22 April 2016 by Competition Alert

Directors and managers of colluding firms now face criminal sanctions

Directors and individuals with management authority in companies involved in cartel conduct may face prison sentences and fines as a result of s73A of the Competition Amendment Act, No 1 of 2009 (Amendment Act) coming into effect on 1 May 2016. This follows a proclamation issued earlier today and recent announcements by the Minister of Economic Development, Ebrahim Patel.

Addressing Parliament on 21 April 2016, Minister Patel stated:

“We are confident that because our work on cartels over the past five years has given clarity in the market on what collusion entails and what kind of acts falls within prohibited practices, we can now step up our efforts to the next level in our endeavour to combat corruption, cartels and anti-competitive conduct that raise prices and keep businesses and new entrants out of local markets.”

Proponents of the criminalisation of cartel conduct have long argued that administrative penalties levied on firms, regardless of the amount, are inadequate deterrents that are ultimately paid for by consumers.

In terms of the Amendment Act, company directors and those with management authority will not only commit a criminal offence if they cause the company to engage in price fixing, market division or collusive tendering, but will also be at risk if they ‘knowingly acquiesced’ to the company engaging in collusive conduct. According to the Amendment Act ’knowingly acquiesced’ means ‘having acquiesced while having actual knowledge’ of the collusive conduct. However, it is expected that the courts will have to give further meaning to this concept given the gravity of a finding of criminal conduct against a person.

Although individuals may only be prosecuted under the new provision where a firm has acknowledged in a consent order that it has engaged in cartel conduct, or where the Competition Tribunal or the Competition Appeal Court has made a finding to this effect, critics have raised concerns about the rights of implicated individuals. Competition Tribunal proceedings are less formal than criminal proceedings, accordingly care will have to be taken to safeguard the rights of individuals during the investigation and hearing of collusion complaints.

It also remains to be seen whether the risk of criminal liability for individuals will chill the effectiveness of the Competition Commission’s corporate leniency program, which has been widely lauded as an effective mechanism for the detection and prosecution of cartels. The Amendment Act does not allow for automatic immunity to be granted to individuals in firms that make use of the leniency program.

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