The latest Competition and Market Regulation from DLA Phillips Fox is now available below.

Criminalisation of Cartels

Simon Power, the Minister of Commerce, yesterday announced the release of a discussion document on the introduction of criminal penalties (including imprisonment) for those guilty of participation in cartels. The Minister's announcement follows the recent criminalisation of cartel conduct in Australia - the relevant reforms coming into effect over the Tasman on 24 July last year.

In making yesterday's announcement, the Minister commented:

'Many cartels are so big that the current fines are seen as a cost of doing business, rather than a deterrent, so I believe it's time to look at further measures to deter potential cartels. Several countries, including the United States, United Kingdom, Canada, and Australia, have criminalised cartel behaviour and it's important that New Zealand keep in step with those countries—especially Australia. New Zealand is committed to ensuring that businesses operating in both the Australian and New Zealand markets are faced with the same consequences for the same anti-competitive conduct. The discussion document canvasses the arguments for and against criminalisation and considers how we could do this. I am keen to hear what the public think.'

Click here for discussion document. Submissions close on 31 March 2010.

The policy issues

The Discussion Paper states:

  • That the single intervention most likely to have a significant impact on deterrence and detection of cartel conduct is the possibility of imprisonment. It records that since the introduction of criminal penalties in Australia, the Australian Competition and Consumer Commission (ACCC) has reported an increase in leniency applications (whereby participants in cartels offer to 'come clean' and 'dob in' other participants in return for immunity from the ACCC).
  • There are however difficulties in defining a criminal offence which covers only hard core cartel conduct (price fixing, bid rigging, market allocation and agreeing to restrict output) deserving of imprisonment, without also deterring pro-competitive or efficiency-enhancing conduct.
  • The higher criminal standard of proof together with the administrative costs involved in imposing jail terms need to be considered. Criminal investigations can be more costly than civil investigations because of the high standard of proof and the strict rules of evidence that apply.

Options for criminalisation

In terms of options for criminalisation of cartel conduct the Discussion Paper considers and discusses three approaches:

  1. Creating an offence based on the existing civil prohibitions in the Commerce Act – the advantage of this is that the existing language and concepts in the Commerce Act are familiar and have been considered in a number of existing cases. Thus it would potentially provide more certainty to business in the event criminalisation was introduced. On the other hand, the disadvantage would be that existing uncertainties in our current civil law would become part of the new criminal offence provisions but the stakes would be significantly higher in that businesses and individuals who are deemed to have got it wrong would potentially be subject to criminal penalties.
  2. Adopt the Australian offence provisions – the Australian approach has been to introduce both criminal offences and parallel civil prohibitions focusing on what are considered to be the key types of 'hard core' cartel behaviour. The main advantage of this approach would be harmonisation with Australia. The disadvantage would be that the NZ criminal provisions would contain the same deficiencies (if any) as the Australian ones - already a number of criticisms have been levelled against the Australian provisions.
  3. A greenfields approach whereby the NZ criminalisation provisions are drafted from scratch – the advantage of this would be that it would afford an opportunity to address any perceived deficiencies in the Australian criminalisation provisions and under the existing NZ civil provisions. The disadvantage of this would be that it would be untested and therefore until the courts began to issue decisions under the new law there would potentially be greater uncertainty than under either of the other two options.

Bill of Rights Act

Criminalising cartel conduct raises serious issues of compliance with the New Zealand Bill of Rights Act 1990. In particular, reconciling the rights of those suspected of an offence with the Commerce Commission's currently broad powers requiring individuals to attend interviews with the Commission and to produce documents is potentially problematic.

Where to from here

The Discussion Paper reaches a preliminary conclusion that there is a case for criminalisation. The Minister's words in introducing the paper are more non-committal. However, with the advent of criminalisation in Australia, it may well be virtually inevitable that criminalisation now follows here. If so there is before 31 March a relatively brief, but commendably early opportunity for those potentially impacted by these reforms, to make submissions with the aim of ensuring New Zealand adopts the best possible approach.

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