Double-dealing bosses might face prison
Social stigma attached to imprisonment could hinder competition law enforcement
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.