Does immunity for cartel whistleblowers really work?
Wednesday, Jun 19, 2013, 08:40 PM | Source: The Conversation
By Caron Beaton-Wells
Does immunity for cartel whistleblowers really work?Caron Beaton-Wells, University of Melbourne
Australia's competition watchdog is reviewing one of its most powerful weapons in its cartel enforcement arsenal - its immunity policy.
Widely seen as the most harmful type of anti-competitive conduct, cartels involve arrangements or understandings between competitors to fix prices, divide markets, reduce output or rig bids.
Serious or so-called "hard core" cartels rely on secrecy and deception among participants with the deliberate aim of avoiding discovery. They are therefore difficult to detect and, as documentary evidence is rarely available, difficult to prosecute even when detected.
The Australian Competition and Consumer Commission's (ACCC) immunity policy has been central to its efforts to detect and prosecute cartel conduct, which is often highly lucrative and therefore problematic also to deter, even in the face of the toughest sanctions.
Under the policy the first eligible cartel member to blow the whistle receives full immunity from legal proceedings and penalties, irrespective of the party's culpability or the harmfulness of its conduct.
The benefits of such policies are regarded by competition authorities as outweighing any adverse effects, in terms of lower penalties overall as well as any unpalatable political or moral implications.
This is the first wide-ranging review of the ACCC's policy in nine years.
My research, which includes interviews with a range of stakeholders, indicates that there are several issues important to the practical scope and operation of the ACCC policy that its review should address.
Immunity and coercion
One of these relates to the condition that the immunity applicant did not coerce others to enter or was not a clear leader in the cartel. In practice, the ACCC does not apply this condition. This is because defining the behaviour that would constitute coercion or clear leadership and obtaining objective evidence of such behaviour are difficult. This is especially where one cartel member has more market power than others, where there are two equally sized cartel members (as in the infamous Visy/Amcor cartel) or where the role of leader rotates or changes over time.
The review should consider redefining the condition or removing it altogether. In the absence of evidence that its removal would promote strategic use of the policy, the condition appears to serve little purpose. Its retention is also difficult to oppose on moral or fairness grounds. After all, the immunity policy itself puts pragmatism above principle.
Immunity and criminal sanctions
Another issue relates to the process by which applications for both civil and criminal immunity are managed. Since 2009, cartel conduct has attracted criminal sanctions, including a maximum 10 year jail sentence for individuals. Only the Commonwealth Director of Public Prosecutions (CDPP) can grant immunity from criminal prosecution.
The process for managing such applications was designed with the hope that it would provide timely and certain outcomes for applicants as far as possible. In practice, however, some practitioners report uncertainty and delays in the process. The extent of the problem, if any, is unclear. According to a CDPP representative, it has received nine referrals of immunity applications from the ACCC to date, six have been resolved and generally, the assessment and decision-making process takes no more than 6-7 weeks.
However, if there is substantial delay, it will hamper the ACCC in its investigations and may hold up the resolution of matters that are clearly not likely to be so serious as to warrant prosecution. It is therefore worth revisiting the process.
In addition to these operational issues, there are broader questions that any immunity policy review should address.
First, an effort should be made to assess the effectiveness of the policy in achieving its stated aims of facilitating detection, prosecution and deterrence. There are obvious challenges in making such an assessment. An immunity policy deals only with conduct that is reported. Its use is not a reflection on the nature or extent of the cartel conduct that is not reported under the policy and thus continues to undermine competition in Australian markets.
However, the challenges in effectiveness-testing should not promote complacency. An example illustrates the point. The ACCC has granted conditional immunity on 46 occasions since 2005. However, it has granted final immunity, generally available on completion of proceedings against other cartel members, on only nine occasions. The explanations for this discrepancy are difficult to pin down. Questions include whether the immunity policy is detecting cartels that are not suitable for proceedings for some reason and/or whether it is providing the evidence required for such proceedings.
Secondly, the role of the immunity policy in the overall system for enforcement and compliance should be evaluated. The policy is only one, albeit an important, element of that system. Its interaction with other elements should be considered.
The tension between the policy and private actions for damages that follow ACCC proceedings has been debated in recent years. The ACCC is reluctant to disclose information from immunity applicants to private claimants on the grounds that it will deter future whistleblowers. This hampers private actions that provide an additional source of deterrence of cartel conduct, as well as play a significant part in allowing victims to pursue compensation.
The ACCC is committed to fostering voluntary compliance with anti-cartel laws by the Australian business sector. The immunity policy could be used to further this aim by requiring applicants to undertake to take reasonable steps to establish or update their compliance program. Such a requirement should not deter applications and would reinforce the message about the value of such programs and a so-called "culture" of compliance in the business community.
Immunity and transparency
Finally, the ACCC review should address the extent to which its administration fits with the Commission's general approach to governance. The ACCC identifies transparency as a key value. However, it does not practise transparency in relation to its immunity policy.
The ACCC has not released detailed figures about the extent to which the policy is used or its outcomes in terms of proceedings brought and penalties secured against cartel offenders. Reporting such information would promote transparency and accountability. The publicity would also enhance the policy's effectiveness in detecting, prosecuting and deterring cartel conduct.