03 Jun 2021

A Snitch in the Cartel – the Leniency Program

Business cartels between competing market participants are designed to limit or eliminate competition between them, with the objective of increasing prices and profit of the cartel members.  In practice, this is generally achieved by fixing prices, market sharing, limiting output, allocating customers or territories, bid-rigging, or a combination of the above.  Cartels are harmful to consumers and society as a whole since the participating businesses charge higher prices (and earn higher profits) than would be the case in a competitive market. Because of their negative impact on the market, competition legislation fights against cartels, imposing substantial fines on participants, which can reach up to 10% of the overall annual revenue of a business.  However, the existence of a cartel can be difficult to notice and even more difficult to prove.  Aware of its illegal nature, cartel members always aim to cover their agreements with a veil of secrecy.  They avoid leaving a written trail of the cartel’s existence.  For this reason, competition legislation often entails a leniency program.

What Is a Leniency Program?

In essence, a leniency program is a legislative incentive for a cartel member to report, provide adequate proof of its existence, and cooperate with competent authorities in its activities against the rest of the cartel.  In that sense, a member that reports a cartel will avoid substantial fines or these may be lowered.  On the other hand, a leniency program is an effective tool for competition authorities in detecting secret cartels given that this is one of the few ways of how they can be discovered.

Three prerequisites must be met to successfully implement a leniency program:

  1. Competition law must provide for a threat of severe sanctions for those who participate in cartels,
  2. Members of a cartel must perceive a high risk of detection by competition authorities, and
  3. The greatest transparency and predictability must be ensured in anti-cartel enforcement so that companies can anticipate with a high degree of certainty what the consequences will be if they are caught colluding. They should also be aware of the kind of treatment they can expect if they apply for leniency.

The Leniency Program in the EU

Commission Regulation (EC) No 773/2004  sets forth a framework for the leniency program of the EU.  This Regulation was enacted with Articles 81 and 82 of the EC Treaty in mind (currently Articles 101 and 102 of the Treaty on the Functioning of the European Union), which regulate agreements that restrict competition and abuses of dominant position.

Additionally, the Commission Notice on Immunity from fines and reduction of fines in cartel cases enables more detailed insight into the issue at hand.  Namely, a company willing to disclose its participation in a cartel affecting the EU market must be the first to submit information and evidence to the Commission.  On the other hand, the submitted information and evidence must, in the Commission’s view, enable it to carry out a targeted investigation and finally find an infringement in connection with the alleged cartel.  Hence, immunity will be granted only if the Commission did not have sufficient evidence to find an infringement of Article 101 of the TFEU.

The leniency program provides another benefit for these businesses.  Namely, if an undertaking does not fulfill the conditions to apply for full immunity, it may be eligible to qualify for a reduction in fines.  For this to happen, an enterprise must provide the Commission evidence of the alleged infringement which represents significant added value relative to the evidence the Commission already has.

Leniency in Serbia

Serbia, as an EU candidate country, looks up to the EU as a role model in the regulation of competition.  The Serbian leniency program is, thus, heavily influenced by the EU.  The Act on Protection of Competition allows relief from the obligation of payment of a monetary penalty or a reduced fine for the “snitch” in a cartel.

Relief from the obligation of payment of a monetary penalty is regulated in greater detail by the Regulation on the Conditions for Relief from the Commitment of Payment of the Monetary Amount of the Measure for Protection of Competition.  The Serbian solution differs slightly from the one in the EU as it does not allow a business wishing to gain immunity to force or encourage other undertakings to conclude or implement the restrictive agreement, or to be an initiator or organizer of the restrictive agreement.

A reduced fine can be granted if the undertaking delivers evidence to the Commission during the process, and if this evidence was not available at the time.  The evidence must enable the termination of the proceedings and enacting a decision on competition infringement.  “Significant added value” of the evidence is not relevant.

The Leniency Program in Practice

In the EU, the leniency program has achieved considerable success.  The 2017 Report on Competition Policy states that most cartels were discovered through the leniency program and there is a plethora of notable cases to confirm this.

In terms of the application of leniency in Serbia, the state of play is entirely different from the EU.  From 2009, when the leniency program was introduced in legislation, until today, there has been only one instance of the leniency program being applied in Serbia.  Why hasn’t it taken roots?  There are a number of potential reasons:

  1. It could very well be true that neither the leniency program nor competition law, in general, are not well-known to businesses in Serbia.
  2. There might be a significant stigma associated with “betraying” other members of the cartel. The Serbian market is relatively small and the company involved could face distrust in their future business dealings.
  3. Finally, while the leniency program may provide immunity from a fine, or reduce it, it does not prevent criminal proceedings or damages claims before a civil court. This presents a serious detriment to undertakings that would report a cartel in different circumstances.

Luckily, all these problems could be addressed with more legislative, policy and public awareness.  We hope that the leniency program in Serbia will soon see great success!


Authors: Nikola Vjetrović and Vuk Leković