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Proactive Disclosure
Sheridan Scott Commissioner of Competition
Competition Bureau1
Fordham Corporate Law Institute - Conference on International Antitrust Law & Policy - Cartel Enforcement: International and Canadian Developments - Paper
Fordham Corporate Law Institute
Conference on International Antitrust Law & Policy
October 7, 2004
Introduction
Hard core cartel activity, such as price fixing and market allocation, is almost universally recognized as among the most harmful forms of anticompetitive conduct. Even Robert Bork, considered by many to be among the most conservative anti-trust commentators, has argued that:
- The subject of cartels lies at the center of anti-trust policy. The law's oldest and, properly qualified, most valuable rule states it is illegal per se for competitors to agree to limit rivalry among themselves….Its contributions to consumer welfare over the decades have been enormous.2
It is difficult, if not impossible, to precisely quantify the magnitude of the cartel problem in terms of global commerce affected or the harm caused.3 The Organization for Economic Co-operation and Development (“OECD”) suggests that cartels have imposed billions of United States (“US”) dollars in overcharges and other harm.4 However, there is clearly a consensus that the effects are significant enough to warrant action. Sinn writes that restricting cartels is necessary because the cartel reduces the quantity it sells and raises prices and on balance cartel gains are less than consumer loss.5 Evenett, Levenstein and Suslow express the view that aggressive prosecution of cartels can deter collusion, but only where sufficient international cooperation exists to gather evidence and prosecute offenders so that cartel participants actually have something to fear.6 They call for a comprehensive approach and propose reforms to national policies and to international cooperation arrangements that will strengthen the deterrents against international cartels and reduce the strategic creation of entry deterrents.
There have also been studies to try to measure the effects of penalties
and enforcement expenditures on cartel pricing. One such study looks at how a
cartel takes into account the possibility of detection, how it depends on the
way in which detection occurs and how the properties of the cartel may respond
to various instruments of antitrust policy. The conclusion suggests, among
other things, that the optimal cartel price is below the monopoly price and
that the cartel price is decreasing relative to the level of damages that a
firm can expect to pay if caught colluding and the level of enforcement
expenditures - higher levels of which raise the probability of
detection.7
Today, almost 100 countries have a competition law and the vast majority
of these laws were enacted or substantially strengthened in the last fifteen
years.8 Many other countries are in the
process of developing a law. Given the harmful effects of hard core cartels,
they are condemned in all competition laws.9 In the last 10 or more years, we have uncovered
bigger cartels in terms of the volume of affected commerce and the amount of
harm caused to businesses and consumers than any conspiracies previously
encountered. Moreover, we are witnessing efforts in many jurisdictions to
enhance legal regimes to battle cartels through the enactment and enforcement
of new competition laws containing prohibitions on cartels, criminalization of
cartel provisions, greater deterrence through stronger penalties, focussing on
holding individuals responsible, not just corporations, improvement in tools
for detection, such as searches and raids and leniency policies, and the
proliferation of cooperation agreements to promote and facilitate international
cooperation. We are also seeing intensified efforts in international fora, such
as the OECD and ICN, to address anti cartel enforcement, including cooperation
and information sharing, and to promote convergence towards best practices.
The increased international cartel activity that has emerged as a result
of an increasingly integrated global market has undoubtedly changed the way
that antitrust criminal investigations are conducted. Canada is no exception.
Cartel enforcement in Canada is particularly important, given that many
industries are characterized by high concentration levels and levels of
production that are below minimum efficient scales. These natural economic
conditions may facilitate and increase the likelihood of collusion.10 Accordingly, the Canadian Competition Bureau
(“Bureau”) has taken and is taking several steps to improve its
ability to detect, investigate and prosecute conspiracies, including
modernizing its conspiracy provision in an attempt to keep abreast of current
economic thinking, strengthening its investigative tools, such as through the
clarification of its immunity program, deepening its cooperation and
relationships with other enforcement agencies and entering into agreements to
facilitate cooperation amongst antitrust agencies.
The purpose of this paper is to look at developments around the world
and current thinking on the key elements of a sound anti-cartel program and, in
this context, to provide an overview of anti-cartel enforcement developments in
Canada.
International Developments
The OECD has for many years been a leader in promoting effective action against hard core cartels. As a starting point, Working Party No. 3 of the Competition Committee on International Cooperation (now called Law Enforcement and Cooperation) developed the Recommendation of The Council Concerning Effective Action Against Hard Core Cartels (“Recommendation”),11 which, among other things, condemned hard core cartels,12 and urged more effective unilateral and cooperative action against such cartels, and adequate sanctions and investigatory powers. The Recommendation also urged Members to ensure that any exclusion from competition laws be both necessary and no broader than necessary to achieve their overriding policy objectives and to review all obstacles to law enforcement cooperation against hard core cartels, such as those relating to information sharing. Members were to report back to the OECD Council on the implementation of the Recommendation in 2000.
Although the Recommendation is an OECD recommendation, non-Members were
invited to associate themselves with Recommendation. To date, Brazil is the
only non-OECD Member country to associate with the Recommendation.
In the Competition Committee’s Report to the OECD Council in 2000
(“First Report”),13 the
message was clear that the Recommendation had served as a catalyst for more
anti-cartel enforcement, for increased convergence and for more cooperation.
However, recognizing that there was still a lot of work to do, the First Report
provided that the Competition Committee would undertake a three-year intensive
program and report back to Council by 2003.
In its report to the Council in 2003 (“Second
Report”),14 the Competition
Committee focused on four main issues: harm caused by cartels, effective tools
for investigating cartel conduct, effective sanctions against cartels and
enhancing international cooperation in cartel investigations.
With respect to harm, the OECD surveyed Members and non-Members who
participated in Global Forums about recent cartel cases prosecuted in the
responding jurisdictions and specifically about the economic harm that these
cartels had caused. From this survey, the OECD was able to draw some general
conclusions about the nature of the cartels being prosecuted and their harm,
which, as noted earlier, they estimate to be in the billions of US dollars each
year.
The Second Report identified leniency as an effective incentive for
cooperation by parties to a conspiracy. It suggested that leniency changes the
incentives for cartel members who increasingly view each other with suspicion
wondering if a member will “blow the whistle” on the cartel. It was
also recognized that the US was the first country to introduce a program and
that countries, including Canada, have based their policies in large part on
the US model.15 Drawing upon the US and
European Union (“EU”) experiences, the Second Report set out the
necessary elements of a successful leniency program:
- Complete immunity for the first applicant;
- Substantial gap in the rewards to subsequent applicants should be substantial;
- Maximum transparency and certainty;
- Availability in circumstances in which an investigation is already commenced; and
- Confidentiality to leniency applicants to the maximum extent possible
- Credible threat of severe sanctions for participating in a cartel
International convergence in the area of immunity makes it easier for
companies to apply simultaneously in different countries creating ground for
further cooperation. In addition, the adoption of immunity programs around the
globe facilitates cooperation among antitrust agencies and assists in
eliminating or reducing the ability of cartel participants to hide behind
national borders.16
The Second Report also referred to other tools, such as searches and
dawn raids, electronic evidence gathering, oral witness testimony and
statements and wiretapping, and set out some recent developments and best
practices in those areas.
Much of the OECD’s work in the area of sanctions was published in
its Report on the Nature and Impact of Hard Core Cartels and Sanctions Against
Cartels Under National Competition Laws.17
This Report concluded, among other things, that fines against organizations are
the principal form of sanctions for cartels in most countries, that for
effective deterrence, such fines should be at least equal to if not greater
than the gain realized from the cartel, and sanctions against individuals and
recovery of compensatory damages by victims to a cartel can complement and
supplement organizational fines and enhance deterrence. The Report suggested
that there is still a lot of work to be done to ensure sanctions are severe
enough to deter cartels. In particular, the Report noted that t he laws of most
Member countries provide for the possibility of large fines against enterprises
found to have participated in a cartel, but that less than half provide for the
imposition of fines on natural persons involved in cartel conduct, and even
fewer countries provide for the criminal sanction of imprisonment for natural
persons.18
Finally, with respect to international cooperation in cartel cases, it
was reported based on information collected through questionnaires to Members,
that there had been significantly more cooperation since the 2000 report, that
the number of international cooperation agreements was growing significantly,
and that instances of formal cooperation, such as through mutual legal
assistance treaties, were relatively infrequent, but that there was significant
informal cooperation through meetings, telephone or email communications
regarding such issues as the theory of the case, nature of evidence and
potential witnesses.
The Competition Committee Working Party No. 3 is currently working on
the third phase of its anti-cartel enforcement work program in order to be in a
position to prepare a third report to the Council in 2005. The Second Report
envisaged that the third report would include more information on harm and
sanctions, monitor progress in imposing harsher sanctions, and address means to
enhance effectiveness of investigative tools and strengthen international
cooperation. Since the adoption of the Second Report, Working Party No.
3’s anti-cartel work has focused on international cooperation and
sanctions.
With regard to international cooperation, a major topic continues to be
information sharing in international cartel investigations. Working Party No. 3
is currently working on developing recommended practices for formal information
exchanges in international cartel investigations. It is expected that, once
completed, these recommended practices will promote the inclusion of the
following safeguards in all formal cooperation agreements and thereby add to
the 1995 OECD Recommendation of the Council concerning Co-operation between
Member Countries on Anticompetitive Practices affecting International Trade
that has inspired cooperation agreements around the world:
- authority to exchange information;
- provisions to ensure that confidentiality is maintained;
- limitations on use and disclosure;
- consequences in the event of unauthorized disclosure of exchanged information;
- protection of legal profession privilege.
The International Competition Network (“ICN) is the “new kid
on the block” in terms of international antitrust policy. However, the
ICN, with the assistance of non-governmental advisers, has in its first three
years made significant strides in the development of general principles and
recommended practices and techniques, particularly with respect to merger
notification and review, and in promoting “soft” convergence among
antitrust agencies around the world. For example, a number of jurisdictions
have looked to the Recommended Practices for Merger Notification and Review to
improve their merger review procedures.
At its last annual conference in Seoul, the ICN approved a Work Program
targeted at developing and enhancing international anti-cartel enforcement in
both developed and developing countries. The Anti-Cartel Work Program will
build on the work already done by the OECD and will address two main areas: the
General Framework for anti-cartel enforcement and anti-cartel enforcement
techniques. Work on the General Framework is to focus on the legal and
conceptual challenges of anti-cartel enforcement and the necessity and benefits
of the fight against cartels, from the perspective of both well-established
agencies and agencies with little cartel enforcement experience. The work in
the first year on the General Framework aims to identify common elements in
effective anti-cartel regimes and develop guiding principles or recommended
practices with respect to the definition of cartel conduct to be punished,
effective institutions and effective penalties.
Work on anti-cartel enforcement techniques, which is being co-led by the
Bureau, aims to enhance the effectiveness of anti-cartel enforcement by
identifying specific investigative techniques and sharing them among agencies
with differing levels of experience. All cartel enforcers have an opportunity
to share experiences and learn from one another and to explore ways to promote
and deepen cooperation and coordination in international cartel enforcement
matters. Work on the enforcement techniques is to focus on the development of a
manual for anti-cartel enforcement that will include recommended approaches to
all areas of anti-cartel enforcement, such as evidence gathering tools and
techniques, leniency, cooperation, case management, penalties, experts and
evidence handling. In addition, the annual Cartel Workshop, which until now has
been organized by individual cartel enforcers19 has now become an ICN sponsored event with a
view to formalizing and standardizing the Workshop.
In 2004, there will also be a Leniency Workshop that will address
fundamental issues concerning the development and implementation of effective
leniency programs, and will be aimed both at jurisdictions with leniency
programs and those considering adopting such programs. This workshop will
include the participation of a limited number of non-governmental advisors in
certain panel discussions and role-play demonstrations.
While there do not appear to be any formal empirical studies showing
that there is a direct correlation between the work being done in international
fora and improvements around the world in anti-cartel enforcement, it is fair
to say that this work is promoting awareness about the harm of cartels and
effective means to combat them as well as providing opportunities for
enforcement agencies to share best practices and build a culture of
cooperation. This work influences the direction of cartel policy in various
jurisdictions around the world. Recent developments in both OECD Member
countries as well as in non-Member countries suggest that there is an increased
awareness of the harm of cartels and the importance of having a law prohibiting
cartels, strong powers of detection and enforcement and deterrent sanctions to
combat cartels.
Only some countries, including Canada, the US, Japan, France,
Germany,20 Ireland, Israel, and Mexico,
treat cartels as criminal conduct. However, we are seeing some movement
internationally towards increased criminalization of cartel laws. For example,
the United Kingdom (“UK”) Enterprise Act 200221 introduced a criminal offence for individuals
who dishonestly engage in cartel agreements. In February, 2003, an independent
committee of inquiry in Australia delivered its report on the competition
provisions of the Trade Practices Act 1974 (Dawson Committee) recommending,
among other things, that cartel behaviour should be criminalized. A Working
Party appointed by the Federal Treasurer in Australia considered whether
criminal sanctions for serious hard-core cartel behaviour should be introduced
and has apparently provided a report to the Federal Treasurer. However, the
report is not yet public. Some of the newer competition laws, such as those in
South Africa and India, do not currently treat cartels as criminal conduct.
However, we may see a shift in this direction as they gain more experience in
cartel investigations and recognize the deterrent value of criminal
sanctions.
Various jurisdictions have introduced or are considering measures for
increased penalties in cartel matters. For example, in June, 2004, the US
passed Bill 1080, the Antitrust Criminal Penalty Enhancement and Reform Act of
2004, which increased the fine for violating sections 1, 2 or 3 of the Sherman
Act22 from $10 million to 100 million US
for a corporation and from $350,000 US to $1 million US for individuals. The
maximum jail time was increased from 3 to 10 years. The new US law also
provides de-trebling of damages recoverable from a corporate amnesty applicant.
In the UK, the Enterprise Act 2002 provides for the imprisonment of up to five
years and/or unlimited fining of individuals found guilty of hard core cartel
offences. In Japan, t he highest possible fine is JPY 500 million ($4.6 M US)
for an organisation, such as a company, and individual violators might also be
punished by up to 3 years in prison and a fine of JPY 5 million ($46,000 US).
It is interesting to note that although prison terms are available as a form of
sanction in several countries, only Canada and U.S. have actually used them and
Canada, only on a few occasions. As a result, it is difficult to measure the
deterrent effect.
Competition agencies around the world have new and enhanced tools to aid
in cartel detection, such as search and raid powers and leniency programs. The
US adopted its leniency policy in August, 1993 and thereafter many
jurisdictions have adopted similar policies loosely modelled on the US policy:
the UK Office of Fair Trading in 1998; the Bureau in 2000; the Irish
Competition Authority in 2001; the European Commission Directorate General for
Competition in 2002 replacing the former leniency notice of 1996; and the
Australian Competition and Consumer Commission in June, 2003. Israel is in the
process of adopting a leniency program. In 2003, there was a Report of a Study
Group in Japan on the Antimonopoly Act, which included a
recommendation to introduce a leniency policy.
The Bureau has and continues to actively participated in these fora and
to monitor and draw from this work and the experiences of other jurisdictions
in our efforts to improve our anti-cartel program. The following will provide
an overview of efforts in Canada to enhance its anti-cartel program through
modernization of section 45 of the Canadian Competition Act23, through expansion and refinement of
investigative tools and through raising awareness of cartels.
CANADA
Modernizing Section 45
In 1889, Canada was the first western nation to pass a law designed to prevent firms from forming agreements in restraint of trade. That legislation, largely unchanged from what it was more than 100 years ago, is today embodied in section 45 of the Canadian Competition Act. Section 45 makes it a criminal offence for anyone to conspire, combine, agree or arrange to unduly lessen competition or unreasonably enhance the price of a product. The intent of this section is to counter egregious anticompetitive behaviour such as price fixing and market sharing among competitors. Given the serious impact of this anticompetitive behaviour on the economy and, in particular on consumers, it is dealt with in criminal courts and carries sanctions such as fines up to $10 million and/or imprisonment for up to five years.
Conspiracies are not “per se” illegal in Canada and the
Canadian Competition Act currently does not distinguish explicitly between hard
core price fixing conspiracies and other forms of agreements or arrangements
between competitors, such as strategic alliances, that may or may not be
anticompetitive. The Competition Act prohibits only those conspiracies that
have “undue” anticompetitive effects or that unreasonably enhance
prices, and proof of a violation requires showing more than the mere fact of an
agreement.24 “Undue” injury to
competition depends on an analysis of structure and conduct, and requires that
the parties exercise enough market power to affect the price level or other
aspects of competition (or at least enough to insulate themselves from market
discipline). On the other hand, countervailing benefits or harms other than to
competition are irrelevant, and “efficiencies” arising from the
agreement are no defence.25 The conspiracy
law in Canada is best described as requiring a partial rule of reason analysis
lying between a per se condemnation of certain agreements, such as
price fixing, and a full rule of reason analysis which would consider benefits
of the agreement to the accused such as cost reductions.26
The Bureau has an active and successful program to combat international
cartels. Resolving international cartel cases, primarily with the assistance of
the immunity policy, has been the hallmark of successful cartel enforcement in
Canada. The record over the past twelve years demonstrates Canada's commitment
to prevent and deter cartels aimed at Canada. Since 1992, more than 40
convictions under section 45 of the Canadian Competition Act, all as a result
of guilty pleas, have been entered against corporations and individuals in
relation to cartels involving a variety of products, including vitamins, food
and feed additives, other chemical products and graphite electrodes. In one
case, a former employee was sentenced to a nine month term of imprisonment;
and, in total, since 1991, the courts have imposed more than $180 million
Canadian in fines in relation to offences under section 45 of the Competition
Act.27
The Bureau’s record in contested cases at trial under section 45
of the Competition Act, which have all been domestic, has been less impressive:
only 3 convictions out of 22 contested cases, i.e. no guilty plea, between 1980
and 2004.28
Although section 45 is a core provision of the Canadian Competition Act
and an enforcement priority for the Bureau, it has often been criticized as
failing to deter hard core cartels adequately because of the complexity of the
evidence required in criminal prosecutions, particularly economic evidence. As
the House of Commons Standing Committee on Industry, Science and Technology
commented in its report:
- Competition law experts believe, almost unanimously, that section 45, as currently written, is hard to enforce in a contested trial setting, even when applied to a "naked hard-core cartel". They also believe the two-step "market structure-behaviour" tests provide too much room for litigating irrelevant economic matters in the case of "naked hard-core cartel".29
By having a "market structure-behaviour" test (that is, that the
behaviour must "unduly" lessen competition), the Canadian Competition Act
treats conspiracies differently from competition laws in other major
jurisdictions.30 Reform could lead to
increased compatibility with other jurisdictions and facilitate international
investment and cooperation.
In addition, concerns have been expressed that the existing conspiracy
provisions may discourage some competitors from pursuing pro-competitive
alliances for fear of criminal prosecution.
Consideration of whether changes to the conspiracy provision under
section 45 of the Canadian Competition Act are necessary dates as far back as
1969,31 with active debates for more than
a decade. In the spring of 2000, Bill C-472 was introduced into the House of
Commons by a private member.32 The Bill
would have replaced the existing standard with a per se offence for collusion.
However, the agreement would have been exempt from prosecution under the
provision if notice of the agreement was given to the Commissioner and the
Commissioner believed that the agreement would not result in prevention or a
substantial lessening of competition. This Bill died when the government called
an election in late October 2000.
Notwithstanding that the Bill died, consideration of the possible reform
of section 45 continued. The Public Policy Forum (PPF)33 issued a report on December 20, 2000 in which
it was noted that there was a desire among participants to modernize the
conspiracy provisions under the Competition Act.
The Commissioner subsequently commissioned three private sector studies
on section 45, all of which endorsed, in principle, the concept of a two-track
criminal and civil regime.34
In the interim, the OECD recommended in its 2001 review of Canada that
the rule against hard-core horizontal cartels should not depend so much on fine
distinctions in the economic analysis of particular markets and that a less
stringent, civil alternative enforcement route should be provided for ambiguous
conduct that courts are reluctant to condemn as criminal.35
In April, 2002, the House of Commons Standing Committee on Industry,
Science and Technology issued a report entitled A Plan to Modernize Canada's
Competition Regime in which it noted that the Competition Act’s language
raises concerns on two grounds. First, deterrence of anti-competitive conduct
is impaired by requiring proof of economic effects to convict the members of a
price–fixing cartel. Second, efficient economic activity is suppressed by
exposing the members of legitimate joint ventures to criminal prosecution. The
Report concluded that the rule against hard-core horizontal cartels should not
depend so heavily on close economic analysis of particular markets, and that a
less stringent, civil enforcement route should be provided for ambiguous
conduct that courts are reluctant to condemn as criminal. It was recommended
that the Competition Act be amended to create a “two-track”
approach for agreements between competitors. The criminal conspiracy provisions
would be limited to clearly defined egregious behaviour, while potentially
benign arrangements among competitors would be reviewed under a civil
provision.
The Government of Canada responded to the Parliament’s report in
October, 2002 indicating that it supported the need to amend section 45.
Furthermore, it endorsed the two-track approach of retaining criminal
sanctions, without a competition test or an efficiency defence, against
hard-core cartel activities such as price-fixing, market-sharing, and
bid-rigging.
Following analysis of reports commissioned by the Bureau and
benchmarking with other key jurisdictions, the Government of Canada issued a
discussion paper to launch consultations aimed at reforming Canada’s
Competition Act. The proposals regarding the conspiracy provisions of the
Competition Act largely followed the Committee’s suggestions. The
criminal conspiracy provision would bar price fixing, market or customer
allocation, and output restriction agreements among competitors or potential
competitors. The current criminal conspiracy offence, which requires proof of
an “undue lessening of competition”, would be replaced with a new
offence making these agreements illegal per se (i.e. without a
competition test). A defence would be available where the defendants
established, “on a balance of probabilities,” that the conduct
under attack was ancillary to, and necessary to effectuate, a principal
agreement, unless the court found that the principal agreement itself had an
unlawful objective. To increase deterrence, the current $10 million fine would
be replaced with a fine set at the court’s discretion. A new civil
provision would also be introduced to deal with other types of agreements. This
provision would include a competition test and an efficiency factor and would
also be subject to administrative monetary penalties and a civil cause of
action.
During the last half of 2003, the PPF undertook public consultations
regarding proposed reform of the Competition Act, which included a submission
and a roundtable phase with various stakeholders, including the legal and
business communities, representatives from small, medium and large businesses,
consumer and business associations, the federal, provincial and territorial
governments, and not-for-profit organizations. The PPF issued its report on the
consultations in April, 2004.
Generally speaking, feedback on the proposed revised section 45 was not
favourable and views about whether section 45 should be amended were mixed.
Proponents raised the fact that Canada’s prosecutorial record of success
is extremely low compared to any other country and that it is inappropriate to
prove economic concepts under a criminal burden of proof. However, most
proponents suggested that any changes should be approached with caution to
ensure that section 45 is not over inclusive and does not chill legitimate
business ventures. Overall, supporters indicated that the weaknesses in the
draft provisions could be addressed, and that, with the necessary alterations,
the reforms would substantially improve Canada’s competitive
environment.
Opponents were not convinced that there was a sound rationale for reform
and challenged whether the Attorney General is unable to successfully prosecute
“hard core” cartels. They were of the view that the law is
sufficiently stringent to deter anti-competitive behaviour and foster
compliance and that the conspiracy offence would become overly inclusive. Other
respondents cautioned that it would be very difficult to find language that
clearly distinguishes hard-core cartel conduct without sweeping in arrangements
among competitors that are pro-competitive in nature.
Given the significant concerns raised about the proposal in the
Bureau’s discussion paper, the Bureau is undertaking further analysis and
consultations. The approach being taken has been described as a kind of
“reverse engineering.” The Bureau is identifying the types of
conduct that should and should not be covered by the conspiracy provision and
is trying various proposed conspiracy models on for size. The objective is to
assess the feasibility of various concepts, compare the results of various
approaches, and identify the best approach.
With the help of experts and benchmarking with other key jurisdictions,
the Bureau developed scenarios representing the types of conduct that should be
covered by a per se hard core cartel provision (i.e. without a
competition test) under the Competition Act. The scenarios cover different
behaviours in different contexts. The behaviours covered include price fixing,
market allocation, supply restrictions, and boycotts in the context of both
small and large markets, vertical, horizontal and hybrid agreements, strategic
alliances, association activity and buying groups.
The Bureau has for consideration several model conspiracy provisions
developed both internally and by outside competition experts, including the
proposal in the discussion paper and a revised proposal taking into account
comments provided during the PPF consultations. The models differ in terms of
the specified classes of unlawful agreements, whether conduct is per
se illegal with no competition test, the availability of an ancillary
restraint exception and block exemptions, and whether there is a notification
and clearance process.
The Bureau is in the process of applying each model to each scenario to
determine the best fit, based on the pre-established criteria or performance
objectives. Criteria or performance objectives include clarity, ability to
capture the most egregious behaviours, ability to screen out legitimate
strategic alliances, enforceability, severity of penalties, effect on private
action under section 36 of the Competition Act and compatibility with other
major jurisdictions. The results are then being compared to the status quo,
that is, the current section 45 of the Competition Act.
Based on the outcome of the analysis of the scenarios and models and a
risk analysis of the impacts of proposed models on enforcement and resources,
the Bureau will prepare options for amending the criminal track of a new
section 45 of the Competition Act. These options will be the basis of
discussion at technical roundtables with legal and economic competition experts
to be held in December, 2004. The goal is to complete the analysis of any
stakeholder input and to recommend a legislative amendment to the Minister of
Industry in 2005.
For now, the Bureau is focussing on analysing how it should approach any
proposals for change to the criminal track. Once a viable model has been
developed and feedback is positive, the Bureau can consider whether it is
necessary to reform the Competition Act to include a civil strategic alliance
provision. Commentators were divided on the need for a new civil strategic
alliance provision. Some generally agreed with the approach of the proposal for
alliances, especially since the review of alliances would resemble that of
mergers. Others were opposed, arguing that a new civil strategic alliance
provision is not required and could create a “chill” among
businesses and that the merger and abuse of dominance provisions are
sufficiently broad and contain effective remedies to correct single or joint
anticompetitive behaviour. Other respondents cautioned that it would be very
difficult to find language that clearly distinguishes hard-core cartel conduct
without sweeping in arrangements among competitors that are pro-competitive in
nature. Some commentators supported efficiencies as a factor in the overall
analysis, whereas some commentators preferred a defence such as the existing
efficiencies defence in the merger provisions of the Competition Act. A full
discussion of this issue is beyond the scope of this paper.36
Enhancing and Refining Investigative Tools
Canada has and continues to seek ways to bolster its anti-cartel enforcement toolkit through the adoption of a modern immunity program, refinement of other investigative tools and expansion of mechanisms to promote and facilitate international cooperation.
Immunity
Immunity is one of, if not the, most powerful tools in detecting, investigating and prosecuting cartels. Immunity programs are particularly important in international cartel enforcement in Canada since the targets and evidence usually lie outside of Canada. The Bureau had a “Cooperating Parties” immunity program in place for ten years prior to September, 2000 when it adopted its Immunity Program under the Competition Act. The current Immunity Program is loosely modeled on the US program and generally reflects all of the features identified by the OECD in its report as being key to a successful leniency program.
Under the Immunity Program, the Bureau recommends immunity in
appropriate cases but it is the Attorney General who decides whether to grant
immunity from prosecution or another form of favourable treatment. The success
of the program stems from its careful use of economic incentives to cooperate
with antitrust agencies which create a “race to the door”. Faced
with the realization that the antitrust agencies are armed with evidence from a
cooperating party from inside the cartel, many potential accused are ultimately
prepared to plead guilty as opposed to contest the matter.
The Bureau’s current Immunity Program has now been in place for
four years and has been an effective mechanism for fighting cartels,
particularly international cartels, and for promoting cooperation between
countries, such as coordinated searches and sharing of information. T he
presence of immunity programs in other jurisdictions, particularly the US, has
also assisted in the initiation of investigations in Canada where immunity
applicants follow the recommended practice of seeking immunity in all
jurisdictions where they have exposure. This does also bring with it certain
challenges, however, as information required for a proffer in another
jurisdiction to obtain immunity may be different from the information required
in Canada. As noted above, Canada’s Competition Act treats conspiracies
differently from competition laws in other major jurisdictions in that it
prohibits only those conspiracies that have “undue” anticompetitive
effects or that unreasonably enhance prices, and proof of a violation requires
showing more than the mere fact of an agreement.
As the first major cases that benefited from the Immunity Program have
for the most part now been completed, it is good time to reflect on its
strengths and weaknesses and ensure that the Program continues to be modern and
effective. Indeed, the OECD, in its most recent review of Canada to be released
shortly, notes that while the antitrust bar is satisfied with the core immunity
program, there are some complaints that insufficient guidance is available
about the availability of leniency for parties that do not qualify for full
immunity.37
As a result of internal discussions and experiences, as well as informal
conversations with legal practitioners most familiar with the Immunity Program,
the Bureau has identified a number of issues that require clarification with
respect to both the implementation and interpretation of the Policy.
For example, there is an issue with respect to the time between the
“first-in marker” stage, when immunity applicants first contact the
Bureau, and the hypothetical proffer stage, when immunity applicants provide a
more detailed description of the illegal activity. There have recently been
several examples of lengthy delays between the marker and proffer stages.
Delays in the proffer can mean delays in the investigation at a point where
timing is often crucial in terms of choice of investigative tools, preserving
the element of surprise and coordinating with other agencies. The current
Immunity Program does not suggest what is reasonable in terms of the timing of
the proffer. As a result, the Bureau wants to clarify the time lines within
which proffers should generally be provided, recognizing that the exact period
of time afforded to a company for perfecting its application will vary
depending on the circumstances.
Another example relates to the type and quality of information received
from immunity applicants. The current Immunity Program does not provide any
guidance as to how much or what kinds of information we need at the proffer
stage. In some cases, the Bureau has been provided with very little or sketchy
information. This can also cause delays in the investigation. The Bureau needs
detailed information in order to assess the priority and resources to be given
to a particular case. For example, the information provided should relate to
the Canadian market, address the legal test under the Canadian Competition Act
and provide some indication of the volume of commerce and the duration of the
activity for case screening purposes. As a result, the Bureau wants to clarify
the types of information that are useful at the proffer stage.
A third example relates to the issue of revocation of immunity. A recent
decision by the US Department of Justice to revoke immunity in the parcel
tanker case has created considerable uncertainty in the legal community about
the terms under which immunity will be revoked. In addition, in a recent
Canadian case the issue of revocation of immunity was considered due to an
apparent lack of cooperation and information. The lack of guidance in the
current Immunity Program on when, how to, and the consequences of withdrawing
immunity was not helpful in this situation. The Immunity Program should set out
the parameters for the Attorney General to revoke immunity or a provisional
guarantee of immunity and a protocol for dealing with these situations.
Finally, although the Bureau has a well developed practice in dealing
with claims for lenient treatment, and the related concept of immunity plus,
neither the situations where leniency can be obtained nor the possible benefits
have been clearly stated. Given that the opportunities to obtain immunity and
lenient treatment are separate, the availability of leniency, the terms under
which it may be obtained and the possible benefits ought to be incorporated
directly into the Immunity Program or in a separate policy statement. This
would address the issue raised by the OECD in its recent review of the
Bureau.
Although some jurisdictions, such as the US (1993) and EU (2002), have
reviewed and revised their policy since first implementing it, it does not
appear that all of the issues the Bureau has identified as requiring
clarification have been formally addressed in the policies of other
jurisdictions. The Bureau looks forward to working with the Department of
Justice, Competition
Law Division, stakeholders and other antitrust
agencies to craft a revised Immunity Program that provides more clarity and
predictability for companies and individuals seeking immunity and leniency in
Canada. The Bureau intends to start this process of review during the fall of
2004 following a formal announcement of the timing and process.
International Cooperation
Since cartels operate in secret and may have activities in many different countries, effective action often requires international cooperation. The Bureau has a number of tools at its disposal to promote and facilitate cooperation, including cooperation agreements, mutual legal assistance treaties and, as already discussed, immunity.
Canada, like many other jurisdictions, has in the last ten years entered
into several formal state- to-state cooperation agreements38 and the Bureau has entered into several
inter-agency agreements39 that promote and
facilitate cooperation in, among other things, cartel investigations. These
agreements and arrangements, which draw from the OECD Recommendation on
Cooperation, contain provisions on notifications, consultations, avoidance of
conflict and sharing of information subject to confidentiality laws . While
these instruments do not permit us or other jurisdictions to share information
that we could not otherwise share pursuant to our laws, they are a formal step
in enhancing and deepening an ongoing cooperative relationship that, as the
OECD pointed out, operates much more often at the informal level.
The ability to gather evidence located in foreign jurisdictions is
crucial to enforce and promote competition in globalized economies. Mutual
Legal Assistance Treaties (“MLATs”) are a useful tool in this
regard, as they permit law enforcers to request formal assistance from each
other in relation to the service of documents, taking of evidence, provision of
documents and records, and execution of requests for search and seizure. In
recent cartel cases, we have used mutual legal assistance treaties to request
production of evidence located in another jurisdiction and to request
assistance to compel the attendance of witness(es) for examination under oath
in the other jurisdiction.
Canada enters into MLATs pursuant to its general treaty making authority
under the Constitution and they are implemented by the Mutual Legal Assistance
in Criminal Matters Act (“MLACMA”).40 MLATs are not specific to competition matters.
As a result, t he Minister of Justice plays a pivotal role as Canada's "central
authority" in the administration and exercise of powers under MLATs. The
Minister of Justice approves the sending of an MLAT request to a central
authority in another jurisdiction. Canada has entered into over 30 of these
types of MLATs.
Part III of the Competition Act, which came into force in 2002, creates
a framework for Canada to enter into MLATs with respect to non-criminal
competition matters. From a cartel perspective, this could be useful for
jurisdictions which do not treat cartels as criminal matters. The new framework
essentially mirrors existing procedures with respect to criminal matters under
the MLACMA. Canada has entered into discussions with the US regarding the
possibility of concluding such an MLAT with them. However, no agreements have
been signed to date.
The use of the Canada-US MLAT has recently been the subject of a
significant legal challenge. In January, 2004, the Supreme Court of Canada
denied leave to appeal41 to the appellants
in the case of Falconbridge Limited, Noranda Inc., Noranda Dupont of Canada
Inc., and Noranda Metallurgy Inc. v. Commissioner of Competition42 upholding the use of Canada's treaty
obligations under its Mutual Legal Assistance Treaty with the United States for
antitrust offences. Briefly, the case had its origin in an MLAT request in
connection with the investigation into possible antitrust offences by
Falconbridge and Noranda in relation to sulphuric acid. The request for
assistance was approved by the Minister of Justice and the Canadian
Commissioner of Competition succeeded in obtaining search warrants pursuant to
section 12 of MLACMA, and an order for production of records pursuant to
section 18 of MLACMA, pursuant to which documents were seized and gathered. The
Commissioner of Competition brought an application to the court for a sending
order under section 15 of the MLACMA to send the records to the US.
Falconbridge and Noranda brought cross applications to have the search warrants
and evidence gathering orders set aside , and for a declaration that the Treaty
and MLACMA were not available in aid of the investigation of a Sherman Act
violation.
Falconbridge and Noranda argued, among other things, that the alleged
offence under section 1 of the Sherman Act did not fall within the definition
of “offence” under the MLAT. More particularly, they argued that
the definition of “offence” required that the offence carry a
mandatory minimum penalty of one year or more and that section 1 of the Sherman
Act does not meet this test. The MLAT between Canada and the US provides, in
part, that for the US, an “offence” is one for “which the
statutory penalty is a term of imprisonment of one year or more.” Both
the Superior Court and the Court of Appeal rejected this argument and affirmed
that section 1 of the Sherman Act is clearly within the plain meaning of the
MLAT definition of “offence”. The Court of Appeal stated that
“[w]riting the words "mandatory" and "minimum" into the "offence"
provision for the United States would…lead to the illogical conclusion
that the parties to the Treaty intended a gross imbalance in the range of cases
for which the United States would be required to assist Canada”.
Falconbridge and Noranda further argued that the MLAT requires
“reciprocity” or “dual criminality” such that any
alleged offence with the requesting state must also be an offence within the
requested state. In this case, the alleged conduct did not amount to an offence
under Canadian laws. The courts also rejected this argument and confirmed that
the MLAT does not have “a reciprocal offence requirement” or
“dual criminality” in terms of the “offence”. Rather,
the MLAT sets out an obligation to give effect to requests regarding certain
“offences” as defined in the MLAT and to give certain kinds of
assistance also as set out in the MLAT and subject to various stipulated
limitations. The Court of Appeal recognized that their interpretation of the
MLAT “places Canada in the position of providing assistance in situations
for which it would never have occasion to make a
demand”. However, the Court was of the view that this is
“precisely what the Treaty envisages”.
This case is significant as it confirms our ability to use the Canada-US
MLAT for Canada–US cooperation in antitrust matters to obtain evidence
that might not otherwise be obtainable. Moreover, the reasoning and treaty
interpretation by the courts may be equally applicable to MLATs Canada has
negotiated with other countries. However, it is recognized that legal
challenges can significantly delay the value of any cooperation under MLATs and
can serve as a disincentive for relying on MLATs to obtain information. This
very clear ruling of the highest courts should encourage use of MLATS and help
stave off future challenges based on similar grounds.
Raising Awareness of Cartels
Notwithstanding the consensus among academics and competition enforcers about the harmful effects of cartels, there appears to be a real lack of public and government awareness of the way and extent to which cartels threaten economic growth and efficiency and role of the Competition Act and the Bureau in combating cartels. The Bureau has a variety of instruments at its disposal to encourage compliance with the Competition Act, including section 45. These instruments range from the publication of bulletins and enforcement guidelines, seminars and videos, to advisory opinions and warning letters, to negotiated settlements and prosecutions. The Bureau is able to choose the appropriate instrument or combination of instruments to address the issues raised by any specific situation.
In the cartel area, education can be as important as prosecutions in
detecting and deterring cartel activity. For example, the Bureau has had
significant success with its outreach program for bid rigging which has been in
place for the last ten years and which serves as a tool for education about and
prevention and detection of bid rigging.
Bureau officers from headquarters and the regions, on their own
initiative, but more often at the request of others, make presentations about
what is bid rigging, how to detect it, (ie. patterns and warning signs), what
the Bureau does in terms of investigation, how bid rigging is prosecuted, and
what can be done to prevent bid rigging, such as requiring secrecy of bids,
initiating training on bid rigging and demanding a certificate of independent
bid determination. Presentations also include a section on the Bureau’s
Immunity Program. Presentations are given on average about ten times a year to
a variety of audiences ranging in number from 30 to over 150, coming from both
private and public sectors, from all levels of government, and including groups
of purchasers, through an association, such as the Purchasing Managers
Association of Canada, or otherwise, industry associations, commercial crime
and fraud units43 of other law enforcement
agencies, and certified fraud examiners. In addition to the oral presentations,
the Bureau has prepared a CD-ROM presentation that is provided to those
attending the sessions and which contains more detailed information and can be
circulated more widely. This presentation can also be viewed on the Bureau's
web site.
Feedback regarding this education program is generally very positive and there have been some very tangible results. In terms of raising awareness, some presentations have spawned follow-up press releases and magazine articles. In terms of prevention, the Bureau is often asked to review and advise on tendering procedures. In addition, the Bureau is exploring with other federal government departments the possibility of formalizing training on bid rigging and making it a part of the certification of federal procurement agents. Finally, in terms of detection, this program has been useful in bringing to the Bureau’s attention questionable bidding processes and in some cases has been the source of the initiation of a formal investigation.
While the Bureau has not formally considered extending this type of
program to other areas covered by the Competition Act, there could be some
benefit to having a similar set of activities to cover, for example,
conspiracies.
Another way to reach more people is to increase the Bureau’s local
presence throughout the country and to get the Bureau’s “feet on
the street”. The Bureau has had regional branches for several years, as
do other antitrust agencies, such as the ACCC. Officers in the regional
branches were initially only responsible for the administration and enforcement
of certain labelling statutes.44 The
regional branches were then also given responsibility for unfair marketing
practices under the Competition Act, including false or misleading advertising
or representations and deceptive marketing and telemarketing . Staff in the
regions have gradually been trained with respect to other work under the
Competition Act, including cartel matters. As a result, the Bureau is in the
process of transferring to the regional offices some of the work traditionally
done by the Criminal Matters Branch in Ottawa, such as investigations involving
local conspiracy and bid-rigging.
This is one way of addressing the challenge of ensuring that the Bureau
devotes resources to domestic cartels and not just international ones.
Ultimately, it will mean that the Bureau has well-rounded and skilled officers
closer to important stakeholders: local counsel and firms under investigations
and will allow the Bureau to establish deeper alliances with local enforcement
authorities. This local presence will increase the visibility of the Bureau and
increase opportunities for detection of cartel activities.
Conclusion
There is a significant amount of consensus internationally about the harm of cartels and the need to take effective and appropriate action. There are also unprecedented international efforts, particularly in fora, such as the ICN, which recently announced that work on cartels is one of its main priorities, to share information about our respective anti-cartel regimes, to develop a common understanding of the nature and impact of cartels, to learn about how other agencies detect, investigate and sanction cartels, to cooperate with other agencies in the detection and investigation of international cartels which might otherwise be outside the reach of a domestic law, to identify effective approaches and to promote adoption of the most effective approaches, or “soft convergence”. In the cartel context, convergence with respect to, for example, legal standards, and procedures, can make it easier for parties to come forward to agencies as immunity applicants. Moreover, convergence in approaches can make it easier for agencies to cooperate in the detection, investigation and sanctioning of cartels, through, for example, the sharing of information and coordination of investigative steps. The work being done internationally should inform and inspire jurisdictions in their efforts to implement new laws or reform old laws regarding cartels, as has been the case with the ICN’s work on merger review processes.
The Bureau is an active participant in these international fora, which have been invaluable sources for benchmarking and measuring the effectiveness of Canada’s cartel regime. In this context, the Bureau is currently reviewing its anti-cartel regime to ensure that it is effective in combating cartels, both international and domestic. The Bureau is considering the possible reform of its anti-cartel law to clarify the standard to ensure that it finds the right balance between deterring egregious hard core cartel conduct while at the same time encouraging other pro-competitive agreements. In addition, the Bureau has and is taking several other steps, including clarification of its Immunity Program, implementation of new tools for cooperation, and outreach to raise awareness of cartels. All of these efforts better arm the Bureau to detect, investigate and sanction cartels, both domestic and international.
8. OECD Global Forum On Competition, supra note 4.
- an agreement between two or more persons;
- a combination of market power, that is the ability to behave relatively independently of the market, and behaviour likely to injure competition;
- subjective intent, ie. the parties intended and did enter into an agreement; and
- objective intent, ie. the parties knew, or a reasonable business person ought to have known, that the agreement would lessen competition unduly.
26. R.. v Nova Scotia Pharmaceutical Association, supra, note 24 at 650:
- Section 32(1)(c) [now section 45] lies somewhere on the continuum between a per se rule and a rule of reason. It does allow for discussion of the anti-competitive effects of the agreement, unlike a per se rule, which might dictate that all agreements that lessen competition attract liability. On the other hand, it does not permit a full blown discussion of the economic advantages and disadvantages of the agreement, like a rule of reason would.
- "For example, section 1 of the U.S. Sherman Act is a broad provision with judge-made categories of per se prohibitions and no competitive effects test for hard-core cartel activity. For other types of arrangements examined under section 1 of the Sherman Act, the courts have applied a rule of reason analysis to determine if the prohibition is violated. In comparison, Article 81 of the European Community Treaty (the "EC Treaty") does not include any per se prohibitions, but relies on a broad prohibition and a system of individual or block exemptions that, in principle, could result in exemption for arrangements that would fall within the per se prohibitions implied under the Sherman Act. The Australian Trade Practices Act contains very specific per se prohibitions against price-fixing arrangements, while others rely upon broader and more general prohibitions, similar to Article 81 of the EC Treaty."
31. Economic Council of Canada, Interim Report on Competition policy. Ottawa: Queen's Printer, 1969.
The terms of reference for these reports requested that experts consider the feasibility of a two-track approach which would have the following general characteristics:
- criminal provision that prohibits as per se offenses agreements to fix prices, share markets, restrict output and engage in boycotts;
- exception or defence based on the "ancillary restraints doctrine"; and
- civil provision that would apply to "complex competitor agreements" incorporating a rule of reason analysis.
