Cartel Enforcement: Fundamental changes on the way as Competition Bureau publishes new immunity and leniency bulletin

Published by the Competition / Antitrust & Foreign Investment Group

Earlier this year, we reported that fundamental and controversial changes were on the horizon for the Competition Bureau’s (the “Bureau”) Immunity and Leniency Programs (the “Programs”). On September 27, 2018, these changes came into effect with the Bureau’s release of a newly published bulletin (the “Bulletin”), which follows two rounds of public consultations. According to the Bureau and the Public Prosecution Service of Canada (the “PPSC”), the changes are intended to improve Canada’s detection, investigation and prosecution of criminal violations of the Competition Act (the “Act”).[1]

As will be discussed, the new changes carry with them increased burdens and uncertainties for applicants. As such, applicants should very carefully assess the risks and benefits of participating in the Programs before communicating with the authorities.

Overview: The Immunity and Leniency Programs

Where the Bureau believes that an offence may have been committed under the Act, it may refer the matter to the Director of Public Prosecutions (the “DPP”). The DPP is responsible for criminal offences under the Act, such as price-fixing conspiracies, bid-rigging, and deceptive marketing practices. Where companies and individuals self-report their involvement in such offences under the Act and cooperate in the investigation and prosecution thereof, the Bureau may recommend to the DPP that such persons be granted immunity or leniency in sentencing. The Bulletin seeks to outline the Bureau’s approach to making such recommendations, to which the DPP is notably not bound.

According to the Bulletin, the Immunity Program is available to the first party to self-report an offence under the Act in circumstances where the Bureau is either unaware of an offence or where the Bureau is aware of an offence and the applicant is the first to provide adequate evidence for referral of the matter to the DPP. In exchange for their participation, immunity applicants are eligible to be completely immunized from prosecution.

The Leniency Program, on the other hand, is available to subsequent applicants that self-report an offence under the Act. Typically, the Commissioner of Competition will only recommend the granting of leniency in sentencing where the applicant has terminated its participation in the cartel, has agreed to cooperate fully and in a timely manner, demonstrates that it was a party to the offence, and agrees to plead guilty.

Key Changes

The most recent round of public consultations has not lead to any significant changes between the May 2018 draft bulletin and the final product. However, in contrast with the former immunity and leniency programs, the Bulletin does introduce the following key changes:

(a)  Immunity Program

  • No automatic corporate immunity. Automatic coverage under a corporate immunity agreement for all directors, officers and employees will no longer be provided. Instead, individuals who seek immunity will need to admit their involvement as a party to the offence and demonstrate their willingness to cooperate with the Bureau’s investigation.
  • New grant of interim immunity (“GII”) stage. The Bulletin adds a new stage to the current immunity process, whereby documentary and testimonial evidence is to be provided following the proffer process.
    • Under the GII, an applicant will receive a conditional form of immunity, subject to the applicant’s obligations of continuing cooperation and compliance with the other requirements of the program.
    • Where the applicant is a recidivist, the PPSC may consider whether granting immunity to the applicant is in the public interest before issuing the GII.
      • According to the Bulletin, the DPP will typically only consider previous offences under the Act, provided that they were committed or judicially sanctioned within the ten years leading up to the immunity application.
    • The PPSC will enter into a final immunity agreement only after prosecution has been completed, or when the Bureau and PPSC consider that no further assistance from the applicant is required.
  • New process for privilege claims. The Bulletin introduces a new mandatory protocol for identifying, reviewing and adjudicating privilege claims by immunity applicants.
    • Following the GII stage, the applicant must provide notice of its privilege claims to the Bureau, presumably by delivering a privilege log. Then, the Bureau will refer this information to the PPSC.
    • If it is not persuaded by the applicant’s privilege claims, the PPSC and the applicant may agree to appoint an independent counsel to resolve the privilege claim. Otherwise, the PPSC may ask the court to rule on the privilege claim.

(b)  Leniency Program

  • Increased fine reductions. Under the former program, the first leniency applicant (i.e., the second party to cooperate after the immunity applicant) could obtain a fine reduction of up to 50%, and subsequent leniency applicants were eligible for a fine reduction of up to 30%. The current program now allows all leniency applicants to benefit from a fine reduction of up to 50%, based on the timing of the application and the value of the party’s cooperation.
  • Compliance programs now a mitigating factor. In line with Bureau’s Corporate Compliance Programs Bulletin, an effective compliance program will be treated as a mitigating factor.

Our Observations

As mentioned above, the publishing of the Bulletin follows two rounds of public consultations spanning 2017 and 2018. During this time, concerns were raised that the proposed revisions to the Programs would impose significant burdens and uncertainties on applicants and therefore undermine the Programs.[2] Although the Bureau clearly took stock of the many criticisms advanced over the course of the consultations, many concerns went unaddressed, at least in part.

For example, it was mentioned that the GII process, now adopted, would increase uncertainty as it would result in a final immunity agreement being provided several years after the initial proffer. Concerns were also raised about the new privilege review process, specifically in relation to whether external counsel’s notes and other documents created during the internal investigation, in Canada and in other countries, would have to be disclosed and whether such disclosure could result in a waiver and loss of privilege in other jurisdictions. No clarity has been offered in that regard in the Bulletin. In addition, it was argued that the draft bulletin emphasized significantly the risks of revocation of immunity or expulsion from the Leniency Program. As the many references to revocation and expulsion remain, this too creates uncertainty for applicants of the Programs.

Furthermore, it was noted that the Programs contain no express debarment exemption to leniency applicants, who therefore face debarment from federal public procurement under the government’s Ineligibility and Suspension Policy after pleading guilty as part of the leniency process. The new Remediation Agreement Regime,[3] which came into force on September 19, 2018, is not available for offences under the Act. Although the draft revised Ineligibility and Suspension Policy that was recently published for consultation suggested shorter ineligibility period for cooperating parties, it did not include debarment exemption for leniency applicants. It therefore remains to be seen whether such exemption will be included in the final revised Ineligibility and Suspension Policy, that is expected to be effective in early 2019.

Immunity and leniency programs can be valuable enforcement tools provided that they follow a predictable and transparent process, especially with regards to legal privilege and confidentiality guarantees. However, participating in such programs is time-consuming, financially demanding, and may involve long-term cooperation requirements. Consequently, potential applicants should make a thorough assessment of the risks and benefits associated with participating in the Programs before communicating with the authorities.

Only time will tell whether the Programs will continue to be what the Bureau considers a “powerful means of detecting criminal activity”, or whether would-be applicants will be deterred by the increased burdens and uncertainties associated with the changes.

 

[1] See the Competition Bureau’s press release : https://www.canada.ca/en/competition-bureau/news/2018/09/launch-of-revised-immunity-and-leniency-programs-will-enhance-effective-enforcement-and-prosecution.html.

[2] For a detailed overview of key concerns, see the Canadian Bar Association Competition Law Section’s July 2018 submission.

[3] As discussed in this recent blog post, the Remediation Agreement Regime provides the possibility for an organization to enter into a deferred prosecution agreement for certain economic crimes.

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