Cartel criminalisation slammed

Leading figures in the competition law arena have criticised the decision to criminalise cartel conduct through an amendment to the Competition Act, which took effect in May.

The amendment holds executives involved in prohibited cartel conduct personally liable with the possibility of a jail sentence of up to 10 years.

“I have no problem with cartelists going to jail,” Dennis Davis, the long-serving Judge President of the Competition Appeals Court, told the 10th annual Competition Conference this month.

However, he warned that criminalisation would most likely undermine the indemnity programme for cartel whistle blowers, which many observers believe lie at the heart of South Africa’s successes in breaking up cartels.

“I have significant doubts about the efficacy of the National Prosecuting Authority [NPA]. It is extremely thin on the kind of expertise required to deal with the complexity of cartel decisions,” he said.

Davis, who also heads up the Davis Tax Committee, said he’d like to see tax evaders sent to jail.

“I have no doubt it will increase tax integrity,” he said.

He lamented that members of the judiciary see people go to jail for petty theft when executives running nationwide cartels get away with little or no punishment.

“We deal with people who have been sent to jail for six months for stealing five bananas from Pick n Pay or Checkers,” said Davis.

“People get six months and nobody says anything. But somebody who is involved in the bread cartel, which has massive effects for poor people ... I don’t have sympathy – they must sit [in jail] for a few years and have stale bread provided by the department of correctional services.”

Davis’ sentiments are shared by David Lewis, founding chair of the Competition Tribunal, who said he was “sceptical” of the ability of the NPA to handle the complex economics of cartel cases.

“I remain firmly of the opinion that prison time fits the offence,” he said.

“I am unbelievably sceptical of the ability to coordinate anything between the NPA and anybody else in way that maintains the integrity of the leniency programme.”

Lewis said that despite these qualms, criminality is now established in law and “we must live with it”.

As other commentators have done, he pointed out that the burden of proof at the Competition Tribunal works differently than in a criminal trial.

“The idea of the competition tribunal fining a company R1.5 billion and for those individuals to be found not guilty on a different standard of proof in criminal court horrifies me. I really don’t trust in the ability of the NPA to successfully prosecute cartel offences.”

Lewis suggested other penalties such as blacklisting.

Senior Advocate David Unterhalter also criticised another problem with criminalisation.

According to him, the Competition Act does not properly distinguish between “hardcore” cartel activity and lesser collusion.

“It is going to be massively complicating in relation to the criminalisation problem,” he predicted.

“It is going to create an enormous number of legal challenges as we try to integrate the concept of criminalisation into the regime that we have at the moment.”

At the Competition Conference, Economic Development Minister Ebrahim Patel defended criminalisation and downplayed the main argument against it.

“Some commentators have raised concerns that the criminalisation of cartel behaviour may act as a disincentive for individuals implicated in such activities to come forward and blow the whistle,” said Patel.

“The opposite, of course, will also hold true: to come forward and act as a witness for the state and potentially avoid jail can be a very, very powerful incentive,” he said.

The conduct in question falls into three categories: fixing prices, dividing markets and colluding on tenders.

“We have taken this step because it is not sufficient to have financial penalties that are simply discounted by companies against the likelihood of being caught and the benefits of the behaviour,” said Patel.

“It is critical for our economic prosperity that we remove the deep and pervasive habits of collusion in the economy, root and branch.”

South Africa’s Competition Commission has become incredibly adept at finding and prosecuting cartels, noted several speakers at this week’s conference.

“We need to see how we deal with the problems of success. Ten years ago, we did not know where cartel behaviour was taking place. Today, the problem is how to deal with the large number of cases that come up – 133 new cartel cases were initiated in the past 12 months,” said Patel.