(by Andreas Stephan) On 16 March 2017, the European Commission announced the launch of a new online tool to make it easier for individuals to alert it to secret cartels and other violations of competition law. What makes this tool innovative, is that it allows potential whistleblowers to maintain their anonymity via an encrypted messaging system, with two-way communication, giving them the confidence to report cartels. The tailor-made system is maintained by an external intermediary and is designed to be entirely secure.
The initiative is an important development in EU cartel enforcement, in that it represents an attempt to address the Commission’s over-reliance on its leniency programme, which accounts for some two-thirds of all cartels uncovered. The press release announcing the whistleblower tool stated:
‘Until now, most cartels have been detected through the Commission’s leniency programme…
The Commission’s new tool gives an opportunity also to individuals who have knowledge of the existence or functioning of a cartel or other types of antitrust violations to help end such practices.
The new system increases the likelihood of detection and prosecution and so stands to further deter businesses from entering or remaining in cartels or carrying out other types of illegal anti-competitive behaviour. It therefore complements and reinforces the effectiveness of the Commission’s leniency programme’.
By increasing the rate at which cartels are uncovered through investigations, the tool could ensure there is a credible threat of detection underpinning the leniency programme. Moreover, it could ease an oft-cited concern that leniency is largely uncovering unsuccessful cartels, rather than disrupting active infringements. But who are these individuals with knowledge of the existence or functioning of the cartel and why would they report it?
Who would use the whistleblower tool?
Cartel members – We know that secretive cartels are not generally operated openly within corporations. Indeed, the increased profile of EU cartel enforcement is likely to have driven many infringements even deeper underground, in an effort to avoid face-to-face meetings and explicit communications, to the greatest extent possible. If these individuals willingly entered into the cartel agreement and are profiting from it, they are unlikely to whistle-blow. Indeed, if for whatever reason they wanted to expose the cartel, they would apply for leniency to avoid corporate and personal sanctions from the resulting investigation.
Non-cartel members – It may be that there are other firms in the industry who are not members of the cartel, but who are aware something is going on. Presumably, these firms would either: (i) be happy to ignore its existence (because they are benefiting from the cartel’s upward pressure on prices), or (ii) if they are being squeezed by the cartel, they would probably complain openly to the Commission or take private legal action against the cartel.
Customers – Like the non-cartel members, customers are more likely to complain to the Commission or bring a stand-alone action, aided by the improved access to justice that is being implemented across the EU as a result of the 2014 Damages Directive.
Other employees – This is probably the category of individuals that the Commission had in mind when developing this new tool. The administration of a cartel often includes frequent communication, agreement, monitoring and reporting. Even where efforts are made to be secretive, it may be that other managers, administrative support staff or sales staff become aware of the cartel practices. Sales staff may be a particularly fruitful group, as output restriction, price increases and market sharing practices will usually see sales staff disciplined if they grant discounts to increase sales, or if they attract customers allocated to a different undertaking by the cartel.
Why would they anonymously report a cartel?
A number of competition authorities offer individual rewards or bounties to informants who report a cartel. For example, the UK’s Competition and Markets Authority offers up to £100,000 and the Korean Fair Trade Commission (KFTC) offers rewards of up to USD 2.7 million. While the UK has not granted a reward to date, the KFTC has had success in attracting tip-offs from numerous disgruntled former employees of firms involved in cartels. Where a whistleblower openly reports a cartel, there is good reason for offering a monetary reward. The act of whistleblowing carries with it an enormous risk and can result in very severe consequences for that individual’s career and personal life, including possible legal action from their employer for breaching confidentiality. The Commission’s tool appears to circumvent this problem by providing a credible promise of anonymity, whereby the individual can report the cartel without fear of being exposed or facing unintended repercussions.
But in the absence of a reward, what is the incentive to report? There may very well be disgruntled individuals who want to harm their employer or former employer. We also know that most ordinary members of the public in the UK, Germany and Italy think price fixing is wrong and should be punished. However, any normative pressure to “do the right thing” by competition law will be balanced against the act of “snitching” on your colleagues, which many ordinary members of the public find equally (if not more) unsavoury. All this also presumes that these individuals have enough awareness of competition law to recognise that the conduct is illegal and to stumble across the whistle-blowing tool on the European Commission’s website.
There is also a question of whether the Commission’s tool will hinder the efforts of firms to promote good internal compliance. An individual employee who has concerns about a possible breach of the law would hopefully seek to raise those concerns through internal whistle-blowing procedures, which often include anonymised reporting. There will of course be situations where compliance is weak or where there is a culture of cartelisation, in which case the individual cannot effectively raise their concerns internally. Nevertheless, the tool is likely to receive a very mixed reception among compliance officers.
Would an anonymous tip-off be enough to bust a cartel?
The final issue that warrants some discussion is whether an anonymous tip-off alone would provide the Commission with sufficient evidence to launch dawn raids. Past experience has shown that once an industry is investigated (for example chemicals), cartel members clamber over each other to cooperate in return for leniency and often report other infringements in neighbouring markets. But what if the undertakings refuse to cooperate?
The amount of information that can be communicated via the tool is limited. Whilst the message can be written in any EU language, it only allows the exchange of text, not files. The Commission’s first challenge will be to corroborate the information received, to ensure it is not acting on erroneous or ‘prank’ submissions intended to cause harm or waste resources. Where the Commission is confident that the message is legitimate, it may nevertheless have to take additional investigative steps before attempting to inspect an undertaking’s premises. If the undertaking withholds its consent to inspections, the Commission must seek a warrant from a national judicial authority, which – under Regulation 1/2003, Article 20(8) – is able to scrutinise the Commission’s grounds for suspecting an infringement. Whether an anonymous tip-off is enough for these purposes is very unclear.
Despite the perceived practical limitations of its new tool, the Commission should be congratulated for attempting to innovate in the face of a possible over-reliance on its leniency programme. The extent to which the whistle-blowing tool is successful remains to be seen, but it is hoped that the Commission will provide updates of its operation and evaluate its effectiveness in the years to come.
 See for example: A Stephan, ‘Is the Korean Innovation of Individual Informant Rewards a Viable Cartel Detection Tool’ in T Cheng, B Ong and S Marco Colino, Cartels in Asia (Kluwer 2015). Also available as a working paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2405933