When cartel loyalty crumbles before the CCI's leniency mechanism

Recently, the Competition Commission of India (CCI) conducted surprise raids at the premises of several advertisement agencies. These dawn raids were reportedly triggered by a leniency application filed by one of the entities involved, disclosing material information pertaining to allegations of horizontal price-fixing and collusion in the advertising industry.

This development underscores the vulnerability of cartel arrangements when a key participant is often considered loyal opts to cooperate with the CCI in exchange for penalty reductions.

While the leniency applicant secures a favourable position by mitigating its penalties, the remaining cartel members are left exposed to the risk of significant fines, reputational and financial damage. The situation becomes even more precarious considering the 2023 Amendment to the Competition Act, 2002 which introduced the “leniency plus” mechanism. This new provision allows a company which is already a leniency applicant in one cartel to disclose the existence of a separate cartel and, in doing so, receive additional penalty reductions for both cases.

As a result, cartel members now face increased risk not only of being exposed by their own co-conspirators, but also of being implicated through disclosures about other cartels wherein they are in agreement with the common co-conspirators.

In this context, this article examines the case laws surrounding leniency applications in the European Union (EU) and India and the implications they carry for other cartel participants. It highlights the strategic advantage of being the first to approach when in possession of material information regarding anti-competitive practices. Additionally, in industries operating on thin profit margins marketing teams may, in their pursuit of sales targets, inadvertently engage in conduct that violates competition law. These risks often go unnoticed to the higher management of the company unless a company adopts robust internal mechanisms such as regular competition law audits and comprehensive compliance programs to sensitise employees to an anti-trust regime.

Leniency applications filed in the EU and India have revealed a bitter truth that when the heat is on, loyalty melts faster than profit. This reality makes it easier for antitrust agencies to crack even the tightest cartels. A cartel member that chooses to become a leniency applicant benefits in two significant ways. First, it may receive up to a 100% reduction in monetary penalties. Second, during the period the cartel was active, it had already reaped profits from the anti-competitive arrangements. This creates a win-win situation for the leniency applicant, but leaves the remaining cartel members vulnerable.

In India, the CCI is empowered to impose a penalty of up to three times the profit, or 10% of the turnover/income, whichever is higher. Also, following the 2023 Amendment, “turnover” now includes global turnover, which may drastically increase the monetary penalties for multinational corporations.

Experience in EU and India has revealed that leniency applicants play an intrinsic role in exposing some of the high-profile cartels. These cases are testimony to how the fear of penalties have compelled cartel members to come clean, ultimately breaking up with their cartel partners and falling in love with anti-trust agencies.

In 2010, the European Commission (EC) initiated a cartel investigation in the market for Dynamic Random Access Memory (DRAM) chips after receiving a leniency application from Micron, a member of the cartel that disclosed the modus operandi to the EC. As a result, Micron was granted a 100% reduction in penalty. After the acceptance of their settlement application, other DRAM producers were fined a total of €331 million.

Similarly, in 2016, the EC found truck manufacturers MAN, Volvo/Renault, Daimler, Iveco and DAF to be colluding for 14 years on truck pricing and on passing on the cost of compliance with stricter emission rules. As a result, the EC imposed a record fine of €2.93 billion on all the members except MAN, as it was the first who revealed the existence of cartel to the Commission and became leniency applicant to claim 100% reduction in penalty. All the companies acknowledged their involvement and filed settlement applications.

In 2017, the CCI received information along with a leniency application from one of the participants in a suspected cartel operating in the dry-cell batteries market. Acting on this disclosure, the CCI took a prima facie view and initiated an investigation, which revealed that three leading dry-cell battery manufacturers in India had been engaged in price coordination over an extended period. The collusion involved regular communication and alignment of pricing strategies. Based on the findings, the Commission imposed monetary penalty on two of the contravening manufacturers, while granting 100% immunity from penalty to Panasonic despite its involvement in the cartel.

In 2021, the CCI imposed a hefty penalty amounting to ₹873 crore on beer manufacturers. This case was initiated after information was received from an leniency applicant SABMiller India Limited, which resulted in CCI forming a prima facie and a final finding on the existence of a cartel. The CCI granted a 100% reduction in penalty to SAB despite its involvement in the cartel.

In every cartel investigation initiated, the parties involved typically remain unaware of the specific disclosures made by the leniency applicant until the investigation report is submitted by the Director General (DG). During this period, it is not uncommon for the parties under scrutiny to conduct internal assessments of their conduct and evaluate the extent of information or evidence that may potentially be placed on record before receiving the DG’s report.

Further, as per the CCI (Lesser Penalty) Regulations, the Commission or the DG is required to treat all information submitted by a leniency applicant as confidential, unless disclosure is mandated by law, consented to by the applicant, publicly disclosed, or approved for disclosure by the CCI. Consequently, in practice, the identity of the leniency applicant generally remains unknown to the alleged parties until the final order is pronounced by the CCI under Section 27 of the Act.

In cartel investigations, where the primary objective of the anti-trust authority is to establish the existence of a coordinated agreement, the agency often relies on a range of evidence such as email communications, meeting records, depositions and formal or informal agreements. It is important to note that withholding evidence by one party does not necessarily prevent the agency from obtaining it through disclosures made by other participants, including leniency applicants. In such cases, the chances of a party request praying on the grounds of cooperation may be denied if it is found to have concealed crucial information during the investigation.

Cartel members often hesitate to approach the CCI, driven by concerns over disrupting long-standing business relationships with fellow participants. However, this reluctance can prove costly, especially when one of the members decides to break rank and file a leniency application. In such cases, the so-called bond of trust among cartelists quickly unravels, leaving the rest exposed to investigation, penalties and reputational damage. No matter how cautiously cartel members try to operate, history has shown that secrecy is rarely foolproof. In some instances, investigations by the other agencies have unearthed evidence of collusive conduct and helped the CCI to initiate suo motu investigations. Under pressure, some entities have opted for leniency, disclosing cartel modus operandi to the CCI through the leniency program, disclosing the entire scheme in exchange for reduced penalties.

At that point, the fear of damaging business ties takes a backseat to the opportunity to protect one’s own interests. The evolving enforcement landscape, particularly with tools like dawn raids and the newly introduced “leniency plus” mechanism, further incentivises self-reporting and increases the risks for those who stay silent. Ultimately, cartel arrangements are built on a fragile foundation, and when one member “spills the beans,” the entire edifice can come crashing down.

Ankit Singh Rajput is an Associate (Competition Law) at Vaish Associates, Advocates.