Cartels the Latest White Collar Crime

Topics covered in this article: Business Owners

Mary Hill

Partners

Partner

Phone: +64 7 927 0590
Email: mhill@clmlaw.co.nz

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Bachelor of Arts, Bachelor of Laws (First Class Honours), University of Canterbury

Master of Commercial Law (First Class Honours), University of Auckland

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Ashleigh Fletcher

Senior Solicitor

Senior Solicitor

Phone: +64 7 927 0584  

Email: afletcher@clmlaw.co.nz

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Bachelor of Laws (First Class Hons) with a Second Major in Economics

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The newly assented Commerce (Criminalisation of Cartels) Amendment Act 2019 provides that a person who intentionally engages in cartel conduct may be imprisoned for up to 7 years.

Cartel conduct is seen as a serious form of anti-competitive behaviour increasing the prices of goods and services for consumers and preventing new businesses from entering the market.  The intention behind the criminalisation of cartel conduct is threefold:

  • To provide a strong deterrent to parties intentionally engaging in cartel conduct.
  • To encourage the reporting of cartels through the threat of imprisonment.  The Commerce Commission offers conditional immunity from prosecution to the first member of a cartel who tells the Commission about its operation and provides evidence.
  • The likes of Australia, Canada, the United States and the UK have all criminalised cartel conduct, this aligns us with our major trading partners and allows us to co-operate more fully in international cartel investigations.

What is Cartel Conduct? 
Cartel conduct is defined broadly under the Commerce Act 1986 to include:

  •  Price fixing:  Where competitors agree to fix, control or maintain the price of goods or services so they don’t have to compete with each other.
  • Output restriction:  Where competitors engage in conduct to prevent, restrict or limit the goods or services they supply or acquire in competition with each other.
  •  Market allocation:   Where competitors allocate the persons to or from whom they supply or acquire goods or services in competition with each other; or allocate the geographic areas in which they supply or acquire goods or services in competition with each other.

The Commerce Act 1986 provides for exceptions to cartel conduct these being collaborative activities, vertical supply contracts and joint buying and promotion. 

It is important to carefully consider any proposed interactions with competitors against the cartel definitions in the Commerce Act 1986 particularly until a body of case law develops.  The Commerce Commission has provided some guidance.

Current Penalties

Under the Commerce Act 1986, individuals can be fined up to a maximum of $500,000. Companies can be fined the greater of $10 million, 3 x the value of the commercial gain resulting from the cartel conduct, or 10 percent of the company's turnover.   Companies are prohibited from indemnifying their directors and employees in respect of cartel conduct.

Directors and managers can also be banned from taking part in the management of a company for up to 5 years if they have been involved in cartel conduct. 

Criminalisation

The newly assented Commerce (Criminalisation of Cartels) Amendment Act 2019 provides that a person who intentionally engages in price fixing, output restriction or market allocation may be imprisoned for up to 7 years.

It is a defence to cartel conduct if, at the time of the alleged cartel conduct, the person believed on reasonable grounds that one or more of the exceptions to the cartel prohibition applied to the relevant conduct. However, this defence does not apply if the defendant’s belief was based on ignorance or mistake of law.

Transitional Arrangements

The Commerce (Criminalisation of Cartels) Amendment Act 2019 will take effect in April 2021.  This will give businesses time to reflect on their arrangements and ensure they are not participating in cartel conduct.

For advice about cartel conduct or other business competition issues, contact our team.
 

 

By Mary Hill & Ashleigh Fletcher 15/5/19