The Competition and Consumer Protection Commission of Zambia (the Commission) has been enforcing the Competition and Consumer Protection Act No. 24 of 2010 (the Act) for nearly seven years now. There have been teething issues from both the Commission and businesses; in particular, the new Act accorded the Commission with adequate enforcement and administrative powers, which most businesses mistook for affront to their free operation.
The Commission took about two years to familiarise the public and businesses with the Act and its constituent provisions. The Commission has since further evolved its operations and a number of businesses have been found wanting. This article focuses on Zambia's leniency programme , and how it has operated thus far in relation to violations of Part III of the Act.
Part III of the Act provides the primary provisions relating to restrictive business and anticompetitive trade practices in Zambia. Among the worst forms of anticompetitive conduct are cartels. Ironically, the Commission has put in place an immunity programme for cartel members, referred to as the leniency programme. This is a tool designed to uncover and/or detect cartels and deter business enterprises from engaging in cartelistic conduct. Such a tool has been used by a number of Competition Authorities around the world, notably the Federal Trade Commission (FTC) in the US, the European Commission (EC) in Europe and the Competition Commission of South Africa (CCS).
The leniency programme, as a tool, exploits the possibility of granting immunity from fines and prosecution to cartel participants. The legal fraternity will recognise similar programmes such as the Plea Bargains Act, witness protection or state witness, whistle-blower Acts and programmes, among others.
The programme is meant to provide incentives to cartel participants who come out to inform the Commission of their participation in a cartel and provide information that helps the Commission to curb further operations of the cartel. It further applies to both individuals and enterprises that are involved in cartelistic conduct. The programme provides for partial or total immunity from prosecution and financial penalties for those who assist the Commission with cartel investigations.
Basically a cartel participant has to voluntarily bring to the Commission sufficient details of the cartel of which they are a part. If they satisfy the Commission's rules or laid-down procedures, the Commission would then give the cartel participant immunity from fines. It is worth noting that the Commission will only provide immunity relating to civil action (administrative fines) and not prosecution.
The penalties for companies that breach the competition law can be very severe: up to 10% of the company's annual turnover. For cartel infringements, the largest fine imposed by the Commission on a single company so far is 5% of the company's turnover. In addition, the largest collective fine imposed by the Commission on all members of a single cartel is over 8%. In early 2014 the Commission published its guidelines for setting fines on all cases (the guidelines are currently under review). The guidelines under review, once published, would propose maximum fines for cartels thus being significantly higher than the fines currently being imposed which are discretional.
However, companies that have participated in cartels have a limited opportunity to avoid or reduce a fine through the leniency programme, whereby companies that provide information about a cartel in which they participated might receive full or partial immunity from administrative fines imposed by the Commission.
About the leniency programme
Along with the other detection and investigation tools at the Commission's disposal, the leniency programme (if successfully implemented) would greatly contribute to the Commission's fight against cartels. In essence, the leniency programme is purely based on offering companies involved in a cartel (that is to say, companies that self-report and hand over evidence to the Commission) either total immunity from fines or a reduction of fines which the Commission would have otherwise imposed on them. The programme is further meant to exempt cartel participants from prosecution in appropriate cases. It also benefits the Commission by allowing it not only to pierce the cloak of secrecy under which cartels operate, but also to obtain insider evidence of the cartel infringement and the participants involved. The leniency programme also has a strong deterrent effect on cartel formation, in that it destabilises the operations of the existing cartels by implanting distrust and suspicion among cartel members and participants.
In order to obtain total immunity from the Commission under the leniency programme, a company that participated in a cartel must be the first to inform the Commission of an undetected cartel by providing sufficient information to allow the Commission to launch an inspection (raid) at the premises of the companies allegedly involved in the cartel. If the Commission is already in possession of enough information to launch a raid, or has already undertaken one, the company must provide evidence that enables the Commission to prove the cartel infringement. In all cases, the company must also fully cooperate with the Commission throughout the investigative procedure by providing the Commission with all evidence in its possession and put an end to the infringement immediately. The cooperation with the Commission implies that the existence and the content of the application cannot be disclosed to any other company. The company may not benefit from immunity if it took steps to coerce other undertakings to participate in the cartel (that is, if the company is the instigator of the cartel).
The Commission, through the settlement guidelines, has also provided companies that do not qualify for immunity with a means of benefiting from a reduction of fines: they must provide evidence that represents significant added value to that already in the Commission's possession, and they must have terminated their participation in the cartel. Evidence is considered to be of significant added value to the Commission when it reinforces its ability to prove the infringement. The first company to meet these conditions can be granted a reduction of up to 50% , and subsequent companies up to 20%. This is all under the Commission's discretion.
The Commission considers that any statement submitted to it within the context of the leniency programme forms part of the Commission's file, and may therefore not be disclosed or used for any other purpose than the Commission's own cartel proceedings.
Busting or unearthing cartels requires adequate financial and human capital resources, coupled with discreet high-tech investigative techniques due to the covet nature of cartel operations which thrive on secrecy. As a result, the leniency programme has been developed in order to unearth cartels that ordinarily would not have been unearthed. The programme has further been developed to facilitate focused investigations and provide the required high standard of proof for cartel cases, as they have criminal connotations under the Act. The leniency programme also provides the cartel members an opportunity to leave the cartels and legally enter into mergers that are approved by the Commission. The leniency programme further disrupts cartels as it generates uncertainty among cartel members (members become uncomfortable and suspicious as to who will report the others to the Commission).
Key features of the Zambian leniency programme
The programme is for both companies and individuals seeking immunity. The programme does not, however, extend to the instigator of the cartel (you should not have been the mastermind). Cartels in Zambia, as earlier alluded to, are criminal in nature and hence immunity is to be given by the National Prosecution Authority (NPA) or the Director of Public Prosecution (DPP). Leniency is for both horizontal and vertical agreements.
The Commission can give immunity as pertains to the provisions of the Act. However, the enterprise may also be caught up in other laws such as the Anti-Corruption Act 2012 and institutions such as the Drug Enforcement Commission (DEC). Hence, to mitigate and avoid this, the DPP has been brought on board so that once a party is given immunity by the Commission as regards particular cartelistic conduct, no other law would be used to prosecute the cartel participant for the same conduct.
There is also a marker system in place, implying that an applicant who provides the Commission with information on a cartel can get a marker time frame to provide further information. Leniency can be granted to more than one cartel participant. An applicant can withdraw an application but all the information provided to the Commission will be used to further the case.
Has the leniency programme worked?
No. The Commission has so far only received one application since it introduced the programme and this was for a vertical agreement. The Commission has reviewed its systems and identified the following as reasons for the ‘failure'.
- Players are international; eg, the Fertiliser case involved a Zambian company and a South African company.
- There are few players in the market, making it easier to collude and keep a secret (eg, in the cement sector, Dangote, Lafarge and Zambezi Portland);
- There are complications around ethnic groupings. Take, for example, the bread cartel on the Copperbelt province, where the majority of the bakeries belonged to Zambians with Greek origins, making it difficult to ‘rat out' a fellow community member. Leniency was offered during the dawn raid but was not taken.
Cartels are criminal
- Leniency is from prosecution and fines. The Commission, in the recent past, has been trying to bring the NPA on board, as the two institutions (the Commission and the NPA) had no agreement on how to handle the programme. However, on 21 September 2016, the Commission finally signed a Memorandum of Understanding (MoU) with the NPA, which guarantees cartel members immunity from prosecution. It is worth mentioning that South Africa has criminalised cartels, and hence may have similar issues to Zambia with the NPA.
- The leniency programme was introduced in 2013 but has not been effectively promoted because of the lack of agreement with the NPA. It is worth noting that an accused person has the right not to incriminate themselves.
- While the Commission offers immunity from civil fines, immunity from prosecution can only be given by the DPP.
Lack of enforcement
- Where parties believe that the Competition Authority does not have the capacity to bust a cartel, they are unlikely to apply for leniency.
- Political interference results in lack of enforcement, as it gives the cartel members a feeling of comfort in not applying for leniency.
In order for the leniency programme to work effectively in Zambia, the Commission is of the considered view that the DPP and the Commission should provide a better programme regime that will ensure that businesses have the confidence to report cartels. The Commission will also continue to promote the programme vigorously given that the MoU with the NPA is now in place.
Recent cartels in the bread, frozen fish, stoke brokers and poultry sectors will show that cartels can be busted, acting as an incentive for cartel participants to apply for leniency.