Stakes even higher with the prospect of jail time for cartel conduct

Jail time is set to become a real prospect for cartel participants with the passage of the Commerce (Criminalisation of Cartels) Amendment Bill (the Bill) on 4 April.  The Bill amends the Commerce Act 1986 by introducing a new criminal offence for cartel conduct.  The criminal regime will run in parallel with the current civil regime, with Crown Law to provide criminal prosecution guidelines.

On passage of the Bill Minister Kris Faafoi said, “[b]y criminalising cartels, we are sending a clear signal that if you’re part of a cartel, you risk jail time”.

The new criminal offence targets intentional conduct

Following a two-year transition period, from 4 April 2021, an individual convicted for intentionally engaging in cartel conduct in breach of section 30 of the Commerce Act will face a penalty of:

  • imprisonment for up to 7 years; and/or
  • a criminal fine of up to $500,000 (the same as the current maximum civil pecuniary penalty for an individual under the civil enforcement regime).

Cartel conduct is entering into a contract or arrangement, or arriving at an understanding, with a competitor that has the purpose, effect or likely effect of:

  • price fixing;
  • restricting output; and/or
  • market allocating.

The new criminal offence requires that the individual intended to engage in cartel conduct.  It will not suffice that their conduct had that effect or likely had that effect.  Inadvertent behaviour will not give rise to criminal liability, but may still fall foul of the civil prohibitions.

Strengthening New Zealand’s competition law

During the third reading of the Bill, Minister of Justice Andrew Little, described the Bill as “an important element to the Government's reform programme to strengthen New Zealand's competition law, in line with some of our major trading partners”, and said it will “enhance the effectiveness of New Zealand's competition law and will ensure that cartel conduct that is intentional and harms competition is subject to criminal sanctions”.

Background

Criminalisation of cartel conduct has been debated in New Zealand for some years.  It was originally included among other Commerce Act amendments proposed in 2011, before being dropped from the draft legislation in 2015 due to concerns about the potential chilling effect on pro-competitive behaviour.

Following a change of government in late 2017, criminalisation was put back on the agenda and the Bill was introduced into Parliament in February last year.

The Bill brings New Zealand into line with our major overseas counterparts, including Australia, which already have criminal penalties for cartel conduct.

Key aspects of the Bill

Key aspects of this Bill are:

  • The proposed introduction of a new criminal offence for cartel conduct, where a person (a business or an individual) intentionally engages in price fixing, restricting output or allocating markets.
  • A proposed new defence to the criminal offence, where the person believed that a cartel provision was “reasonably necessary” for the purposes of a collaborative activity. Collaborative activities, including joint ventures, are one of the exceptions to the cartel prohibitions.
  • The criminal offence will sit alongside the current civil prohibitions and enforcement regime. The maximum fines will be the same as the civil penalties, but the criminal offence must be proven to the higher criminal standard of proof (beyond reasonable doubt) and will require proof of intent.
  • The offence targets the individuals who are involved in the decision-making to fix prices etc., and will carry a penalty of up to 7 years’ imprisonment or a fine not exceeding NZ$500,000.
  • The policy objectives are to promote the detection and deterrence of cartel activity, including through encouraging self-reporting under the Commerce Commission’s cartel leniency regime. It will also enhance cartel enforcement by the Commission, as a number of additional enforcement tools become available with criminalisation.  Those tools include possible extradition, covert surveillance and improved co-operation with international competition law enforcement agencies.
  • A two-year transitional period is proposed before the criminal offence would come into force, to allow time for businesses to understand the application of the recently (2017) amended civil prohibitions and for the Commission to undertake some educational activities (while also building its capability to undertake criminal investigations).

Our previous news alerts on cartel criminalisation are available here and here.

For more information on criminalisation, please contact a member of our Competition team.

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