The business community has been under the misconseption that criminal liability for cartel behaviour will only become a reality once the Competition Amendment Act, No 1 of 2009, is promulgated.
While the Act introduces criminal liability for directors and senior management involved in cartel behaviour, certain categories of cartel behaviour already attract criminal liability.
In this regard, aside from the position under common law, the Prevention of Organised Crime Amendment Act, No 24 of 1999, and the Preven- tion and Combating of Corrupt Activities Act, No 12 of 2004, have been in place for some time. Surprisingly, the risk facing senior management and directors has largely gone unnoticed – a status quo which the business community can ill afford to continue to rely upon, says Webber Wentzel partner and competition law practice head Martin Versfeld.
Webber Wentzel competition law partner Daryl Dingley echoes this sentiment and notes that many companies were under the false impression that, on receiving leniency from the competition authorities, they had avoided any exposure, save for third party damages claims.
Versfeld explains that, while immunity applicants escape the substantial penalties which the Competition Commission might otherwise have imposed, they remain exposed to significant fines and the possibility of jail time. This exposure arises because certain cartel behaviour amounts to fraud, corruption or racketeering and therefore attracts criminal liability.
Companies found to have acted illegally could face penalties of up to R1-billion – well beyond that imposed by competition authorities to date. In addition to financial penalties, employees that engaged in the illegal behaviour could face up to life imprisonment.
Besides fines and the risk of imprisonment, offending companies found to have acted illegally could be placed on a publicly accessible National Treasury-managed register of tender defaulters. This would prohibit them from tendering for government contracts or from being awarded tenders by government for five to a maximum of ten years, emphasises Versfeld.
Senior managers and directors should also be aware that, if they become aware of cartel activities which might constitute fraud, corruption or racketeering, they are obliged to report such conduct to the National Prosecuting Authority (NPA) and failure to do so would constitute an offence, adds Dingley.
When assessing their potential exposure, companies also need to bear in mind that, while the Competition Commission can only reach back three years from the date on which cartel activity ceased, the NPA can reach back thirty years, emphasises Versfeld.
Cartel behaviour has to constitute either fraud, corruption or racketeering for the NPA to exercise its jurisdiction. Versfeld says the signifi- cance of the Competition Amendment Act is that it will criminalise certain cartel behaviour which does not fall foul of current legislation. For exam- ple, the allocation of geographic markets or the allocation of customers will attract criminal sanctions under the Amendment Act.
Dingley provides a further example which captures cartel behaviour and is already suscep- tible to criminal prosecution. A number of competing suppliers bid for a State tender and agree who will ‘win’ and what the tender price will be, arranged without the knowledge of the tender recipient. As a result of the collusion between the competing bidders, the recipient of the tender ends up paying substantially more than he or she would have, had the process been truly competitive and had not, as such, been defrauded.
Versfeld believes an agreement may be struck between the NPA and the Competition Commis- sion on managing the process of cartel investigations/prosecutions. A potential outcome is that the competition authorities will exercise principal jurisdiction over competitional issues.
This would serve a public policy function in encouraging parties engaged in cartel behaviour to make full disclosure, without fear of incrimi- nating themselves in the process and exposing themselves to further substantial penalties and personal criminal liability. However, he believes it unlikely that the NPA will totally relinquish its jurisdiction, reserving its right to pursue an individual or entity as it chooses.
Companies exposed to cartel behaviour are advised, in the absence of an agreement regulating the process between the NPA and the competition authorities, to approach the NPA and the competition commission at the same time and seek Section 204 immunity from the NPA.
Versfeld recommends that companies audit their practices to establish whether there is any historic or future exposure. He also recommends that firms look for the classic warning signs of cartel behaviour, including a history of always being able to maintain high margins; no apparent competitor price wars; static customer lists; a highly organised industry with several associations that create multiple opportunities for unofficial meetings; an oligopoly or concentrated market; and/or high communication levels between competitors.