Cartel busters get protection in whistleblower rules

Whistleblowers who report illegal collusion by cartels to the competition watchdog will get immunity from prosecution under new regulations.

The cartel-busting rules published in the latest government Gazette notice bring into effect a law that allows the Competition Authority of Kenya (CAK) to run a leniency programme.

Entities stepping forward to spill secrets of their fellow cartel members could qualify for full immunity or partial waiver of penalties associated with contravening the Competition Act.

“It enhances and facilitates investigation and enforcement actions within the economy by encouraging  undertakings that have been engaging  in wrongdoing to provide direct evidence and proactively co-operate in bringing successful enforcement action in return for full or partial immunity,” says the notice by CAK director- general Wang’ombe Kariuki.

Companies in Kenya’s petroleum, sugar, cement, cooking oil and maize meal sectors have at various times been accused of illegally colluding to fix prices or segment markets.

Leniency could be extended to entities that have broken the law by colluding to fix prices or engaging in other prohibited acts that distort or lessen competition.

This includes making agreements to sub-divide the market among themselves, for instance agreeing to only sell to certain parts of the country.

The regulations also target members of trade associations that unlawfully recommend or set prices at which goods and services can be sold. 

“If one of the members of a cartel is looking for a way out, then informs us, they can be given leniency depending on the credibility and relevance of the information to the investigation,” said Gideon Mokaya, CAK’s enforcement and compliance manager.

This type of leniency is standard practice in competition law. It was introduced to the Competition Act through an amendment in 2014, but was yet to be put into effect.  

In addition to giving authorities insider information, leniency programmes also undermine trust among colluders— there is constant fear of being informed upon. They provide incentives for companies to inform the government of wrongdoing before their competitors can do the same.

According to the regulations, the first entity in a cartel to qualify for leniency can get up to 100 per cent waiver of penalties.

The second informant in an investigation may get up to 50 per cent penalty reduction while the third may get up to 30 per cent.  Any entity that steps forward after this has to make sure it “significantly contributes to success of the investigation” to qualify for up to 20 per cent reduction in penalties.

To qualify for leniency, companies have to co-operate with the Authority, providing documentary evidence on agreements and practices that are harmful to competition.  Confidentiality, on the part of the CAK and the leniency applicants, is also required.

While there is an expectation that a whistleblower will stop prohibited behaviour, the CAK may require the informant continue operating as normal so as not to tip-off the other colluders. Conditional leniency becomes permanent once investigations are completed.

“Only a serious breach of these obligations can preclude an applicant from obtaining permanent leniency…. If Permanent leniency is not granted, the Authority would be at liberty to deal with the applicant as provided for in the Act,” said the notice.

The CAK has been increasingly flexing its enforcement muscles. However, the lack of regulations to guide leniency was hampering the Authority’s abilities to bust cartels.