With cartel laws recently amended to introduce prison sentences for cartel conduct, the Commerce Commission wants to raise directors’ awareness of what has changed and how to avoid and identify cartel conduct.
Some directors might not be aware they or the company are engaging in cartel conduct. But there can be serious consequences for businesses and directors.
Being alert to competition law risks and knowing what to do if your business has been involved is key for directors.
Cartels happen when business rivals get together and agree not to compete against each other. They may agree to fix prices, divide and share customers or markets between them, restrict output of goods or services, or rig bids for contracts so they decide who wins.
Cartels cause both consumers and businesses to pay more for goods and services, and can undermine New Zealand’s ability to compete internationally. They also make it difficult for other competing businesses that aren’t part of the cartel to survive and grow and can reduce choice and quality.
As New Zealand’s competition authority, the Commission has powers to investigate cartels and bring proceedings for penalties and, from April next year, criminal penalties against both individuals and companies.
In April 2019 the Commerce (Criminalisation of Cartels) Amendment Act was passed into law. It will come into force on 8 April 2021. The Act makes existing civil cartel prohibitions under the Commerce Act criminal offences.
This means that, in addition to the existing civil penalties, individuals convicted of cartel offences face up to seven years imprisonment.
It will be a defence to the criminal offence if the defendant believed on reasonable grounds that an exception applied to the alleged conduct. “Reasonable grounds” does not mean a mere assertion that an individual believed the conduct was exempt. There must be a credible basis for the belief.
Exceptions include collaborative activities such as a joint venture between competing firms.
“Some directors might not be aware they or the company are engaging in cartel conduct”
The consequences for individuals, including directors, are severe:
Businesses involved in a cartel face a penalty of up to $10 million, three times the commercial gain of the behaviour or 10% of turnover per annum of the conduct, whichever is higher. This applies to civil and criminal prosecutions.
Not all investigations end up in court proceedings. Sometimes the Commission may issue public warnings.
Detecting and taking action against cartels is a priority for the Commission.
Our published Enforcement Guidelines details how the Commission makes enforcement decisions against companies and individuals. Factors taken into account around whether to commence a prosecution include public interest and whether the conduct is deliberate.
Any decision taken to commence criminal proceedings will also have regard to whether the evidence is sufficient to provide a reasonable prospect of conviction.
The Commission frequently brings proceedings against individuals and directors. Recent examples of price fixing where a director was ordered to pay a penalty include:
The Commission will continue to take action against individuals involved in cartels under the new criminal offences.
When deciding to take action against individuals, the Commission will take into account the individual’s role in the conduct and their role in the business. The conduct of an individual, including a director, may also be a factor in the amount of any penalty imposed on a business by the courts. For example, was the director in a position to stop the conduct at any stage during its duration?
Encourage and facilitate reporting. Identify an independent, trustworthy person in your business for staff to report concerns to such as the company secretary seek independent legal advice if you have a competition law concern.
More information on the Commerce Commission’s approach to cartel conduct, its leniency policy and its Enforcement Response Guidelines is available at comcom.govt.nz
This article is featured in Boardroom April May 2020 issue