Leniency program

Leniency program (카르텔 자진신고자 감면제도) is one of the antitrust tactics that antitrust authorities provide cartel participants with a considerable pecuniary incentives - exemption of antitrust fines up to the whole amount to the first self-reporter, then by half to the second self-reporter.

Ever since the United States Department of Justice (DOJ) introduced the leniency program in 1978, an increasing number of competition authorities worldwide have adopted this program to secure antitrust evidence from cartel partipants.

In a broader sense, leniency means mercy. The concept of mercy appears in various religions, including Christianity and Islam. In the social and legal context, mercy may refer both to compassionate behavior on the part of those in power (e.g., mercy shown by a judge toward a convict), or on the part of a humanitarian third party (e.g., a mission of mercy aiming to treat war victims).

Key words
cartel, antitrust, leniency program, prisoner's dilemma

Cartel and Leniency program
Korea Fair Trade Commission (KFTC) adopted the leniency program in 1996 to effectively regulate cartel formation harmful to nation's economy. Thanks to the leniency program, the number of cartel detection and the amount of fines are reportedly on the drastic increase.

Under the Monopoly Regulation and Fair Trade Act (독점규제 및 공정거래에 관한 법률), KFTC has implemented the Notification on Implementation of Cartel Leniency Program (부당한 공동행위 자진신고자 등에 대한 시정조치 등 감면제도 운영고시).

Take an example of the Gas price cartel case in May 2011. KFTC disclosed that four refiners - SK Energy, GS Caltex, Hyundai Oilbank and S-Oil - were found to have secretly agreed with each other to avoid selling their products to gas stations that are in contract with their competitors. According to KFTC, by doing so, the Big Four refineries could secure stable market shares and limited competition. But the accused companies denied such charges. KFTC was reportedly to impose 434.8 billion won (U$400 million) in fines on the biggest oil companies for illegally colluding to keep gas prices stable.

Prisoner's dilemma
Two suspects are arrested and interrogated separately. Each is offered a deal: upon confession, the sentence will be minimized. If they both refuse to cooperate, they both walk. If one testifies and the other remains silent, the one who did not confess will receive a heavy sentence. Theoretically, it is in the best interest of both players to remain silent. But in reality, both prisoners usually choose to testify because they cannot be certain of the other prisoner’s decision.

The prisoner’s dilemma is a fundamental problem in game theory, which has significant impact on social science. John von Neumann, a pioneer in game theory, said that in the world of perfect communication, there would be no prisoner’s dilemma - but that is not the world we live in. The dilemma transcends time and location. Even when both Washington and Moscow knew that nuclear reduction was the best option for both parties, they engaged in a heated nuclear arms race throughout the Cold War.

Revocation of Leniency
On what account does the antitrust authority withdraw leniency from self-reporting cartel participants? Is it proper and legal?

Hankook Glass case
한국유리의 임원과 KCC의 임원들은 2006-2008년 4차례에 걸쳐 판유리 제품 가격의 인상을 합의한 후 각각 제품 가격을 올렸다. 2009. 3. KFTC가 카르텔 관련 현장조사를 실시하자 한국유리는 Leniency Program에 따라 가격담합 자진신고를 하고 KFTC 담당공무원으로부터 1순위 접수증을 교부받았다. 그 후 KCC도 자진신고하고 2순위 접수증을 교부받았다. 한국유리는 KFTC에 이 사건 카르텔에 관한 자료들을 제출하였으나 KFTC의 추가자료 제출 요청에 제대로 응하지 않은 까닭에 2009. 7. 6 감면불인정 통지를 받게 되었다. KCC가 그 대신 1순위 조사협조자 지위를 부여받자 한국유리는 자신에 대한 지위불인정 통지 및 KCC에 대한 지위확인의 각 취소를 구하는 소를 서울고등법원에 제기하였다.

Seoul High Court held:
 * KFTC의 이 사건 지위 불인정 통지 및 지위확인은 KFTC 사무처장이 향후 공정위의 종국적인 처분을 준비하는 과정에서 행한 중간적.잠정적.가변적인 것으로서 그 자체가 원고 또는 피고 보조참가인에게 어떠한 권리를 설정하거나 그들의 법률상 이익에 직접적인 변동을 초래한다고 볼 수 없으므로 항고소송의 대상이 될 수 없다. ..
 * 원고가 KTFC에 감면신청서를 제출한 후 이 사건 부당한 공동행위와 관련된 자료를 제출한 사실만으로, 1순위 조사협조자 지위를 취득하였다고 볼 수 없고, 그 후 KTFC로부터 이 사건 통지를 받았다고 하더라고, 취득하지 아니한 1순위 조사협조자 지위를 박탈당하게 되었다고 볼 수도 없다.

Stolt-Nielsen v. U.S. case
In the United States, similar cases were discussed by the Circuit Courts. They are the disputes in which the Norwegian shipping company, Stolt-Nielsen S.A. insisted on its status two times under the leniency program.

Stolt-Nielsen I case
Stolt-Nielsen S.A. v. United States, 352 F. Supp. 2d 553 (E.D. Pa. 2005)

Stolt-Nielsen II case
Stolt-Nielsen S.A. v. United States, 442 F.3d 177 (3rd Cir. 2006)

Conclusion
Insofar as the antitrust authorities continue to grant leniency to the first and second self-reporters, coporations are supposed to have a tremendous incentive to cooperate with the authorities concerned.

So denying the leniency or revoking the once-granted leniency should be taken into careful consideration in view of the protection of self-reporter's trust and certainty of the leniency program. If the leniency could be revoked, an opportunity for the self-reporter to give give prima facie evidence on the matters at issue should be provided.

In Korea, however, the leniency program used to give a chance for big leading companies to be forgiven for such wrong doings as collusion of pricing while small followers are deprived of such opportunities. In other words, a leniency program is often regarded as the program for the big.

On the international scene, over the past decade, antitrust authorities around the world have singled out leniency programs and international antitrust cooperation as their most potent instruments in their fight against global cartels. By contrast, if the probability of successfully prosecuting the cartel is sufficiently high, then sharing information from leniency programs actually increases self-reporting and deters cartel formation.