EFFECTIVE leniency programmes may hold the key to resolving long-standing cartel issues in Malaysia, which are plaguing transparent business bidding processes in both public and private projects.
A leniency programme is recognised by anti-competition experts as the most important investigative tool to detect cartel activities, where an individual or company confesses that they have participated in price fixing and bid rigging and provides full disclosure to the authorities, for which they may receive full or partial immunity from financial penalties in return.
“The reason why we see cartels as a disease to the market is that they create unfair market power, deprive consumer welfare by colluding, fixing prices and charging exorbitant prices that affect the efficiency of market,” Lee Heng Guie, executive director and chief economist of Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre tells The Edge.
However, awareness of such programmes among the business community is still lacking and they are underutilised despite detailed guidelines on leniency programmes published in 2014.
Malaysia’s leniency regime is based on the models in mature markets such as the US, European Union, Singapore and Japan where they have proven to be effective.
Lee adds that if the leniency programme is utilised correctly, it could be meaningful in the fight against bid rigging in Malaysia.
However, despite the programme’s efficacy in busting organised crime abroad, Malaysia’s leniency programme needs to be improved, particularly the opaque procedural steps that may have deterred erring entities from coming forward and cooperating with regulators.
“If you are a ring leader or coercer, where you try to entice others to participate, you are not eligible for a 100% reduction from financial penalty, this is the existing law.
“Maximum reduction in penalty is up to 100%, which is provided under section 41 but there is a difference in the percentage of reduction. It all depends on the discretion of MyCC [Malaysia Competition Commission, which oversees the leniency programme]. “Although this gives flexibility to MyCC, it also unfortunately creates uncertainty to potential applicants of the leniency programme,” Lee tells The Edge at the 3rd MyCC Competition Law Conference 2022: Digital Economy, Merger and Bid Rigging, last Thursday.
MyCC is the independent body, established under the Competition Commission Act 2010, responsible for enforcing the Act. Its main role is to protect the competitive process for the benefit of businesses, consumers and the economy.
Lee adds that MyCC may have to relook at some cases in which many leniency applications were rejected after investigations were launched despite having developed very detailed guidelines.
Some of the grounds for rejection could be the leniency application taking place at an advanced stage of investigation and that it made no significant contribution to the investigation, or the applicant was an instigator to the price-fixing agreement.
“But all said and done, this is something MyCC can look into because this could be a disincentive for people to come forward,” Lee, who was a panellist in the session titled “Promoting An Effective Leniency Regime” at the conference, says.
Some tweaks needed to incentivise applicants
Lee says that although leniency programmes increase compliance with competition law in Malaysia, the follow-on damages to the programme applicants could be undermining it, particularly when the current law does not immunise the individual or the business from legal or civil proceedings.
“Successful applicants are not immune to other legal consequences, such as private actions, because you report infringement and that can cause people to file suit against you. I don’t think even in the proposed amendments of the current Competition Law this is included. To me, it could reduce the incentive to come forward. It is the same almost everywhere, proving the fight against the cartel a difficult one without adequate after-investigation support,” says Lee.
He adds that the individual or the company trying to break from the cartel circle by alerting authorities could also face reputational damage and repercussions that further drive them away from flagging bid rigging to regulators. This could be the reason why leniency applications in Malaysia are so much lower than in other countries such as Singapore. To date, MyCC has recorded only four successful applications to leniency programmes, compared with Singapore which has recorded 80.
However, Lee says proposed amendments to Section 41 of the Competition Act 2010 could help shed light on some of the grey areas.
Chief executive of Competition and Consumer Commission of Singapore (CCCS) Sia Aik Kor said during the panel session that one of Singapore’s most effective methods of lenience regime is by providing clearer and detailed explanations of the procedure to the applicants, particularly limiting discoverability of leniency evidence in damages actions.
“When the parties come forward there is a genuine concern among them that the information provided to CCCS may be subjected to discovery for subsequent civil cases.
“We have to address these concerns by stating the position that records of all submissions to CCCS are considered internal records and will not be subject to file access. We will not generally use information that is done via oral submission, unless it has been separately submitted by the applicants or obtained by CCCS through exercise of its formal powers of investigation,” she said.
According to a research paper published by Netherlands-based information services company Wolters-Kluwer, a solution to protect applicants from possible lawsuits could be the introduction of “Fair Funds”.
A “Fair Fund” is a fund established by the US Securities and Exchange Commission (SEC) to distribute disgorgements (returns of wrongful profits) and penalties (fines) to defrauded investors.