- South African Minister of Economic Development, Ebrahim Patel, has announced that, from 1 May 2016, cartel conduct (price fixing, market allocation and collusive tendering) comprises criminal activity.
- Directors or persons with management responsibility who participate in cartel conduct or who are aware of cartel conduct and fail to take appropriate action can be criminally prosecuted.
- The maximum penalty for cartel conduct is imprisonment for up to 10 years and/or a fine not exceeding R500 000.
- Tension may well arise between a firm's desire to "come clean" under the Competition Commission's ("the Commission's") Corporate Leniency Policy and an individual's desire not to self-incriminate.
From 1 May 2016, section 73A (1), (2), (3) and (4) of the South African Competition Act ("Competition Act"), 1998, as amended, comes into effect. Section 73A criminalises participation by directors or persons with management authority in any price fixing, market allocation or collusive tendering with competitors. This personal criminal liability extends to directors and managers who have knowledge of cartel activities, but who do nothing about it.
In his budget speech to Parliament on 21 April 2016, Minister Patel, stated that cartels result in "high prices to the disadvantage of ordinary citizens and of economic efficiency and they create quasi-monopoly practices in the economy" and that "we are taking firm steps to end cartels."
This criminalisation of cartel conduct is a firm step indeed. A person convicted of a section 73A offence is liable for imprisonment not exceeding 10 years and/or a fine not exceeding R500 000.
Since section 73A comprises criminal conduct, prosecution of the directors or managers of a firm will be conducted by the National Prosecuting Authority ("NPA"), rather than the competition authorities. The NPA's prosecution can only proceed after a finding by the Competition Tribunal (the "Tribunal") or the Competition Appeal Court ("CAC") that the firm has engaged in cartel conduct or after the firm has admitted to having engaged in cartel conduct by virtue of a consent agreement.
The prosecution of the firm before the Tribunal or the CAC and the individual in the criminal courts gives rise to an interesting dilemma. The Competition Commission can offer indemnity to a firm in terms of its Corporate Leniency Policy, but not to an individual. While the Commission can make submissions to the NPA in support of leniency for the director or manager, these submissions are not binding and the NPA has the ultimate say. This may result in a director or manager being unwilling to provide a complete and truthful disclosure to the competition authorities in pursuit of indemnity for the company, in fear of a criminal sanction.
The constitutionality of section 73A has been a contentious topic of discussion since the amendment was promulgated in August 2009. The omission of sub-sections 73A(5) and 73A(6) in the proclamation bringing section 73A(1), (2), (3) and (4) into effect may well be an attempt to address these concerns.
The Competition Act and its prohibition of cartel conduct has been in force since 1999. The introduction of personal, criminal liability introduces a new level of punishment for cartel conduct in South Africa. Firms and individuals should take heed that the competition authorities have a new weapon in their arsenal to use in the war against cartels.
Originally published on 25 Apr 2016
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.