CARTELS and COLLUSION: Commerce Act is turning criminal

A significant change in anti-competitive cartel law is almost upon us, after a decade’s worth of debate, policy U-turns, and delayed implementation.

–This article was originally published in the Auckland District Law Society weekly publication LawNews on 19 March 2021.

For a PDF copy of the article as published, click here

From 8 April 2021 engaging in cartel conduct will attract criminal sanctions under the Commerce Act 1986.  Directors and officers of a business who are actively involved in collusion may in future land themselves a jail sentence.

The purpose of this series of articles is to provide a refresher to busy commercial/corporate practitioners on key aspects of the law of cartels and collusion. The goal is to improve accurate issue-spotting in commercial transactions and contracts. For clients and advisers, imminent criminalisation means the stakes are now higher if straying close to such conduct.

Although the law change was passed in 2019, as the Commerce (Criminalisation of Cartels) Amendment Act 2019, the 2-year long lead time before implementation means it has flown a little under the radar, understandably buried beneath coronavirus news topics.

How did we get here (again)?

The biggest law changes have come about in two phases. Before 2017, price fixing was always illegal and already subject to heavy civil penalties in the Commerce Act. Amendments in 2017 significantly redefined and broadened the scope of what is deemed cartel conduct (in s 30A). That expressly added (to traditional price fixing) arrangements that affect supply or acquisition of goods or services by allocating markets, restricting output (including bid rigging).

Throughout this time, policy arguments raged about whether the campaign against cartels needed stronger criminal penalties, especially to target individual wrongdoers. The 2017 reforms were originally supposed to include criminalisation. But after an off-again, on-again series of party-political proposals, the Labour-led government in 2019 finally made criminalisation effective.

What impact has it had over the ditch?

Australia changed its law in 2009 towards a criminal regime. After a slow start, since 2016 we have seen more severe outcomes there, with the ACCC succeeding in criminal cases against 3 shipping lines, most recently a A$24m fine against Wallenius Wilhelmsen in February 2021.

And a prosecution that recently committed to trial of 6 high-profile bankers and their firms (ANZ, Citigroup, Deutsche Bank) looks set to be a blockbuster in the Federal Court.

New Zealand’s Commerce Commission is likely to start off slowly too, although there are no guarantees. It is currently raising awareness through mass-market advertising, and has several investigations in the pipeline that may well attract attention later in 2021.

The Commission will have the option in future to consider how each case should be addressed, by the existing civil regime seeking a pecuniary penalty, or by laying criminal charges.  Temptation to go criminal may be tempered by the additional complexity of the task, such as availability of criminal defence procedures. A new iteration of its Enforcement Response Guidelines due soon should give clues on how the Commission intends to approach these issues.

Criminality nuts and bolts

Potential maximum penalties are one way to grab attention. For an individual committing the new offence (s 82B) of entering into a contract or arrangement, or arriving at an understanding, that contains a cartel provision (or giving effect to one), imprisonment for up to 7 years is possible – on par with Crimes Act fraud, money laundering, bribery offences. That can be alongside a fine of up to $500,000.

For corporations the existing penalty regime remains ($10m per offence, or up to 3 times the commercial gain, or 10% of group turnover).

The mens rea element that will apply is an intent to engage in one of the defined categories of cartel conduct, at the relevant time. That does not require any intention to deceive or mislead or screw the market, simply to engage in the proscribed conduct.

Statutory defences are provided in the 2019 amendments (s 82C) if the defendant believed at the time, on reasonable grounds, that one or more of the Commerce Act exceptions applied in relation to the conduct.  Importantly, the defence cannot stretch to scenarios where the belief if based on “ignorance, or mistake, of any matter of law.”  So reliance on legal advice alone won’t assist.

Exceptions and areas of legal contest

The Commerce Act exceptions were restructured in the 2017 expansion of cartel conduct notions beyond price fixing. At least 3 general exceptions (as well as a number of sector or statute-specific exemptions and carve-outs) might now afford reasonable belief as a defence, covering:

  • Collaborative activities (replacing the narrow joint venture pricing exception) where a cartel provision is reasonably necessary for a genuine collaborative activity between competitors
  • Vertical supply agreements
  • Joint buying and promotion agreements

To date, there have been no Court cases examining the interplay of the new cartel definitions and the available exceptions. However, even the Commission acknowledges (Competitor Collaboration Guidelines, 2018) that cartel conduct can cover a wide field of activity, and “the role of the exceptions is to mitigate the potential for overreach by the cartel prohibition.”

Key legal battlegrounds in future criminal cases may include issues over whether:

  • the conduct fits the defined categories
  • the parties reached an arrangement or understanding
  • they reached that position, or “engaged in conduct”, with the requisite intent
  • the parties were truly “in competition with each other” in a particular market
  • one or other of the new 2017 exceptions (e.g. “collaborative activities”) applies.

The next few articles will explore these issues further, as part of surveying each category of cartel conduct: price fixing, market allocation, output restriction and bid rigging.

 

Gary Hughes, barrister at Akarana Chambers, specialises in regulatory investigations and cases, including dealings with Commerce Commission, FMA, SFO, Police FIU and AML/CFT Supervisors.
This series of articles sprang from a cartel training series he offers for SME law firms and in house counsel.
CARTELS and COLLUSION: Commerce Act is turning criminal
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