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Will Act amendments render Competition Commission a 'toothless watchdog'?

14 Oct 2016

Despite the much publicised record fines imposed on firms involved in cartel activity, the threat of criminal sanctions and the possible blacklisting of individuals and firms from doing business with the state, there appears to have been an increase in the number of cartels uncovered by the Competition Commission. For example, it has been reported that in one day, the Commission referred six cartel cases to the Competition Tribunal for adjudication. This emerged during the Competition Law Conference 2016, co-hosted by the Commission, the Tribunal and the University of Cape Town during from 5 - 7 October 2016.

Will Act amendments render Competition Commission a 'toothless watchdog'?

Cartel activity refers to an agreement between competitors on price, dividing markets or collusive tendering. A fine of not more than 10% can be imposed on the guilty firm’s affected annual turnover (not profit) for the relevant financial year. Earlier this year, ArcelorMittal SA Limited agreed to a record settlement of R1,5 billion with the Commission, which awaits final approval by the Tribunal.

The increase in the number of cartels being uncovered must also be seen in the context of the criminal sanctions contemplated in the amendment to the Competition Act. The amendment contemplates 10 years’ imprisonment and/or R500,000 fine for those directors of the firms involved in cartel activity. The Prevention and Combating of Corrupt Activities Act (the “Corruption Act”) empowers the National Treasury to blacklist those firms and individuals involved in corrupt activities and prevent such individuals and firms from doing business with the state. The blacklisting, in particular, applies to those firms involved in collusive tendering even though it is debatable if price fixing or dividing of markets would constitute corruption in terms of the Corrupt Act.

Maphanga Maseko

A number of speakers at the Conference highlighted that, notwithstanding the good intentions with the amendment, the National Prosecution Authority was “ill equipped” to successfully prosecute cartel cases. It is regrettable that the prosecuting authorities did not use the Conference as an opportunity to address the concerns that they lack the institutional capacity and skills to successfully prosecute such cases. The view expressed in a letter to Business Day on 10 October 2016 by the DA Spokesperson on Economic Development, Michael Cardo, that the amendment will render the Commission ‘a toothless watchdog’ is unfortunate and regrettable as the evidence seems to suggest at this stage, that the Commission continues to uncover cartels notwithstanding the amendment.

The Conference, while it covered a number of topics on competition law, was a stark reminder that the year 2017 is likely to be a tough year for those firms implicated in cartel conduct. The economic environment of zero growth is likely to exacerbate this situation. While it is not clear if the threat of criminal sanctions or blacklisting would have a deterrent effect on firms to engage in cartel conduct in the future, there appears to be consensus from the majority of the speakers that the criminal sanctions may end up undermining the success of the Commission’s leniency program in detecting cartels. This is not to say that it will render the Commission a ‘toothless watchdog’ as suggested by Cardo.