Antitrust whistleblower: culture and ethics of denunciation in business world
Mariya Nizhnik, Attorney, First Deputy Chairlady of the Antimonopoly Committee of Ukraine (2015-2019)
At the beginning of October, the Antimonopoly Committee of Ukraine appointed the First Deputy Chairlady as the Leniency Commissioner. The leniency or practice when one of the parties to a cartel 'betrays' others to avoid (minimize) its own liability is a very important element in preventing violations of the antitrust law. However, unfortunately it is not yet so in Ukraine. The situation is similar regarding the whistleblowing practice when a discontented employee informs on his/her employer.
Principally, there are three motives comprising the basis of any denunciation, both a corporate one and on the part of an individual – fear, envy, or benefit.
We will drop out the analysis of underlying causes for reports by an individual about another fellow and leave the research of social environment in the USSR in 30s and Hitler's Germany to scholars in the field of history, whereas we will try to focus on the business level only, however, we will touch on psychological aspects of denunciation by an individual.
My Ukrainian colleagues, including V. Vlasiuk, H. Vertsymakha, in their materials, touched more than once on the reasons of imperfect implementation of the mechanisms in Ukrainian reality. I see three problems hindering its efficient operation: motivation of businesses/individuals, confidentiality, and examination procedure. At the same time, no matter how perfect the mechanism is, until business feels that liability becomes irreversible, leniency and whistleblowing will continue to be non-operating programs.
What is the reason of so poor interest in the mechanism that proved to be successful in other jurisdictions? Are things all that bad and what is lacking in fact?
Regarding the motivation, this involves, first of all, the differentiation between the nature of its origin in business and individuals.
If we speak about business, then a visit to the Committee may be motivated by its own protection (to prevent the liability) or punishment its competitor. However, to take a decision, any business will evaluate all risks associated with the proceedings by the Committee and the probability of achieving desired result. Unfortunately, as of today the risk of irreversibility of punishment (actual payment of a fine by the defendant), save for voluntary compliance with a decision, is rather low. Therefore, having evaluated the speed of proceedings, compliance with confidentiality, probability of getting a relative discount, conflict with other parties, etc., the company will think long and hard about its visit to the Committee. (Eventually, it may even run a risk of collusion waiting for requests or an on-site inspection for many years).
The situation might be different in case of a tender collusion. In addition to penalties and potential financial losses, when held liable, a company is deprived of the ability to participate in tenders for the next following three years. In case of leniency, the defendant is not held liable and, respectively, not disqualified. However, unfortunately, the Ukrainian reality creates the situation when the bidder and a dummy company for tender purposes are frequently involved in collusive practices. In accordance with the law, the facilitator of collusive practices may not be released of liability. In case of dummy companies, the bidder itself is the facilitator.
But an employee of the company (especially, an offended one) having in possession sufficient amount of evidence of violation by his/her employer of the law and having filed a relevant application might reckon on a just monetary reward (fixed amount or per cent of the fine imposed on the company). For instance, the above innovative approach was applied by the competition authority of South Korea in 2013. The so-called private whistleblower may reckon on a reward in the aprox amount of $200,000 if valuable information is provided on violation of the antitrust law by a company, in compliance with the guarantees of confidentiality.
Please see the description of similar approach at
It is interesting that the USA being the originator of rules in antitrust, rejected that idea in terms of its application by the relevant agency – the Federal Trade Commission.
At the same time, similar practice is being used for almost 10 years by another important regulator – the US Securities and Exchange Commission. Since 2011, it ensures a reward to employees of private companies for information on violations by employers. The whistleblowers get up to 30% of the fine paid by the defendant. Thus, in 2010 an employee of Glaxo Cheryl Eckard informed the US authorities that the manufacturing of tablets at the already closed plant in Puerto Rico fell short of standards. The investigation found no cases of damage to the health of drug consumers. However, Glaxo admitted fault and paid $750 million as a fine and compensations. Eckard got a $96 million reward.
I would agree with my colleagues that ensuring the secrecy of information provided is the most important element of efficiency of proceedings also involving the minimization of the risk of suppression of evidence and security guarantees to the applicant. The solution of this problem is complex. It also involves amendments to the industry specific legislation, both primary and subsidiary, and the possibility of implementation of additional technical solutions ensuring the confidentiality when information is transferred within the agency. Similar innovations should also find its way to the law. In addition, the procurement of specific security guarantees on the part of law enforcement authorities should become an additional incentive for business in making a decision on voluntary admission of the competition law violation (and other laws as well). A kind of equivalent of the American witness protection program, however through the lens of economics, would perfectly strengthen the desire of business to play fair.
When V. Vlasiuk states in his blog that when "the competitor was 'betrayed', much information on the factual circumstances of conspiracy was made available. Frankly speaking, I cannot see anything that has to be examined for more than a year", it is important to understand the stance of the AMCU. First of all, the question is about the compliance with all routine procedures – correct execution of documents, meeting the deadlines, and, naturally, checking of the facts provided. Even taking into account that, within the framework of investigations related to the violation of the law on protection of economic competition, the search for proof and confirmation of evidence takes proportionally the most amount of time, there are also required time resources to make sure that the facts stated by the applicant are true. Thereafter, the Committee actually proceeds to the examination stage as usual allowing the defendants to express their point of view, taking into account various petitions, in particular, for an adjournment. That process also takes time. In the EU, whose legislation Ukraine strives most of all to enshrine as the basis of its internal regulations, cartel cases based on an individual or collective application filed by business entities continue for 5 to 7 years. See an example case involving manufacturers of car components (2012-2017) at https://ec.europa.eu/competition/
In this connection, however, the AMCU's examination procedure, including for the purposes of its simplification, requires improvement.
Overall, the basis of the culture of silence on the part of fellow citizens lays, in my opinion, much deeper than the surface of current nonperfect configuration of the legal framework not allowing to effectively make use of the possibility to inform on a violation. The crisis of confidence in public institutions, lack of perception of law enforcement authorities as an efficient mechanism for questing for justice naturally formed a negative attitude towards any proactive cooperation of individuals with the authorities. And vice versa. The state sees in the person of its citizens the permanent desire to evade the law. Only having overcome the common stereotype that the authorities and citizens/business stay on different sides of the wall, we may look with hope to prospects of healthy development of the state and the society as a whole. Only then the so-called squealing for the greater good will become an integral part of the domestic state of mind.