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Introduction The collapse of Project Condor brought to light several issues surrounding the leniency model used in the United Kingdom (UK) and with the use of leniency in general. Leniency is key policy in deterring and uncovering cartel conduct. Broadly, it involves a member of a cartel betraying the activities of the cartel to that countries relevant competition agency. (Commerce Commission (CC) in New Zealand (NZ)) The issues that emerged in the UK involved the disclosure of information pertinent to the case, the use of cartel participants as witnesses and information conduits, and the economic/business motive behind firms betraying the cartel. Four broad issues were highlighted by the report; Issues with disclosure – what issues arose around the disclosure of vital information? Issues of reliance – Did the OFT rely too heavily on the information provided by the leniency applicant? Issues of Motive – whether leniency can be used tool to undermine and weaken other persons/companies. Issues of appropriateness – was leniency properly granted in this situation? These issues and analysis will be discussed separately’ including whether NZ guidelines provide for these issues and/or what changes are required with regard to international experience to ensure the guidelines success. This essay will assert that the NZ guidelines substantially address any issues raised by the Condor review board. Furthermore the author will assert rather than the UK guidelines being totally flawed that Project Condor due to its unique circumstances would have likely failed regardless.

What is a cartel? A cartel is an agreement among competing firms to work co-operatively for any period, to price fix, control production and, supply with a view to decrease competition in a market while increasing profits to cartel members.1 Cartels are more prevalent in oligopolistic markets; where there is a smaller number of business selling largely similar products. 2 For example, the manufactures of light bulbs could form a cartel quite successfully. The Cartel, then agrees on how best to maximise
1 Simon Holmes, “Cartels & Leniency In The European Union” (2009) 18 MBB Feb at [1]. 2 At [1].

Imelda-Rose Sheerin “Leniency Application” [2010] NZLJ 187 at [187]. price fixing and collusion. 8 Com Com “Cartel Leniency Policy and Process Guidelines” (2012) Commerce Commission http://www. 6 Immunity is not automatic and will be conditional on meeting individual requirements of on-going disclosure and coThese requirements are generally set out in law. 3 Draft Regulatory Statement “Criminalisation of Cartels – Agency Disclosure Statement” ME1206009 at [2]. a fixed market allocations for Cartel members. Common forms include. 4 Joseph Harrington Jr “Optimal Corporate Leniency Programs” (2008) LVI JIE 215 at [215]. whereby the applicant involved in the cartel offers full disclosure of information and evidence to bring about a prosecution of other cartel members. as well as the distribution of the profits. 6 At[187]. whilst the applicant gains immunity or a heavily reduced penalty. 8 Issues with disclosure Of key importance to any case is the collection and disclosure of evidence. Leniency is an exchange of information and evidence on a cartel. it will not stop their liability to other parties affected by the cartel conduct. 7 Whilst leniency will protect cartel members in most cases from state prosecution on a civil or criminal level. capping industry outputs to increase demand.4 This policy offers an exchange. 7 OFT’s Guidance note on the handling of applications “Leniency and no-action” (2008) OFT803 at [71].the profit in a market. 5 operation. for full or partial immunity from prosecution. Proper and full disclosure would be required to best prove the cartel conduct beyond reasonable doubt. This can present some very unique issues to leniency. which indicates the specific terms of each grant of leniency. These issues are further complicated as cartel conduct is becoming a criminal offence.govt. 5 John Land. This is of importance as the standard of proof in a criminal case is “beyond all reasonable doubt” significantly higher than in a civil case.comcom. This ensures a strong foundation for prosecution.nz/cartel-leniency-policy-and-processguidelines/#3%20%20%20%20%20%20%20Immunity. prevention of cartels and the enforcement of anti-trust legislation. . through guidelines and regulations or through a “no action” style letter. 3 What is Leniency? Leniency is a widespread and highly effective policy for the detection.

18 In criminal cartel cases. 16 Commerce Act 1986 17 Commerce Act 1986. 14 At [5].39301626Word count 3000Topic 2 Issues that arose in Project Condor Two main issues arose in the Project Condor case. 13 Secondly. Above n 15. 15 Crown Law “Draft Guidelines on Immunity for Cartel Offences” (May 2011) MED1170819 at [14].16 They require a specific amount of disclosure and continuing disclosure of information by the leniency applicant. the Commission will make a recommendation 9 Office of Fair Trading “Project Condor review board ” (2010) at [5]. there needed to be clarity around the OFT’s ability to disclose information that may be relevant to the defence.11 What needed to be included in the UK guidelines and was acknowledged by the review board was for a distinction between privileged materials to which confidentially can attach and remain privileged and materials of commercially sensitive manner relating to the cartel which must be disclosed. 12 At [5]. as commercially sensitive information was not disclosed thus undermining the prosecution completely.12 It should be made clear in the leniency guidelines that where material is withheld. 13 At [5].15 The considerations are set out in s 80 of the Commerce Act. at [13]. . 14 Issues Addressed by NZ Guidelines To gain immunity from prosecution in NZ the draft guidelines provide a very clear structure when read with the CC’s policy on leniency. there needed to be a solution to ensure that immunity or leniency applicants are aware that disclosure of legally privileged material may be required in criminal cases. there must be a total admission of guilt by the applicant.9 Especially where there is a greater disclosure of witness materials required. that the applicant makes these materials to be reviewed by an OFT lawyer not involved in the case and or by completely independent counsel. The CC will see whether the person who comes forward with knowledge and evidence of the cartel satisfies the criteria for immunity. 10 At [5].10 This issue essentially sunk the prosecution’s case in Project Condor. Firstly. where those documents might be legally or commercially privileged. 11 At [9]. s 80 18 Crown Law.17 Further. These essentially address shortcomings of the UK guidelines.

uk/shared_oft/business_leaflets/ca98_mini_guides/oft436. but still Project Condor failed. Above n9.to the Solicitor General. at [17] and [22] – [23]. as it could undermine and surface confidential business practises.gov.19 The Solicitor General. Essentially the same requirements exist under the UK guidelines.comcom. a letter with the specific requirements of the immunity is issued. This could potentially damage a company’s public credibility or give competitors vital information on business practises. at [5]. It also points to the need for proper processes relating to how this information is to be disclosed to.21 Once the solicitor general approves immunity. the requirements of disclosure for an applicant can be dealt with on a case-by-case basis. Micheal Veltins “On the rationale of leniency programs: a game-theoretical analysis” (2008) 25 EJLE 209 at [217]. 19 At [13].23 Thus.oft. 21 At [17]. and handled by the CC. 23 Com Com “Cartel Leniency FAQ’s” (2012) Commerce Commission http://www. 24This recognises that there will be different requirements relating to disclosure in most cartel situations. that the applicant will appear as a witness for the prosecution. they will not refuse to answer questions on the ground of selfincrimination. in deciding this will consider Para 13 of the guidelines and must be confident that the applicant will perform the requirements of Para 17 which outlines that an applicant will have on-going requirements/duties to maintain immunity. what an applicant must do to maintain immunity.nz/cartelleniency-faq/#Step%203:%20Conditional%20Immunity%20and%20Agreement< > 24 Ibid.22 This letter will broadly outline. Above n 15. 25 Crown Law. 28 Ulrich Blum. and that they will give evidence truthfully and disclose all relevant facts within their knowledge. . either in writing or orally.26 This could be owed to the bi-lateral nature of the cartel.20 These requirements include full co-operation.28 Clarity is required around what information needs to be disclosed to give the leniency applicant certainty about potential implications. who will then grant immunity.govt.pdf> 27 OFT.27 There is a direct reluctance of companies in disclosing this information. the Solicitor General can withdraw immunity25. 22 At [7]. (expand) The issue in the UK was the uncertainty over whether commercially sensitive information could be disclosed. Nicole Steinat. 26 OFT “Leniency in Cartel Cases – A guide to the leniency program for cartels” (2002) <http://www. 20 At [17]. If these requirements are not met.

32 Furthermore the higher standard of proof required in a criminal case was also a factor which made this case inappropriate.co. The requirement of clarity over what should be disclosed can only go so far.[23]. Issues of Appropriateness The Project Condor review board highlighted a major issue centring on the appropriateness of this case as the first contested criminal cartel trial in the UK. where companies and individuals seeking leniency must disclose without subpoena all information in its custody and control and all information requested. the leniency regime may have fared better. there is no specific process relating to the disclosure of commercially sensitive information. and require sensitive information to be examined by a CC lawyer unconnected with the case. Even if this guideline was in place a company would refuse to disclose. as in Project Condor. Above n 15.31 This would not stop an applicant from simply withholding information they view as commercially sensitive. mimicking the UK review. There is uncertainty to whether there would have been a successful prosecution if the policy was revised. it will not stop a company from wilfully deciding not to disclose information. . in regards to a cartels’ conduct will require automatic disclosure. 33 29 Crown Law. 32 Julian Joshua “OFT’s credibility is in tatters following the failed BA price-fixing trial” (19/05/2010) Law Gazette <http://www. 30 This uncertainty over required disclosure is not reflected in the US. This case completely undermined the UK’s leniency policy. Certainty is not provided in the draft guidelines.uk/opinion/comment/ofts-credibility-tatters-following-failed-ba-price-fixing-trial> 33 Office of Fair Trading “Project Condor review board ” (2010) at [2]. 30 OFT. less challenging case had been brought to trial. 31 OCED “Fighting Hard-Core Cartels” (2002) at [34].39301626Word count 3000Topic 2 This could be dealt with using the specific letters relating to a firm’s immunity. at [1]. If a smaller. Finally there should have been an awareness that using the leniency applicant as a witness could undermine the cases credibility in the courts especially where they were equally implicated in the cartels conduct. that perhaps the disclosure of the commercially sensitive material. Here the OFT should have been properly informed about procedure and standard of proof in particular around the disclosure of evidence. Project Condor was a highly complicated and procedurally difficult case. 29The guidelines should explicitly state that this information might be required. Above n9.lawgazette. at [5].

at [6]. remains in control of immunity within this sphere.36 Australia and Canada are two jurisdictions where their respective antitrust agencies can provide both criminal and civil immunity.38 The CC. . 37 There is a distinction in NZ between civil and criminal immunity. 39 At [7]. 36 At [21]. 2004) at [72].This has largely been solved in NZ by removing the decision to prosecute from the functions of the CC. at [54]. The distinction is that the decision maker for the grant of immunity changes. It could be argued that the NZ leniency guidelines on prosecution also fail to bring about certainty as to whether a company will get both civil and criminal immunity. as cartel cases such as there would be a solid consideration into the merits of leniency. This was adopted from Canada. n 31. Both follow essentially the same guidelines.42 Issues of reliance Linking integrally with disclosure.40 In Canada. 43 M Furse and S Nash The Cartel Offence (Hart Publishing.34 Without this certainty the effectiveness of the NZ’s antitrust legislation could be decreased. this will be closely similar to the Aust and Can models. Above n 15. 38 Crown Law. 40 OCED. an independent investigation takes place into whether the public interest would be best served to grant immunity. 41 At [54]. 35 At [21]. Applicants for leniency would have to consider the merits of coming forward if only one form of leniency was gained. 41 This system somewhat reduces issues as to Jury and Court bias. 35 This would undermine the leniency program and serve further cartel solidarity and collusion.39 The Solicitor General being a specialist in public/criminal prosecutions will then. was the OFT’s reliance on information provided by the leniency applicant in Project Condor. Oxford. 42 Cabinet Economic Growth and infrastructure Committee Criminalisation of Cartels (20 Oct 2010) at [21]. where the Attorney General decides whether immunity is granted. This reliance illustrates further issues with the UK leniency model and leniency in general. What changes is that the CC in a criminal cartel prosecution will only make a recommendation to the Solicitor General about whether the applicant should receive immunity. Furthermore as the Solicitor General will work closely with the CC when deciding a leniency applications. 37 At [21]. which traditionally deals with the civil prosecutions.43 The nature of leniency is based on 34 Cabinet Economic Growth and infrastructure Committee Criminalisation of Cartels (20 Oct 2010) at [21].

NZ Guidelines deal with this issue in part. 47 OFT.47 In cartel cases with three or more participants it is easier to collect information and there can be greater reliance on the leniency applicant as they must provide all the evidence to maintain immunity. In the UK this raised a particular issue as the cartel in question was bilateral.39301626Word count 3000Topic 2 reliance.nz/cartelleniency-faq/#Step%203:%20Conditional%20Immunity%20and%20Agreement< > 49 OFT. where there is no further participants to lure into to betraying the cartel for leniency. it did not envisage reliance at the level seen in Project Condor. Above n9. 50 At [2] . Virgin Atlantic was equally involved in the cartel as it was a bilateral agreement. but fail to provide a full solution. conditional immunity is lost.48 If they fail to provide the necessary information. 45 Crown Law. Virgin Atlantic betrayed the cartel in order to receive immunity. To reduce the effects of this reliance the guidelines could require independent investigation by the CC to verify and investigate all evidence vital to the prosecution’s case. . At this stage the issue of the OFTs total reliance Virgin came to light. at [9]. Above n 15. Above n9. at [1]-[23]. provide evidence. they admit all involvement. Above n9. at [2]. This issue is only exacerbated in bilateral cartel cases. 48 Com Com “Cartel Leniency FAQ’s” (2012) Commerce Commission http://www. rather than losing their leniency to a party which could provide all necessary information. 46 At [13].44 When crucial information was not initially disclosed. even with guidelines.46 The guidelines however do not provide for the overwhelming reliance that the CC will have on the leniency applicant for information. There is no real way of reducing reliance. it subsequently destroyed the prosecution’s case. rather came to light at trial. This is exacerbated when there are no guarantees that all information will be disclosed or whether the information is reliable or accurate. at [9] &[14].comcom. and are available as witnesses can bring into question the credibility of the prosecution’s case. In the investigation the OFT had total reliance on the information provided by Virgin Atlantic. The guidelines illustrate that there will be reliance on the applicant.govt. 50 This happened in Project Condor where the prosecution’s case was brought into disrepute and undermined in the eyes of the jury 44 OFT.45 This reliance is tempered by the idea of conditional leniency until all information is disclosed or discovered.49 Granting immunity to a cartel participant on the grounds. In Project Condor.

Above n 28. This would mean that both parties would be responsible for the conduct and it would improve the prosecution’s case in the eyes of the Jury and the Courts. Above n 28.55 Legislators might not intend this consequence but nonetheless it arises.51 Therefore. any policy which increases competition should be allowed to continue without hindrance if it is conducive to the market. Leniency can be used as a tool by some companies and persons to deliver a strike against another individual or company to weaken the opposition. and prosecution.53 Due to the great benefit of the scheme there is likely to be some conspiracy between cartel members due to the benefit of early disclosure. At [227] . 55 Ulrich. leniency is a necessary model of cartel detection.and the courts as Virgin Atlantic was equally involved in the conduct.57 51 At [2] & [9]. a simple and effective solution to the problem would be to in cases of bilateral cartel agreements. At [227]. prevention. Michele Polo “Leniency Programs and Cartel Prosecution” (2003) 21 IJIO 347. Major studies show that leniency programs still lead to more competition in the market place and deter cartel conduct. not to offer full immunity. 54 Massimo Motta. Where a company is embroiled under a cartel proceedings. 53 At [227]. This is probably of a greater concern to Juries and the Courts in bilateral cartel cases. 56 At [227] 57 At [228] .56 There is no real solution to this issue.54 In times where markets are tough there is more likely to be a betrayal of the cartel to weaken the opposition. 52 Ulrich. Issues of Motive A final issue that arises from leniency is the way it is used by applicant. therefore rather than this being a legitimate concern. rather significantly reduced penalties. it could allow the leniency applicant to gain an unfair advantage even reduce competition in the market.52 Leniency programs make anti-cartel legislation a more effective tool.

it is completely uncertain whether any specific changes to their model would have prevented its collapse. These guidelines they will not however guarantee another project condor type failure. Bibliography Primary Resources Legislation NZ Commerce Act 1986 UK Enterprise Act 2002 . Most importantly the guidelines should seek to provide clarity around what information is required to be disclosed and how much reliance the CC should have on an applicant’s evidence and. Project Condor was a unique case and its collapse was based on a number of factors.39301626Word count 3000Topic 2 Conclusion Whilst Project Condor raised issues surrounding the leniency model used in the UK. The NZ draft guidelines however. not all of which specifically relating to leniency. ensuring appropriate cases/applicants gain immunity. These changes would be conducive to more effective leniency guidelines. can be changed marginally to learn from the UK and other jurisdictions.

uk/opinion/comment/ofts-credibilitytatters-following-failed-ba-price-fixing-trial> OFT “Leniency in Cartel Cases – A guide to the leniency program for cartels” (2002) <http://www.nz/cartel-leniency-policy-and-processguidelines/#3%20%20%20%20%20%20%20Immunity> Com Com “Cartel Leniency FAQ’s” (2012) Commerce Commission http://www.nz/cartel-leniency-faq/#Step%203:%20Conditional%20Immunity %20and%20Agreement< > Julian Joshua “OFT’s credibility is in tatters following the failed BA price-fixing trial” (19/05/2010) Law Gazette <http://www.gov.co.oft.comcom. 2004) . “Cartels & Leniency In The European Union” (2009) 18 MBB Feb OCED “Fighting Hard-Core Cartels” (2002) Ulrich Blum.uk/shared_oft/business_leaflets/ca98_mini_guides/oft436.govt. Micheal Veltins “On the rationale of leniency programs: a gametheoretical analysis” (2008) 25 EJLE 209 Government Papers NZ Draft Regulatory Statement “Criminalisation of Cartels – Agency Disclosure Statement” ME1206009 Crown Law “Draft Guidelines on Immunity for Cartel Offences” (May 2011) MED1170819 Cabinet Economic Growth and infrastructure Committee Criminalisation of Cartels (20 Oct 2010) UK OFT’s Guidance note on the handling of applications “Leniency and no-action” (2008) OFT 803 Office of Fair Trading “Project Condor review board ” (2010) Websites Com Com “Cartel Leniency Policy and Process Guidelines” (2012) Commerce Commission <http://www.lawgazette. Imelda-Rose Sheerin “Leniency Application” [2010] NZLJ 187 Simon Holmes.Canada Competition Act 1985 USA Sherman Antitrust Act 1890 Secondary Resources Journal Articles Joseph Harrington Jr “Optimal Corporate Leniency Programs” (2008) LVI JIE 215 John Land. Nicole Steinat.govt.pdf> Books M Furse and S Nash The Cartel Offence (Hart Publishing. Oxford.comcom.

(Edward Elgar.39301626Word count 3000Topic 2 OECD Hard Core Cartels recent progress and challenges ahead (OECD Publications. Paris. Cambridge. 2006) . 2000) How Cartels Endure and How They Fail – Studies of industrial collusion.Old Ideas and New Tools (The MIT Press. Cheltenham. 2003) X Vives Oligopoly Pricing .