Community BlogShould cartel participants face jail time? |
It could be passed into law soon.
The Department of Trade & Industry recently informed the Select Committee that a Competition Amendment Bill will be presented to Cabinet in April 2008. Besides updating the act and codifying the Competition Commission's corporate leniency policy (which is only a guideline), the Bill will strengthen the penal provisions of the Act.
There has been speculation for some while that criminal liability for directors of companies which participate in cartel conduct will be introduced. This would bring our Act into line with competition legislation in a number of other jurisdictions, including Canada, France, Ireland, Norway, Germany, Austria, Japan, the United Kingdom and the United States. Lengthy jail terms have recently been imposed on executives involved in cartel activities in these jurisdictions - for example, last year the UK's Office of Fair Trading filed criminal charges against three executives relating to their role in an international cartel which fixed prices, allocated markets and customers, rigged bids and restricted supplies of marine hoses. The three executives have since been found guilty of these charges in the United States and each agreed to pay fines and serve jail terms of between 20 months and two years, the most severe sentences imposed in that jurisdiction to date. In 2007, sentences for breaches of the United States' Sherman Act involved a record of nearly 40 000 jail days and over US$630m in criminal fines.
The chair of the Competition Tribunal, David Lewis commented during the recent tribunal hearing in relation to the Tiger Brands consent order that although the South African legislature had cogent reasons for not criminalising individual participation in cartel conduct in 1998 when the Act was first published, it is now "increasingly held in competition law that the only penalty sufficient to deter cartel conduct is prison time... and [that] is a view, quite honestly, that we share." The international experience suggests that the potential social stigma attached to possible imprisonment effectively deters executives from entering into anticompetitive arrangements - whilst many will risk a massive fine being imposed on the business, they baulk at the prospect of jail time. Unlike massive fines, such sentences avoid penalising shareholders and most importantly, the consumers who ultimately pay when they purchase the firm's products for years to come. Sentences of this nature also enhance the effectiveness of corporate leniency programmes.
Introducing criminal liability may deter South African managers from entering into potentially anticompetitive arrangements and hence, improve competition law compliance in South Africa. However, this benefit must be weighed against the costs which would invariably flow from this approach. Firstly, because personal liberty would be at stake, all of the Constitutional rights granted to an accused person would presumably come into play. In particular, the burden of proving the offence would be greater than it is at present, which may reduce the number of successful prosecutions. Secondly, whereas competition litigation has been relatively expeditious to date (certainly in comparison to High Court proceedings) and companies have been prepared to enter into settlement agreements to pay fines or implement compliance programmes fairly readily, proceedings involving criminal sanctions are likely to be significantly more protracted and will require far greater resources to be devoted to them by the Competition Commission. Thirdly, criminalising this conduct may add to the already substantial South African prison population. Administrative penalties such as the approximately R98.7 million paid by Tiger Brands at least contribute to government revenues. Imprisonments, on the other hand, cost taxpayers money. In view of the appalling state of our prisons and the current skills shortage, it is arguable that skilled professionals should be kept out of jails where there are other adequate remedies, such as personal fines. Our legislature may thus elect to impose administrative penalties, rather than prison sentences, on executives found to have participated in cartel activity.
It is understood that the Bill will be made available for public consultation before being introduced to Parliament in June this year. Given the importance of the issues at stake, it is hoped that the department will give careful consideration to the proposed amendments after receiving submissions from the public and consulting thoroughly with competition law practitioners, the business community and other stakeholders.
Heather Irvine is from Deneys Reitz
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