Bill introduced to deter hard-core cartel behaviour

A bill that introduces criminal sanctions to deter hard-core cartel behaviour was introduced to Parliament today by Commerce Minister Simon Power.

“Cartels, by their nature, are secretive and often go undetected, causing substantial harm to businesses, consumers, and the government sector,” Mr Power said.

“Ultimately everyone suffers: increasing costs of production affect the competitiveness of companies in domestic and international markets, while consumers unwittingly pay inflated prices.

“Current fines for cartel behaviour are seen by some as just a cost of doing business, but I believe the threat of up to seven years’ imprisonment and the implications of a criminal record will be a powerful disincentive to engage in such behaviour.”

The bill clarifies the scope of prohibition and exemptions, and introduces a clearance regime so businesses can manage risk by approaching the Commerce Commission before entering into or amending an arrangement.

“The commencement of the new regime will be phased in over two years to allow for the changes to bed-in before criminal sanctions are introduced.”

Mr Power said the new regime brings New Zealand into line with many of its trading partners, including the United States, United Kingdom, Canada, and Australia.

The development of the bill has been shaped by a discussion document released in January last year and by the release of a drat exposure bill in June this year.

Key features of the bill include:

The penalty regime
The bill introduces criminal sanctions for individuals and companies. For an individual, the maximum sanction would be seven years’ imprisonment. For a body corporate, the sanctions are the same as the current level of sanctions: a fine set at the greater of either $10 million or three times the value of the commercial gain, if it can be ascertained. If the gain cannot be ascertained, the sanction will be 10 per cent of annual turnover.

The prohibition
Compared to the current prohibition, the bill takes a different approach to defining hard-core cartel conduct. The prohibition defines the forms of conduct which are illegal (i.e. fixing prices, restricting output, allocating markets, and rigging bids). This approach should give greater certainty as to the type of conduct that is prohibited.

The exemption
Compared to the current exemption for joint ventures, the new exemption is much broader in scope. The exemption has also been renamed the collaborative activity exemption to emphasise that it is intended to apply to all pro-competitive arrangements, not just joint ventures. The breadth of the exemption should create greater certainty for businesses that are proposing to enter into collaborative, efficiency-enhancing arrangements.

The clearance regime
The bill introduces a clearance regime to help businesses manage any residual risk that their proposed collaborative activity might be in breach. Currently, the Commerce Act provides a clearance regime for mergers. This regime allows parties proposing to acquire assets or shares to test with the Commerce Commission whether the acquisition would raise competition concerns. There is no equivalent regime for collaborative arrangements. The new clearance regime should provide greater certainty for businesses that the collaborative arrangements they are proposing do not raise competition concerns.

The bill can be found here.