More Criminal Anti-Cartel Enforcement in Africa? Some Thoughts on Nigeria

By AAT guest author, Osayomwanbor Bob Enofe, Sutherland School of Law Doctoral Scholar, UCD.

We recently wrote about the landmark enactment of the new South African competition legislation that makes hard-core price-fixing a criminal offence, subjecting cartelists to up to 10 years imprisonment.  Nigeria is usually not on the radar of antitrust practitioners, however, and certainly not in the criminal sense, either.  As regular readers of AAT know, the Republic of Nigeria has featured occasionally in our posts despite not having a functioning antitrust regime, yet.  As editor and Pr1merio director Andreas Stargard wrote in an article entitled “Nigerian antitrust?“, scholars and political activists alike have promoted the idea of establishing an antitrust regime in West Africa’s dominant economy: ‘Today, AfricanAntitrust adds its voice to the steady, though infrequent, discussion surrounding the possibility of a Nigerian competition-law regime.  In our opinion, it is not a question of “if” but “when”, and perhaps more importantly, “how“?’

Today, contributing author Bob Enofe adds his voice to the mix, and we are publishing one of his articles that originally appeared on Robert Connolly’s cartel capers blog.

Criminal Antitrust in Nigeria?

nigeriaThe Federal Republic of Nigeria is currently in the process of enacting a competition law, including to criminalise cartel activity amongst competitors. While such is in line with moves made by various other jurisdictions and theories of ‘rational actor’, sanction and deterrence, on ground realities suggest that criminalisation where transplanted might be seriously flawed.

From the late 1990s, and particularly in the year 2000, the Federal Government of Nigeria commenced moves to enact a Competition Law. Under such law, business cartel activity defined as agreements between competitors, aimed at distorting the process of competition and generating monopolistic rents, would be criminalised. The ‘Federal Competition Bill, 2002’, an executive bill drafted by the Nigerian Bureau of Public Enterprises (BPE), was titled: “a Bill for an Act to provide necessary conditions for market competition and to stimulate creative business activities, protect consumers, and promote the balanced development of the natural economy, by prohibiting restrictive contracts and business practices that substantially lessened competition”. It was also to be a Bill to regulate “possible abuses of dominant positions by businesses, and anti-competitive combines, and to establish the Federal Competition Commission, for effective implementation and enforcement of all the provisions of the bill”.  According to relevant sections of the bill, cartel agreements amongst competitors, including price fixing, bid rigging and market division, were also to be expressly criminalised. Clearly a robust and comprehensive bill, 16 years after introduction to the Nigerian National Assembly, the bill remains to be passed into law. Several amendments have since been presented, together with other bills presented by lawmakers. In every case, such bills have either stalled at first reading stage, or in certain cases disappeared from the legislative process. In one of such instances, an amendment of the above bill (The Federal Trade and Competition Commission Bill, 2006) was “vehemently” objected to by distinguished Senators, prompting governmental withdrawal. Amongst reasons advanced for the reception accorded the bill included that there was no need for a distinct ‘competition commission’, in the face of an already existent consumer protection council in Nigeria; other legislators simply complained about a proliferation of “too many commissions” in the country. Commentators have alluded to overt ignorance and lack of particular inclination for the subject, on the part of Nigerian Senators, as in reality underlining the reception accorded the bill.

In a paper recently presented at the #SLSA2016, ‘Developing Countries, Nigeria, and Cartel Criminalisation: of Transplantation and Desirability’ I had outlined how Nigeria’s attempt to introduce a competition law, and in particular criminalise cartel activity, reveals a (marked) lack of societal inclination towards competition law and prior poor advocacy on the part of government. Social norms are crucial to the effectiveness of law reform. Desirable social norms ensures amongst other things that prohibited conduct will be reported and discovered, even without direct enforcement or investigativeBob Enofe intervention, thereby complementing stretched law enforcement efforts.[1] Such also imply that prosecutors will be willing to enforce and vigorously police provisions of the law where passed, and in the case of the judiciary, stringent sentences will also be applied—or at least not deliberately avoided—so as to facilitate the deterrence potential of the applicable law. Perhaps most crucially for Nigeria, existence of such norms also mean that law makers are incentivised to support reform efforts, while the chances of ‘hijack’ by private interests will be slim. Absent such norms the chances of Nigeria’s competition and cartel criminalisation law, even when passed, could be (remarkably) marginal.

Heightened advocacy, together with a careful selection of test cases once the law is enacted is advanced as capable of remedying the above situation. In the face of sub-par institutions characteristic of the Nigerian context however (including severe limitations in the operation of the rule of law), abilities to so ‘guide’ social norms will be in reality seriously limited. An online petition regarding corruption amongst Nigerian senators, for example, reflect in part difficulties that could frustrate transplantation of cartel criminalisation, absent independent, effective, anti-corruption reforms in the country.

Neoliberal theories of rational actors, sanction and deterrence, imply to large extents a similar existence of contexts as have underlined effectiveness in western societies. In many cases, on the ground realities suggest that theories where transplanted, could be seriously flawed.

As I have argued in another paper currently under review (details to be communicated soon, hopefully!), one size cannot fit all- with developing countries and cartel criminalisation, the point gains extra force. To the extent that fines and other administrative means of enforcement are limited in ability to effectively curtail cartel practices, suggests a need for continuation of relevant research. Criminalisation hardly represents the ‘Golden Fleece’.

Footnote:

[1] See Stephan, Andreas, ‘Cartel laws undermined: Corruption, social norms, and collectivist business cultures’ (2010) Journal of Law and Society 345-367, See Maher, Imelda, The Institutional Structure of Competition Law, in Dowdle, Gillespie and Maher (eds) Asian Capitalism and the Regulation of Competition: Towards a Regulatory Geography of Global Competition Law (Cambridge University Press, 2013) 55, See Gal, Michal  ‘The Ecology of Antitrust: Preconditions for Competition Law Enforcement in Developing Countries.’ (2004) Competition, Competitiveness and Development 20-38.

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Criminal Antitrust: South Africa begins to enforce felony provisions

Price-fixers face up to 10 years prison time, starting May 1st

Prison time for executives is now firmly on the not-so-distant horizon in South Africa: As reported in some media outlets, the criminalisation of certain hard-core (and possibly lesser) antitrust offences is finally being implemented in the Republic — notably after more than 8 years of the relevant legislation technically being on the books.

white collar crimeWe are referring to the “phased” implementation of the 2009 Competition Amendment Act.  The legislation technically criminalised hard-core antitrust offences such as bid-rigging or price-fixing cartels.  However, President Zuma has, until now, not yet implemented or effectively signed the criminal provision of the Act (section 73A) into law.

Enter his Economic Development Minister, Ebrahim Patel:

Patel signature on 73AAccording to news reports, Mr. Patel announced today (Thursday), that the criminalisation of the price-fixing cartel offence would henceforth be enforced.  Section 73A will be gazetted tomorrow, 22 April 2016, and hold the force of law from 1 May 2016.  BDLive also reports that even the lesser “abuse of dominance” (or more commonly “monopolisation”) offence would be subject to the criminal penalties, but AAT is awaiting independent confirmation on this subject.  As Andreas Stargard, a U.S.-based Pr1merio antitrust practitioner with a focus on Africa and experience counseling clients in criminal competition matters, explains:

“If Mr. Patel indeed made this statement, and I doubt this, it would signal a departure from the rest of the world’s antitrust regimes: It is highly uncommon to have the monopolisation offence constitute a criminal act — indeed I am aware of no jurisdiction where this is the case.

In the United States, the only conduct constituting a Sherman Act offence pursued by the DOJ as a potential felony involve so-called ‘hard-core’ violations.  This would include horizontal price-fixing among competitors; territorial allocations; output allocations; and bid-rigging.  The same holds true in the UK.  That said, monopolisation or abuse of dominance is simply not among the criminalised antitrust violations elsewhere, and I’d be surprised if South Africa took this unusual path.

We have since been able to confirm that the BDLive report incorrectly refers to abuse of dominance as being criminalised.  AAT has obtained a copy of Mr Patel’s speech which provides clearly only for cartel conduct to be subjected to imprisonment:

“We are confident that because our work on cartels over the past five years has given clarity in the market on what collusion entails and what kind of acts falls within prohibited practices, we can now step up our efforts to the next level in our endeavor to combat corruption, cartels and anti-competitive conduct that raise prices and keep businesses and new entrants out of local markets.

Accordingly, government will tomorrow gazette a Presidential Proclamation that brings into effect certain sections of the Competition Amendment Act, with effect from 1 May 2016, which make it a criminal offence for directors or managers of a firm to collude with their competitors to fix prices, divide markets among themselves or collude in tenders or to acquiesce in collusion and they expose themselves to time in jail if convicted.”

The Patel announcements come ahead of his upcoming budget vote speech, and as he has shown in recent months, Mr. Patel is a proud advocate for tougher competition enforcement in the country.  “We want to make sure that it just does not make sense to collude,” he is reported as saying today.  This follows the Minister’s speech during the Parliament debate in February, where he announced that, “we will now introduce measures shortly to make it a criminal offence in any industry to collude and fix-prices. It will send a message to everyone that we mean business on stamping out corruption and collusion. We must build competitive strengths through innovation, not through sitting in rooms somewhere fixing tenders, prices and contracts.”

White-collar crime: it pays, but is getting riskier

white collar crime 2We live in the era of the Panama Papers, where the notion of white-collar business people going to jail is not an entirely unlikely outcome for some.  Antitrust offences, however, have historically not been enforced worldwide as stringently as public corruption or tax-evasion matters, for instance.  Key jurisdictions with criminalisation of competition offences remain few, notably the U.S. and the UK.

In South Africa, since at least 2014, both Competition Commissioner Tembinkosi Bonakele and Minister Patel have been engaging in discussions on how and when to implement the Act “to ensure that the necessary institutional capacity is available to apply the [criminal] amendments.”  While some provisions (relating to the agency’s market-inquiry powers) went into effect in 2013, the criminalisation provisions remain unimplemented to date — but this is about to change.

During these negotiations, as reported on AAT, the minister and SACC admitted in a remarkable self-assessment that the Commission then lacked “the institutional capacity needed to comply with the higher burden of proof in criminal cases.”  One notable aspect of potential discord lies in not only in the different standard of proof in civil vs. criminal matters (“more probable than not” vs. “beyond a reasonable doubt”), but perhaps more importantly can be found on the procedural side, preventing rapid implementation of the law: There has been historic friction between various elements of the RSA’s police forces and (special) prosecutorial services, and the power to prosecute crimes notably remains within the hands of the National Prosecuting Authority, supported in its investigations by the South African Police Service.

History & Legislative Background – and a bit of Advice from the U.S.

Starting in the spring and summer of 2008, the rumoured legislative clamp-down on corrupt & anti-competitive business practices by the government made the RSA business papers’ headlines.

During a presentation Mr. Stargard gave at a Johannesburg conference in September that year (“Criminalising Competition Law: A New Era of ‘Antitrust with Teeth’ in South Africa? Lessons Learned from the U.S. Perspective“), he quoted a few highlights among them, such as “Competition Bill to Pave Way for Criminal Liability”, “Tough on directors”, “Criminalisation of directors by far most controversial”, “Bosses Must Pay Fines Themselves”, “Likely to give rise to constitutional challenges”, and “Disqualification from directorships … very career limiting”.

Stargard, whose practice includes criminal and civil antitrust work, having represented South African Airways in the global “Air Cargo Cartel” investigations, also notes that  international best-practice recommendations all highlight the positive effect of criminal antitrust penalties. For example, the OECD’s Hard-Core Cartel Report recommended that governments consider the introduction and imposition of criminal antitrust sanctions against individuals to enhance deterrence and incentives to cooperate through leniency programmes.  Then-DOJ antitrust chief  Tom Barnett said in 2008, the year South Africa introduced its legislation: “Jail time creates the most effective, necessary deterrent. … [N]othing in our enforcement arsenal has as great a deterrent as the threat of substantial jail time in a United States prison, either as a result of a criminal trial or a guilty plea.”

Mr. Stargard points out the following recommendations to serve as guide-posts for the Commission going forward in its “new era” of criminal enforcement:

Cornerstones of a successful criminal antitrust regime

  • Crystal-clear demarcation of criminal vs. civil conduct
  • Highly effective leniency policy also applies to individuals
  • Standard of proof must be met beyond a reasonable doubt
  • No blanket liability for negligent directors – only actors liable
  • Plea bargaining to be used as an effective tool to reduce sentence
  • Clear pronouncements by enforcement agency to help counsel predict outcomes

Demarcation of criminal vs civil antitrust conduct in U.S.

What lies ahead?

After 1 May, the penalties for violating Section 73A of the Competition Amendment Act will range from a period of up to 10 years in prison and/or a fine of up to R500 000.00.  It appears that the introduction of criminal provisions will not have a retrospective effect, but will only apply prospectively from 1 May 2016 onward.

robber barons

Robber barons…

The introduction of criminal sanctions for cartel conduct raise several constitutional concerns. It is likely that, in the event of the imposition of criminal sanctions, the constitutional validity of the relevant Competition Amendment Act provisions will be challenged. In particular, section 73A(5) of the Amendment Act, introduces a reverse onus on the accused, in that the onus for rebutting the Competition Tribunal of Competition Appeal Court’s conclusion rests with the accused in criminal proceedings. The reverse onus’ constitutional validity is questionable given the constitutional right to a fair trial and the right to be presumed innocent.

John Oxenham, also with Pr1merio, notes that the “criminalisation of cartel conduct is a development which needs to be carefully considered and well planned before its official introduction due to the imminent effects it will have on current South African competition law.” The successful prosecution of cartel conduct rests heavily on the efficiency of corporate leniency policies. The introduction of criminal sanctions and in turn the National Prosecuting Authority will undoubtedly have an effect on the current corporate leniency policies. It is important to consider granting the staff of a company applying for corporate leniency in relation to cartel activity ‘full immunity’ from criminal prosecution in order to encourage companies to come forward and not debilitate the very purpose of corporate leniency policies. The careful integration of criminal sanctions is therefore vital in ensuring that the very purpose of its introduction, namely to deter corruption and anti-competitive conduct, is achieved.

Update [22 April 2016]: As anticipated, the South African government gazetted [published] the official document starting the era of criminal antitrust enforcement under section 73A as of today, signed 18 April 2016:

gazette 73A.jpg