Varianta Mea

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Academy of Economic Studies, BucharestFaculty of Business Administration-English Section

Leniency policy in case of competition law

Coordinated by:Professor Alina Dima

Written by:Ruda Adriana, group 126Sava Andreea, group 126

Sivu Laura, group 126Simion Laurentiu, group 126


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18th April 2008

Contents:

1. Introduction p.3

2. European Community competition law p.4

2.1 Leniency policy general view p.5

2.1.1 Content of the leniency policy... p.6

2.1.2 Positive effects of leniency. p.8

2.1.3 Negative effects of leniencyp.10

2.1.4 Measuring the effects of leniency..p.11

2.2 Does leniency policy improve consumer welfare?..............................p.12

3. Enforcement of the Leniency policy..p.13

3.1 Leniency measures in the EC...p.13

3.2 US leniency policy..................................................................................p.14

3.3 EU and USA experiences comparedp.14

4. Relevant cases and final solutions..p.15

5. The Competition Council in Romania...p.17

5.1 Romanian Leniency policyp.17

5.2 Relevant cases.....p.19

6. Conclusions....p.22

7. References..p.23

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1. Introduction

Competition is the rivalry of two or more parties over something. Competition occurs

naturally between living organisms that coexist in the same environment. Whether we aretalking about it regarding a football match, or Formula 1, or the one between similarcompanies, it has the same meaning and effect: someone always benefits from it. In thecase of the fight between companies, each party has something to win. Lower pricesmean more clients for the company and higher disposable income for the consumers.

Rivals will often refer to their competitors as "the competition". We also use the term torefer to the contest or tournament itself. For example, animals compete over watersupplies, food, and mates. In addition, humans compete for love, attention, wealth andprestige. Hence, each of todays markets includes some companies that are trying todeceive the authorities by implementing some unfair strategies so that they could gain

advantage in front of the adversary. Unfortunately for them, the parliaments have found away to prevent that from happening: they gave a law called competition law.

Part of competition law is the concept of leniency policy, which consists in refrainingfrom prosecuting those firms which, being party of a cartel, inform the CompetitionCommission of its existence. You will be reading about this subject and its advantagesand disadvantages in the first part of our project.

Next, in the second part of our assignment, we focused on the implementation of theleniency policy. To sustain this, we highlighted the leniency measures in Europe and inthe USA. At the end of this section, we compared the experiences from both geographic

areas by presenting some differences and similarities between them.

Furthermore, we discussed about a number of relevant cases and their solutions offeredby the enforcement institutions. Moreover, we emphasized on a more tangible case, theIndiana concrete industry.

In the fourth section of our paper, we tried to explain the notion of competition inRomania: what the laws tell the companies to do regarding their competitors, how the lawapplies and which are the penalties received for not obeying it. In order to prove this, weanalyzed some of the most notorious cases in Romania.

In the end, we stated our personal opinions on the above-mentioned topics and someconclusions concerning the importance of the leniency policy.

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2. European Community competition law

The competition law, also known as the antitrust in the United States of America,regulates the exercise of market power by large companies, governments or othereconomic entities. In the European Union, this law represents an important part of

ensuring the completion of the internal market, meaning the free flow of working people,goods, services and capital in a borderless Europe. This specific law has four main policyareas that include:

Cartels - covered under Articles 81 of the Treaty of the European Community

(TEC).

Monopolies mentioned in the 82nd Article of TEC.

Mergers governed by the Council Regulation 139/2004 EC

State aid covered under Article 87 EC

The EUs competition law explicitly forbids cartels and related practices in article 81 ofthe Treaty of Rome.

Cartels

Cartels represent formal agreements among firms that breach Part II of the CommerceAct. They usually occur in an oligopoly industry, where there are a small number ofsellers and a large number of buyers, and it usually involves homogeneous products.Cartel members may agree on matters such as price fixing, total industry output, marketshares, allocation of customers, allocation of territories, or the division of profits orcombinations of these. They generally operate informally and in secret. The purpose ofsuch complicity is to increase individual members profits by reducing competition. Theyare strictly forbidden by the competition policies of most countries, although proving the

existence of a cartel is rarely easy, as firms are usually not so careless as to putagreements on paper.

Penalties for a company and its officers engaging in cartel conduct are high. The courtmay order the following financial penalties for a contravention of Part II of theCommerce Act:

in the case of an individual, $500,000;

in the case of a company, the greater of $10,000,000; or either:a) Three times the value of any commercial gain resulting from the

contravention;b) 10 percent of the turnover of the company.

Where cartel members engage in price fixing, the Commerce Act prohibits a companyfrom indemnifying any current or former director, officer or employee against anypecuniary penalty imposed by the court.

The first person involved in a cartel that reports it to the Commission and fullycooperates with the Commission may apply for leniency and gain immunity from

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Commission initiated proceedings. Where immunity is granted to a company, it mayextend to any current or former director, officer or employee of that company.

Leniency may be available to a person or a company officer directly involved in thecartel, where that individual acts independently in coming forward to the Commission.

On the grant of immunity to an individual acting independently from a company,immunity will not be available to the company as well.

Immunity granted by the Commission from Commission initiated proceedings could notexclude claims by third parties who may have suffered loss because of the activities ofthe cartel. Under the Commerce Act, third parties may pursue private claims forcompensatory or exemplary damages.

Several economic studies and legal decisions of antitrust authorities have found that theaverage price increase achieved by cartels in the last 200 years is approximately 25%.

Private international cartels (those with participants from two or more nations) had anaverage price increase of 28%, whereas domestic cartels averaged 18%. Less than 10% ofall cartels in the observed sample failed to raise market prices.

2.1 Leniency policy general view

The leniency policy can be defined as the granting of immunity from penalties or thereduction of penalties for antitrust violations in exchange for cooperation with theantitrust enforcement authorities. It was applied for the first time in 2002.

The cooperation could consist of the provision of intelligence or evidence of the antitrustviolations, and/or the recognition of the violation and acceptance of the reduced penalty.It could possibly involve, in addition, acceptance of remedial or compensatory measures. 1

The penalties that are given or reduced can be any penalties that can be imposed orsought by the antitrust authorities in the jurisdiction concerned: fines on companies, fineson individuals, director dismissals or imprisonment.

The way of applying these measures is very simple. The first firm to acknowledge theircrime and inform the Commission will receive complete immunity, meaning that no finewill be applied. Cooperation with the Commission will also be gratified with reductionsin the fines in the following manner:

- the first firm to denounce existence of a cartel by providing sufficient informationto allow the Commission to launch an inspection at the premises of the companiesallegedly involved in the cartel, receives immunity from prosecution

1 In the United Kingdom, for example, the Office of Fair Trading recently brought to an end itsinvestigation in the Independent Schools case. As part of the settlement, the schools under investigationagreed to make ex-gratia payments totaling 3 million to a charitable fund to benefit pupils who attendedthe schools, in addition to the payment of a nominal penalty of 10,000 per school.

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- if the firm is not the first to denounce its existence, it gets a 50% reduction infines

- If, once the investigation is opened, the firm gives additional information it gets a20-30% reduction in fines.2

The cooperation with the Commission implies that the existence and the content of theapplication cannot be disclosed to any other company. The company may not benefitfrom immunity if it took steps to force other undertakings to participate in the cartel.

Companies that do not qualify for immunity may benefit from a reduction of fines if theyprovide evidence that represents significant added value to that already in theCommissions possession and have terminated their participation in the cartel. Evidenceis considered to be of a significant added value for the Commission when it reinforcesits ability to prove the infringement. The first company to meet these conditions isgranted 30 to 50% reduction, the second 20 to 30% and subsequent companies up to20%.3

Principles

The Commissions Leniency Policy is based on three key principles 4:1) Immunity is available to the first person involved in a cartel who reports the cartel

to the Commission.2) The person seeking immunity must provide full cooperation to the Commission.3) If the person fails to cooperate fully with the Commission, the Commission may

initiate proceedings against that person.

2.1.1 Content of the leniency policy

The European Commission enforces the Commerce Act, whose Part II prohibits a rangeof anti-competitive arrangements between competitors that are often secret and difficultto detect. The Leniency Policy applies to arrangements between competitors thatsubstantially lessen competition.

The purpose of the Commerce Commissions Leniency Policy for cartel conduct is toassist in the detection of anti-competitive cartel behavior. The Commission will grantimmunity to the first person involved in a cartel to come forward with information aboutthe cartel and fully cooperate with it in its investigation and prosecution of the cartel.

Background

2http://en.wikipedia.org/wiki/European_Community_competition_law

3http://ec.europa.eu/comm/competition/cartels/leniency/leniency.cfm

4http://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspx

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http://en.wikipedia.org/wiki/European_Community_competition_lawhttp://en.wikipedia.org/wiki/European_Community_competition_lawhttp://ec.europa.eu/comm/competition/cartels/leniency/leniency.cfmhttp://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspxhttp://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspxhttp://en.wikipedia.org/wiki/European_Community_competition_lawhttp://ec.europa.eu/comm/competition/cartels/leniency/leniency.cfmhttp://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspx


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Cartels are arrangements between competitors that breach Part II of the Commerce Act.Cartel conduct includes price fixing, excluding competitors, collusive tendering, bidrigging, production or sales quotas, and market sharing. Cartels usually operateinformally and in secret. Cartel conduct is recognized as being a seriously damaging form

of anti-competitive behavior.

Leniency Conditions

A) First person

Subject to the conditions below, the Commission will grant immunity from Commissioninitiated proceedings to the first person involved in the cartel to come forward withinformation regarding the existence, activities, operation and membership of the cartel.

B) Full co-operation

The person must:

provide the Commission with access to all information available to that personregarding the existence, activities, operation and membership of the cartel;

maintain continuous, complete and expeditious cooperation with the Commissionthroughout the Commissions investigation and any ensuing proceedings initiatedby the Commission;

provide promptly and without witness summons, all further information requestedby the Commission;

confirm that the person has now ceased its involvement in the cartel, or otherwise

has acted or will act as directed by the Commission; and Fully and truthfully cooperate with the Commission on a continuing basis.

If the Commission, at any time, determines that a person granted leniency has failed tomeet any of the above conditions, the Commission will not be bound by its grant ofleniency to that person and may use information provided to the Commission to initiateproceedings against that person.

C) Confidentiality

The person must not release to, or communicate with, any third party (except as required

by law, or in the case of their communications to other competition authorities, orotherwise with the prior written consent of the Commission):

1. the persons leniency application;2. any request by the person for clarification regarding their leniency application;3. any grant of conditional immunity from Commission-initiated proceedings to the

person;4. any information provided by that person to the Commission for the purposes of,

or in connection with, the leniency application information created by the

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Commission by reason of, or as a consequence of, the persons leniencyapplication.

D) Company leniency

In respect of a leniency application by a company, the admissions and cooperation of acompany must be a truly corporate act, as opposed to isolated admission and cooperationof individual representatives.

Other cartel members who cooperate with the Commission, but who are not the first tomake a leniency application may make an application, under the Commissions generalCooperation Policy. The earlier the approach to the Commission, the more likely theCommissions Co-operation Policy will be available.

The Commission will endeavor, where possible, to keep confidential the identity ofsuccessful and unsuccessful applicants for leniency.

2.1.2 Positive effects of leniency

Leniency can contribute in several ways to optimal antitrust enforcement, dependingon the type of cooperation concerned (provision of intelligence and evidence of theantitrust violations and/or recognition of the violation and acceptance of the penalty)and on whether the type of violations concerned are committed by single offenders orare collective violations like cartels.

A) Improved collection of intelligence and evidence

In order to be able to impose penalties or to seek the imposition of penalties forantitrust violations, competition authorities need intelligence of the existence of suchviolations, and evidence sufficient for the penalties to be upheld in court.

Competition authorities can try to obtain the necessary intelligence and evidence fromthree possible sources. First, they could study the markets, observing publiclyavailable information and date, and possibly use economic analysis of these data totry to detect and prove violations.

Secondly, the authorities could obtain information form third parties. Customers ofcompetitors harmed by antitrust violations may bring complaints to the authorities,and third parties may otherwise volunteer to provide information. As Donald Bakerhad once stated: The desire for revenge is more picturesque, but it is still very muchpresent. In my experience, dissatisfied current employees, former employees, formertrade association officials, and even ex-spouses and ex-lovers may be anxious tofinger the individuals who they think have done them in.5

5D.I. Baker, The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging (2001)George Washington Law Review page 693-708.

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The third, and usually best, source of information, are the companies and individualsthat have committed the antitrust violations themselves.

Leniency is one of the three methods in which the authorities can obtain information

from the companies and individuals that committed the antitrust violations. Comparedto the other two methods (direct force and pressure), this method has clearadvantages. First, it can be used to obtain all kinds of information, not just existingdocuments or other existing physical evidence. Furthermore, it involves low searchcosts because the undertaking and its staff, who are most familiar with it, do thecollecting of relevant information. Besides, as opposed to the pressure method, it doesnot suffer from the same reliability problems, as there is no clear incentive.

B) Increased difficulty of creating and maintaining cartels

Setting up and maintaining a successful cartel requires effort. The cartel members have to

select and coordinate their behavior on mutually consistent, collusive strategies, allowingthe cartel participants as a group to increase profits, and to ensure the fair distribution ofprofits between them. They also need to develop mechanisms to discourage cheating,involving monitoring, rewards and punishments. In a dynamic economy, successfulcartels may even have to develop an organizational structure that allows them to solvethese problems continuously.6

A well-designed leniency program can make these tasks more difficult. It increasesuncertainty, making it more difficult for cartel participants to reach agreement,diminishing trust among them, and increasing the need for costly monitoring.7

C) Lower costs of mediation

Apart from positive effects of leniency at the investigative stage (improved collection ofintelligence and evidence), leniency can also lead to cost savings at the negotiation stage,if the cooperation rewarded consists of the recognition of the violation and acceptance ofthe penalty.

In the case of the European Commission, it currently adopts a reasoned decision in everycartel case, finding the violation and imposing the fines. This decision can be appealed byeach of the companies concerned before the EC Court of First Instance, with thepossibility of a further appeal, limited to points of law, before the EC Court of Justice.Significant cost savings could thus be made if a mechanism was introduced under whichcompanies would recognize the violation and commit to pay an accepted fine, as theEuropean Commissions decision would then no longer need to contain the same detailedreasoning, and there would no longer be systematic appeals to the EC Courts.

6M.C. Levenstein and V.Y. Suslow, What Determines Cartel Success?, (2006), page 44-457 N.K. Katyal, Conspiracy Theory, (2003), page. 1342-1350

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Fortunately, the European Commission is currently considering the introduction of such asettlement mechanism.8

D) Restitution to injured parties

Requiring restitution to injured parties as a condition for leniency may contribute to theoptimal pursuit of the enforcement objective of corrective justice, in that it may otherwisenot have been feasible for the injured parties to obtain compensation through a follow-onprivate action for damages, or by saving the costs of such follow-on litigation.

2.1.3 Negative effects of leniency

A) Lowering the penalty level

Ignoring or reducing penalties to reward cooperation inevitably has a negative effect on

the penalty level, and thus on prevention. Therefore, it is essential to apply leniencypolicies in such a way that the positive ones outweigh this negative effect and that nomore leniencies is granted than strictly necessary to obtain these positive effects.9

One of the methods of diminishing the penalty-lowering effect of leniency is to raise thelevel of penalties applicable in the absence of cooperation. This way, the ones that arepart of a cartel would think twice before keeping that entity secret.

Another measure, which could be taken to reduce the penalty-lowering effect of leniency,is to raise the requirements as to the quality of evidence that has to be provided by thefirst cooperating cartel member in order to be granted immunity. This happens becausethe purpose of a leniency policy is not to have a high number of leniency applications,but stronger prevention. Requiring very little evidence from the first leniency applicantmeans that it will be more often necessary to grant substantial leniency to the secondleniency applicant and so on. This leads to a low level of deterrence.10

B) Exclusive reliance on leniency

If used to often, a leniency policy will only start working if the antitrust enforcementauthority concerned has first built up a sufficient level of credibility as to its capacity todetect and punish antitrust violations on its own. For the authorities that have managed todo so and operate a successful leniency program, there may be a risk in relying too muchon its success. If for a prolonged period, they do not detect and prosecute any case in anyother way than through leniency, they may lose their capacity to do so. If this were tohappen, the success of their leniency programs would risk coming to an end.

8http://www.iue.it/RSCAS/Research/Competition/Index.shtml9http://ec.europa.eu/comm/competition/antitrust/legislation/leniency.html10C. Aubert, P. Rey and W.E. Kovacic, The Impact of Leniency and Whistleblowing Programs onCartels, forthcoming inInternational Journal of Industrial Organization, page. 34-37

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C) Facilitation of the creation and maintenance of cartels

From everything we have covered so far, we can certainly reach to the conclusion thatsuccessful cartels tend to be intelligent organizations, capable of learning. Therefore, it issafe to assume that cartel participants will try to adapt their organization to leniency

policies, not only to minimize the threatening effect, but also, where possible, to exploitleniency policies to facilitate the creation and maintenance of cartels.

The limitation of immunity to the single first cooperating cartel participant is clearlyimportant in avoiding this. If this condition does not exist, one could imagine all themembers of a cartel collectively denouncing it to the antitrust enforcement authorities andclaiming leniency, only after having fully implemented the cartel agreement up to its timeof natural death.

2.1.4 Measuring the effects of leniency

The most obvious measurement of the effects of leniency is the number of leniencyapplications received by the competition authorities, and the amounts of the penaltiesimposed with the help of these leniency applications. Indeed, both the US Department ofJustice and the European Commission have been regularly reporting the success of theirleniency policies, receiving several applications for leniency per month, and theseapplications have helped them in imposing high amounts of penalties.11

The only doubt one could have regarding the overall positive effect of leniency policieswould be that this positive effect would be outweighed by the negative ones. Thishappens either because cartel participants find ways to exploit leniency programs do as tofacilitate the creation or maintenance of cartels, or that leniency programs have negativemoral effects leading to less respect for the antitrust prohibitions. However, leniencyprograms appear to be designed in ways that would appear to make it very unlikely thatthey could be exploited in a way that facilitated the creation and maintenance of cartels,certainly in those jurisdictions that impose not only fines on companies, but alsoimprisonment on individuals.

Obviously, it would be ideal if we were able to measure the overall effect of leniency byobserving directly its impact on the cartel population. However, because cartels are secretand therefore hidden, we have no way of observing directly the population of cartels. Wecan study the population of discovered cartels, but this is a very unreliable indicator,because an increase or decrease in the number of detected cartels can be equally due toimproved or worsened detection level of the authorities.

2.2 Does leniency policy improve consumer welfare?

11European Commission,Report on Competition Policy 2005, SEC(2006)761 final, available athttp://ec.europa.eu/comm/competition/annual_reports/2005/en.pdf, paragraph 175.

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Philip Lowe, the General Director of the Commission's Directorate General forCompetition, once said: For already one decade, the fight against cartels constitutes oneof the priority policies of the Commission. The tools the European authority has at itsdisposal have been appreciably strengthened by the Regulation 1/2003, which has

increased its investigation powers and established a European Competition Network.

The leniency program is a crucial tool in the fight against cartels. The success of theprogram can be assessed through the high number of leniency applications and as well

as the number of cartels which have been thus dismantled. However, the favorable

assessment of the leniency program must not conceal the numerous challenges that arestill to be overcome. The development of the civil procedures for damages as an

additional deterrent factor, as well as the setting up of a single counter for the

applicants for leniency, is under consideration.12

From this statement we can conclude that the leniency policy is a very important part ofthe competition law, whose effects are constantly observed and analyzed, and whoseimprovement is always a key point of the European Commissions agenda. The EC

continues to take different measures to discourage more and more companies to formcartels. By lowering the number of existent cartels, the lives of all the EU citizens willimprove. If you are wondering how that is possible, the answer is simple.

For example, everyone uses a cell phone nowadays. The tariffs are not low, butacceptable for most of the consumers. Let us imagine that phone companies secretlydecide to form a new cartel. By doing so, they agree on increasing the prices to all theservices they are currently offering by 20%, even though their costs remain constant.Therefore, their sole objective is to increase their profits.

This is where the leniency policy intervenes. By offering full immunity to the firstcompany that denounces the phone companies cartel, leniency begins to look veryappealing and convenient to one of the cartels participants. That specific company thengoes to the authorities and reveals the companies bad intentions. Consequently, thephone companies are fined with large sums of money and forced to switch back to thereal tolls and pay their clients the difference of money. Thus, the consumers had nothingto lose, thanks to the existence of the leniency policy that punished the companiesforming the cartel.

12http://www.concurrences.com/article_revue_web.php3?id_article=1743&lang=en

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3. Enforcement of the Leniency policy

3.1 Leniency measures in the EC

The European Commission has been most active in this area of late. It has applied itscurrent leniency policy (established in 1996) in a number of cases. In July 2001 it granteda 70 per cent reduction in the fines which would otherwise have been imposed on thecooperating party (Graphite Electrodes Cartel). In November 2001, for the first time, itgranted total immunity from fines to a pharmaceutical company involved in theVitamins Cartel. In granting such immunity, Commissioner Monti said this illustratesthe Commissions willingness to grant companies that actively cooperate at the earlieststage a unique opportunity to get off the hook. Those companies that do not seize thischance must be aware of the responsibilities they will face.13

In addition to such activity, recent proposals by the European Commission will make its

system more transparent and possibly more attractive to companies contemplating thisstrategy.

The new policy would introduce the following changes:

The European Commission may grant immunity from fines where it is unaware of acartel and the disclosing party is the first to disclose its existence. To obtain totalimmunity, the party must contact the Commission and provide it with all relevantinformation and evidence in its possession, generally including a description of theactivity, the suspected geographical scope, the number and identity of participantsand the size of the market affected, together with relevant documents.

A party may make a hypothetical approach to the Commission to determine whether itqualifies for immunity. Unless the Commission confirms that the undertaking doesnot qualify, it will be given a maximum of five working days to make full disclosureof all information and evidence in its possession. This is an important change inpolicy as it encourages undertakings to come forward on a no-names basis.

The system provides for first-come, first-served; the Commission will not consideranother application for immunity until it has taken a position on a prior application.

After verifying the evidence, the Commission will provide a written conditional

immunity from fines. A final decision is not made until the Commission renders itsdecision at the end of the administrative process.

Under the new policy, parties that cooperate in cartel investigations and immediatelyterminate their involvement in unlawful activity may apply for a reduction in fines, toreflect the level of contribution of the company to the Commissions investigation ofthe extent of the infringement. This may be a provision of direct, written and

13 Commission Press Release IP/01/1625, 21 November 2001

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contemporaneous evidence that either strengthens the Commissions case or addsfurther detail. The reduction levels are greater than those under the current policy,which is an additional incentive for parties to come forward.

3.2 US leniency policy

The US Department of Justices (DOJ) Corporate Leniency Policy offers a cooperatingcompany total immunity from federal criminal prosecution for both itself and its culpableindividuals. The DOJ Policy provides two alternative ways of qualifying.

Part A provides automatic amnesty for a company and cooperating employees if noDOJ investigation is pending, and the company is the first to report the activity; hasterminated its participation in the conspiracy; provides complete, candid, andcontinuing cooperation to the DOJ; owns up to its wrongdoing as a corporation;makes restitution where possible; and was not the ringleader and did not coerce

participation by others.

Part B creates the possibility of amnesty even if an investigation has already begun. Toqualify, companies must meet most of the conditions required for Part A. Also, theDOJ must not yet have evidence against the company that is likely to result in asustainable conviction; and it must determine that granting leniency would not beunfair to others, considering the nature of the illegal activity, the companys role in it,and the timing of the companys decision to come forward. Since Part B was added in1993, the DOJ has reported a surge in amnesty applications as companies seek toavoid the criminal sanctions US antitrust law imposes on cartel behaviour.

3.3 EU and USA experiences compared

Although the EU and U.S. antitrust laws are similar, there are a few differences. In theEuropean Union, the rules of first in apply to the first company to make a statement. Inthe United States, the first-in rule is applied to the first to report a cartel and may berevised later if adequate information is not forthcoming.

In the United States, companies charged with antitrust violations often enter a pleabargain before the case goes to trial. The EU does not have a system like that. Instead, theCommission is considering a form of direct settlements, in which companies admitting tocartel involvement could, under certain circumstances, benefit from a shorter procedureand reduced fines - and thereby save some of their reputation.

However, both EU and U.S. agree on the following important statements:

Leniency programs are necessary to break the code of silence surrounding hard-core cartel activity.

Leniency programs work best when they provide a clear and reliable promise ofamnesty for the first conspirator to come forward.

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The risk of tough penalties provides the incentive for a conspirator to comeforward and seek leniency.

The continued cooperation of the conspirator in the prosecution is a necessarycondition for leniency.

Strict confidentiality is needed to protect witnesses under leniency programs.

Overall, given the significant consequences in the US and Europe and the variations inapproach to leniency, companies contemplating the use of leniency programs musttherefore consider carefully the timing of the approach to the authorities, the potentialadvantages and disadvantages of assisting an investigation, and the need to coordinateapproaches to different authorities.

4. Relevant cases and final solutions

Degussa and Nippon Soda Fined

The most recent cartel to be exposed by the European Commission concerned a price-fixing arrangement amongst three of the worlds largest chemical companies in thesupply of the chemical methodize, a protein supplement added to animal feed to promotegrowth, which ran from 1986 to 1990. The firms, Degussa AG of Germany, Nippon SodaCompany Limited of Japan and Aventis SA of France held regular "summit" meetings attop level and "staff" meetings at technical level to exchange sales information and fixtarget prices. The Commission investigation, begun in 1999, even turned up hand-writtennotes of the meetings including one that stated, "It was agreed that...target pricesapplicable for Portugal and Spain...would be fixed later".

During the period of the cartel, Degussa had a market share almost five times that of

Nippon and so received the highest fine, 118 million Euros: it was allowed only a 25 percent reduction since it was the least cooperative, contesting in part its involvement in thecartel. Nippon was fined 9 million Euros, which reflected its smaller market share and a50 per cent reduction for voluntarily providing much valuable information. Thewhistleblower, Aventis, was granted full immunity. The Commissions policy onleniency was changed in February 2002, but the immunity granted to Aventis was underthe old 1996 notice since the Commissions investigation began in 1999.

Crompton Corporation

In 2004, ongoing investigations by the Criminal Enforcement section of the Antitrust

Division of the United States Department of Justice resulted in high profile guilty pleasand large fines. In March of 2004, Crompton Corporation, a US manufacturer of rubberchemicals, plead guilty to conspiring with other rubber chemical producers to suppressand eliminate competition in the sale of rubber chemicals and agreed to pay a$50,000,000 fine. Later, Joseph B. Eisenberg and James J. Conway, former executives ofCrompton, also plead guilty.

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The first plea came in March, when Crompton Corporation, a U.S. manufacturer ofrubber chemicals based in Connecticut, agreed to plead guilty and pay a $50 million finefor elaborating a conspiracy to eliminate competition for certain rubber chemicals sold inthe U.S. and abroad from 1995 to 2001. Crompton also agreed to assist the government inits continuing investigation. Then, just last month, Bayer AG, a German rubber chemicals

manufacturer, agreed to plead guilty and pay a $66 million fine for participating in theconspiracy. In total, the fines from the rubber chemical conspiracy have already exceeded$100 million, and the investigation is still ongoing.

United States v. Therm-All

The last criminal case I will mention is the appeal in United States v. Therm-All, whichhad one of the more unusual outcomes. The primary issue on appeal was whether theprice fixing conspiracy that had been charged in the indictment--and proven at trial--hadcontinued into the period of the statute of limitations. A panel of the Fifth Circuit (withone judge dissenting) held that, while the Sherman Act does not require proof of a clear

act as an element of the offense, the government is nonetheless required to prove a plainact within the statutory period when the statute of limitations is raised as a defense. Itfurther concluded that the government did not prove an overt act in the statutory periodand reversed the judgments of conviction.

The Indiana Concrete Case

The Indiana concrete industry was upended in 2004 when the U.S. Department of Justiceraided the homes and offices of executives from six of the industrys key companies. Tothe concrete execs involved, price fixing was business as usual. It had been arrangedquietly since the 1960s, in one-on-one discussions. Now, the stakes were higher. Deep

discounting from outside companies was threatening the livelihood of some companies,triggering large meetings to fix the prices, and the extension of pressure to othercompanies to cooperate with this group.

Gary Matney, then of Prairie Material Sales, was one of those pressured. He refused.When cartel members went to his boss, he went to the DOJ. During the next year, hetaped phone conversations at the request of the FBI, eventually agreeing- with FBIpermission- to join the cartel. In less than a year, a strong case was made against sixcompanies: Industry leader Irving Materials, Builders Concrete & Supply, BeaverMaterials, Carmel Concrete Products, Shelby Materials and Lees Ready Mix & Trucking.Together, those companies controlled the Indianapolis concrete and aggregate market,selling at least $400 million in that area alone between 2000 and 2004, when the FBIsearly morning raids brought cartel activities to an end.

By the morning of the raids, the government had strong reason to believe that thecompanies were in collusion. The raids and executive interviews strengthened the case.To make it incontrovertible, the DOJ offered amnesty to the first company to cooperatefully with the government. Shelby Materials was the first, winning complete amnestyagainst criminal prosecution and fines. Irvine Materials was second, gaining amnesty for

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its actions in markets other than Indianapolis. The remaining companies are repenting attheir leisure.

The two cartel leaders received prison terms of 14 months each, one exec received ninemonths in prison and five executives were sentenced to five months in prison plus five

months home detention. The only two executives who refused to settle the cases andactually went to trial each received 27-month prison terms. In addition to fines totaling$35 million, the companies also faced nearly 20 civil suits from customers to recoverovercharges. Banks responded by calling in some companies debts and freezing bankaccounts. One spin-off firm, headed by a cartel leader, has filed for bankruptcy and othershave new management.

The repercussions were felt throughout the state, especially within Indianas concreteindustry. It heightened the awareness of people frightened some people to somedegree, and brought them closer, too, according to Pat Kiel, executive director for theIndiana Ready Mixed Concrete Association (IRMCA). We got a lot of requests to

clarify what constitutes price fixing. This was a gray area for many execs. To help clearup questions, the IRMCA has antitrust compliance training at its annual meetings. Thebottom line, Kiel says, is to make certain you understand the issues. The stakes are toohigh to do otherwise.

5. The Competition Council in Romania

5.1 Romanian Leniency policy

The leniency policy is a concept taken by the Competition Council from the internationalpractice, where the use of it proves to be an efficient instrument to fight against cartels.

The most damaging phenomenon over the competition is represented by the settlementsbetween the companies of professional organizations that have as an effect price fixation,settle the level of production, dividing the market or companies that miscarries theauctions. As a result, the ones that do not benefit from this kind of practices are,obviously, the consumers. This way, the economic agents involved in cartels, whichdecide to end this illegal practices and offer important prove to the Competition Council,can benefit of immunity or of reduction of the fee, in case of such penalty.

According to the information presented to the Concurrence Council, the economic agentscan benefit of total immunity concerning the fine or reducing the fine.

An ultimate decision that triggers the investigation procedure concerning a possible cartelcan justify the granting of immunity for economic agents. The immunity represents theexoneration from applying the penalty, stipulated by art 56, line one, letter a) from theCompetition Law no.21/1996 modified and completed.

The Competition Council can grant immunity to an economic agent if the latter is the firstone to supply the probation elements:

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- Which allow starting the procedure of investigation according to law of

Competition no.21/1996 modified and completed- Which allow the probation of a breaching of art 5, line 1 from the Law of

Competition no.21/1996 modified and completed

Furthermore, an economic agent can benefit of immunity if he fulfills cumulatively thenext conditions:- He stops participating at the presumptive illegal activity, at least on the date of

offering the probation elements- He did not venture measures to constrain other economic agents to participate to

that presumptive illegal activity

The cooperation of an economic agent with the Competition Council can justify thereduction of the quantum of a fee. To benefit from such reduction, an economic agent hasto fulfill the following conditions:

- To provide the Competition Council the probation elements concerning the so-

called felony, which brings a supplementary important contribution in relation with theones already mentioned- To cease participation to the presumptive illegal activity, at least on the date he

will present the Competition Council the probation elements

The conditions that a company must fulfill in order to benefit from the leniency policyare very clear: full cooperation, continuous and prompt, immediate cease of theparticipation to the co-called illegal business, at least until the date of presenting theelements of the case, declared Mihai Brinde, the president of Competition Council.

The level of reduction the economic agent will benefit from in relation with the fine he

would have received normally will be situated in the following portions:- For the first, immunity

- For the next ones, in order: 30-50%, 20-30%, 0-20%

For determining the level of reduction inside each portion, the Competition Council willtake into consideration the date at which it received the probation elements, as well as thevalue of the supplementary contribution brought.

Mainly, the economic agent that was the brain of the cartel cannot benefit from theleniency policy. The concept of leniency has, at the base of the policy, the idea that, oneway or another, this cartel will be found. In the activity of other countries that have

experience in this field, things are going in a positive way. Only in Holland, in only oneyear, there were 400 entries. We are still at the starting point in this field, said MihaiBerinde.

If we analyze the facts that happened between 5 January and 4 February, the CompetitionCouncil cut the help of the State to 173 companies from unbalanced areas. From all ofthese, 97 firms got help from the State, which exceeded the maximum limit found in thewritten laws, and other 76 firms that did not make investments in the unbalanced areas in

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which they are developing, although they received help from the State. Because theyforgot to notify some acquisitions, the following companies: Azomures Targu Mures,Grup Feroviar Roman and Continental, received fines from the Competition Councilamounting 60 billion lei. Thus, Azomures has a fine of 53 billion lei because it did notnotify the Competition Council about the taking the control over Chimpex Constanta

Company. Grupul Feroviar Roman got a penalty of 7 billion lei because it had forgottento notify about the acquisition of Remar Pascani Company; and Continental got a fee of100 million lei because it did not fulfill its obligations of notifying the acquisition ofsome firms: Astoria, Arcasul and Gaiser. The Competition Council will implement, withthe support of the European partners, new concepts of the competition policy, such assudden inspections and promotion of the leniency policy, in case of some economicagents which, although are members of a cartel, will cooperate with the authority ofcompetition for depicting it.

5.2 Relevant cases

A) The Competition Council has given a penalty of 20.000 lei to the National

Association of dental technicians

The Competition Council has sanctioned the National Association of Dental Technicians(NADT) with 20.000 lei because they fixed the reference prices for prosthetic dental jobs.

During the investigation that the Competition Council released through self-notice in2005, it was found that the members of the Board of Directors of the Associationdiscussed, in the meetings from July until November 2004, about drafting a list ofstandard prices applicable to products made by the dental technicians. Also in thosemeetings, the Board of Directors of NADT decided to publish those standard prices in the

magazine called Dental Technique.

Fixing and publishing some referential prices is a serious break of the law of competition,because it has as an object the denaturalization of competition that has to manifest itselfbetween the dental technique laboratories/ dental technicians that operate on the marketof prosthetic dental jobs in Romania.

An association which makes recommendations to its members can enter under theincidence of Competition Law. Even if the recommendation has no mandatory effect, it isforbidden when it has as an object or as an effect the determination of the behavior ofcompeting of its members. , declared Gheorghe Oprescu, the Director of the

Competition Council.

The competition authority also discovered the nullity of the provisions from theConstitutive Act and from the NADT regulations, according to which one of theobjectives of this association was promoting and maintaining minimum prices in order toavoid disloyal and unprofessional competition. The Competition Council asked NADT tomodify those acts, meaning to eliminate the provisions of anti-competition that they werementioning.

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The Competition Law applies to economic agents or associations of economic agentswhen the work done by them has as an object or as an effect the restriction, preventing ormisrepresenting competition on the Romanian market or on only a part of it.

The concept of economic agent designates any entity employed in an economic activity,

no matter its status (natural or legal person) or the way in which the company is financed.Any activity that offers goods or services on a known market represents an economicactivity.

By associations of economic agents, we understand all professional associations, nomatter which market we run on, including the associations that are a part of liberalprofessions.

B) The Competition Council has given fines of over 7.500.000 euro to companies

from the cable services market

The Competition Council finalized the investigations on the cable services market andsanctioned UPC Romania, RCS&RDS, ASTRAL Telecom and Cable Vision of Romaniawith fines amounting 25.944.809 RON (over 7.500.000 euro).

Following these investigations, the competition authority found that in 2001 UPCRomania and HI-FI QUADRAL concluded an agreement (cartel), having as a purposedistribution of the cable services market from Timisoara. Taking into consideration thatthese anti-competition agreements are considered to be some of the worse violation of thecompetition laws, the Competition Council decided to sanction the companies. As aresult, UPC got a fine of 7.257.984 RON (over 2.100.000 euro), and RCS&RDS, as asuccessor of HI-FI company, got a penalty of 807.275 Ron (over 235.000 euro).

In addition, through these investigations, the Competition Council found that ASTRALTelecom and Cable Vision Romania abused in Bucharest of a dominant position,manifested through imposed unjustified increased prices. In this case, the CompetitionCouncil sanctioned Cable Vision Romania with a fine of 273.766 RON (over 79.000euro) and UPC, as a successor of ASTRAL, got a penalty of 17.605.784 RON (over5.100.000 euro).

C) The cartel formed of Lafarge, Holcim and Carpatcement, fined by the

Competition Council with 28.5 million euro

The Competition Council decided to sanction the three cement producers from theRomanian market, Lafarge, Holcim and Carpatcement with a fine greater than 27 millioneuro, for practices concentrated to establish together the prices for cement, according tothe institute release. More precisely, the fines of those three producers amount377,237,432,295 lei for Lafarge Romcim, 290,044,708,085 lei for Holcim and313,218,312,660 lei for Carpatcement. The total fines given by the competition authority

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to the cement market is 1,033,235,854,410 lei (approximately 28,553,470 euro). Theseare the biggest fines ever given by the Competition Council since its setting up.

According to the release, Holcim was sanctioned separately with a fine of 1.4 millioneuro for a violating the decision of the Competition Council of conditioned authorization

of the economic concentration realized through buying of Alesd cement factory.

The most damaging phenomenon over the competition is represented by the agreementsbetween companies or professional organizations which have as an effect price fixation,setting the production volume, dividing the market. The generic term used in this matteris cartel, said Mihai Berinde, the Director of Competition Council. Cartels representthe worse violation of competition through embezzlement of the business environmentand the financial exploitation of the consumers, annulling this way the benefits of afunctional market. Cartels suffocate productivity and annul winnings a company wouldproduce on a normal market , said Neeli Kroes, the European inspector for competition.

After an extremely attentive and laborious analysis of the cement market and the

activity of those three producers, which extended on a period of over four years, theinvestigation team demonstrated that in 2000-2004, Lafarge, Holcim and Carpacementconcentrated to establish a fixation and a constrain cartel of the cement prices onRomanian market. To establish the fines, it was considered also the worsening andextenuating circumstances, which finally led to corresponding differences.

This way, Lafarge, which set its prices below cost for the export, being obliged to recoverthe differences on the internal market, was the initiator of the cartel. Carpatcement, afterbuying the cement factory from Fieni, the only producer un-aligned to the cartel,increased their prices (with 38%), consolidating this way the cartel on the long run.

Holcim was sanctioned for violating the decision 221/2000, with a fine of 52.735.401.470RON. We hope that this decision will mark the end of an illegal behavior, and thecompanies will have the chance to demonstrate in the future that they will have an ethicalbehavior regarding competition. A role model to follow, said Berinde.

The release also said that, through the sanction applied, the Competition Councildemonstrates the decision of the Romanian competition authority to control, withoutexceptions, the anti-competition practices. Furthermore, it sends a very clear message tothe producers of cement: the Romanian market is a market in which not only competitionrules have to apply, but also, taking into account the international notoriety of the threeproducers, it is expected that the cement market in Romania and the practices regarding

the competition on this market become a role more for the entire Romanian economy.

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6. Conclusions

By writing this project, we have fully understoodthe leniency policy, its implications andthe penalties one company can receive when disobeying it. Thus, we learned that being acompany is no easy task. You constantly have to report every action you take that

influences the evolution of the corporation or the markets to the authorized institutions.

It has the same level of importance the fact that people working in the companies allaround the world need to know the content of the leniency law, because, if there is anymisbehavior of the corporations from the business environment, this can be improved byapplying a request to the appropriate authorities through which the company agrees tocooperate with the state. If this agreement takes place, cartels can be discovered and, atthe same time, they can be eliminated.

The big advantage of the cooperation regarding leniency policy is the fact that it canreduce the penalties given, in the case of an active and benevolent collaboration of the

parties involved in cartels.

Through different measures, is encouraged a strong relationship between the state (whichhas the role to supervise the flow of the business environment) and the companies (whichare the leading actors of this environment).

Eventually, the beneficiaries of this leniency policy are none others than us, theconsumers, as it could be noticed from the example presented above, plus smallcompanies which promote competition between different market sections.

There is the possibility that business partners which acted disloyal towards their

competitors, to be exonerated from any sanction, because this law encourages firstly thedissolution of disloyal practices and pursuits into punishing the ones who support thisphenomenon among the business environment participants.

The fact that this policy is well constructed both in Europe and in USA proves that thereis an intention as serious as it can be that the companies that tend to monopolize themarkets are to be banished.

After analyzing the situation and the number of existent cartels following theimplementation of this law, we can certainly come to the conclusion that it improves thelives of the consumers. The latter have only advantages, thanks to the leniency law and

are protected by it from the business sharks.

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7. References

C. Aubert, P. Rey and W.E. Kovacic, The Impact of Leniency and WhistleblowingPrograms on Cartels, forthcoming in International Journal of Industrial Organization, p.34-37

Competition Law Today: Concepts, Issues and the Law in Practice, Oxford UniversityPress, New Delhi, p. 59-92.

D.I. Baker, The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging (2001) George Washington Law Review p. 693-708.

Levy, Nicholas and Robert ODonoghue (2004), The EU Leniency ProgrammeComes of Age, World Competition Law & Economics Review, vol. 27 no. 1,Kluwer, Netherlands, p. 75-99.

M.C. Levenstein and V.Y. Suslow, What Determines Cartel Success? (2006), p.44-45

N.K. Katyal, Conspiracy Theory, (2003), p. 1342-1350

World Competition: Law and Economics Review, Vol. 30, No. 1, March 2007Wouter P.J. Wils

European Commission, Report on Competition Policy 2005, SEC (2006)761 final,available athttp://ec.europa.eu/comm/competition/annual_reports/2005/en.pdf, paragraph 175.

http://en.wikipedia.org/wiki/European_Community_competition_lawhttp://ec.europa.eu/comm/competition/cartels/leniency/leniency.cfmhttp://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspxhttp://www.competition.ro/en/politicadeclementa.asp?lang=en&menuid=0http://www.concurrences.com/article_revue_web.php3?id_article=1743&lang=enhttp://www.iue.it/RSCAS/Research/Competition/Index.shtmlwww.globalcompetitionreview.com
http://en.wikipedia.org/wiki/European_Community_competition_lawhttp://ec.europa.eu/comm/competition/cartels/leniency/leniency.cfmhttp://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspxhttp://www.competition.ro/en/politicadeclementa.asp?lang=en&menuid=0http://www.concurrences.com/article_revue_web.php3?id_article=1743&lang=enhttp://www.iue.it/RSCAS/Research/Competition/Index.shtmlhttp://www.globalcompetitionreview.com/http://en.wikipedia.org/wiki/European_Community_competition_lawhttp://ec.europa.eu/comm/competition/cartels/leniency/leniency.cfmhttp://www.comcom.govt.nz/TheCommission/LeniencyPolicy/leniencypolicynew.aspxhttp://www.competition.ro/en/politicadeclementa.asp?lang=en&menuid=0http://www.concurrences.com/article_revue_web.php3?id_article=1743&lang=enhttp://www.iue.it/RSCAS/Research/Competition/Index.shtmlhttp://www.globalcompetitionreview.com/

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