MED finds prima facie case for criminalisation of hard core cartels
By Darise Ogden

NEW ZEALAND’S lack of criminal penalties for cartel behaviour may lead to it being seen as a “softer touch” than other common law countries, a discussion document released by the Ministry of Economic Development (MED) late last month has suggested.

In Cartel Criminalisation, the MED concluded that New Zealand’s current civil penalty regime would not be sufficient to achieve an increase in the deterrence of cartel conduct. Instead, it said there was a prima facie case for criminalisation, something the Organisation for Economic Co-operation and Development regards as best practice when it comes to deterring hard core cartel conduct.

Having assessed a number of civil options to increase deterrence, the MED concluded, “The single intervention most likely to have a significant impact on deterrence and detection is the possibility of imprisonment.” Said the MED at [62]: “The Commerce Commission’s current level of funding for enforcement [($13,935,000 GST inclusive)] is probably not impeding cartel deterrence, although an increase may see some small gains. The leniency programme, improved cooperation with other jurisdictions and improving private enforcement are all areas where work is currently underway. This should lead to some improvements, but these will not be large… Rewarding whistleblowers, increasing the level of financial penalties for individuals, extending the possible length of management banning orders and introducing adverse publicity orders are all options worth considering further, although again their cumulative impacts (and costs) are likely to be relatively small.”

To assist in the development of a criminal regime that will effectively deter hard core cartel conduct, the MED is seeking submissions in relation to whether criminalisation should be introduced and, if it is, what form it should take. The report suggests three options:

• The creation of an offence based on the existing civil provisions contained in the Commerce Act 1986.
• The adoption of Australia’s offence provisions, as contained in the Trade Practices Act 1974.
• A “greenfields” approach that would repeal sections 30 and 34 of the Commerce Act and replace them with new civil and criminal sanctions.

The main driver for adopting Australia’s provisions would be harmonisation, a reduction in compliance costs for trans-Tasman businesses, and reliance on Australian case law. However, the MED also noted that the Commerce Act is “significantly” different from the Trade Practices Act in respect of other areas of competition law, which would mean harmonisation would not be limited to the cartel provisions.

With respect to the “greenfields” approach, the MED has suggested a “Starter for 10” proposition, “a starting point”, where the physical elements of the offence will be intentionally forming an agreement (contract, arrangement, or understanding) or conspiring with a competitor to engage in cartel behaviour; and implementing an agreement with a competitor to engage in cartel behaviour. The mental elements will be intent to form an agreement knowing the agreement is one to engage in cartel behaviour; and intent to implement an agreement knowing the agreement is one to engage in cartel behaviour.

Submissions on the discussion document are due 5pm, Wednesday, 31 March 2010.