Canada: Cartels: An Enforcement Priority

The Commissioner of Competition (the "Commissioner") has identified cartels, and particularly domestic cartels, as a top enforcement priority for the Competition Bureau (the "Bureau"). The Commissioner also has stated that she will continue to seek fines and prison terms against individuals involved in cartel offences, where appropriate, to increase accountability and deterrence.

As a practical matter, the Bureau's policy of offering immunity to cartel participants who disclose the cartel to the Bureau and co-operate in the resulting investigation and proceedings against the other participants, continues to play a major role in many of the Bureau's proceedings. During the past year, the Bureau received 13 requests for immunity and has averaged 8 requests per year since the immunity program was first published in 2000. A senior Bureau officer recently identified the immunity policy as the Bureau's "single most powerful means of detecting cartel activity".

Last year, with a view to ensuring its continued effectiveness, the Bureau initiated a major consultation on its immunity policy. The issues addressed by the consultation process include:

• How to balance the concern of immunity applicants that the information they provide be kept confidential against the disclosure requirements of the Canadian court system and the Bureau's need to coordinate with other competition authorities?

• Are there certain communications that ought to be made in writing notwithstanding the Bureau's general acceptance of a paperless immunity application process?

• How should the Bureau define what constitutes the "instigator/leader" of a cartel and how should they be treated?

• Should immunity also be automatically extended to past directors/officers/employees, which is not the current Bureau position?

• When is it appropriate to "carve out" directors/officers/employees from a grant of immunity?

• Should parties that fail to disclose a second offence under the Competition Act face an increased penalty ("penalty plus") for that offence in addition to possible revocation of immunity for the first offence they disclosed?

• Is providing restitution an appropriate prerequisite for immunity?

• What are the circumstances in which immunity should be revoked?

• Should the Bureau adopt a formalized position on when leniency short of complete immunity will be available?

• Is it appropriate for the Bureau to initiate approaches to potential immunity applicants to encourage one or more to come forward?

The Bureau is expected to issue a revised immunity policy early in 2007.

2006 started with the significant resolution of a cartel investigation involving three Canadian distributors of carbonless sheets. Davies acted for one of the parties in this matter.

Each company pleaded guilty and was fined $12.5 million, a record for a Canadian domestic cartel, for conduct that included agreements to respect market shares, implement a common discount program, and share sales and pricing data. Key personnel were also removed from positions in the companies' paper merchant businesses.

Also in the domestic context, a judge in Newfoundland discharged 12 accused companies and individuals after determining that a preliminary inquiry revealed insufficient grounds to allow conspiracy charges to proceed to a trial. The charges, which were filed in 2004, related to an agreement among taxi operators in the City of St. John's not to bid on tenders for the exclusive supply of taxi services to the local airport, hospital and university, as well as certain hotels. The judge was not satisfied that there was sufficient evidence that the agreement unduly lessened competition in a specific product market, but also appeared to be somewhat influenced by the fact that the agreement was open and disclosed both to the persons calling for tenders and the St. John's municipal taxi regulatory authority, which declined to take any action. The Attorney General of Canada (who is responsible for prosecuting criminal offences under the Competition Act) is appealing this decision.

At a May 2006 meeting of the International Competition Network in South Africa, participating competition authorities highlighted obstruction of justice as a "major problem" in cartel investigations because "it swings the balance further in favour of cartelists".

Several months later, the Bureau announced on September 11, 2006 that the Attorney General of Canada had laid charges against the employee of a Québec ventilation company for obstructing the course of a Bureau investigation and destroying documents during the execution of a search warrant. It was alleged that the individual in question had removed and destroyed relevant pages from his agenda. Penalties for obstruction under the Competition Act include a maximum fine of $5,000 or two years in prison, or both. The maximum penalties for the destruction of documents are $25,000 in fines, or two years in prison, or both.

In past years, international cartels have dominated the Bureau's criminal enforcement agenda. However, the only major international cartel proceeding in 2006 involved a prohibition order against Sotheby's, an international auction house, following an investigation into an international price-fixing conspiracy between Sotheby's and Christie's between 1993 and 2000. (In related proceedings, Sotheby's pleaded guilty and paid a U.S.$45 million fine in the U.S. in 2000, its former chairman was subsequently convicted and imprisoned after a contested trial in the U.S., and Sotheby's was fined €20.4 million by the European Commission in 2002. Christie's received immunity in the U.S. and the EU.) The Canadian resolution did not involve any guilty plea, but did require Sotheby's to pay about $800,000, representing the Bureau's investigative costs, and take measures to ensure future compliance with the Competition Act. It appears that the Commissioner was prepared to settle without a guilty plea because the effects in Canada were unclear. In particular, the Bureau's investigation revealed that Canadians may have been induced to consign their property to U.S. auctions affected by the conspiracy, but found no evidence that the conspiracy affected auctions in Canada.

The possibility of significant amendments to the Canadian cartel provisions of the Competition Act has been the subject of active debate for some time. Such amendments were the subject of a recommendation in a 2002 report of a Parliamentary Committee. However, the current minority government has not indicated that amendments to the Competition Act are a priority. Nevertheless, the Commissioner has recently suggested that she intends to continue to pursue opportunities to amend the Competition Act to provide for a certain category of per se cartel offences, as well as a noncriminal means of challenging agreements among competitors that substantially lessen or prevent competition. The current general cartel offence (but not the bid-rigging offence, for example) requires that the government prove beyond a reasonable doubt that the agreement has prevented or lessened competition "unduly", which in turn requires both behaviour that reduces competition or limits entry and at least some degree of market power. While a new per se offence could bring Canadian competition law closer to the U.S. model, there is vigorous debate in Canada on whether that outcome is desirable in Canada's smaller market economy, and whether there is any demonstrated need for an amendment in the first place. In any event, it seems clear that the issue of whether the Canadian cartel offence should be amended to more easily capture an expanded range of commercial activity will continue to be raised for some time to come.

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