Role and Regulation of Cartel Ring Leaders
– Dr. Sudhanshu Kumar†
“Competitors are our friends, customers the enemy”
‘Competition’, in business parlance, is an endeavor of two or more enterprises to win more and more customers. The rivalry that exists between similarly placed firms in the market forces them to innovate, better their products or services, and cut costs in order to capture more customers, which is why policymakers across jurisdictions have taken steps to protect, preserve and promote competition. ‘Cartel’ is a scenario where these firms instead of competing with each other join hands to actually not compete. Simply speaking, a cartel is an “an arrangement between competing firms designed to limit or eliminate competition between them, with the objective of increasing prices and profits of the participating companies and without producing any objective countervailing benefits.”
‘Cartelization’ as a Business Strategy
Many scholars see cartels as a business strategy where competitors join hands to create a favourable environment for themselves to maximize their profits. There can be two ways to look at cartels – the ‘external’ operation of the cartel which has adverse effects on the competition in the relevant market; and the ‘internal’ organization of the cartel which deals with different or equal levels of participation of the firms involved. Most of the time, the regulatory actions are concentrated on the external operation of the cartel and there is a lack of effort to understand and differentiate the internal organizational structure of the cartel. Identification of differing levels of participation of the firms in the cartel decision making can help in creating a better sanctioning mechanism. Differential treatment by the competition authority may induce cartel defection and reporting which in turn might improve the cartel detection rate of the competition authority.
Structural Scheme of Cartel
The structural or organizational scheme of any cartel can be examined through the decision-making practices of the cartel during its lifetime. If we apply the Baker & Faulkner categorization technique, cartels can be broadly categorized as ‘centralized’ and ‘decentralized’ cartels. Centralized cartels have a clear hierarchy of decision making and have one or more cartel leaders (also known as Cartel ‘Ring Leaders’), as opposed to decentralized cartels where there is no identifiable ring leader and the decision making is more collaborative. A decentralized or a“bureaucratic cartel” is managerial in nature with multiple objects involving multilateral arrangements and group meetings. Such cartels generally require a ‘monitor’ to see that the collective decision is followed by all, necessitating an exchange of relevant information at some level. Third-party monitoring reduces the risk of detection as there is no record-keeping at any individual firm. The platform of a trade association becomes a perfect conduit for such exchanges. However, such cartels have also proven to be less stable in nature due to a lack of trust in fellow cartelists. On the other hand, if the cartel has a strong sanctioning mechanism where there is credible economic fear, defections are lesser and the cartel may survive for a longer duration of time.
Cartel Ring Leaders
The concept of the ring leader of a cartel can be broken down into three forms – ‘originator’ (entity that takes the effort to establish the cartel and gets it going through its connection with other market participants); ‘instigator’ (entity which advances the objectives of the cartel through its decision making, monitoring and coordination) and ‘coercer’ (entity which pressurizes other business entities to join the cartel). Many jurisdictions, in order to create a higher level of deterrence, treat the cartel ring leaders differently from other cartel participants. It is understood that in most cartels, one entity (or a few in a big cartel) tends to take up the role of coordination and management of the entire scheme. They can act as initiators, instigators and even coercers in specific circumstances. Therefore, in a market with players of different sizes, cartel ring leaders might coerce or force the smaller players who join the cartel to save themselves from ostracization or a price war. Many cartels would not start or operate or would break quickly but for these ring leaders. Therefore, in order to create some level of fear, competition law in many countries either prescribes a higher penalty for ring leaders when compared to other cartel participants, or excludes them from leniency.
Regulation of Cartel Ring Leaders – An Overview
Leadership is taken as an aggravating factor in the calculation of fines. The EU Guidelines prescribe a higher penalty for leaders (“undertaking with a significant driving force”) and instigators (one who persuades or encourages other business entities to establish or join a cartel) of a cartel. Further, in many cases, the benefit of leniency or amnesty is not extended to them. The US Guidelines of Corporate Leniency of 1993 includes all forms of ring leaders in its provision for exclusion from leniency. Leniency provisions of the European Union (EU) however, allow ring leaders to make applications for a reduction in penalty. While the 1996 Commission Notice acted as a barrier for immunity from fines for cartel ring leaders, the 2002 and 2006 Commission Notice only bans immunity in case the undertaking coerced other undertakings to either join or stay in the cartel. These undertakings can still apply for a reduction in fines if they fulfill the relevant criteria. The Commission Notice does not prevent other forms of ring leaders from applying for immunity. Therefore, an originator, instigator or leader would still be eligible for immunity if it has not coerced other undertakings into the cartel. One can be called a leader if in order to advance the objectives of the cartel it was the first to voluntarily implement the cartel arrangement or takes active steps to sustain the cartel. Therefore, even without coercion, an undertaking can still be called as a cartel leader.
It is not always necessary that the competition policies differentiate between ‘instigators’ and ‘leaders’ and cartels are broadly characterized as either being with a ring leader or without a ring leader. The important aspect is the consequence of such characterization in terms of imposition of fines, grant of immunity or even reduction in penalties. Exclusion of ring leaders from the leniency scheme is expected to affect the very formation, and if formed, the operation of the cartel. No one would like to take the risk of being categorized as a ring leader and face the possibility of higher fines and no leniency. Alternatively, it would be considered unfair if a ring leader who established and ran the cartel and who also has the best evidence to prove the existence of the cartel is also eligible to seek immunity under the leniency scheme while others who were mere participants at the instance of the leader are penalized. The exclusion of ring leaders from leniency comes from this idea.There is however a counter to this. The presence of an anti-cartel enforcement regime that differentiates between ring leaders and other members affects the internal organization of the cartel. If the cartel members know beforehand that certain undertaking(s) will not be eligible for immunity from fines, trust on these entities by other members will increase; thus, increasing the stability of the cartel as there are minimal chances of self-reporting. Ring leaders can provide the best possible evidence to prove the existence and operation of cartels. If the ring leaders and other cartel members have the same rights, there is a possibility that non-leaders might feel that there is a risk of the ring leader defecting. Scholars like Aubert, Rey and Kovacic (2006), Spagnolo (2006)and Leslie (2006) argue in favor of extending leniency to ring leaders as that would cause distrust within the cartel, thus destabilizing it. Leniency, as is argued, would incentivize ring leaders to report the cartel since if anyone else defects and reports, the ring leaders would be penalized at a higher rate.
Since the possibility of immunity or reduction in fines through leniency might induce some ring leaders to adduce relevant evidence to the competition authority, a non-differentiated regime(where the ring leaders are eligible for leniency) would be preferred in jurisdictions with low cartel prosecutions. In addition, in a non-differentiated regime, ring leaders are likely to get a higher penalty on account of it being treated as an aggravating factor thereby reducing the likelihood of establishing or operating the cartel in the first place. Undertakings would not like to take leadership roles in fear of high fines, thus impacting the creation and also the sustenance of the cartel. However, if the rate of cartel detection and prosecution is relatively high, ring leaders should not be allowed to take advantage of the system created for the purpose of destroying the structures they built.
Regulation of Cartel Ring Leaders in India
The leniency provision under section 46 of the Indian Competition Act, 2002 or the CCI (Lesser penalty) Regulation of 2009 does not provide any clarity on the aspect of cartel ring leaders. Neither does India have penalty guidelines which take into account different factors including ‘cartel leadership’ in order to quantify fines for cartelization. It has to be mentioned here that nothing stops the Commission from taking into account cartel leadership as an aggravating factor to impose a penalty within the upper limit prescribed under section 27 of the Competition Act, 2002. However, the Commission in the last ten years has rarely considered the aspect of ‘leadership’ as a relevant factor to impose a penalty. While the idea of leadership has been clearly marked as an aggravating circumstance, there is a general lethargy in the identification of leaders in cartel cases. This may also be due to the lack of an identification framework. Through non-identification, the Commission has taken an easier route, sidestepping the requirement to collect evidence against one or more central actors.
The Commission has in the last ten years (2009-19) attempted to identify such leaders in not more than six cases. Even in these six identified cases, while the evidence suggest that the cartel has key or central figures, there is no sign of any effect on the resultant penalty imposed. Since there is no attempt to identify ring leaders by the CCI, there is no fear in establishing or coordinating cartels.
In Uniglobe, while the CCI identified three trade associations among six as taking the lead role and having a high degree of involvement, it did not reflect in the actual computation of fine. On the contrary, it acted as a mitigating factor for the other three associations who were left without any penalty. The three leader associations were handed over a penalty of one lakh each, something which was neither based on their turnover or annual receipts. In NagrikChetnaManch, while the managing director of one of the firms admitted to having established and operationalized the cartel of bid rigging, the CCI made no distinction in imposing penalty, either individual or at the undertaking level. A uniform penalty at the rate of 10% of average turnover and income was calculated for six firms and five individuals including the ring leader. Interestingly, the Commission also granted a 25% reduction in penalty for the ring leader. Similarly, in the Dry Cell batteriescase, even though the Commission observed that Panasonic played a key role in the cartel and “was in a position to influence and dictate the terms” of the anti-competitive arrangement to Godrej, it was granted a 100% reduction in penalty in lieu of the leniency application. Non-appreciation of the fact that Panasonic played the role of a ring leader has made the outcome of the case a bit unfair.
The Apex Court in Excel Crop Care Ltd. marked the importance of the role played by ring leaders in the determination of appropriate sanctions.
“8. After such initial determination of relevant turnover, commission may consider appropriate percentage (of penalty), as the case may be, by taking into consideration nature, gravity, extent of the contravention, role played by the infringer (ringleader? Follower?), the duration of participation, the intensity of participation, loss or damage suffered as a result of such contravention, market circumstances in which the contravention took place, nature of the product, market share of the entity, barriers to entry in the market, nature of involvement of the company, bona fides of the company, profit derived from the contravention etc. These factors are only illustrative for the tribunal to take into consideration while imposing appropriate percentage of penalty…..”
Leadership role is one of the most common aggravating factors taken in to account for the imposition of fines in many jurisdictions. Identification of ring leaders may help in making a distinction in the award of penalty among various cartel members. It also sends a clear message that the Commission will single out instigators and coordinators and deal with them in a more stern fashion.
The CCI has not actually taken the effort to identify ring leaders. This may be because a high percentage of cases are centered on trade associations and the final penalty has been imposed only on the association or their executive members. Considering that membership of trade associations is comprised of business undertakings, it would have been worthwhile for the CCI to identify the leader firm behind the decision making of the association. Non-identification of ring leaders fails to create ‘specific deterrence’ for individual undertakings. The Commission may choose to exclude ring leaders from the leniency scheme. Even if the CCI follows a non-differentiation strategy for cartel ringleaders in terms of leniency, it has to start identifying leadership as an aggravating factor to impose higher sanctions on the leaders which in turn might induce them to file for leniency. In the absence of penalty guidelines in India, there is no structural mechanism available to the CCI to take factors concerning the internal operation of the cartel into account while imposing sanctions. The Competition Law Review Committee lamented the lack of penalty guidelines in India and saw it as one of the reasons for the disproportionate penalties that have been imposed by the CCI. In conclusion, we can hope that the CCI does look at the role of cartel ring leaders as an important factor while imposing penalty.
Dr. Sudhanshu Kumar is an assistant professor at NALSAR University of Law, Hyderabad.
 Phrase used by Michael Andreas, son of Chairman of Archer Daniels Midland Co. (ADM), USA (the Lysine Cartel case). See, J.M. Connor, Our Customers Are Our Enemies: The Lysine Cartel of 1992-1995, 18(1) Review of Industrial Organization (Feb 2001).
 There are more than 120 jurisdictions in the world today which have a statutory law on competition. See,Richard Whish & David Bailey, Competition Law 1-5 (8th ed., Oxford University Press 2015).
 R.F. Hahn, S. Sabou, R. Toader, & C. Rădulescu, Worldwide Competition Strategies Between Ethical and Unethical Practices, 12(1) Review of Management & Economic Engineering (2013).
A leader is one who assumes specific responsibility for the operation of cartel, manages the operation from within the cartel and sees to its execution. [See, Case T‑410/03 Hoechst v Commission,  ECR II‑881; Case T‑224/00 Archer Daniels Midland and Archer Daniels Midland Ingredients v Commission,  ECR II‑2597]. Cartel ringleader plays a crucial role plays a central role in the operation of the cartel by organizing meetings or coordinates exchange of information or undertakes the responsibility of other members or formulates proposals for course of action can be designated as a leader. [See,  ECR 3369, 96/82 to 102/82, 104/82, 105/82, 108/82 and 110/82 IAZ International Belgium and Others v Commission; dated 30/10/ 2002, Nintendo/Video Games, (2003) O.J. L 253/33].
 Not all founding members can be categorized as instigators. Instigators are only those undertakings that have taken the initiative “for example by suggesting to the other an opportunity for collusion or by attempting to persuade it to do so…..The role of instigator concerns the moment at which a cartel was established or enlarged, and it is therefore conceivable that several undertakings might simultaneously play a role of instigator within the same cartel.” See, Para 15, Case T-343/06, Shell Petroleum & Others v Commission,  ECR II-000.
 The 1996 Commission Notice excluded entities who “compelled another enterprise to take part in the cartel” and which “acted as an instigator or played a determining role in the illegal activity” [See, Para B(e), Commission Notice on the Non-Imposition or Reduction of Fines in Cartel Cases, Official Journal C 207 , 18/07/1996 P. 0004 – 0006,European Commission (May 2020) https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A31996Y0718%2801%29].The 2002 Commission Notice in para A11(c) retained the exclusion for undertakings that took “steps to coerce other undertakings to participate in the infringement.” However, as per section B, entities would be eligible for reduction of any fine if the undertaking provides “the Commission with evidence of the suspected infringement which represents significant added value with respect to the evidence already in the Commission’s possession…”[See, Commission Notice on Immunity from Fines and Reduction of Fines in Cartel Cases, Official Journal C 045 , 19/02/2002 P. 0003 – 0005, European Commission (May 2020), https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52002XC0219(02)]. Similarly, the 2006 Commission Notice excluded “all undertakings from grant of immunity from fines if the undertaking took steps to coerce other undertakings to join the cartel or to remain in it”. However such undertakings would “still qualify for a reduction of fines if it fulfills the relevant requirements and meets all the conditions therefor.”
 N. Zingales, European and American Leniency Programs: Two Models Towards Convergence?, 5(1) The Competition Law Review, 5-60 (2008).
Uniglobe Mod Travels Pvt. Ltd. v. Travel Agents Association of India & Ors., Case No. 3/2009, decided on 4/10/2011 (CCI).
NagrikChetnaManch v. Fortified Security Solutions & Others, Case No. 50 of 2015, decided on 1/5/18 (CCI).
 See also, NagrikChetnaManch v. SAAR IT Resources Private Limited & Ors., Case No. 12/2017, decided on 9/8/2019 (CCI).
In Re: Anticompetitive conduct in the Dry-Cell Batteries Market in India, SuoMotu Case No. 03/2017, decided on 15/1/2019 (CCI).
 See Para 13, Per N.V.Ramana, J., Excel Crop. Care Limited v. Competition Commission of India and Ors., AIR 2017 SC 2734.