AAT exclusive, cartels, collusion, East Africa, Kenya, leniency, leniency / amnesty, Price fixing, Whistleblower reward

New Antitrust Whistleblower Reward Scheme: Are ‘Paltry’ Rewards & Anonymity Enough?

As of January 1st, 2021, Kenya’s competition-law enforcer, the Competition Authority of Kenya (CAK), started benefitting from its new “Informant Reward Scheme” (IRS). The IRS encourages “confidential informants” — often also referred to as “whistleblowers” — privy to inside information about antitrust offenses to come forward and report the illicit conduct to the Authority.

The IRS incentivizes informants with promises of anonymity as well as — rather modest, as we will see — monetary rewards: the CAK vows to maintain the confidentiality of the informant’s identity, and provides for up to Sh1,000,000 (approximately US$9,100 at today’s Fx rate).

Andreas Stargard, a competition lawyer active on the African continent, has delved more deeply into the CAK’s enabling “Guidelines” document, trying to ascertain the precise contours of the IRS program. He reports as follows:

AfricanAntitrust.com: “Who is eligible to participate in the IRS?”

Andreas Stargard: “What we know from the implementing Guidelines, and also from Director General Kariuki‘s speech on the IRS, is that only third parties or those individuals playing merely a remote and peripheral role in relation to the anti-competitive conduct are eligible to benefit from the IRS. This means that a 3rd-party customer, or a non-executive employee such as a secretary or copy clerk of the offending company, may report wrongdoing under the IRS.”

AAT: “What about insiders with executive authority, then?”

Stargard: “Similar to Western countries’ antitrust regimes, those individuals can still report illicit conduct by their employers, but they would have to resort to the Kenyan leniency process as opposed to the Informant Reward Scheme.”

AAT: “Understood. Are there other, similar whistleblower schemes in existence?”

Stargard: “Yes. We recently held a very timely webinar with leading international and African experts on the topic of whistleblowing, which I moderated. A recording of it is available on the web. Whistleblowing has become an important piece of the enforcement puzzle for many governmental authorities around the globe, not only on competition issues. In Kenya, specifically, President Kenyatta recently doubled the rewards for tax-fraud whistleblowers, who are now entitled to receive up to Sh5,000,000 ($45,000), and the country’s revenue service implemented the so-called iWhistle portal to allow informants to report tax fraud anonymously.”

AAT: “Speaking of money, what is your take on the amount of the offered reward under the terms of the IRS?”

Stargard: “Frankly speaking, one million Kenyan shillings is a paltry sum. I cannot comprehend how reporting a competition-law violation such as a price-fixing cartel that may cost the Kenyan economy and its consumers billions in losses is deserving of 5-times less reward than an informant reporting an individual’s tax fraud to the revenue service, which may cause significantly less injury to the government purse than an international cartel of corporates…”

AAT: “Strong words.”

Stargard: “I’m serious. Compare and contrast the meager sum of not even US$10,000 maximum IRS reward with the potential 5-year prison sentence liability for executives convicted of collusion! There is simply no comparison…”

AAT: “In a perfect world, what would you change about the Kenyan whistleblower scheme?”

Stargard: “If I had had any input into the process of devising the IRS Guidelines, I would have ensured that the maximum reward amount be commensurate with the economic harm and financial damage done by cartels — in short, I would raise the IRS reward to an un-capped straight-up percentage portion of the fines recovered by the CAK. The more, the better for everyone.”

AAT: “Do you have any parting words or final observations on the IRS program for our readers?”

Stargard: “Well, for starters, it is not too late to implement changes to the regime. The CAK (and the legislature, to the extent necessary) can easily increase the maximum reward, as I proposed earlier. I am certain that it would yield better results than the current Sh1m cap, which can easily be ‘outbid’ by an already-corrupt employer, seeking to ‘buy’ its employees’ loyalty! So, Mr. Kariuki, if you’re reading this interview, I’d strongly suggest considering an increase in the reward.

Secondly, from our international experience, we know one thing about ‘secret’ informant schemes: One key element of any successful whistleblower regime (besides ensuring adequate rewards) is the strictest maintenance of confidentiality of the informant’s identity. I realize that section ‘F’ of the Guidelines assures the public that anonymity will be guaranteed and that the CAK will ‘take utmost care to ensure that the identity of the confidential informant is not disclosed.’ However, as an attorney, I can only say that the proof is in the pudding. We will have to wait for the first proceedings pursuant to IRS-provided reports, in order to determine whether or not the whistleblowers’ anonymity will indeed be preserved successfully in practice. That said, I look forward to advising clients on the many issues that are likely going to arise from the Scheme!”

AAT: “Thank you for your time and insights on this new development!”

CAK Director General Wang’ombe Kariuki
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ACF, COMESA, commissioners, Kenya

Kariuki gets World Bank advisor post

Competition Authority of Kenya (CAK) Director-General Francis Wang’ombe Kariuki, MBS, will serve on the panel and contribute to its annual publication, the “World Development Report” for the upcoming calendar year. An archive of the Bank’s prior Reports is available for review here.

The Kenyan WallStreet publication quotes Kariuki as saying:

“The appointment takes cognizance of the fact that competition law enforcement has a role to play in poverty alleviation and that data is a highly-prized asset among companies, which can be leveraged for [either] development or socioeconomic harm. … Private firms may use data to deter the entry of upcoming firms, thereby limiting or preventing competition to the detriment of the consumers, specifically eroding their purchasing power and choice.”

Kariuki is a former COMESA Competition Commission Board member and a founding member and first chairman of the African Competition Forum.

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Uncategorized

South Africa’s Price Discrimination Provisions: Interpretational Guidance to Section 9

African focused competition lawyer and regular contributor to Africanantitrust, Michael-James Currie, has kindly made available to all Africanantitrust readers his dissertation titled “SOUTH AFRICA’S AMENDED PRICE DISCRIMINATION PROVISION: AN ANALYTICAL FRAMEWORK IN RELATION TO THE GROCERY RETAIL MARKET”.

In his thesis, Currie explores various economic and legal principles which are of particular relevance to ensuring that section 9 of South Africa’s Competition Act is interpreted in a manner which is sensible and does not lead to unintended consequences which might harm consumers or dampen pro-competitive conduct.

Currie utilises the grocery retail market as a basis to explore the applicability (and suitability) of the price discrimination provisions in so far as the objective to protect a specific class of competitors is concerned (rather than protecting competition).

By drawing on economic principles and European and US precedent, Currie provides a well articulated and reasoned analytical approach to section 9 coupled with practical interpretational guidance in what is likely to become a very useful resource.

To access Currie’s dissertation (for free), please follow the link below:

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Uncategorized

South African Competition Appeal Court Upholds Tribunal’s Excessive Pricing/ Anti-Price Gouging Decision re Babelegi

By Michael-James Currie

[Michael-James is practicing attorney and recognized by Best Lawyers South Africa for competition law/antitrust. He can be contacted at m.currie@primerio.international]

In June 2020, the South African Competition Tribunal (Tribunal) handed down two seminal decisions (Babelegi and Dis-Chem) in relation to “excessive pricing” during the Covid-19 pandemic. The Tribunal found that both respondents had engaged in excessive pricing in relation to the sale of facemasks.

Together with John Oxenham and Charl van der Merwe, we authored an article for the Oxford Journal for European Competition Law and Practice titled COVID-19 Price Gouging Cases in South Africa: Short-term Market Dynamics with Long-term Implications for Excessive Pricing Cases. In the Article, we examined several aspects of these cases and concluded that it was highly unfortunate that these cases were the “test” cases not only as the first (and to date only) contested price gouging cases in South Africa, but more importantly they also the first excessive pricing cases to be assessed under South Africa’s amended excessive pricing provisions (which came into effect in February 2020).

Our primary concerns were that while the Tribunal stressed that the Covid-19 pandemic presented a unique challenge, the urgent manner in which the case was tried, and the clear objective to deter suppliers form exploiting consumers from excessive pricing during the pandemic, led in our view to a decision which appeared to be justified largely upon notional (but overly simplified) theories of market power as opposed to robust and objective empirical evidence and economic principles ordinarily associated with excessive pricing cases. We did, however, in the Article acknowledge that:

We do not express views on the evidence underpinning the two cases. Further, had the Tribunal conducted a more robust economic analysis akin to traditional excessive pricing complaint, and fully assessed each of the factors that it ought to take into account, the Tribunal may have arrived at the same outcome.”

However, “by constantly referring to the Covid-19 pandemic, the Tribunal significantly lowered the threshold for establishing ‘dominance’; adopted a very limited ‘complaint period’; did not define a relevant market and rejected a comparison between prices of the respondent firm and other competitors during the same period. Further, this assessment was conducted on an urgent basis with limited economic evidence.”

Some of the more pertinent issues which emerged from the two cases are set out below:

  1. Although the cases were referred after the Minister had published anti-price gouging regulations (which essentially prohibits non-cost associated price increases for essential goods), the price increases relevant to the complaint occurred prior to the Regulations being enacted and hence the Regulations were not of application (this was acknowledged by the Tribunal).
  2. In the case of Babelegi, it was common cause that Babelegi’s market share pre-Covid 19 was less than 5% (yes 5%).
  3. The cases were heard on an urgent basis. Excessive pricing complaints are inherently complex and require robust and credible economic evidence. The respondents had a few weeks at most to prepare this economic evidence – despite the fact that the alleged excessive prices were no longer in effect.
  4. The complaint period was only one month (which hardly seems appropriate to assess and allow ordinary market dynamics – even in the most competitive market environments – to correct a market failure).
  5. The “excessive prices” were not considered with reference to other competitors’ prices. Rather, it was limited largely to an assessment turning on whether the price increase was “reasonable” during the crisis in circumstances were there were no associated underlying cost increase.
  6. Market power, and hence dominance, was inferred merely by virtue of the fact that the respondents were able to charge an excessive price (which is circular and, at least in the case of Babelegi, only very few units were sold at the excessive price which points away from an exertion of market power over any durable period).

While Dis-Chem initially elected to appeal the Tribunal’s decision, this was subsequently abandoned. Babelegi, however, went on appeal and, in November 2020, the Competition Appeal Court (“CAC”) handed down its decision and upheld the Tribunal’s finding in Babelegi. The CAC did, however, waiver the administrative penalty.

For the most part, the CAC’s approach to the case does not differ materially from that of the Tribunal’s.

Perhaps the most striking paragraphs of the CAC’s decision are, however, found towards the end of the judgment which makes one question how the CAC arrived at its conclusion in the first instance. After the CAC had already concluded that Babelegi was “dominant” during the complaint period and charged excessive prices, the CAC held that it was regrettable that this case:

  1. was decided in the absence of price gouging legislation which should have been applicable during the complaint period.
  2. was brought with haste and imprecision; and
  3. involved a small firm (which is the type of firm which the Competition Act is so very much geared to protect and promote).

It seems that the CAC found itself in an invidious position. On the one hand, it recognized that charging prices substantially higher than the pre-pandemic level at the expense of consumers need to be guarded against. It did not, however, have the legislative arsenal (such as dedicated anti-price gouging legislation) to neatly deal with this harm. It also begs the question of whether anti-price gouging legislation in South Africa is in fact necessary in light of the CAC’s decision. Presumably any firm who during a national disaster increases its prices above that which is directly proportional to costs will be guilty of excessive pricing. Dedicated anti-price gouging legislation would, although very much welcomed, be superfluous.

In light of the precedential value of this decision, it becomes important to assess whether this decision ought only serve as guidance during a time of crisis. In this regard the CAC did state that during a time of crisis, one needs to adopt a different conceptual framework from that which would ordinarily be employed in excessive pricing cases. This is an important caveat to the CAC’s decision and might limit the precedential value of the decision itself. Although the

Unfortunately, it is less clear, on what basis the CAC departed from the traditional approach to determining excessive pricing cases. Although we all recognize the unique challenges caused by Covid-19, this itself does not seem a legitimate basis to deviate from the objectivity and certainty with which the Competition Act ought to be interpreted and applied.

It is not necessary to canvass in full the Competition Appeal Court’s decision and those who wish to consider this further are invited to read the judgment.

What is noteworthy, however, is that it was common cause that hardly any products were sold by the respondent at the grossly inflated prices and that the prices ultimately dropped to a level marginally above the pre-Covid-19 price (absent any intervention).

It is, therefore, unclear on what basis the Competition Appeal Court elected to limit the complaint period to one month. The concern being that markets which function entirely normally, may nevertheless experience demand shocks (a supplier may go bankrupt reducing capacity in the market, there may be a drought, the exchange rate may fluctuate and so forth). Excessive pricing cases have never been assessed, nor should they be assessed, with reference only to the period during which prices were higher than the prevailing levels. This would defeat the quint-essential assessment of market power – namely whether the market is able to rectify itself so that prices are able to revert to a competitive level. If the market does, within a reasonably period of time, then there should be no cause for concern. While there is no universally accepted time period to consider in this regard, it is noteworthy that in most jurisdictions new entry into the market is considered within a 2-3 year period (to give some sense of the time it can take to restore market defects).

Accordingly, it seems open to a complainant to argue that increased prices during any demand shock are excessive and, provided the complaint period is limited in duration, so as to exclude a time period during which prices may return to competitive levels, such a complaint may succeed.

There is of course a further concern with the approach to this matter. That is, the determination of the competitive level. It cannot be, absent some form of collective dominance theory, that a single firm with less than 5% market share is responsible for setting the competitive level. So, if during the pandemic the competitive price increases across the entire market due to an overall increase in demand, then reference between the alleged excessive price must be considered in relation to the new competitive price.

While the CAC cited with approval the European case of ABG Oil Companies (19 April 1977) where the European Court raised the lucky “monopolist” and indicated that more than one supplier could be dominant vis-à-vis its customers during a crisis, it is not apparent that the analogy is correctly applied in the South African context. If there are ten firms in the market and each have 10% market share and each prices its products at 50% higher than the pre-pandemic price, can it credibly be argued (consistent with the current legislative framework) that each firm is individually a dominant player charging excessive prices? While notionally possible, it should remain only a notion. The reality is that in practice, every firm, even in a highly competitive market, has some degree of market power. The question is therefore over simplified to suggest that a firm is dominant because it has market power. A firm must have substantial market power over a sustained period to raise concerns from a competition perspective.

While the crisis may change the way markets function and operate and even the very definition of the market, it seems that should be as far as any reference to the crisis should go. For example, if a customer is only allowed by law to travel within a 5km radius due to travel restrictions, then it could well be that the geographic market is more narrowly defined. But once you have a defined market, then it seems that the crisis plays a more limited role vis-a-vis assessing a respondent’s market power within that market. If, even on a more limited market definition, a respondent is unable to sustainably implement an excessive price or its prices are not less favorable than other competitors within the same and adjacent markets, it is difficult to conclude emphatically that the respondent is nonetheless dominant and guilty of excessive pricing.

The CAC’s decision provides little guidance on how more traditional cases of excessive prices will be adjudicated if the demand shock is not necessarily a result of a global health crisis but some other more mundane but economically equally applicable in relation to causing a significant and sudden demand shock.

As much as the adjudicative bodies have highlighted that context matters, once one deviates so significantly from legal and economic principles and rationale, the risk of uncertain and subjective decision making increases.

The approach by the authorities and adjudicative bodies, while noble, seems very much a case of fitting a square peg in a round hole. It was unfortunately not the right respondent,, legislative framework or process to follow to provide the necessary clarity regarding the assessment of “dominance” or the interpretation of the new excessive pricing provisions.

While the CAC’s decision in Babelegi does not offend one’s sense of justice, until the CAC has an opportunity to consider another traditional excessive pricing case (whatever that might mean), the precedential value of the Babelegi decision is concerning. Not so much for other price gouging cases, but rather to the assessment of dominance more generally.

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COVID-19, fraud/corruption, Namibia, whistleblower, Whistleblower reward

Apres webinar – “Calling out COVID corruption…”

Thank you to our panelists for putting on a spectacle that gripped the audiences attention, breathing life into what it seems has quickly become a somewhat de rigeur medium. The commoditizing of the WEBINAR surely has come about due to expedience and the overlooking of a crucial point – the passion of the speakers.

John, Bill, Johannes, Mary and Khadiya (sadly Glynnis could not attend), effortlessly shepherded by moderator Andreas, effused on a topic that is by no means brand new but this time sublimely unpacked by experts.

The plea for urgent updating of legislation governing whistleblowing came through strongly, with several speakers advocating the inclusion of a whistleblower reward a la the SEC reward scheme. Johannes’ recount of his harrowing experiences after blowing

the whistle in the now notorious “Fishrot” case only served to re-affirm the vagaries surrounding legislation to adequately protect whistleblowers. Amazingly still not priority in developing and many developed countries. And there is more of course!

A quick request, please leave us your details and if you have another spare moment please leave a message about the webinar or anything whistle blower related!

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AAT exclusive, collusion, compliance, COVID-19, event

Thursday webinar: Calling Out COVID Corruption & Why We Need Whistleblower Regimes


“Calling Out COVID Corruption: Why the pandemic requires robust Whistleblower regimes to combat corruption – lessons from abroad”

Primerio Ltd. and Constantine Cannon LLP are pleased to invite you to what promises to be a lively & informative seminar on whistle-blowing, corruption, and lessons learned from the pandemic.

REGISTER HERE FOR FREE: https://lnkd.in/dW_FjY8

With Panelists Zanele Mbuyisa – Counsel PPLAAF, John Oxenham- director Primerio, Mary Inman – partner Constantine Cannon Llc, Bill Kovacic – GWU Professor and non-executive director of the UK Competition and Markets Authority, Glynnis Breytenbach – former prosecutor for the South African National Prosecuting Authority (NPA) & a member of parliament for the Democratic Alliance (DA), Johannes Stefansson – “Fish Rot” Whistleblower.

This webinar is part of a 2 part series dedicated to whistleblowing, fraud and corruption during COVID 19: the panels will include politicians, lawyers and whistleblowers. The discussion will touch on all aspects of the importance of instilling a whistleblowing regime in corporate, government and other pertinent spheres of society.

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AAT exclusive, COMESA, commissioners, East Africa, mergers, new regime, personnel

COMESA seeks replacement for CCC’s Dr. Lipimile

The COMESA Competition Commission has announced that it is accepting applications for the position of Director of the CCC until the end of October.  Says Andreas Stargard, an antitrust practitioner with Primerio Ltd.:

“The post is currently held by Dr. George Lipimile, the agency’s first and, therefore by definition, most influential chief.  Dr. Lipimile has certainly steered the comparatively young Commission into the right direction during its formative years, notably overseeing a complete makeover of the merger-notification procedure early on in the process, after much criticism of the initial system.

We are curious to see who will replace him in March 2021, as Dr. Lipimile’s term expires at the end of February.  Will it be a true competition-law expert, or will it be a politically-motivated appointment made by the COMESA Secretariat, pushing for someone who is more of a trade lawyer or, worse, economic protectionist.  What the CCC needs now to continue gaining international recognition and respect (from its peer agencies, as well as from commercial parties!) is a qualified antitrust attorney who understands the law & economics aspect of competition practice, and who will apply these principles neutrally throughout the COMESA region!”

Dr. Lipimile

George Lipimile, CEO, COMESA Competition Commission

Back in 2015, we quoted Mr. Stargard as follows, suggesting a path forward for the agency:

“If the CCC steps up its enforcement game in the non-transactional arena, it could become a true force to reckon with in the West.  I can envision a scenario where the CCC becomes capable of launching its own cartel matters and oversees a full-on leniency regime, not having to rely on the ‘follow-on enforcement’ experience from other agencies abroad.  The CCC has great potential, but it must ensure that it fulfills it by showing principled deliberation and full transparency in all of its actions — otherwise it risks continued doubt from outsiders.”

It remains to be seen who the Director’s replacement will be and which of these topics will dominate her or his agenda, if any.  The Director’s term is for 5 years, offering a salary of between $70,000 and $83,000.  Details on the opening can be found here.  Only Member State nationals can apply.  Interestingly, COMESA member states’ antitrust enforcers likewise posted the announcement on their individual web sites:

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Uncategorized

Nigeria’s Foreign-to-Foreign Merger Control Regime

By Michael-James Currie and Camilla Johnson

Antitrust enforcement is on the rise across Africa. Many jurisdictions are developing competition authorities and endorsing legislation with the intention of controlling cartel conduct, abuse of dominance and anti-competitive mergers.

In February 2019, Nigeria developed their first competition law regime through the enactment of the Federal Competition and Consumer Protection Act (“FCCPA”), which largely mirrors the South African Competition Act. This legislation was welcomed by market players and consumers, as Nigeria, being the number one oil exporter in the continent, is a key regional player in West Africa.

Prior to the FCCPA, there was no dedicated merger control legislation regulating transactions between non-Nigerian entities that affected the control of a Nigerian business. Section 2(3)(d) of the FCCPA specifically extends the Act’s application to any conduct outside the country by any person through the acquisition of assets resulting in the change of control of a business, or part of a business or any asset of a business, in Nigeria. The Federal Competition and Consumer Protection Commission (“FCCPC”) went a step further in their merger control regime by issuing the Guidelines on the Simplified Process for Foreign-to-Foreign Mergers with a Nigerian Component (“the Guidelines”). They are the first of their kind in Africa.

The legal review of mergers is essential to ensuring competitive behaviour is not undermined, economic performance is promoted, and consumer welfare is protected. The Guidelines provide a succinct, informative glimpse into the requirements for a successful merger review by the FCCPC and are thus intended to incentivise foreign investment.

The FCCPC must be notified of a foreign merger if it meets one of the alternative thresholds provided in the Guidelines. If the parties have a combined turnover of at least NGN 1 billion (approximately USD 2.5 million), they meet the combined leg. The filing fee will be the higher of NGN 3 million or 0,1% of the combined turnover. If the target entity has turnover of at least NGN 500 million (approximately USD 1.2 million), they meet the target leg and the filing fee will be NGN 2 million. A foreign-to-foreign merger could trigger either leg of the threshold. While the Guidelines do not expressly prescribe a “local nexus” test, a transaction which has an impact on the Nigerian economy will trigger the nexus.

Through the review procedure, the FCCPC seeks to uncover whether the proposed merger will activate anti-competitive or competitive behaviour in the Nigerian market. This is executed by considering whether the merger will substantially lessen or prevent competition in the market, or whether the merger would offset the negative effect on competition by producing technological contributions to the economy. A merger will also be justified if it substantially benefits the public interest, for example if domestic entities are able to compete in the international market, or employment opportunities are elevated. These are the tests against which the FCCPC will assess the proposed merger.

In the interest of transactional efficiency, the Guidelines introduced an expedited process for foreign-to-foreign mergers. The FCCPC will conduct a simplified review procedure, which results in a decision being issued within 15 business days. This will circumvent the typically lengthy review period, but at an additional cost of NGN 5 million (approximately USD 12 000).

While the documentation required is generally less cumbersome than what woudl ordinarily be required, parties must provide sufficient information to the FCCPC so as to enable the authority to confidently conclude that the transaction is unlikely to raise any competition concerns.

Parties must submit a description of the merger in the form of a non-confidential summary that will be published by the Commission, an executive summary and an explanation why the merger qualifies for simplified treatment. Detailed information relating to the merging parties and nature of the parties’ business is required, as well as the nature and details of the merger. Here the parties must describe the economic rationale of the merger as it affects Nigerian markets and the value of the transaction. Information on the turnover in Nigeria in the last financial year must be submitted for each of the undertakings concerned. With regards to supporting documentation, copies of the most recent documents relevant to the merger and an indication of the online location where the most recent and relevant financial information is available, is required.

The FCCPC requires market definitions in the form of a product and a geographical study, as well as a description of the local market activities to be provided, in order to ascertain the scope of the market power resulting from the merger. This includes an estimate of the total size of the market and expected sales (in terms of value and volume), and the nature of existing horizontal and vertical relationships with the prospective mergers’ five largest competitors.

[Michael-James Currie is a director at Primerio, Africa’s first boutique law firm dedicated to competition law practice across the African continent. He can be contacted at m.currie@primerio.international]

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AAT exclusive, cartels, collusion, COMESA, Malawi, meddling, Price fixing, Unfair Competition

Abusing antitrust enforcement for personal gain? Malawi’s Competition Agency Misled by Textbook Competitor

textbooks

As it turns out, some savvy ‘entrepeneurs’ have been able to use competition-law enforcement on the African continent to their personal gain, namely by making misleading — if not outright false — accusations against their competitors, thereby triggering an antitrust investigation, and even causing this venerable publication to report on such.  We have been made aware by the initial “target” company (now, as it turns out, the actual “victim”) of the Malawi investigation that one of its competitors in the textbook market had essentially weaponized the CFTC’s investigative powers by launching direct and indirect accusations against Mallory International that triggered the probe.  In the end, the CFTC concluded that none of the purported cartel conduct actually occurred.

To be clear and to avoid any doubt: Mallory International was cleared of any misconduct allegation.  The Editor has reviewed conclusive evidence of the CFTC’s closure of this investigation in August of 2018.  “What remains to be seen is whether or not the agency might use its powers to pursue the perpetrators of this inherently anti-competitive attack of false accusations (which coincidentally also wasted government resources) any further,” says AAT Editor Andreas Stargard, pointing to the underlying nature of such false claims as “quintessential unfair competition that should neither enjoy immunity from prosecution nor escape government scrutiny.”

For background, in our original reporting on this case (entitled “CFTC Investigates Foreign Textbook Supplier in Cartel Probe“), we had written as follows:

In a potential first, Malawi’s Competition and Fair Trade Commission’s (CFTC) Chief Executive Officer, Ms Charlotte Malonda, recently announced that the CFTC is investigating a UK-based supplier of textbooks, Mallory International, for alleged cartel conduct.  Mallory had partnered up with a local company, Maneno Books Investments, as part of a joint venture, called “Mallory International JV Maneno Enterprise”.  In addition, other companies also being investigated include Jhango Publishers, South African based Pearson Education Africa, Dzuka Publishing Company and UK based Trade Wings International.  
The investigation follows complaints received by the Human Rights Consultative Committee as well as a number of its constituent civil society organisations and NGOs.  The allegations include price fixing and collusive tendering vis-à-vis tenders issued by the Malawian government for the supply of pupils’ text books.  [Editor’s Note: “Contrary to the statements in our original article, the actual complaint by HRCC and FND alleged neither price fixing nor collusive bidding. Its main allegation was that unjustified objections were made to contract awards in Malawi, and that attempts were made to dissuade publishers from issuing authorisation letters to particular bidders. Neither of these allegations was true, and no evidence to support either of them was ever produced. The complaint was dismissed by CFTC in August 2018.”]
The Nyasa Times quoted the CFTC head as confirming that the agency had “received a few complaints about allegations of a cartel and other procurement malpractices, hence our commencement of the investigations to get the bottom of the matter.”
Based on the language of Section 50 of the Act suggests that the sanctions for committing an offence in terms of the Act requires the imposition of both a penalty and a five year prison sentence. Although not aware of any case law which has previously interpreted this provision, the wording of the Act is particularly onerous, particularly in light of the per se nature of cartel conduct.
Section 33 of the Competition and Fair Trade Act prohibits collusive tendering and bid rigging per se. Furthermore, a contravention of section 33 is an offence in terms of the Act carries with it not only the imposition of an administrative penalty, which is the greater of the financial gain generated from the collusive conduct or K500 000, but also criminal sanctions, the maximum being a prison sentence of five years, notes Andreas Stargard, a competition attorney:
“The Malawian competition enforcer, under Ms. Malonda’s leadership, has shown significant growth both in terms of bench strength and actual enforcement activity since her involvement began in 2012.”
The Act is not clear what “financial gain” means in this instance and whether the penalty is based on the entire revenue generated by the firm for the specific tender (allegedly tainted by collusion) or whether it applies only to the profit generated from the project. Furthermore, it is unclear how this would apply to a co-cartelist who did not win the tender. The Act may be interpreted that the “losing bidder” is fined the minimum amount of K500 000 which equates to appox. USD 700 (a nominal amount) while the “winner” is penalised the value of the entire tender value (which would be overly prejudicial, particularly if turnover and not profit is used as the basis for financial gain).
Although the investigation has only recently commenced and no respondent has admitted to wrong doing nor has there been a finding of wrongdoing, this will be an important case to monitor to the extent that there is an adverse finding made by the CFTC. Unless the Malawian authorities adopt a pragmatic approach to sentencing offending parties, section 50 of the Act may significantly undermine foreign investment as a literal interpretation of the Act would render Malawi one of the most high risk jurisdictions in terms of potential sanctions from a competition law perspective.
It may also result in fewer firms wishing to partner up with local firms by way of joint ventures as JV’s are a particularly high risk form of collaboration between competitors if there is no clear guidance form the authorities as to how JV’s are likely to be treated from a competition law perspective.

 

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AAT exclusive, COMESA, COVID-19, Meet the Enforcers, mergers, notification, public-interest

COMESA antitrust enforcer holds COVID seminar

 

Willard Mwemba

Dr. Mwemba of the CCC

The COMESA Competition Commission (“CCC”) hosted a live webinar today on the impact of COVID-19 on merger regulation and enforcement within the common market in the COMESA region.  The seminar was aptly sub-titled “Challenges and Way Forward,” and the CCC representatives, in particular Dr. Willard Mwemba, did indeed lay out the problems faced by them and the measures proposed and taken to alleviate them.

COVID-related business and national competition agency closures have led to “significant delays in information gathering” from NCAs, third parties, and merger parties themselves.

CCC has relaxed the hard-copy filing requirements for merger notifications.

The concept of non-competition factors (i.e., the public-interest element) was also raised, as there is a “growing debate on whether the pandemic may necessitate changes in [the] substantive assessment of mergers, e.g., towards more lenient consideration of failing firms.”

That said, the CCC emphasized that its adjustment to enforcement actions should not be construed as any weakening of competition principles taking place.  The harmonization and coordination among the COMESA member countries’ agencies and the CCC remain a critical element of the operation of the single market.

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