Cartel criminalisation – back from oblivion

Legislation to criminalise cartel conduct has been brought back from the dead as new Commerce Minister Kris Faafoi stamps his mark on the portfolio.

The law change was originally provided for in the Commerce (Cartels and Other Matters) Amendment Bill introduced by former Minister Simon Power in 2011. That Bill, however, never had high priority and only passed in August last year – and then only after the Minister at the time, Paul Goldsmith, had quietly removed the criminal offence provision in December 2015.

But now it’s back, with just minor tweaks.

Key provisions

If passed, the new law would make those guilty of intentional cartel conduct liable for up to seven years in prison and/or a $500,000 fine (which is the current ceiling on an individual’s civil liability for cartel behaviour).
Cartel conduct involves entering into a contract or arrangement with a current or potential competitor whereby the parties agree, or attempt to agree, to:

  • fix prices
  • restrict their output, or
  • allocate customers or geographic regions to each other, thereby denying consumers the benefit of rival firms competing for their business.

Opinion divided

Previous efforts to criminalise cartel conduct have been highly controversial.

Some consider it will deter business people from engaging in efficient, legitimate conduct like joint venture arrangements out of fear their deal might be misunderstood as cartel behaviour.

On the other side of the fence:

  • most of our trading partners criminalise cartel conduct: deterrence is critical because cartels are, by their nature, very hard to detect
  • there is seldom any economic or moral justification for cartel behaviour (and where there is, there are ways of separating the good from the bad), and
  • plainly, current sanctions were too light given the steady stream of cartel behaviour prosecuted by the Commerce Commission and other regulators around the world.

Chapman Tripp comment

The Bill may face difficulties as it works its way through the Economic Development, Science and Innovation Committee.

For a start, there could be staunch opposition from some corporates who worry about the steady criminalisation of commercial conduct which, they may say, has a chilling effect on New Zealand Inc.

Then there will be practical concerns from, for instance, the Commerce Commission itself. In a Cabinet Paper released today Minister Faafoi noted that the Commission “has raised concerns about the breadth and complexity of the defences proposed” and the “increased costs [it will bear] as all cartel investigations will need to be undertaken to a criminal standard, at least in the first instance”.

The Bill is expected to be passed by April 2019. There will be time for public submission.

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