New Zealand is following international trends towards tougher action against price fixing and cartel behaviour under our competition law (the Commerce Act 1986).  In two separate developments:

• the New Zealand Commerce Commission ("NZCC") has released a new cartel Leniency Policy, which enhances the process of seeking amnesty for those involved in cartel conduct; and
• the Ministry of Economic Development ("MED") is considering whether to punish hard-core cartels with criminal sanctions.

Both the new Leniency Policy and the criminality proposals aim to move New Zealand closer to the OECD notions of 'best practice' in tackling cartels.  Criminalisation also follows Australia's legislative changes in 2009 and reflects a more general political desire to harmonise trans-Tasman law in this area.

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New Leniency Policy

Like agencies in many other jurisdictions, the NZCC has had a leniency policy for some years.  Under this policy, the NZCC will not take penalty proceedings against the first cartel participant to confess to it.  The immunity is conditional, usually on an immediate end to any ongoing cartel participation, continuing and open communication, full disclosure, and agreeing to give court evidence against other cartel members if required.  The immunity does not extend to a shield against civil claims by a third party affected by the cartel, nor from prosecution for failing to comply with the NZCC's investigative powers.  The NZCC says its previous leniency policy was successful, with 14 grants of leniency since 2004. 

The NZCC has now enhanced and updated its process.  The four biggest changes in the new regime are a greater eligibility to apply for immunity, a move to a truly "paperless" process, including a "marker" system and an "Amnesty Plus" feature.

Immunity is now available up to the point in time where the NZCC has sufficient evidence to commence proceedings.  Previously, an application for leniency had to be made before the NZCC became aware of a cartel.

Previously, applications for leniency were made in writing, leading to concerns about the creation of documents when enquiring about leniency, particularly when those documents could become available overseas or in civil claim. While in practice the NZCC was sensitive to such concerns, the new Leniency Policy allows for (and directs) enquiries to be initially oral, as to whether leniency is available. 

The introduction of a marker system is intended to promote earlier engagement with the NZCC.  A marker is a holding place given to the first person (company or individual) to approach the NZCC requesting immunity regarding a particular cartel.  Provided certain conditions are met, the marker guarantees a place in the front of the queue on an interim basis, allowing a further period of time to perfect the marker by providing detailed evidence or statements (which can be 'paperless') describing the cartel.  The grant of immunity is then conditional on full and ongoing cooperation with the NZCC.

The concept of Amnesty Plus has been used overseas and is now adopted in New Zealand.  A person involved in one cartel, who does not qualify for immunity in respect of that cartel, can report a separate cartel that the NZCC was unaware of or had insufficient evidence to prosecute.  The Amnesty Plus policy enables a grant of full immunity for the other cartel, and support a reduced penalty for involvement in the first cartel.  The new proposals do not include a controversial provision that some countries have trialled, called 'Amnesty Minus', which penalises a person who does not also inform the regulator of another cartel that is later discovered.

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Proposed changes to criminalise cartels

Alongside the immunity incentive, the other main weapon in fighting cartels is the deterrence effect of sharp penalties.  The MED recently released a discussion paper on proposals to criminalise cartel conduct.  That paper largely examines issues of detail in how to frame an offence, while policy analysis of whether such a legislative change is necessary or desirable in New Zealand assumes a far less significant role. 

Cartels are currently deemed to be 'per se' illegal, but with civil penalties.  The MED discusses three possible ways of drafting legislation to convert price fixing, market sharing, bid rigging and other cartel behaviour into criminal law terms:

• Using the existing Commerce Act provisions as a base, but with criminal thresholds and consequences;
• Adopt the Australian legislative provisions regarding criminal cartel conduct; or
• Drafting new criminal provisions for New Zealand circumstances.

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Comment

Updating the leniency policy is sensible and brings New Zealand into line with key aspects of the process adopted by foreign regulators.  Companies who operate a good compliance regime and learn internally of wrong-doing often have to make decisions without having full information about the suspected cartel conduct. Now, they should know with more certainty and clarity where they will stand in the process of dealing with the regulator.  Introduction of a truly paperless enquiry process will ease concerns of those involved in cartels about ensuring initial confidentiality against third parties.

Introducing a criminal cartel regime would follow what some OECD nations have adopted as best practice.  However, it is harder to say categorically that a small, trade-dependent nation like New Zealand needs to take this step at this stage for a number of reasons. 

There are recognised difficulties with ensuring the offence is adequately defined so that it does not inappropriately discourage legitimate activity. The MED acknowledges the need for greater clarity in the legislation than presently exists, especially around joint venture activity. 

At a more fundamental level, it is not clear that New Zealand's cartel regime needs criminal sanctions to be an effective deterrent.  The upper limits of the current civil penalties have not yet been properly tested.  The highest penalty imposed on an individual has been $65,000 (against a maximum of $500,000).  The highest penalty on a corporate was $2.85 million (maximum: the greater of NZ$10 million or 3 times the relevant commercial gain or 10% of turnover (potentially, group turnover).  The real deterrent effect of the existing regime therefore is currently not known. 

Further, NZCC investigations and proceedings frequently involve overseas cartels that also operate in New Zealand, rather than purely domestic ones.  Often, key persons in the cartel are based overseas.  There are possible problems with service of proceedings overseas and extradition.  It must also be asked how much of a deterrent criminal sanctions in New Zealand will be to members of international cartels who, presumably, face similar possible criminal sanctions in their home jurisdiction or other countries with larger economies. 

If cartel conduct is made an offence, it could have wide ranging consequences for NZCC investigative processes and for those subject to investigation. Jurisdictional, procedural, evidential and Bill of Rights Act issues will arise.  The Leniency Policy would have to be revised again, probably quite substantially. 

A round of first public submission closed last month.  It will be probably several months before concrete legislative proposals emerge from the consultation process.

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