13th Jun 2018
Cartel Criminalization and Leniency Policies in the Philippines
(13 June 2018)
“Let me start with the obvious: cartel behavior (price-fixing, market allocation, and bid- rigging) is bad for consumers, bad for business, and bad for efficient markets generally. And let me be very clear: these cartels are the equivalent of theft by well-dressed thieves, and they deserve unequivocal public condemnation.”
— Joel I. Klein, Asst. Attorney General, U.S. Department of Justice Antitrust Division, “The War against International Cartels: Lessons from the Battlefront”, Speech at the 26th Annual Conference on International Antitrust Law and Policy, Fordham Corporate Law Institute, New York, 14 October 1999.
Hard core cartels are classified as the most egregious violations of competition law and that they injure consumers in many countries by raising prices and restricting supply, thus making goods and services completely unavailable to some purchasers and unnecessarily expensive for others.[i] As such, cartelists have been described as well-dressed thieves. In fact, there is a worldwide debate on the criminalization of cartel conduct. Many jurisdictions such as the US and Australia provide for criminal sanctions against cartelists. The US Antitrust Division has long emphasized that the most effective way to deter and punish cartel activity is to hold culpable individuals accountable by seeking jail sentences.[ii] Among OECD members, there is a trend toward accepting that sanctions against individuals can contribute to more effective anti-cartel enforcement.[iii]
In the Philippines, cartel conduct (such as agreements among competitors regarding restricting competition as to price and other terms of trade, bid rigging, controlling production, market allocation), is considered as a criminal offense. In addition to administrative fines, cartel conduct is punished with imprisonment ranging from two (2) years to seven (7) years and a fine not less than Fifty Million Pesos (P50,000,000.00 or approximately US$961,000) but not more than Two Hundred Fifty Million Pesos (P250,000,000.00 or approximately US$4.8 Million) for each and every violation.[iv]
The significance of cartel criminalization in the effectiveness of law enforcement is supplemented by efficient leniency policies. In order to be effective, there must be existing laws with severe sanctions for cartel conduct such that a cartelist would prefer to avail of the leniency program than face the threat of sanction. Hence, it has been propounded that the imposition of criminal sanctions for cartel conduct would make leniency programs work. The US Antirust Division boasts of a good leniency program coupled with stiff criminal penalties of imprisonment for cartel conduct.
Leniency policies can also augment detection and enforcement tools of competition officials. Since cartel activities are usually clandestine, these activities can be detected if an insider comes forward and supplies the information. Such information, coupled with documentary and testimonial evidence, may provide sufficient basis to convict individuals. Otherwise, it is quite difficult to meet the quantum of proof required of criminal prosecution, namely proof beyond reasonable doubt.
The Philippine Competition Commission (“PCC”) is tasked to develop a leniency program for cartels.Immunity will be granted to the participants of the covered acts if they voluntarily disclose information before a fact-finding or preliminary inquiry has begun provided that the following conditions are met:
(a) At the time the entity comes forward, the Commission has not received information about the activity from any other source;
(b) Upon the entity’s discovery of illegal activity, it took prompt and effective action to terminate its participation therein;
(c) The entity reports the wrongdoing with candor and completeness and provides full, continuing, and complete cooperation throughout the investigation; and
(d) The entity did not coerce another party to participate in the activity and clearly was not the leader in, or the originator of, the activity.[v]
Nevertheless, even after the PCC has received information about the illegal activity after a fact-finding or preliminary inquiry has commenced, the participant will still be granted leniency provided conditions (b) and (c) above and the following additional requirements are complied with:
(1) The entity is the first to come forward and qualify for leniency;
(2) At the time the entity comes forward, the Commission does not have evidence against the entity that is likely to result in a sustainable conviction; and
(3) The Commission determines that granting leniency would not be unfair to others.[vi]
The effect of the grant of leniency to the disclosing entity will either be immunity from suit or reduction of the fines. An entity cooperating or furnishing information, document or data to the PCC in connection to an investigation being conducted shall not be subjected to any form of reprisal or discrimination.[vii]
In addition to the leniency program, an entity charged in a criminal proceeding involving cartel conduct may enter a plea of nolo contendere. This means that the accused will neither accept nor deny responsibility for the charges but nevertheless agrees to accept punishment as if he had pleaded guilty. The plea cannot be used against the defendant entity to prove liability in a civil suit arising from the criminal action nor in another cause of action: Provided, That a plea of Nolo Contendere may be entered only up to arraignment and subsequently, only with the permission of the court which shall accept it only after weighing its effect on the parties, the public and the administration of justice.[viii]
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[i] Competition Committee, OECD, Recommendation of the Council Concerning Effective Action against Hard Core Cartels (Resolution No C(98)35/FINAL, 25 March 1998).
[ii] S Hammond, ‘The Evolution of Criminal Antitrust Enforcement over the Last Two Decades’ (Speech delivered at the 24th Annual National Institute on White Collar Crime, Florida, 25 February 2010) p. 11.
[iv] Republic Act No. 10667, otherwise known as the Philippine Competition Act (“RA 10667”), ch VI s 30.
[v] RA 10667 ch VII s 35.
[viii] RA 10667 ch VII s 36.