Dou­ble-deal­ing bosses might face prison

So­cial stigma at­tached to im­pris­on­ment could hin­der com­pe­ti­tion law en­force­ment

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - HEATHER IRVINE

RE­CENTLY there were re­newed calls in Par­lia­ment for the in­tro­duc­tion of prison terms for di­rec­tors and man­agers who fix prices, di­vide mar­kets and rig ten­ders.

How­ever, since 2009 when the Com­pe­ti­tion Amend­ment Act was passed, the com­pe­ti­tion au­thor­i­ties have re­peat­edly been taken to task by the courts for fail­ing to ad­here to the ba­sic prin­ci­ples of the rule of law when they ini­ti­ate and in­ves­ti­gate com­plaints. Com­pe­ti­tion lawyers, and per­haps even the com­pe­ti­tion au­thor­i­ties them­selves, have be­gun to won­der whether the in­tro­duc­tion of in­di­vid­ual crim­i­nal sanc­tions will ac­tu­ally hin­der com­pe­ti­tion law en­force­ment in SA.

In­ter­na­tional ex­pe­ri­ence sug­gests that the so­cial stigma at­tached to the im­pris­on­ment de­ters ex­ec­u­tives from en­ter­ing into anti-com­pet­i­tive agree­ments: many di­rec­tors will risk a mas­sive fine be­ing im­posed on their busi­ness, but hes­i­tate at the prospect of spend­ing time in jail them­selves. Pre­sum­ably, our leg­is­la­ture hoped that in­tro­duc­ing crim­i­nal li­a­bil­ity would ef­fec­tively de­ter South African man­agers from en­ter­ing into anti-com­pet­i­tive ar­range­ments and hence, im­prove com­pe­ti­tion law com­pli­ance in SA.

How­ever, the ben­e­fits of in­tro­duc­ing crim­i­nal sanc­tions need to be care­fully weighed against the po­ten­tial for these amend­ments to make the work of our com­pe­ti­tion au­thor­i­ties con­sid­er­ably more com­pli­cated, dif­fi­cult and costly. Firstly, be­cause per­sonal lib­erty would be at stake, all of the con­sti­tu­tional rights guar­an­teed to an ac­cused per­son would come into play in the con­text of in­ves­ti­ga­tions and pros­e­cu­tions by the Com­pe­ti­tion Com­mis­sion. In­ves­ti­ga­tions by the com­mis­sion have been rel­a­tively ex­pe­di­tious to date, and the com­mis­sion has en­joyed a wide dis­cre­tionary power to sum­mons in­di­vid­u­als to an­swer ques­tions and to re­quire com­pa­nies to pro­duce doc­u­ments which it thinks are rel­e­vant to com­plaints.

In­tro­duc­ing crim­i­nal pro­vi­sions will con­sid­er­ably com­pli­cate these cru­cial in­ves­tiga­tive pro­ceed­ings.

The com­mis­sion has al­ready had a taste of this in a se­ries of re­cent cases, in­clud­ing the Supreme Court of Ap­peal’s Wood­lands de­ci­sion and the Com­pe­ti­tion Ap­peal Court’s Om­nia and Feltex de­ci­sions, in which it was crit­i­cised for fail­ing to con­duct its in­ves­ti­ga­tions in a man­ner which ad­e­quately re­spected the rule of law. The courts are likely to be far more pro­tec­tive of the rights of in­di­vid­u­als who face crim­i­nal pros­e­cu­tion.

The com­mis­sion will there­fore have to tighten up its in­ves­tiga­tive pro­ce­dures and be more pre­cise when it de­scribes who and what it is inves- tigat­ing, if it wants to avoid com­plaint ini­ti­a­tions and re­fer­rals and sub­se­quent crim­i­nal pros­e­cu­tions be­ing set aside by the courts on the ba­sis that they have vi­o­lated the con­sti­tu­tional rights of in­di­vid­u­als.

Se­condly, this amend­ment may af­fect the com­mis­sion’s cor­po­rate le­niency pol­icy. The com­mis­sion is heav­ily re­liant on this pol­icy to suc­cess­fully de­tect car­tels, par­tic­u­larly, highly se­cre­tive and well-or­gan­ised ones.

The pol­icy has been in­stru­men­tal in a num­ber of suc­cess­ful pros­e­cu­tions: South African com­pa­nies have agreed to pay mas­sive ad­min­is­tra­tive fines of more than R2,7bn since the act came into ef­fect in 1999. There is no doubt that sub­stan­tial pub­lic­ity about these cases has had a strong de­ter­rent ef­fect, and the pol­icy saves the com­mis­sion a lot of time and money. How­ever, the in­tro­duc­tion of crim­i­nal li­a­bil­ity will change the way that di­rec­tors and man­agers ap­proach seek­ing le­niency. They are less likely to ad­mit to a con­tra­ven­tion of the act if they fear that they will face crim­i­nal pros­e­cu­tion. The com­mis­sion will have to pros­e­cute more car­tel cases with­out ev­i­dence from a re­li­able car­tel in­sider.

Lastly, one must ask whether the South African ju­di­cial sys­tem is ready to bear the con­sid­er­able costs that en­forc­ing the crim­i­nal pro­vi­sions will im­pose — a two-stage process con­sist­ing of a Com­pe­ti­tion Tri­bunal hear­ing, fol­lowed by a crim­i­nal pros­e­cu­tion, will cost the state twice as much. Our courts are al­ready stretched be­yond ca­pac­ity and most of our pros­e­cu­tors lack the skills and re­sources nec­es­sary to tackle com­plex car­tel cases. Sub­stan­tial train­ing will be re­quired to as­sist them to un­der­stand the na­ture of the crimes which they are now be­ing asked to pros­e­cute and ad­ju­di­cate.

It is un­de­sir­able for the Amend­ment Act to lan­guish on the Pres­i­dent’s desk. It would be bet­ter for all con­cerned if it were re­pealed and a proper con­sul­ta­tion process were un­der­taken with pri­vate prac­ti­tion­ers spe­cial­is­ing in com­pe­ti­tion law, busi­ness, govern­ment and the pros­e­cu­tion au­thor­i­ties to re-as­sess whether we re­ally need to in­tro­duce crim­i­nal sanc­tions in SA.

If the con­sen­sus re­ally is yes, a proper pub­li­ca­tion and com­ment process which ad­e­quately en­gages the pro­fes­sion will en­able a clear draft and en­force­able sanc­tions based on the con­sid­er­able in­ter­na­tional ex­pe­ri­ence.

Ad­e­quate pro­vi­sion needs to be made for the grant­ing of im­mu­nity from pros­e­cu­tion to in­di­vid­u­als whose com­pa­nies come for­ward in the con­text of the le­niency pol­icy, since this is a cru­cial el­e­ment of the com­mis­sion’s en­force­ment tool­box. This can be done if there is a proper agree­ment be­tween the com­pe­ti­tion au­thor­i­ties and the pros­e­cut­ing au­thor­i­ties on the cir­cum­stances in which le­niency is granted.

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