by Cornwell Dauds

  • Time to ratchet things up on cartels! From a report in the Business Day of Friday, 22 April 2016, that’s effectively the message of the Minister of Economic Development, Mr Ebrahim Patel. The Minister appears bent on using section 73A of the Competition Amendment Act to criminalise hard-core cartel practices such as price-fixing, market division and collusion in tenders (bid rigging). Granted, cartel practices have worldwide been declared a most egregious offence which has no place in a sound economy and, for this very reason, most jurisdictions have imposed an outright prohibition on these practices. This is because of the very harmful effect cartel practices have on consumers – they cause a rise in the prices of products and services (often a steep rise!).
  • So far – in South Africa, that is – only administrative sanctions in the form of fines have been imposed on those firms found to have engaged in cartel practices. But it is the companies which end up paying these fines – not the directors or executive managers personally. Now the Minister wishes to go after these individuals by way of section 73A – he wants criminal sanctions to be imposed on the directors and executive managers of those companies that are found to have engaged in hard-core cartel practices. His desire is to have these individuals criminally prosecuted, and upon conviction sentenced to a jail term. As a way of deterring cartel practices – which are harmful to consumer welfare – one probably could not fault the Minister’s thinking.
  • But what success does the Minister hope to achieve with the criminalisation of cartels? It is not easy to expose a cartel whose activities are typically kept secret. Competition authorities worldwide have long appreciated this difficulty, and have resorted to the use of what is known as the “corporate leniency policy” to break the mould. They have offered cartel members – who have been sworn to secrecy by the cartel – leniency if they came forward and said “mea culpa” (I’ve done wrong), and then immediately spill the beans on their co-cartel members. The South African competition authority has followed suit in implementing this leniency policy. In fact, most of the successful prosecutions of cartel practices have been obtained through the use of the leniency policy – both here and in other jurisdictions. This policy allows “turncoat” cartel members to escape the full might of the law. To any member that invokes the leniency policy, it is about self-preservation. A cartel member will typically only make use of the leniency policy and confess if there is a suspicion that the competition authority is onto them, or if the cartel members had a fall-out, and one of the members considers it wise to move first and take advantage of the leniency policy. Even so, without the corporate leniency policy, competition authorities would have found it incredibly difficult to successfully prosecute cartel practices.
  • Now the Minister wishes to move to the next level – he wants to have criminal sanctions, not only administrative sanctions, imposed on those found to have engaged in cartel practices. With a criminal prosecution comes a heavy burden of proof – guilt proved beyond a reasonable doubt is required. So how does the Minister hope to overcome this hurdle? He hopes to do so by the use of section 73A of the Competition Amendment Act, which he believes allows him to criminally go after the directors and the executive managers of a firm found to have violated section 4(1)(b) of the Competition Act (the price-fixing, market division and collusive tendering provisions), and have these individuals sentenced to a jail term upon a successful conviction. Understandably, the Minister wants to discourage any dabbling in the cartel “cancer” by fighting the practice on two fronts – through administrative sanctions and through criminal sanctions. But just how realistic is the criminal sanctions front? While the US have had some success with the criminal prosecution of cartel practices, other jurisdictions which have also introduced criminal sanctions have not been particularly successful. The relative success in the US is largely attributable to the fact that that country’s law enforcement institutions and procedures are uniquely suited to the criminal prosecution of cartel practices. For instance, that country’s Department of Justice (DoJ) administers the leniency program and is also the prosecuting authority – it does not have to rely on another prosecuting authority to prosecute the individuals alleged to be involved in cartel activities. The US is thus able to co-ordinate the leniency program and criminal sanctions for violations of the law.
  • By contrast, other jurisdictions – including South Africa – lack this co-ordination between the corporate leniency policy which allows cartel members to open up, and the prosecution of individuals. While the leniency policy is administered by the competition authority, criminal prosecution is the responsibility of another authority (in South Africa, the National Prosecution Authority). This means the competition authority itself is not able to offer individuals (directors and executive managers) a lesser sentence, or immunity, in exchange for co-operation. Sentencing and the issue of immunity will be entirely in the hands of the prosecuting authority and the Court where there is no guarantee of a lesser sentence or immunity.
  • The question that follows therefore: Will the directors and executive managers of a firm confess their cartel sins where there is a chance they might face the full criminal might of the law? Methinks not.