On 6 June 2023, the Peruvian government adopted a new Law N° 31775, that amends the country's leniency programme. Under the new law, immunity applicants – who previously enjoyed only immunity from fines – will now also be granted immunity from criminal proceedings for hard-core cartels. The amendment also decriminalises soft-core cartels and abuses of dominant position, while maintaining criminal liability for hard-core cartels. Hard-core cartels refer to anti-competitive agreements by competitors to fix prices or other commercial or service conditions, limiting production or sales (particularly by establishing quotas), the allocation of customers, suppliers, or geographical areas, (i.e. market sharing), collusive bidding or concerted practices. Soft-core cartels, on the other hand, cover all other anticompetitive agreements that are not included in the definition of hard-core cartels. This reform of the leniency programme was largely driven by Peru's National Institute for the Defence of Competition and Intellectual Property ("INDECOPI") in the hope of encouraging cartel members to submit more leniency applications.
This article provides an overview of the leniency regime in Peru and the relevance of this reform for multinational companies operating in Latin America. We also draw some analogies with the EU leniency regime.
Context and previous legal framework in Peru
With the expansion of competition law in Peru, INDECOPI has increasingly focused on cartel detection. This is evidenced by the introduction of a leniency programme in 1996. However, the programme has not been consistently successful for several reasons. First, from 1991 to 2008, collusion and abuse of dominance were criminalised under Article 232 of the Peruvian Penal Code. While this provision was in force, no leniency applications were made as individuals feared prosecution. However, these practices were decriminalised in 2008 following the adoption of Legislative Decree 1034, which was seen as a necessary step to increase the number of applications. From that point on, companies could only be sanctioned with fines (and subsequent follow-on damages). Nevertheless, only three leniency applications were received between 2008 and 2014. The main reason for the low number of applications seems to be the lack of public awareness of the leniency programme. However, with INDECOPI's publicity efforts and the decriminalisation of collusive practices, companies finally began to come forward. In fact, 24 applications were received between 2014 and 2019.
Nevertheless, INDECOPI's efforts were thwarted by the adoption of Law Nº 31040 in 2020, which re-introduced the criminalisation of anti-competitive practices. This law criminalised soft-core and hard-core cartels, as well as abuse of dominance practices, with perpetrators facing up to six years in prison. As might be expected, the number of leniency applications fell dramatically. No applications were submitted in 2021 and only a few in 2022.
New leniency regime in Peru and potential impact
The new law, which was formally adopted in June 2023, decriminalises soft-core cartels and abuses of dominant position, and exempts successful immunity applicants from criminal liability (partial immunity is not sufficient). However, other leniency applicants (without full immunity) in hard-core cartels will still be subject to criminal prosecution. The new regime also provides for further confidentiality guarantees to ensure that the identity of applicants remains confidential.
While these provisions are promising, they also leave room for controversy. For instance, only immunity applicants, i.e. usually the first to apply, will have full immunity from civil and criminal sanctions. This means that second and subsequent applicants, who may still be crucial to an investigation, will not be protected (at least in terms of criminal liability). They will also have less incentive to cooperate with the competition authority throughout the investigation. There also appear to be concerns around protecting the identity of the immunity applicant – the prosecutor's office has stated that they will protect the identity of the immunity applicant; however it is not clear how this will be achieved if all participants in a cartel – except the immunity applicant – are prosecuted, which will in essence disclose their identity.
In the past, INDECOPI has favoured the imposition of criminal sanctions, believing that they have a greater deterrent effect than fines. The direct effect of criminal sanctions on individuals introduces an element of personal impact, whereas fines have little personal impact and are paid by the company employing the individuals responsible for the cartel rather than the individuals themselves. The new regime softens this approach somewhat by removing criminalisation of soft-core cartels and abuses of dominance but still applies the same reasoning to hard-core cartels, whose participants can still be prosecuted.
Nevertheless, these legislative changes have been well received and INDECOPI is confident that they will stimulate leniency applications and thus strengthen its cartel enforcement pipeline.
Comparison with the EU Leniency Programme
Similar to Peru, the EU only accepts one full immunity application per cartel. All subsequent applicants may be granted a reduction of up to 50% of the fine if they provide new information that enables the European Commission ("Commission") to detect an infringement that was not previously detected and/or to assist an ongoing investigation. Furthermore, these discounts can be added to the reduction (of up to 10%) obtained following a settlement (where a company formally accepts its role in a cartel and the Commission's findings following an investigation).
Unlike the Peruvian system, the EU itself does not have criminal liability for cartel conduct. The system is administrative (however a number of individual EU member states do impose criminal liability for cartel conduct). As such the EU's leniency programme does not cover criminal liability. However, Article 23(3) of the ECN+ Directive provides for the possibility for Member States to consider immunity or mitigation of criminal liability where "the detection and investigation of the secret cartel outweighs the interest in prosecuting and/or sanctioning those individuals". The EU leniency system relies on incentives to avoid fines completely (for the first, immunity applicant) or see significant reductions in fines (between 30% to 50% for the second leniency applicant, between 20% to 30% for the third, and up to 20% for subsequent leniency applicants), coupled with strong ex officio enforcement to provide the right mix for applicants to come forward.
There has been an active debate on whether follow on private damages actions, for which immunity/leniency applicants are not protected, have created a major disincentive resulting in a drop of leniency applications. Applicants weigh the advantages of fine immunity/reduction with the disadvantages of private damages actions and the likelihood that other participants go in first or indeed the Commission itself starts an ex officio investigation and uncovers the cartel via its own monitoring efforts, complaints or whistle-blower information.
However, according to recent statements made by Maria Jaspers, Director General of the Commission's Cartels Unit within DG COMP, the number of leniency applications has increased since last year. The Commission believes that this may be due to the Commission's efforts to step up its 'ex-officio' programme and an increased activity on the dawn raid front. In this context, it is worth noting that DG Comp has its own unit of expert investigators, such as former police officers, who use IT tools to monitor and detect ongoing infringements. For instance, the Commission's own intelligence services were behind the recent dawn raids on perfume manufacturers in March this year. It appears that, after a brief hiatus during the Covid breakdown, the Commission is really stepping up its enforcement, having carried out at least 9 inspections since May last year.
In addition, the Commission is trying to make the leniency programme more attractive and accessible by offering more opportunities for informal contacts and by issuing guidelines to clarify certain aspects of the programme. In this regard, the Commission has recently published a helpful set of FAQs on leniency, which addresses most of the uncertainties that may deter a potential leniency applicant from coming forward.
Conclusion
Raising awareness of leniency programmes and increasing the number of leniency applications is an ongoing challenge for authorities around the world which are trying to come up with ideas to further encourage cartelists to come forward. Given that many cartels operate across national boundaries in several jurisdictions, including Latin American jurisdictions, companies need to be aware of the consequences and benefits of establishing a coordinated leniency policy covering all the various jurisdictions in which they operate. It is therefore important to be aware of developments in leniency programmes around the globe, including of course in Latin America, that contains a number of active jurisdictions with cartel enforcement powers and leniency regimes, such as the new programme in Peru.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
