The United Kingdom’s competition regulator has launched its first-ever advertising campaign to entice “insiders” to blow the whistle on cartels for cash and for companies to gain immunity from prosecution if they inform on their co-conspirators first.
The Competition and Markets Authority’s (CMA) campaign, called “Cracking down on Cartels,” wants to make more people aware that they can potentially earn a reward of up to £100,000 if they report on any illegal activity they witness that results in a prosecution. Informants will also be promised anonymity.
Neither incentive is new. The £100,000 bounty and anonymity guarantee have been around since 2008 when the former regulator, the Office of Fair Trading, thought they would be a great way to combat anti-competitive behaviour.
Unfortunately, the message didn’t get through. Research carried out by the CMA in 2015 found that less than a quarter of businesses surveyed said that they knew competition law well. Worse still, only 16 percent knew that informants could get a reward for reporting a suspected cartel, while just 15 percent were aware that the CMA operates a leniency programme for businesses and individuals that confess their involvement in a cartel and co-operate with the regulator. Hence the need for an ad campaign.
Andrea Coscelli, the CMA’s acting chief executive, said in a statement that “cartels are both harmful and illegal, and the consequences of breaking the law are extremely serious. That is why we are launching this campaign—to help people understand what cartel activity looks like and how to report it so we can take action.”
As part of the CMA’s new information campaign, adverts will appear in people’s social media feeds, such as Twitter and LinkedIn, as well as on key websites.
Stephen Blake, senior director of the cartels and criminal group at the CMA, says that the whistleblower hotline is already a popular tool. “Our investigations stem 50/50 between intelligence-led investigations, and from our leniency policy and whistleblowing programme,” adding that “both are incredibly important tools in fighting cartels.” Blake declined to say how many informants had been eligible for the full £100,000 reward in the past nine years when the scheme first started, or how much the CMA has paid out in total in return for information leading to convictions.
Blake says that the process involved in checking a lead from the whistleblower hotline can be lengthy. Following the initial call, the CMA tries to set up a meeting with the informant. The regulator then tries to assess his/her credibility, as well as establish the quality of evidence that the whistleblower might have—for example, does the person have the documents already or possible access to them? Another consideration is whether the informant is actively involved in the cartel activity (if so, they are not eligible for any reward, though they may avoid prosecution). The CMA also tries to establish the level of risk to the individual for coming forward with the information.
One recent case that came from a tip-off and which resulted in a successful prosecution is that of two furniture parts-makers who were fined £2.8m between them in January after they agreed not to compete on price and which of them would supply certain customers. The companies—Thomas Armstrong (Timber) and Hoffman Thornwood, which supply drawer parts to well-known U.K. furniture manufacturers such as Silentnight—also admitted bid-rigging and exchanging commercially sensitive information.
“I think that paying for information is a bad policy. The information you get is often selective, prejudicial, and low-value. The Financial Conduct Authority considered taking a similar approach a few years ago and rightly decided against it.”
David Corker, Partner, Corker Binning
Another manufacturer, BHK (U.K.), escaped a fine after it confessed its involvement in cartel activity shortly after the investigation started. Under the CMA’s leniency policy, a business that has been involved in a cartel may be granted immunity from penalties or a significant reduction in penalty in return for being the first of the companies involved in the cartel to report the activity and assist the CMA with its investigation.
Several competition lawyers believe that the CMA’s campaign is an admission that its policies are not working well. Marc Israel, a partner in law firm White & Case’s global antitrust practice, says that “the fact that the CMA feels it is necessary to relaunch its reward system suggests it feels there are many cartels still operating and that the corporate leniency policy is not quite sufficient.”
Other lawyers are simply unimpressed. Oliver Bretz, founding partner at boutique competition law firm Euclid Law, says that the CMA’s announcement is “just rehashing a policy that has been in existence—and which has never worked effectively – since 2008.”
David Corker, a partner at criminal law firm Corker Binning, brands the CMA’s announcement as a “PR stunt” to “make it look like the CMA is a tough and proactive regulator” following “years of criticism that it was supine and ineffectual.” He adds that “the CMA receives loads of tip-offs all the time. It just often fails to act or does not gather evidence properly so that it can bring a case. It does not need to offer financial inducements to try to win cases.”
“I think that paying for information is a bad policy,” says Corker. “The information you get is often selective, prejudicial, and low-value. The Financial Conduct Authority considered taking a similar approach a few years ago and rightly decided against it. The CMA should do the same.”
Other experts are similarly sceptical. “There are easier ways to make £100,000. Driving an Uber Black Cab would be more beneficial, frankly, and less dangerous,” says one lawyer.
Some think that the offer of cash for information is clumsy and that the regulator’s guarantee of anonymity is “wishful thinking.” “You can usually count the number of individuals involved in operating a cartel on your fingers, so it soon becomes blindingly obvious who will have informed to the regulator to pick up the award,” says one expert. “As a result, whistleblowing is hardly anonymous and does little to protect the individual. Risking your career for £100,000 is hardly a suitable inducement really, even if you have left the company, because any employer will think that you are prepared to violate the terms of your employment contract to make a fast buck.”
Gaining a £100K reward may not be easy
Below the CMA describes the process for rewarding those who blow the whistle on cartels.
Cartels are illegal under both the U.K.’s civil and criminal law. Under the civil law (the Competition Act 1998), the CMA is able to fine companies up to 10 per cent of their turnover if they are found guilty of cartel activity.
Individuals who engage in cartel activity may commit a criminal offence and may be imprisoned for up to five years and may be given an unlimited fine.
Any company directors implicated in cartel activities could also be disqualified from acting as a director in the future for up to 15 years.
The CMA offers financial rewards of up to £100,000 for information about cartel activity, but only “in exceptional circumstances” and at its “discretion”, according to its own guidance. The regulator will not pay up front for information, and will only pay if the case results in a successful prosecution. “We won't bargain over how much will be paid—but we do aim to pay a fair price,” it adds.
The CMA can reject offers of information and it does not have to give reasons for doing so. Furthermore, the CMA is not obliged to give informants money even when they do provide credible information if it decides not to use that information as part of the case, or even decides not to pursue a case at all.
Anyone who was directly involved in the cartel—but who subsequently turns informant—is ineligible for any financial reward, though he or she may gain complete civil and criminal immunity from sanction provided that they are the first to report the cartel’s existence, they co-operate fully, and the company was not already subject to a CMA investigation.
Where a reward is available, the amount that the CMA will give depends on: the value of the information in terms of what the CMA has been able to achieve from it; the amount of harm to the economy and consumers which the regulator believes the information provided has helped to put a stop to and/or has helped to disclose; the effort the informant has had to invest in order to give the CMA the information; and the risk the informant has had to take in order to give the CMA the information.
Financial awards are also only limited to “company insiders”: suppliers, third-parties, rival businesses and so on who may be in a position to have concerns about cartel-like activity are ineligible for awards for their information “even if those concerns are backed up by at least some evidence.”
Source: Competition and Markets Authority
Israel points out that “there is no guarantee the whistleblower will get £100,000. In fact, any reward near the top end of the scale is likely to be the exception rather than the rule. Any payment is entirely at the CMA’s discretion.” (See sidebar for more detail).
Critics of the CMA claim that the regulator is “tired” and “ineffectual,” “zeroing in on small fry” and “easy targets.” In the first three months of this year, the regulator has achieved just two successful prosecutions, one of which was the case of the furniture manufacturers that has been already mentioned. The other occurred on 2 March when the regulator jointly fined four Somerset estate agents who admitted to engaging in illegal price-fixing for just over a year £370,000.
The CMA says that it is “nonsense” to suggest that it fails to act where evidence of illegal activity is brought to it, and adds that it is “committed to using everything in [its] armoury to tackle and deter such behaviour”. “While not every piece of intelligence will lead to an investigation, each one is thoroughly examined and considered,” says a CMA spokesperson.
“Last year we opened double the number of cases on the previous year. We also issued a total of £142m (U.S$177m) in fines in 2016, i.ncluding to major pharmaceutical companies—making clear it’s simply not true to accuse us of ‘zeroing in on small fry’.”
The CMA also says that it is also important to clamp down on local cartels as their negative effects “are often felt more acutely by the local economy.”
The U.K. is among a select group of countries that pay cartel informants. According to Israel, only a small number of jurisdictions offer financial rewards for whistleblowers that identify cartels, and it is difficult to judge their success. South Korea was the first country to set up an informant reward programme back in 2002. Its reward and confidentiality protections have since been expanded, and the maximum reward is now roughly €2.5m, or U.S.$2.66m.
In June 2015, Taiwan introduced its Antitrust Whistleblower Rewards Programme, which has the best financial incentives scheme of any on offer (in terms of percentages). As a reward for reporting an antitrust violation, the whistleblower is entitled to a reward ranging from 5 percent to 20 percent of what the regulator recovers under the act up to a maximum of TND$320,000 (U.S.$10,500 or €9,860) if the total fines and penalties recovered is less than TND$6.3m (U.S.$206,816 or €194,122). Notably, the whistleblower programme provides that if the fines and penalties collected by the Commission exceed TND$6.3m but are less than TND$16m (U.S.$525,276 or €493,000) in one case, the capped TND$320,000 does not apply and the whistleblower is entitled to claim double that award. In an event where the fines and penalties go beyond TND$16m, the financial reward can reach five times higher than TND$320,000.
In the European Union, only Hungary and Slovakia offer similar incentives to those on offer in the United Kingdom. Hungary’s 2010 antitrust law entitles whistleblowers to up to 1 percent of the fine as imposed by the Hungarian Competition Council (with a cap of 50m HUF—about €161,655 or U.S.$172,220). Slovakia, meanwhile, introduced new whistleblower regulations from 1 July 2014 that also allow informants up to 1 percent of the fine total meted out to cartel participants (capped at €100,000).
Further afield, under Pakistan’s Competition (Reward payment to informant) Regulation, 2014, anyone exposing information regarding companies’ involvement in prohibited activities, including cartel and anti-competition activities, will get a reward equalling around €18,000 (U.S.$19,120).
Notably, the United States does not have a similar system in place—or at least not yet. But there are strong indications that one may be coming. In February, the American Antitrust Institute (AAI) issued a report on American Cartel Enforcement in Our Global Era. One of the AAI’s recommendations is that Congress, or the Antitrust Division of its own accord, should institute whistleblower rewards in cartel cases akin to those made available in qui tam civil suits under the False Claims Act. The AAI says that the Division’s individual leniency policy for criminal matters appears to be little used, and a whistleblower rewards programme could increase cartel detection by encouraging more individuals to come forward.
The Division has historically opposed such a programme because of concerns that the advantages would be outweighed by disadvantages, such as undermining the credibility of key witnesses, encouraging weak or fraudulent claims, undermining internal corporate compliance programmes, and requiring expenditure of resources for administration.
But the AAI suggests that “given the under-detection and under-deterrence of cartels, and because many of these perceived disadvantages could be ameliorated, the Division should reconsider this position and study the effectiveness of whistleblower reward programs that have been enacted in the United Kingdom, Hungary, and Korea.”