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Artigo02.12.2015

What’s new in Brazil: CADE’s Guidelines on Leniency Agreements

Por:

Leonardo Peres da Rocha e Silva; José Rubens Battazza Iasbech

MLex - AB Extra – Leniency Agreements in Brazil

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Following the successful launch of the Antitrust Compliance Program Guidelines,[1] the Administrative Council for Economic Defense - CADE (Brazilian Competition Authority) has recently issued the preliminary version[2] of its Leniency Program Guidelines. 

Read together, both Guidelines show that while it is important for corporations doing business in Brazil (i) to invest in constant and appropriate training of employees (specially high-ranking employees) in the enforcement of the Brazilian Competition Act (Law No. 12529/2011) given the specific features of their day-to-day business practices; it is also essential for them (ii) to draft proper documentation about the company's competition compliance activities, (iii) to be able to obtain in advance information on potential misconduct; and (iv) to be organized, diligent, fast and prepared in reporting non-compliance situations to the competent authorities. 

The Brazilian Competition Act provides for leniency/amnesty in connection with cartel behavior, i.e. when competing firms act in coordination and carry out agreements with the purpose or potential of (I) limiting, restraining or in any way injuring competition or free enterprise; (II) controlling a relevant market; or (III) arbitrarily increasing profits. 

The draft Leniency Guidelines discuss not only the high level of organization expected from corporations facing a non-compliance situation and willing to avoid formal investigations, litigation and damage to reputation, but also CADE's efforts to provide transparency, predictability and legal certainty to companies willing to proactively cooperate. 

Departing from the 90 answers to common questions received by CADE and included in the draft Leniency Guidelines, this paper explores CADE's insights into: 

(1) important procedures for negotiation of amnesty/leniency agreements in Brazil, which involve the ability to recover data, organize documents and testimonies related to the reported violation, take decisions in an expeditious manner, and engage individuals to respond to various demands of CADE and other authorities; 

(2) the cooperation with various governmental bodies apart from CADE, such as the Federal and State Public Prosecutor's Office and the Office of the Comptroller General (Corregedoria Geral da União - "CGU"); 

(3) the warranties related to the confidentiality of the documents during the negotiation phase and after execution of the leniency agreement, as well as in case of rejection of the leniency proposal;[3] and 

(4) the incentives for execution of leniency plus agreements. 


​(1) Important Procedures for Negotiation of Leniency Agreements 

Obtaining a marker

In order to obtain a marker, which will allow the company or individual to qualify for the execution of a leniency agreement with CADE's General Superintendence, the applicant may submit its proposal orally or in writing. It must contain a detailed description of the violation, including information on the wrongdoers ("Who?"), the products or services affected by the reported violation ("What?"), the duration of the reported violation, when possible ("When?"), and the geographic area affected ("Where?"). The proposal must also mention the documents and information that will be provided after the execution of the leniency agreement. However, the documents will be presented only in a second stage of the negotiation. 

A company or individual is eligible to execute a leniency agreement with CADE if its/his/her cooperation results in (i) the identification of other companies and individuals involved in the cartel behavior; and (ii) the gathering of information and documents evidencing the violation reported or under investigation. Cumulatively, the company or individual must: 

  1. be the first to report the cartel behavior;
  2. cease completely its/his/her involvement in the reported violation after communicating CADE's General Superintendence;
  3. provide evidence to secure the conviction of said company or individual that was not known by the General Superintendence when the violation was reported; and
  4. confess its/his/her participation in the violation and fully and permanently cooperate with the investigations and administrative proceedings. 
If the leniency applicant fulfills all of the criteria above, CADE's General Superintendence will issue a "marker", which ensures that the company is the first in the line for execution of the leniency agreement on the reported antitrust violation. 

In case the applicant secures the first place in the line, other companies or individuals interested in executing a leniency agreement related to the same violation may request a marker for second, third, fourth and other place in the line for a leniency agreement. 

Should the first leniency applicant not meet all of CADE General Superintendence's requirements within the expected time period, provide insufficient evidence of the antitrust violation, withdraw its leniency application or have its proposal rejected by CADE, it may lose its marker and CADE may start negotiations with the next company in the line. 

Another reason mentioned by the draft Leniency Guidelines for requesting a marker in the waiting line is to be the first, second, third, etc., in the line for a settlement agreement. Therefore, if the leniency agreement is executed, the next in the line will be the first to execute a settlement agreement and will be granted the highest discount possible.[4] 

The draft Leniency Guidelines voice CADE's concern about the confidentiality of the information and documents presented by the leniency applicant, as well as in case of withdrawal of the proposal by the leniency applicant or rejection of the proposal by CADE. 

CADE clarifies that the only personnel having access to the marker, as well as to the information and documents provided by the leniency applicant, will be the General Superintendent, the Deputy Superintendent, the Chief of Staff of the General Superintendence, and the officers working with the Chief of Staff. In order to minimize the risk of information leakage, the notes prepared by the Chief of Staff may only be accessed by the officers of that unit and any documents presented to the Chief of Staff will be kept in a safe room. 

Regardless of whether the leniency proposal is rejected or withdrawn, all of the documents will be returned to the leniency applicant and all of the information will be kept confidential, CADE being prohibited from "sharing or using such information for any purposes, even in investigations (article 86, paragraph 9, Law No. 12529/2011)." Despite the foregoing, the draft Leniency Guidelines state that CADE may initiate an administrative proceeding to investigate the same conduct based on evidence or independent proof that comes to the General Superintendence's knowledge by other means. 

The draft Leniency Guidelines express CADE's understanding that withdrawal of the leniency application or rejection of the proposal may not be regarded as acknowledgment of the illegal nature of the conduct or confession by the leniency applicant. 

Presenting information and documents as proof of the violation reported  

The information and evidence provided by the leniency applicant will substantiate a document called "History of Conduct", which contains the description of the anticompetitive conduct and the details of the other companies and individuals involved in the anticompetitive conduct. The History of Conduct is attached to the leniency agreement and is signed by CADE's General Superintendent and not by the leniency applicant or its attorneys. 

Information and documents that CADE deems relevant to leniency agreements are (i) bilateral e-mails and communications between competitors; (ii) unilateral e-mails and communications between individuals of the same company, mentioning agreements with competitors; (iii) exchange of electronic messages (such as SMS, whatsapp, etc.); (iv) daily newspapers, written notes and notebooks; (v) recordings; (vi) Excel spreadsheets; (vii) evidence of meetings (minutes, Outlook alerts, room bookings, credit card statements, travel receipts, etc.); (viii) electronic statements; (ix) business cards; (x) bid notices and minutes, etc.; and (xi) interviews conducted by CADE's General Superintendence. 

Another important topic brought by the draft Leniency Guidelines is concerned with the caution leniency applicants must exercise when retrieving documents to be presented with the leniency agreement in order to preserve their integrity and avoid losing their probative value. For example, when retrieving electronic documents, the leniency applicant must be able to describe the method used in extracting evidence by (i) identifying the devices from which the e-mails were extracted; (ii) identifying the procedures adopted and software used; (iii) stating the type of files extracted; and (iv) describing the method of analysis/forensic investigation of electronic evidence. Other specific requirements are established for retrieving e-mails, such as hash numbers of the original documents. 

Therefore, in order to successfully obtain a marker and later execute a leniency agreement, companies must be agile and organized to (i) identify a potential antitrust violation; (ii) contact CADE's General Superintendence first in order to obtain the marker in relation to said conduct; and (iii) gather enough information and evidence to substantiate the History of Conduct to be attached to the leniency agreement. This level of agility and organization seems more likely to be achieved by companies with robust compliance programs. 

(2) The cooperation with various governmental bodies apart from CADE 

The involvement of the Public Prosecutor's Office 

Although not set forth in the Brazilian Competition Act or CADE's Internal Rules as a condition precedent, the parties to a leniency agreement may agree with the participation of the Federal and/or State Public Prosecutor's Offices as signatories to the leniency agreement. This is a measure aimed at giving the leniency applicants some reassurance that they will not face criminal charges during the course of the administrative proceeding at CADE and after confirmation that the obligations were complied with by the leniency applicants.  

The draft Leniency Guidelines contain CADE's views on the participation of the Public Prosecutor's Office in a leniency agreement, as highlighted below: 
  • the negotiation with the Public Prosecutor's Office is usually a three-step process: 
  1. definition of which level (State or Federal or both) of the Public Prosecutor's Office will participate;
  2. communication from CADE's General Superintendence to the relevant (State and/or Federal) Public Prosecutor's Office, informing that a leniency proposal has been submitted in relation to a certain violation and requesting the appointment of a Prosecutor to participate in the negotiation; and
  3. meeting with the Public Prosecutor(s) to present the case and define the strategy of joint cooperation between both agencies (CADE and Public Prosecutor's Office). 
  • the Public Prosecutor's Offices are usually contacted by CADE's General Superintendence after completion of the second stage of the negotiation of the leniency agreement (as seen above), for the purposes of optimizing the negotiation process;
  • ​as an intervening party, the Public Prosecutor’s Offices may, within a certain limit, raise questions or suggest modifications to the leniency agreement, all of which are intermediated by CADE’s General Superintendence;​
  •  the Public Prosecutor's Office will only have access to the documents presented by the leniency applicants after the execution of the agreement. 
The definition of which level of the Public Prosecutor's Office should participate in the leniency agreement will take into consideration the places where the anticompetitive conducts took place. CADE's General Superintendence may advise the leniency applicant, but the final decision will be made by the applicant. 

Coordination with the Office of the Comptroller General (CGU) 

Given the possibility of antitrust violations also being related to corruption schemes, especially in cases of bid rigging, companies and individuals executing a leniency agreement with CADE may also choose to report the violation to the Office of the Comptroller General (CGU), or to CGU local regional offices, and execute a leniency agreement with such authorities pursuant to the Clean Company Act (Law No. 12846/2013.) 

The draft Leniency Guidelines provide for the possibility of coordinating the relevant procedures with these authorities and also sharing evidence and information with them without being considered in breach of the antitrust leniency agreement. In fact, regardless of which authority is first contacted by the leniency applicant (whether CADE, CGU or even the Public Prosecutor's Office), the leniency applicant may request the assistance of CADE's General Superintendence to coordinate the respective procedures with the other authorities. However, it is important to note that the investigations and signing of the different agreements will be carried out in accordance with the specific regulations of each authority and independently from each other. 

(3) The warranties related to the confidentiality of the documents and information 

After the execution of the leniency agreement and the initiation of the formal investigations/administrative proceedings, the content of the leniency agreement and all related documents will be kept confidential with no access to the general public, unless a court decision determines otherwise or the leniency applicant expressly authorizes the disclosure. The identity of the leniency applicants will also be kept confidential until CADE's final judgment of the proceeding. 

Due to the right to full defense principle, the other defendants in the administrative proceeding may have access to the evidence produced, but are not allowed to share it with other authorities. Not even CADE is allowed to share information related to the leniency agreement with other competition authorities in other jurisdictions, unless expressly authorized by the leniency applicant. 

The draft Leniency Guidelines also provide for confidentiality of evidence submitted by the leniency applicant after the administrative proceeding is closed. In fact, the identity of the leniency applicants and/or the beneficiary of the agreement will be made public. Other information deemed necessary may also be made public. However, according to the draft Leniency Guidelines, "even after the judgment of the case by CADE's Tribunal, CADE will endeavor to maintain the confidentiality of the documents and information voluntarily submitted by the beneficiary of the leniency agreement". CADE usually does not grant access to the information on the leniency agreement to third parties (for example, customers and consumers) who allege to have been harmed by the alleged conduct, except under a court decision. 

In order to preserve the confidentiality of all evidence provided under the leniency agreement, CADE takes a series of measures, as described in the draft Leniency Guidelines, such as: (i) the publications related to the case do not indicate that it was initiated from a leniency agreement; (ii) the order and technical note that initiate the administrative proceeding published in the Official Press do not usually contain the name of the individuals and the lawyers involved in the case, but only the names of the companies; (iii) the information and documents are stored in a separate confidential proceeding in CADE's electronic system; (iv) the confidential information is removed or redacted apart from the public version of the documents; and (v) when interacting with other bodies, the versions presented can be tracked. Similar measures are also adopted in order to maintain the confidentiality of the information in case of dawn raids. 

(4) The incentives for execution of leniency plus agreements 

The draft Leniency Guidelines also provide clarifications on the execution of leniency plus agreements, which allow a one-third reduction in the penalty applicable to the company and/or individual that does not qualify for a leniency agreement with respect to one infringement, but provides information about another cartel on which CADE's General Superintendence had no prior knowledge.  

The draft Leniency Guidelines state that if the signatory to a new leniency agreement, in another cartel, chooses to enter into a settlement agreement regarding the conduct already under investigation by CADE, it can qualify for the benefits under both the Leniency Plus Agreement and the Settlement Agreement, at the discretion of CADE's General Superintendence. 

Both discounts would be applied subsequently, i.e. CADE would first apply the discount available for a Leniency Plus Agreement and then the discounts available for settlement agreements, not cumulatively. The subsequent application of discounts could result in the following: (a) a reduction of 53.33% to 66.67% in the expected fine, if the company/individual has signed a leniency plus agreement and is the first to execute a settlement agreement; (b) a reduction of 50% to 60% in the expected fine, if the company/individual has signed a leniency plus agreement and is the second to execute a settlement agreement; and (c) a reduction of up to 50% in the expected fine for the other settlement agreement proponents. 

The draft Leniency Guidelines contain CADE's view that "the cumulative application of discounts could bring undue benefit to the applicants who committed cartel violations in several markets." 

The clarifications included in the draft Leniency Guidelines are important because they encourage companies and individuals involved in various anticompetitive practices to cooperate with CADE.  

Final Considerations

CADE's recent guidelines on Leniency Agreements and on Antitrust Compliance Programs are useful tools for corporations doing business in Brazil. They definitely show that companies are better off whenever they are able to keep track of CADE's enforcement measures, via adequate training sessions, while showing organization, diligence and commitment toward the authorities whenever a non-compliance situation occurs.

​​________________________________________________________________________

[1] Available in English at http://www.cade.gov.br/upload/Guidelines%20for%20Competition%20

Compliance%20Programs.pdf.

[2]    CADE is accepting comments and suggestions from interested parties concerning the draft Leniency Guidelines until January 10, 2016.

[3]    A leniency proposal may be rejected, for example, when (i) the proposal for leniency agreement is not presented within 30 days of obtaining the marker; (ii) the leniency applicant does not cooperate, during the negotiation, by not providing evidence requested by the General Superintendence or by obstructing the investigation; (iii) the General Superintendence holds that the evidence provided was insufficient; (iv) the effects in Brazil of a reported international cartel are not evidenced.

[4]    CADE's Resolution No. 5 of 6 March 2013 provides that the cash contribution to be paid will take into consideration the scope and usefulness of the applicant's cooperation, as well as the time in which the settlement proposal was filed. Whenever possible, the following parameters should be taken into consideration:

  1. the first applicant to file for settlement will have to pay a cash contribution equivalent to the expected fine, reduced by a percentage varying from 30% to 50%;
  2. the second applicant to file for settlement will have to pay a cash contribution equivalent to the expected fine, reduced by a percentage varying from 25% to 40%;
  3. the remaining applicants will have to pay a cash contribution equivalent to the expected fine, reduced by a percentage of up to 25%.​
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