Spill the Beans: The European Commission Publishes New Guidance on its Leniency Policy and Practice

The European Commission (the “Commission”) has published new guidance on its leniency policy and practice to encourage whistleblowers to come forward and self-report cartel activity to obtain leniency at a time when leniency applications have declined significantly worldwide. This follows calls to reform the EU’s cartel whistleblower regime to make it more attractive in an increasingly complex leniency landscape. The new guidance brings helpful clarifications, but it remains to be seen whether it will have a meaningful impact on the balance of risks for companies considering exposing cartels.

The Leniency Programme

The Commission’s leniency programme was introduced in 1996 and most recently codified by the Notice on Immunity from fines and reduction of fines in cartel cases (the “Leniency Notice”) in 2006. It offers undertakings the opportunity to disclose, on a confidential basis, their participation in a cartel and cooperate with the Commission during the investigation. The first undertaking to provide evidence of a cartel can be granted total immunity from fines. Other undertakings involved in the same cartel that subsequently approach the Commission for leniency will not qualify for full immunity but can receive fine reductions if they provide “significant added value” to the investigation. The amount of the reduction decreases in size for each subsequent application for leniency relating to that cartel.

The rationale behind the leniency programme is twofold: (i) it encourages members of cartels to alert the Commission to the existence of the cartel and (ii) it deters undertakings from forming cartels in the first place.

Recent Trends

Despite its initial success in uncovering cartels (most cartels in the past decades were detected through the Commission’s leniency programme), the number of leniency applications has been declining significantly in the EU and worldwide.[1] According to the estimates of the Organisation for Economic Co-operation and Development (OECD), leniency applications in 2020 were 70.5% lower in Europe compared to 2015.[2] In the EU specifically, only four leniency applications were filed with the Commission in 2021, down from 15 in 2019.[3]  

The decrease in leniency applications results from a combination of different factors, especially the increasing exposure of cartelists to civil damages and the multi-jurisdictional nature of cartel investigations, which in the absence of a “one-stop shop” exposes cartelists to liability across several jurisdictions.

In October 2021, Executive Vice-President and Competition Commissioner Margrethe Vestager announced a new era of cartel enforcement. She acknowledged that the number of leniency applications was falling and revealed that the Commission was gathering data on how well the EU’s leniency programme was working.[4]  Since then, several Commission officials have expressed the need to reform the leniency programme, including considering how to make it more attractive to cooperating cartelists.[5]

As a first step, the Commission upgraded its eLeniency tool[6] in September 2022 to make accessing documents in antitrust proceedings easier.

As a second step, the Commission has now published the new guidance on its leniency policy and practice in the form of Frequently Asked Questions (the FAQs).[7]

The New Guidance – i.e., the FAQs

The FAQs refer to the more complex leniency landscape and are intended to address the decrease in the number of leniency applications by providing further transparency and predictability to prospective applicants about the following topics.  

Enhancing existing protections for leniency applicants, including against follow-on damages claims

The Commission recognizes the link between damages claims and leniency applications.[8] The FAQs highlight that Directive 2014/104/EU (the “Damages Directive”): (i) prohibits the disclosure of leniency statements submitted to the Commission or a national competition authority in damages proceedings before national courts of Member States or in non-EU jurisdictions; (ii) prevents an immunity recipient from being held liable to cartel victims, unless full compensation cannot be obtained from the other cartelists; and (iii) protects immunity recipients from contribution claims by their co-cartelists.

The link between leniency applications and civil damages exposure is equally acknowledged in the United States, where the antitrust regime also affords protection to successful leniency applicants. Under the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), recipients of leniency can have their damages in follow-on cases reduced from treble to actual damages if they cooperate sufficiently with the plaintiffs in those cases, which can represent a significant reduction in financial exposure. U.S. enforcers view ACPERA as a motivator for potential applicants to seek leniency.

The Commission expects applicants for leniency, when making their first submission under the Leniency Notice, to waive confidentiality fully in relation to other competition authorities with which that applicant intends to file a leniency application. This allows the Commission to share the applicant’s confidential information with those authorities to facilitate coordination of the respective investigations.

The FAQs clarify that, with respect to damages claims brought in third countries, the Commission may be willing to assist the applicant in resisting requests for disclosure of leniency submissions produced to the Commission. In exceptional circumstances, the Commission may even act as amicus curiae before the foreign court in support of the leniency applicant.

Undertakings found guilty of cartel conduct are liable to be excluded from EU and national public tender procedures under the EU Financial Regulation and Public Procurement Directive. However, the FAQs clarify that leniency applicants may still be able to participate in procurement procedures as their cooperation will be considered when the tendering authority assesses the grounds for exclusion.

Assessing fine reductions

The Commission will decide reductions in fines based on when evidence is submitted and how valuable that evidence is to its investigation. This relates to cases where the Commission is already investigating a cartel. Fine reductions are set in bands, meaning that:

• The first applicant is eligible to receive a reduction of between 30% and 50%, based on the timeliness of the reporting and the value of the evidence in proving cartel activity;
• The second applicant is eligible to receive a reduction of between 20% and 30%; and
• Subsequent applicants are eligible to receive reductions of up to 20%.
• Clarifying the threshold of “significant added value”

“Significant added value,” as referred to in the Leniency Notice, means the extent to which the evidence provided by an applicant strengthens the Commission’s ability to prove the existence of the alleged cartel, assessed by its actual contribution in terms of quality and timing. The FAQs clarify that the Commission will consider: (i) the stage at which applicants for reductions of fines provide their evidence; (ii) whether the evidence is contemporaneous to and direct evidence of the facts in question, and whether it is compelling; and (iii) whether it provides an overview of the cartel operation, organization, background, and context in which the cartel operated that the Commission could not itself obtain.

Commission’s willingness to discuss potential applications on a “no-names” basis

The FAQs state that the Commission is “available for informal exchanges about potential immunity applications on a no-names basis.” This is intended to assist companies that want to ascertain anonymously whether specific conduct could be deemed to be a secret cartel. To that end, legal representatives of these companies do not need to provide any identifying details (e.g., names of the potential cartelists or relevant sectors) that could otherwise help the Commission discover the infringement.  

Potential cartelists may also, through their external lawyers, contact the Commission’s new Leniency Officers to establish whether immunity would be available for the cartel in which the potential applicant is involved (although they will be required to apply for immunity promptly if confirmation is given). In these instances, legal representatives will need to disclose the product concerned. The Commission believes that this option will be particularly useful if the conduct is novel, or if it is unclear whether it falls within the scope of the Leniency Notice.

Prospective applicants may also make hypothetical applications for immunity by providing detailed descriptive lists of the evidence they later propose to disclose. An applicant will not be required to disclose its identity or that of the co-cartelists until it submits the evidence. However, applicants will be required to identify the sector, geographic scope, and estimated duration of the cartel. Once the Commission confirms that the requirements for immunity are satisfied by the list of evidence, the cartelist must disclose the evidence described on the list.

Practical Considerations

This new guidance brings helpful clarifications that may provide some comfort to companies considering self‑reporting anti-competitive conduct. In particular, the possibility of “no-names” basis contact with the Commission may provide some certainty (or at least specific guidance) that would not otherwise have been available to businesses engaging in novel business practices that could be considered problematic.

The Commission and Member State enforcers recognize that the growth in private damages litigation has deterred leniency applications. There have been ideas about how to move to a position where the right to compensation is balanced against the need to encourage cartelists to reveal secret cartels—suggesting that enforcers are conscious of the fact that small changes to whistleblower protections are unlikely to move the needle on leniency applications very far.[9] As prospective applicants for leniency remain torn between the prospect of potential enforcement action against the near-guarantee of follow-on damages claims after “coming clean,” damages actions are likely to remain a very important consideration (if not a deterrent) for companies when deciding whether to apply for immunity.

Prior attempts to reinforce the effectiveness of the Commission’s leniency programme (e.g., the anonymous whistleblower tool introduced in 2017) did not reverse the trend of declining leniency applications. Therefore, it remains to be seen whether the new guidance will have a meaningful impact on the balance of risks for companies considering exposing cartels.

James Quirke, London trainee solicitor, contributed to the drafting of this alert.

[1] See EU is reviewing leniency policy amidst drop in first-in applications, enforcer says ‒ Global Competition Review.

[2] See “OECD Competition Trends 2022,” p. 46.

[3] See Rating Enforcement ‒ Global Competition Review.

[4] See Speech by EVP M. Vestager at the Italian Antitrust Association Annual Conference ‒ “A new era of cartel enforcement,” October 2021.

[5] See, for example, MLex | European enforcers working on ways to attract cartel whistleblowers, French antitrust official says (subscription required) and MLex | Cartelists’ private homes are a target for EU cartel investigators, Jaspers says (subscription required).

[6] See Antitrust: Commission upgrades eLeniency tool (europa.eu).

[7] See Antitrust: Commission provides guidance on its leniency policy and practice (Europa.eu).

[8] See MLex | Leniency review shouldn’t overlook victims’ rights to damages, EU’s Vestager says (subscription required).

[9] See Mundt touts immunity from damages for leniency applicants ‒ Global Competition Review.