The Leniency Notice adopted in 2006 introduced the possibility for undertakings to apply for immunity from fines, provided that they are the “first to submit information and evidence which will enable the Commission to (a) carry out a targeted inspection in connection with the alleged cartel ; or (b) find an infringement of Article 81 EC in connection with the alleged cartel”. The prospect of obtaining full immunity is one reason for the success of the Leniency program, especially since the amounts of fines imposed for cartel infringements has increased in recent years1. In that sense, a leniency application results from a balance between costs and benefits, meaning that it must be sufficiently incentivizing for an undertaking to want to expose the cartel. However, we observe that after assessing the risks, cartelists struggle to see a real benefit in revealing the cartel2, and prefer to adopt a “wait and see” strategy, which can be reflected in the settlement procedure.
The settlement procedure is initially designed as a complementary tool to leniency, requiring undertakings to acknowledge their unlawful behaviour in exchange for a reduction of fines. Although both tools aim at cartel deterrence, they occur at different stages of the proceedings: while the application for leniency is introduced before the onset of the investigation, the settlement procedure takes place at a later stage, in order “to speed up final resolution and reduce all parties’ legal costs”3. In this sense, “settlement is a procedural efficiency instrument while leniency is an instrument to gather evidence”4. In that regard, the settlement procedure is useful for undertakings that colluded and decided not to reveal it, but all the difficulty in the implementation of this tool resides in the risk of undermining the effectiveness of leniency.
Consider a simple case where the undertakings, after assessing the costs and benefits to apply for leniency, decided not to reveal the cartel. The Commission then decides, post investigation, to offer them a settlement. They accept the offer. At that moment, the risk of a pro-collusive effect is high: the major challenge for the institution, through the bilateral settlement discussions, is now to set an appropriate settlement amount that does not reduce the incentive to apply for leniency. Indeed, the lower the settlement amount (i.e., the lower the fines), the higher the expected value to collude and not reveal (which leads to an increase of cartel formation and reduces the effectiveness of leniency).
The Commission therefore has to balance between the need to offer a settlement that is attractive enough for undertakings to accept, but without making it too generous as it could increase the profitability of collusion5. An inappropriate amount will encourage cartelists to adopt a “wait and see” strategy, i.e., not reveal the cartel in the first place6. This obviously contributes to another challenge of the settlement procedure, which is not to reduce the deterrence effect of the leniency program.
On that matter, the Settlement Notice provides for a reduction of fines of 10%, but this percentage cannot in any way be applied systematically to every fines reduction granted to cartelists. One criterion that contributes to the deterrence effect of the settlement procedure is the asymmetry of the settlement fine reductions between undertakings. In other words, the first undertaking to accept the settlement procedure is granted the highest fine’s reduction. This uncertainty regarding the amounts will de facto lead to a “race to settle”, and ensure the effective enforcement of cartel cases. Moreover, it can also strengthen the leniency mechanism , because the fear of ending up with the less favourable offer will encourage undertakings to take the lead and reveal the cartel.
However, this deterrence mechanism may be insufficient to protect against the decrease in incentives to apply for leniency, if the latter is structurally failing. We notably observe that for undertakings which would come second or third to reveal the cartel, their incentive to apply for leniency decreases, because they would only benefit from a reduction of fines. It has been revealed that in cases concluded under the settlement procedure, 85% of the parties benefited from leniency7. That shows that non-first leniency applicants prefer to wait and negotiate a settlement at a later stage of the procedure, rather than expose themselves at the beginning. That is why cartel deterrence needs to be supported by other active tools, especially ex-officio: in Italy, cartel enforcement remains strong particularly because of an effective cooperation between agencies, which protects incentives for companies to self-report8.
As a result, there is no doubt that settlement fine reductions contribute to the success of that procedure, but also impact the effectiveness of the leniency procedure. Clear responses remain to be seen and this is up to the European Commission to ensure the real complementarity of these tools which cannot lead to an exclusionary effect of one mechanism due to the wrong calibration of fines, which is clearly stated in a case-by-case analysis. This task is even more complicated since we could argue, on the contrary, that a higher amount of fine reduction of 20 or 30% would not impact the attractiveness of the leniency program, as leniency applicants benefit from immunity or reduction of fines up to 50%. Furthermore, the percentage of fine reduction of 10% set currently for the settlement procedure might not be sufficient to incentivise undertakings which have not applied for leniency, to settle9.
- Johan Ysewyn and Siobhan Kahmann, “The decline and fall of the leniency programme in Europe”, Concurrences n°1-2018, pp.44-59. ↩︎
- L. Ortiz Blanco, “European Union Competition Procedure”, Chapter 6 on Leniency. ↩︎
- Matthew Strathearn, Zhiqi Chen, Thomas W.Ross, “Settlements in the presence of leniency programs: Costs and benefits” Wiley online library, September 1st, 2023, https://doi.org/10.1002/mde.3991. ↩︎
- Website of the European Commission, “Competition Policy: Cartel cases settlement procedure”, 2023. ↩︎
- “Settlements in the presence of leniency programs: Costs and benefits”, supra note 3. ↩︎
- OECD “The Future of Effective Leniency Programmes: Advancing Detection and Deterrence of Cartels”, OECD Competition Policy Roundtable Background Note, 2023. ↩︎
- Wouter Wils, “The European Commission’s cartel settlement procedure : An assessment after fifteen years”, Concurrences N° 3-2024, Art. N° 119526, September 2024. ↩︎
- OECD, “Alternatives to Leniency Programmes – Summaries of contribution”, 7 December 2023, p.10. ↩︎
- Virgilio Pereira, “Antitrust leniency and settlement policies in the EU and the UK”, Thesis, King’s College London, September 2022, p.125. ↩︎
Co(E)mpetition Procedure 