed that immunity is a much broader concept insofar as the successful applicant would not be referred to the Tribunal along with the other cartel members. In essence, an agreement is concluded between the Commission and the applicant to not refer the applicant to the Tribunal. In other words, the Tribunal has no discretion to impose a fine and the Tribunal does not grant a consent order in terms of the Act (my emphasis added).

What are the risks involved?

Higher fines

First, the applicant is still exposed to adjudication despite not being subject to the discretion of the Tribunal. If the Commission decides against referring a complaint brought by an outside party, the outside party may refer the complaint to the Tribunal itself and bypass the requirement that the Commission make a referral.

Furthermore, if the Commission decides against taking a self-initiated complaint further, nothing in the Competition Act prevents an outside party from submitting a new complaint and referring the matter themselves. This means that there is still a risk of a higher fine being imposed on the perpetrator. In order to achieve greater certainty, the applicant should seek a Consent Order by the Tribunal, which will ensure no outside party may refer the matter for adjudication. This Consent Order should reduce the risk of a fine, greater than the agreed amount as per the immunity agreement, being imposed.

Civil damages

Second, the CLP does not provide leniency against civil damages, however the process as explained in Agriwire creates the perception that immunity is granted against civil claims as well. This perception is apparent in Premier Foods v NormanManoim 2015 (SCA).

In brief, Premier Foods received immunity for its involvement in the notorious bread cartel. Subsequently, private parties sought civil damages. However, section 65(6) of the Competition Act only allows civil damages claims if the party is found in contravention of the Act. A certificate was issued by the Tribunal on the basis that Premier Foods’ conduct had been referred to the Tribunal and thus a finding was made. However, the SCA in Premier Foods disagreed with this finding, instead the SCA held that Premier Foods was not a party to proceedings in the Tribunal, it had not been referred and therefore the certificate was unlawful. As a result, the private parties were barred from a civil claim.

Therefore, according to Premier Foods, a successful applicant would not be exposed to civil damages because there can be no finding against a perpetrator who is not referred to the Tribunal. In summary, the granting of immunity guards the perpetrator against a civil damages claim, even though the CLP’s objective is not to prevent civil damages.

Contrary to the perception created by this unfortunate precedent, successful applicants are arguably still exposed to civil damages by means of a section 58(1)(a)(v) declaration by the Tribunal that the Act was contravened despite the granting of leniency. Nothing in the Act suggests that a complaint procedure be followed in order to obtain a declaration. A private party should be able to approach the Tribunal to ask for a declaration that the Act was contravened based on the immunity agreement, which will not amount to an adjudication as per Judge Wallace’s interpretation but will still amount to a finding. Although there have been no cases relying on 58(1)(a)(v) since Premier Foods, nothing suggests that this avenue cannot be re-opened.

Criminal prosecution

Lastly, a new amendment to the Companies Act provides for criminal liability against directors who engage in cartel conduct. The CLP and the Competition Act are completely silent on the impact of the CLP on criminal liability. It might well be possible for a managing director to be exposed to criminal prosecution despite the granting of immunity to the perpetrating company. Therefore, the directors would need to communicate with the National Prosecuting Authority and coordinate accordingly.

Conclusion

In light of the above, the CLP will be less effective until the above uncertainties are addressed and it is advisable that when one is faced with cartel conduct, it is important that one seek professional legal advice due to the complexity of the immunity application process.

Don’t wait for leniency… Lipimile signals delays

COMESA Chief Warns of Delayed Implementation of Leniency Policy

George Lipimile, CEO, COMESA Competition Commission

George Lipimile, Director, COMESA Competition Commission

In an interview with Concurrences, CCC Director George Lipimile stated cautiously that, while the agency had engaged a consultant to help it craft a regional leniency programme, it still had to “be discussed in detail with Member States. Given the different legal systems and the feedback coming from the consultations with Member States so far, this may take some time.”

Thus, “while there is no amnesty programme visible on the near-term horizon, the CCC’s novel cartel enforcement push poses particular concerns for undertakings operating in the COMESA region,” says Andreas Stargard, attorney with Africa advisory firm Pr1merio.  “Director Lipimile has expressed his agency’s plan — jointly with the World Bank organisation — to launch a project designed to combat cartel activity.  They propose to do so first, it seems, by piggy-backing off of other enforcers’ previous investigations, such as the South African Competition Commission’s cartel cases, and analysing whether those instances of foreign collusion could have harmful effects on the COMESA economies.”

New Penalty Guidelines Provide Incentive to Apply for Leniency

Zambia: New Penalty Guidelines may Incentivise Firms to Apply for Leniency

By AAT Senior Contributor, Michael-James Currie.

At the recent International Competition Network conference held in Singapore, the International Competition Network (ICN), in conjunction with the World Bank, named the Zambian Competition and Consumer Protection Commission (CCPC) as one of the best Competition Authorities in advocating competition in key domestic markets.

The CCPC, as a competition agency, is making significant strides to ensure that the Zambian market is competitive to ensure greater consumer benefit.

In particular, the CCPC has, in recent years, strengthened its efforts to detect cartel conduct. This includes carrying out search and seizure operations, initiating investigations and introducing a corporate leniency policy (Zambian CLP) for whistle-blowers.

The Zambian CLP affords a firm who has engaged in cartel conduct, who is ‘first through the door’ in disclosing the cartel and who provides the CCPC with sufficient evidence to prosecute the cartel total immunity from an administrative penalty.

Unlike its South African counter-part, the Zambian CLP also caters for a ‘leniency plus’ whereby the ‘second through the door’ may qualify for up to a 50% reduction in respect of a potential administrative penalty.

In spite of leniency policies being regarded as arguably the most effective tool by which competition agencies detect and prosecute cartel conduct, we are not aware of the CCPC having yet received an application in terms of its CLP (as at March the CPCC had confirmed that it had not yet received such an application).

The reluctance by firms to come forward and expose cartel conduct in Zambia may be due to the fact that the Zambian CLP only extends immunity in respect of administrative liability and does not protect a whistle-blower from potential criminal or civil liability.

Despite the lack of success which the Zambian CLP has achieved thus far, the policy has only been in effect for just over a year. Furthermore, the CCPC has strengthened its efforts in initiating and concluding investigations in various sectors (which includes the stockbroker, frozen fish and milling industries, the latter of which is still on-going).

Accordingly, and in light of the recently published Draft Guidelines for the Issuance of Fines (Guidelines) (now for public comment), there may well be more activity in so far as the CLP is concerned.

zambiaThe Guidelines are clear in that administrative penalties should be punitive and should have a sufficient deterrent effect. The CCPC has expressly stated that it does not want administrative penalties to merely be considered as a ‘cost of doing business’ in Zambia.

Unsurprisingly, the Guidelines confirm that in respect of cartel conduct, “the fines to be imposed will be the highest due to the seriousness of the conduct”. Furthermore, the Guidelines state that “preceding such fines may be conviction for criminal culpability by a Court of Competent jurisdiction”.

In terms of the Competition and Consumer Protection Act (the “Act”), a firm’s potential liability is capped at 10% of its turnover derived within or from Zambia (similar to the EU’s 10% turnover cap), although the implementation of this cap is uncertain as we indicate below.

The Guidelines state that the 10% cap should be based on the latest audited financial years. While the CCPC will accept management accounts in certain circumstances, it should be noted that the CCPC will add 5% to the total as reflected in the management accounts.

Importantly, while the Guidelines recognise that an administrative penalty may be adjusted depending on aggravating or mitigating circumstances, the Guidelines provide, as a starting point, a ‘base fine’ which will be calculated in accordance with the nature of the contravention. We set these out below.

Base (%)

Conduct

7 Cartels
4 Resale Price Maintenance
4 Abuse of Dominance
3 Mergers
5 Restrictive Business Practices

 

John Oxenham, an African competition law practitioner, notes that the ‘base fine’ is “calculated utilising a firm’s aggregated turnover generated in or from Zambia, irrespective of the relevant market. In other words, the CCPC considers a firm’s total turnover in Zambia as the affected turnover, which can cause fines to mushroom in the case of diversified conglomerates with large revenues even where the affected, cartelised product market is de minimis.”

Importantly, in relation to prohibited horizontal or vertical conduct, the CCPC will impose a fine based on each year in which the parties contravened the Act, up to a maximum of five years. While the Guidelines as noted above, expressly state that the total penalty will be capped at the statutory cap of 10%. In light of the fact that the base fines start at 4% (which would in any evet exceed the statutory cap after only 2.5 years) it seems that the CCPC is of the view that each year in which a firm engaged in cartel conduct should be viewed as a separate contravention (i.e. that the statutory cap only applies per contravention). This will need to be clarified as a firm who is found to have engaged in anti-competitive conduct (including vertical restrictive practices) may be subjected to an exorbitant administrative fine.

It remains to be seen whether the significant administrative liabilities which is contemplated in terms of the Guidelines is indeed permissible and in accordance with the Act, and secondly, whether it will incentivise firms to take advantage of the CLP.