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08 May 2014
For the past two decades, leniency programmes have increasingly been adopted by antitrust authorities around the globe as one of the main tools in cartel prosecution. As in other jurisdictions, the Brazilian authorities have been striving to build a well-respected leniency programme. Evidence from the past couple of years suggests that before allowing a company to benefit from its leniency programme, the Administrative Council for Economic Defence (CADE) has become more demanding, requesting strong evidence of the existence of collusion, as well as proof of any (potential) impact in the country.
Based on recent experience, the standard of what is considered acceptable to secure an agreement seems to be higher than in the past, when leniency agreements were accepted in any global cartel case under the presumption that it could potentially have had an impact in Brazil. This new trend (ie, accepting leniency applications only for cartels that are effectively proven to have affected the Brazilian market) is clearly welcome from a policy standpoint.
The leniency programme was launched in Brazil in 2000 and, albeit subject to minor changes, remains in force under the latest Antitrust Law (12,529/2011) and its respective regulations. CADE may execute leniency agreements in cartel cases through its investigation division, the superintendence general.(1)
A company that applies for leniency in Brazil may receive full administrative immunity or a fine reduction (varying from one-third to two-thirds of the imposed penalty), plus full criminal immunity for individuals (in Brazil, only individuals are criminally prosecuted for cartel offences). Full immunity is available if, at the time at which the leniency application is presented to CADE, the authority has no previous knowledge of the reported conduct and has started no investigations. If an investigation is ongoing (whether started by the authority spontaneously or pursuant to a third-party complaint), but CADE has insufficient evidence at the time of the leniency application to guarantee conviction of the defendants, partial immunity can be available and can result in a reduction in the fines, as indicated above.
In both cases, individuals will not be criminally indicted. Furthermore, once the obligations undertaken as a result of the leniency agreement have been fulfilled, any risk of penalties (whether administrative or criminal) will be excluded. However, under no circumstances does the leniency agreement provide immunity for damage claims from third parties that may have been victims of the cartel.
For CADE to accept a leniency agreement proposal, the beneficiary must:
Likewise, the superintendence general must not have sufficient evidence to start the investigation without the beneficiary's proposal and, as a result of the cooperation, must be able to identify other companies and individuals involved and obtain sufficient evidence to convict them.
The first leniency agreement was executed in 2003 in a case involving domestic bid-rigging in southern Brazil. Since then, the programme has evolved considerably. At the start, perhaps due to a desire to consolidate Brazil's place on the 'leniency world map', several investigations were initiated based on leniency agreements that contained no clear evidence of any impact in Brazil. This may have been a result of the authorities' eagerness to build a reputation of active enforcement, but it had the downside of starting cases that were not very strong (at least with respect to their impact in Brazil). In some of these early cases, the Brazilian authorities adopted a broad interpretation of what qualified as an effect on the national market and even stated that they were opening cases to assess the existence of such effects.
Vitamins(2) – one of the first precedents in Brazil regarding an international cartel investigation – is a notable example. Even though the case did not start with a leniency agreement, it illustrates how CADE dealt with discussions on any potential impact in the early days of prosecuting international cartels in Brazil.
In Vitamins, investigations were initiated based on public information made available by foreign antitrust authorities from their own investigations, suggesting that the investigated cartel was worldwide in scope. Although general references to Latin America were found in the documents made available by foreign authorities, the case records contained no specific references either to the Brazilian market or agreements or to contact between cartel members targeted at Brazil. Nevertheless, the authorities assumed that the practice at hand would have affected the Brazilian market, given that:
No Brazilian employees were implicated, as CADE understood that they were not aware of or involved in the practice, which was entirely conducted abroad.
According to recent statements from CADE, this approach has changed over the past couple of years.(3) In fact, no public information has been released about the initiation of cartel investigations during that time on the basis of a mere press release issued abroad, as happened with earlier investigations (eg, Graphite Electrodes,(4) LCD,(5) DRAM(6) and Vitamins). Likewise, following the same trend of requiring a greater link to Brazil before assuming that a global cartel has affected Brazil, CADE has been requesting more information from applicants, including stronger direct evidence that the cartel relates to Brazil. This shift in demand seems to be a natural transition and proves that CADE is becoming more sophisticated.
The documents and evidence that must be presented by an applicant to a leniency agreement are even more important in the case of international cartels. In order to sign a leniency agreement, CADE will now usually request direct evidence that the cartel has affected the Brazilian market. However, this does not mean that CADE is trying to create difficulties in the execution of leniency agreements. On the contrary, the fact that CADE is demanding more information and evidence from leniency applicants suggests that it is being more careful when deciding whether to start an investigation, requesting concrete proof rather than circumstantial evidence.
By being more cautious when accepting leniency applications, CADE is ensuring that it has stronger cases. Although it may appear more difficult for companies to execute leniency agreements with CADE initially, leniency agreements will have a greater chance of succeeding in future.
In light of this change in approach, it seems clear that the Brazilian leniency programme is on the right track. The leniency programme model will become even more successful if CADE is cautious when executing such agreements.
International cartel cases
In international cartel cases, CADE has also claimed that it will drop leniency agreements where no clear link is provided between the conduct and its effect on the Brazilian market. CADE seems to be more cautious when using information from other jurisdictions in international cartel cases, such as leniency agreements executed in other countries and decisions from other authorities. Although some leniency agreements were executed based merely on other countries' decisions, plea agreements and other documents, these are no longer expected to be considered sufficient to start an investigation in Brazil. When considering a leniency application in Brazil, a company must provide evidence other than foreign leniency agreements and foreign decisions in order to demonstrate that the practice has affected the Brazilian market.
One important example of how CADE has previously dealt with evidence gathered though leniency agreements is Air Cargo(7) – the first case involving an international cartel in Brazil in which the investigation was started pursuant to a leniency agreement. In the context of cooperation, the beneficiary provided CADE not only with copies of leniency agreements and decisions from other jurisdictions, but also with alleged evidence that the cartel had actually affected the Brazilian market. Although the agreement was signed shortly after leniency agreements became acceptable in Brazil, it can be seen as a good example of CADE's recent approach when considering evidence for a cartel investigation.
The more cautious CADE becomes with the evidence that it collects before initiating an investigation (whether through a leniency agreement or otherwise), the more defendants seem willing to execute agreements to cooperate with the authorities and pay fines before the administrative proceeding is finally finished. In most cases, executing agreements with defendants can be advantageous to CADE, since:
This was seen in Air Cargo, which started with the execution of a leniency agreement and was followed by a defendant executing an agreement with CADE in which it confessed to the practice and agreed to pay a considerable amount of money to CADE.
CADE has begun to adopt a more cautious approach when reviewing applications for leniency agreements. In the early days of the Brazilian leniency programme, CADE seemed to be more focused on developing a leniency programme and gaining recognition for the programme, rather than on executing agreements based on strong evidence that the conduct affected Brazil. As a result, however, companies may have felt that CADE was adopting an overly broad approach to assessing the impact of supposedly illegal practices in Brazil and may have been influenced to proceed with disclosing an illegal practice, even without clear evidence of such impact. By taking a more demanding and cautious approach as regards evidence and standard of proof, CADE seems to be building a more solid and mature leniency programme. The shift is especially important when international cartels are at stake.
These developments should not present any additional obstacles to companies willing to blow the whistle; nor should they be construed as an indication that the programme itself will be less successful. Conversely, the authorities seem to be striving for legal certainty, driving their energy and resources towards cartel cases that have been proven to have a negative effect on the Brazilian market. The more cautious and precise that CADE is during the negotiation of a leniency agreement, the stronger the cases that are brought. In sum, the welcome change in CADE's behaviour means that it is finally achieving a more mature stage in its policy development.
For further information on this topic please contact Barbara Rosenberg, Marcos Exposto, Sandra Terepins or Luiz Galvão at Barbosa, Müssnich & Aragão Advogados by telephone (+55 11 2179 4600), fax (+55 11 2179 4597) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Barbosa, Müssnich & Aragão Advogados website can be accessed at www.bmalaw.com.br.
(1) Recently, Law 12,846/2013 introduced the possibility of leniency agreements for corrupt practices. This development is still at an early stage, since it lacks a number of important aspects of the antitrust leniency programme (eg, a well-defined authority responsible for receiving the agreement and confidentiality rules for the documents and information submitted).
(3) Carlos J E Ragazzo, CADE's general superintendent, stated in April 2013 that: "We are not going to have 200 cartel investigations anymore. The ones that we do [pursue] are going to have a very high probability of conviction and they will be very, very sturdy cases." (See A Rego, "CADE redefining focus of cartel enforcement", MLex, October 8 2013). The same article mentions that a CADE spokesperson suggested that "[in respect to] international cases, CADE has sought to be more rigorous—that is, we have looked for cases in which the proof of the effect or the potential effect [of the cartel] is clear".
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Luiz Antonio Galvão