The Commission’s main document on the “stakeholder engagement meeting last week states as follows regarding its theories of harm:
[I]n order for the market inquiry to make determinations, it has developed a set of ideas or hypothesis about how harmful competitive effects might arise in the relevant markets under consideration. These ideas are generally referred to as “theories of harm”.
‘It is important to emphasise that these theories of harm are simply hypotheses, or tools, that will enable us to identify whether there are features or a combination of features that may prevent, distort, or restrict competition in the private healthcare markets. Theories of harm are not findings of harm; but are simply analytical tools to guide our analysis. They will be deepened and revised as the inquiry’s thinking develops,’ adds former Chief Judge Ngcobo.
Public comments, and timetable
The agency is “inviting stakeholders to make further comments” on its theories of harm, noting that:
The inquiry is set to follow a very precise and tight administrative timetable which is mindful of the timelines for gathering information including an invitation for written submissions, public hearings, site visits, seminars, and workshops and conducting surveys. Broadly, key milestones will include the issuing of information requests no later than 01 August 2014. The first round of public hearings will take place between 01 March 2015 to 30 April 2015 then from May 2015, the inquiry will analyse and review the information gathered. Presently, the panel aims to make provisional findings and recommendations available for public comment in October 2015.
The South African publication The Citizen also reported the most recent ICASA attack, noting the alleged “restrictive horizontal practices involved collusion and certain competitor agreements and practices, while restrictive vertical practices involved certain customer or supplier arrangements.”
Johannesburg – The Independent Communications Authority of South Africa has recently requested the Competition Commission to investigate a possible restrictive horizontal practice between the South African Broadcasting Corporation (SABC) and MultiChoice. This follows an agreement entered into between the two parties in July 2013 whereby the SABC would have to provide a 24-hour news channel on MultiChoice’ DSTV platform.
News reports at the time indicated that the agreement also contained an obligation relating to set-top-box control in which the SABC is alleged to have agreed that it will transmit its free-to-air channels without encryption.
In the context of the ongoing public dispute between e.tv and MultiChoice over whether free-to-air TV services should utilise set-top-box control, the question arises as to whether the agreement between the SABC and MultiChoice, as it affects the issue of set-top-box control, may constitute a form of restrictive horizontal practice in the television market.
ICASA has requested both the SABC and MultiChoice to provide a copy of the agreement but both parties have failed to honour that request. This failure has made it difficult for the Authority to verify the claim put forward by MultiChoice that `any contractual obligation upon the SABC to continue to transmit its free-to-air channels in the clear (i.e. without encryption) is an incident of the distribution arrangements agreed upon by the SABC and MultiChoice. Such obligation, as indicated forms part of an agreement between parties in a vertical relationship and is not, as alleged, a horizontal restrictive practice’.
As the issue of restrictive horizontal practices falls within the scope of Section 4 of the Competition Act, the Authority has requested that the Competition Commission open an investigation into this matter.
Following up on our initial DOJ extradition victory post last week, here is a more in-depth look at the recent developments in worldwide criminal antitrust cases, and notably their overlap with parallel corruption / fraud / FCPA investigations. Paul Hastings and Nortons Inc. – jointly covering North America, Europe, Asia, and Africa – have extensive experience handling the defense of competition-law and FCPA-based investigations into multi-national corporations and individual executives. The piece below was written by Jeremy Evans, partner in Paul Hastings’ D.C. office, and AAT editor Andreas Stargard, in Brussels.
The long-arm of the U.S. government and its increasing willingness to pursue foreign nationals for alleged violations of U.S. law was further in evidence last Friday when the Antitrust Division of the U.S. Justice Departmentannounced(press release here) that it had extradited Romano Pisciotti, an Italian national, from Germany to the U.S. on a charge filed more than 3½ years ago that he participated in a price-fixing cartel involving the sale of marine hose.
Ian Norris, then-CEO of Morgan Crucible, sentenced to serve 18 months in federal U.S. prison
Pisciotti is the first foreign national to be extradited to the U.S. purely for an antitrust charge, although he joins a large number of foreign nationals in recent years to have been charged criminally by the Division in cartel cases, many of whom have agreed to plea deals requiring them to serve time in U.S. prisons. The Antitrust Division is not alone in its pursuit of foreign nationals; the Fraud Division of the Justice Department has also pursued extraditions of foreign nationals for violations of the Foreign Corrupt Practices Act (“FCPA”) in recent years. Indeed, Pisciotti follows his countryman Flavio Ricotti, who, in 2010, also was arrested in Germany and extradited to the U.S. following his indictment on an FCPA charge. It is clear that in both antitrust cartel and FCPA investigations, the U.S. government is growing ever-confident in its power and ability to bring uncooperative foreign executives to the U.S. to face criminal charges in the U.S., even for conduct that occurred outside the U.S.
The Marine Hose Investigation
Pisciotti’s extradition is the latest chapter in the long-running marine hose cartel investigation. In May 2007, the Antitrust Division arrested eight foreign nationals traveling on business in the U.S. and charged them for their roles in an antitrust conspiracy involving the sale of marine hose used to transport oil. The Division’s investigation was part of a multi-national law enforcement effort that included the European Commission and the U.K.’s Office of Fair Trading and much of the conduct at issue was alleged to have happened overseas. In the years that followed, the Antitrust Division secured over $54 million in fines from five companies, and nine individuals served jail time arising from their alleged involvement in the cartel. Two of these dispositions are worth particular note. The first involved the separate plea agreements by Bridgestone Corporation and Misao Hioki, a Japanese executive, each of which agreed to plead guilty to both an antitrust charge for involvement in the alleged conspiracy, as well as an FCPA charge relating to corrupt payments to government officials in various Latin American countries. These appear to be the only instances in which either a company or an executive has pled to both antitrust and FCPA charges arising from the same investigation. The second involved three British executives arrested in the U.S. at the onset of the investigation. Under a unique arrangement, the three were charged and sentenced by authorities in both the U.S. and the U.K., but the U.S. plea deals permitted them to return to the U.K. where they served their prison sentences concurrently.
Prior to Pisciotti’s extradition, the last criminal disposition involving an executive in the marine hose investigation occurred in 2009. But, what was not publicly known until recently is that the Antitrust Division had secured a sealed indictment of Pisciotti in August 2010 alleging that he rigged bids, fixed prices, and allocated markets in the sale of marine hose. It was this indictment that led to Pisciotti’s arrest in Germany last June and the subsequent extradition proceedings. The Division likely followed the same procedure that it did with Ricotti in the earlier FCPA case, using Pisciotti’s sealed indictment to obtain an Interpol red notice, effectively an international arrest warrant. Under the principle of reciprocal or dual criminality, countries often will only extradite individuals to the U.S. if an extradition treaty exists between the two countries that requires a person’s conduct to be a crime in both countries. Bid rigging is a criminal offense in Germany, thus ensnaring Pisciotti transiting through Germany on business travel and leading to his arrest in a country prepared to extradite him. Pisciotti was flown to Miami on Thursday and arraigned in federal court the following day. He now faces charges that could result in a maximum of 10 years in prison and $1 million in criminal fines.
The U.S. Government and the Ever-Shrinking World
Bill Baer, the assistant attorney general of the Antitrust Division, heralded Pisciotti’s “first of its kind extradition” as a “significant step” in the Division’s cooperation efforts with foreign antitrust enforcers. And, while it marks a new frontier for the Division, it can also be viewed as merely the latest example of the aggressive approach taken by the U.S. government in recent years toward foreign executives in international cartel and bribery cases. A little over a decade ago, the Division agreed to permit foreign executives in cartel cases to plead guilty and serve prison sentences of just a few months. But the more recent plea deals announced in seemingly ever-expanding auto parts cartel cases have seen well over twenty foreign executives face up to two years in jail.
Our experience in these and other cases also teaches that the Antitrust Division will routinely seek U.S. prison terms for conduct that occurred not merely partially or largely outside the U.S., but indeed was wholly undertaken on foreign soil. The example of Pisciotti’s extradition powerfully reaffirms that executives now must worry about the possibility of being extradited to the U.S. if they refuse to cooperate with the Antitrust Division and plead guilty in a cartel investigation, even in situations where the conduct at issue occurred exclusively or mostly overseas. This is in part because an increasing number of countries have criminalized antitrust conduct, or are in the process of doing so, meaning that there are now more jurisdictions than ever willing to extradite an executive for cartel offenses, either at home or when traveling abroad, even in situations where a sealed indictment may leave the executive ignorant of any potential risk.
These same government tactics exist in bribery and FCPA cases. Flavio Ricotti and Ousama Naaman are but two examples of foreign nationals who were extradited to the U.S. in the last five years to face FCPA charges, each apprehended overseas after the U.S. government obtained an indictment in federal court, and each charged based on conduct outside of the U.S. It appears that the U.S. government will continue to take an aggressive enforcement approach toward uncooperative executives, further highlighting the concern for senior foreign executives and their companies caught up in cartel and FCPA investigations.
In what may well affect African and other international price-fixers going forward, the spectre of U.S. extradition for criminal antitrust charges has been reinforced by the recent successful DOJ extradition request in the “Marine Hose” cartel. An Italian national was extradited from Germany to face bid-rigging charges.
Ian Norris, then-CEO of Morgan Crucible, sentenced to serve 18 months in federal U.S. prison
“First-ever”?! Some readers may recall the carbon products cartel and a certain Mr. Ian Norris, the then-Morgan Crucible chief executive, who had been extradited from the U.K. to the United States back in 2010. Yet, that seven-year long procedure was based not a pure antitrust charge — rather, he was extradited on a technicality, if you will, namely the “obstruction of justice” charge, given the lack of reciprocal or dual criminality of the underlying price-fixing offense in the two countries at the time the competition offense had been committed in the early 1990s. Norris’ 1 1/2 year prison sentence ended in November 2011.
The Marine Hose cartel extradition is different: In this case, the DOJ succeeded, for the first time ever, in securing an extradition solely on a competition-law offense being charged.
WASHINGTON — Romano Pisciotti, an Italian national, was extradited from Germany on a charge of participating in a conspiracy to suppress and eliminate competition by rigging bids, fixing prices and allocating market shares for sales of marine hose sold in the United States and elsewhere, the Department of Justice announced today. This marks the first successfully litigated extradition on an antitrust charge.
Pisciotti, a former executive with Parker ITR Srl, a marine hose manufacturer headquartered in Veniano, Italy, was arrested in Germany on June 17, 2013. He arrived in the Southern District of Florida, in Miami, yesterday and is scheduled to make his initial appearance today in the U.S. District Court for the Southern District of Florida in Ft. Lauderdale, at 11:00 a.m. EDT.
“This first of its kind extradition on an antitrust charge allows the department to bring an alleged price fixer to the United States to face charges of participating in a worldwide conspiracy,” said Assistant Attorney General Bill Baer in charge of the Department of Justice’s Antitrust Division. “This marks a significant step forward in our ongoing efforts to work with our international antitrust colleagues to ensure that those who seek to subvert U.S. law are brought to justice.”
Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities. During the conspiracy, the cartel affected prices for hundreds of millions of dollars in sales of marine hose and related products sold worldwide.
According to a one-count felony indictment filed under seal on Aug. 26, 2010, and ordered unsealed on Aug. 5, 2013, in U.S. District Court in the Southern District of Florida, Pisciotti carried out the conspiracy by agreeing during meetings, conversations and communications to allocate shares of the marine hose market among the conspirators; use a price list for marine hose in order to implement the conspiracy; and not compete for customers with other marine hose sellers either by not submitting prices or bids or by submitting intentionally high prices or bids, all in accordance with the agreements reached among the conspiring companies. As part of the conspiracy, Pisciotti and his conspirators provided information received from customers in the United States and elsewhere about upcoming marine hose jobs to a co-conspirator who served as the coordinator of the conspiracy. That coordinator acted as a clearinghouse for bidding information that was shared among the conspirators, and was paid by the manufacturers for coordinating the conspiracy. The department said the conspiracy began at least as early as 1999 and continued until at least May 2007. Pisciotti was charged with joining and participating in the conspiracy from at least as early as 1999 until at least November 2006.
Pisciotti is charged with violating the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
As a result of the department’s ongoing marine hose investigation, five companies, including Parker ITR; Bridgestone Corp. of Japan; Manuli SPa of Italy’s Florida subsidiary; Trelleborg of France; and Dunlop Marine and Oil Ltd, of the United Kingdom, and nine individuals have pleaded guilty.
The investigation is being conducted by the Antitrust Division’s Washington Criminal I Section, the Defense Criminal Investigative Service (DCIS) of the Department of Defense’s Office of Inspector General, the U.S. Navy Criminal Investigative Service and the Federal Bureau of Investigation. The U.S. Marshals Service and other law enforcement agencies from multiple foreign jurisdictions are also investigating or assisting in the ongoing matter. The Criminal Division’s Office of International Affairs provided assistance.
The South African Competition Commission (the Commission) has recently referred its findings of cartel conduct against Alvern Cables, South Ocean Electric Wire Company (SOEW), Tulisa Cables, and Aberdare Cables who are all suppliers of power cables, to the Competition Tribunal (Tribunal). The Power cables include products such as house wire, surface twin and earth wire and are generally made from, amongst other things, copper, aluminium, polyethylene, steel tape and galvanised wire. These power cables are used to distribute electricity to residential and commercial users.
The Commission found that between 2001 to at least 2010, the firms directly or indirectly fixed the selling prices of power cables to wholesalers, distributors and original equipment manufacturers. The Commission, in its referral, is requesting that the maximum penalty of 10% of the annual turnover of the companies should be imposed.
Acting Commissioner Tembinkosi Bonakele had some interesting remarks regarding the matter: “We have been working tirelessly to thwart any effort that goes to undermine South Africa’s global position that provides value to businesses. Our steadily growing economy can ill-afford rogue business practices” This from the same individual who defended the right of Government to intervene on the ill-defined “public interest” criterion in high-profile merger investigations, thus subjecting them to lengthy and costly reviews.
It is noteworthy to mention that amongst the affected customers who bought these products, were the Bidvest Group (Voltex Group), ARB Holdings Ltd; Universal Cables (Pty) Ltd, Trinity Cables CC, Powermac, Paragons and South Atlantic Cables and Electrobase. It is a small group of companies, with a great amount of resources, which could mean that civil damages might be instituted if the alleged cartel members are found guilty before the Tribunal.
Furthermore, the first class action matters based on competition law contraventions which are currently before the high courts of South Africa will be finalsised by the time the cable cartel proceedings have been finalised before the Tribunal, which means there would be a clear picture of the situation where distributors and end consumers institute damages claims simultaneously against the same parties.
The South African Competition Commission (“Commission”) has recently announced that it has concluded its investigation into the major retail grocery stores, namely Shoprite Holdings Ltd, Woolworths Holdings Ltd, the Spar Group Ltd and Pick ‘n Pay Stores Ltd, as well as wholesale retailers, Massmart Holding Ltd and Metcash Trading Africa (Pty) Ltd for alleged contraventions of the Competition Act in relation to exclusive lease agreements.
By way of factual background, the Commission initiated an investigation in 2009 against Shoprite, Woolworths, Spar, Massmart, Metcash and Pick ‘n Pay in which the Commission examined various competition concerns including buyer power, category management, information exchange and long-term exclusive lease agreements. The Commission’s initial investigation uncovered no evidence of competition contraventions, yet subsequently the Commission decided to focus its investigation on the long-term exclusive lease agreements, evaluating whether they could potentially give rise to contraventions of abuse of dominance and restrictive vertical practices.
The Commission’s investigation failed to find sufficient evidence to meet the tests set out in the Competition Act to proceed with the investigation. As a result, the Commission has decided not to refer the matter to the Competition Tribunal, concluding that “on the basis of the evidence before the commission, the anti-competitive effects of the conduct could not be demonstrated conclusively.“
The sector has recently been the subject of significant attention from the Commission, the South African health minister in particular, and the S.A. government in general. In spite of the perilous state of South Africa’s public health system, the government appears to have invested more time in deflecting from the obvious problems in the public branch by subjecting the private sector to a costly investigation. From a procedural-history point of view, it is interesting to note that the market inquiry provision was brought into effect by way of Section 6 of the amended South African Competition Act. Although there were other areas of the legislation to be amended, it is noteworthy that only the market inquiry provision was brought into effect.
Many have suspected that the motivation behind the private healthcare inquiry was based on aspirations from outside the ambit of the Commission, particularly since the launch of the South African government’s National Health Insurance policy scheme (designed to achieve the noble aim of universal health insurance coverage, not entirely unlike the United States’ “Obamacare” effort) may ultimately cause the demise of a robust private healthcare sector.
Independence of Commission questioned
With this in mind, what is perhaps most interesting is a recent public submission made by the newly appointed 37-year old Acting Competition CommissionerTembinkosi Bonakele in the South African media. In an article co-authored with Ms. Paremoer, the Commission principal responsible for the healthcare inquiry, entitled “Market inquiries an important advocacy tool” (also published in the Sunday Times), Bonakele attempts to deflect any suggestions of government involvement in (or other ministerial influence over the pursuit of) the market inquiry. This approach seems at odds with Mr Bonakele’s predecessor, Shan Ramburuth – who was unceremoniously let go by the same government in a public display of shaming last year – in seeking to justify the motivation behind the private healthcare inquiry. (We note that the present government has an apparent history of “letting go” unruly cabinet members in unusual and rather bombastic fashion, see here and here.)
Ramburuth’s Commission had previously stated expressly, for instance, that the inquiry was intended at least in part to review the sector for collusive behaviour, while Mr. Bonakele now disavows this rationale and claims that any such findings would merely be a side effect of the inquiry (“[o]f course, during such an inquiry, we may come across anti-competitive practices that need to be rooted out”).
In his piece, the Acting Commissioner seeks to reassure those who “remain confused about the […] intended market inquiry,” and states that the “inquiry is not a stalking horse“:
“we are simply seeking to understand how to improve efficiency and competition” in what he calls the “complicated web” of the healthcare industry.
Is this a case of Shakespearean “the [man] doth protest too much”, especially when keeping in mind that the private healthcare sector has previously been acknowledged to be competitive and efficient. Mr. Bonakele has previously emphasised his independence, despite being referred to in the press as Minister “Patel’s man”:
“I haven’t responded to the media debate out there because I don’t think one has to stand on a mountain and say ‘I’m independent’. Actions speak louder than words.” [Source: BDLive]
Acting Commissioner Bonakele
The aim of the inquiry, according to the Acting Commissioner, is to improve competition and efficiency in the sector to such a degree that the ordinary man on the street will have full access. A very noble goal indeed, but when juxtaposed with the fundamental function and intention of the NHI,it is highly contradictory: the private healthcare sector is, by definition, not in the business of providing access to everybody. The public NHI body’s own slogan, on the other hand, shows that the national insurance programme fulfills precisely that role: “NHI is premised on the ideology that all South Africans are entitled to access quality healthcare services.”
What is perhaps of greater concern (with a wider applicability than just the healthcare sector, public or private) to competition-law enforcement in South Africa as a whole, is the confluence of the government’s industrial policy ambitions with otherwise supposedly independent Commission investigations and its competition adjudication based in the pure law & economics of antitrust. As previously reported in our piece on political interventionism in South African competition law, the Commission should seek to demonstrate its complete independence from the cabinet and executive branch as a whole, and avoid falling into the trap FTC Chairwoman Edith Ramirez warned against: the “proper goals” of competition law are best solved when a competition authority is focused on competitive effects and on consumer welfare and its analysis is not “interrupted to meet social and political goals.”
In sum, one must hope that Mr. Bonakele can be taken at his word when he says that, while “[m]aybe people think the minister will use the commission as a tool, but it’s just not possible. This is a legal process we are talking about.“
The past 18 months have witnessed significant developments in the investigation and prosecution of cartel conduct in South African competition law. In summary, these developments are the following:
• The Supreme Court of Appeal recognised the availability of ‘opt
out’ class actions for private damages and set out a procedure
through which plaintiffs can seek certification of a class.
• The Constitutional Court extended the availability of class actions
for private damages by recognising ‘opt-in’ class actions
where the interests of justice permit such a procedure.
• The Competition Commission (the Commission) for the first
time utilised a fast-track settlement process in relation to the
prosecution of a widespread cartel in the construction industry.
• An amendment to the Competition Act, 89 of 1998 (the Act)
was promulgated giving the Commission the power to institute
market enquiries. The Commission has indicated that it wishes
to conduct a market inquiry into the private health-care sector.
• The Supreme Court of Appeal broadened the scope for the
Competition Tribunal (the Tribunal) to adjudicate complaints
prosecuted by the Commission.
• The Supreme Court of Appeal confirmed that leniency applications
submitted to the Commission by a leniency applicant are
subject to legal privilege unless the Commission makes reference
to the application in a complaint referral to the Tribunal
– in which case it will be taken to have waived privilege.
• The North Gauteng High Court found that a leniency applicant
is not protected from private damages claims – even where it
is not cited by the Commission as a respondent in complaint
proceedings brought before the Tribunal.
Race becomes issue at competition-law conference in South Africa
According to severalreports, the issue of race came to the fore during a discussion of illegal cartel conduct in South Africa at a recently held plaintiffs’ firm symposium (organised by Hausfeld LLP and Abrahams Kiewitz). Quoting from Amanda Visser’s BDLive article entitled “Cartels blamed on white men in dark suits” (23 Oct. 2013):
The Black Business Council has come out against cartels in South Africa, with CEO Xolani Qubeka, blaming the practice on “highly educated white male executives in dark suits”.
Mr Qubeka’s comments at a symposium on cartel collusion came after the recent outcry over collusion and cartel activities in the construction industry.
… Mr Qubeka said the Black Business Council aims not only to rid the country of collusive behaviour, but also to instigate criminal cases against the key architects, masquerading as corporate managers, who are committing fraud.
“Consumers in South Africa cannot continue to be abused by highly educated white male executives in dark suits who lock themselves in dark rooms plotting how they can maximise their wealth through self-serving fraudulent schemes against the entire nation,” he said.
Sounds like the infamous old saying about equating cartels to “men in smoke-filled back rooms” — only with more incendiary overtones… Ironically, the speaker Mr. Qubeka (who did not complete high school and is an outspoken critic of the S.A. Black Economic Empowerment (BEE) agenda, according to a May 2013 Sunday Times profile and otherarticles) used to be a Director of South African telecommunications giant MTN — a corporation that has had its own fair share of competition-based complaints and investigations, as we have reported on this blog.
We observe that the conference-sponsoring Hausfeld firm has historically been perceived as opposing racism and, indeed, has helped pursue claims (including pro bono matters) on behalf of groups suffering from discrimination, such as Holocaust survivors. The firm is currently involved in more traditional plaintiff litigation matters in South Africa, including several miners’ class-action lawsuits against their employers, AngloGold Ashanti Limited (formerly Anglo American), Harmony Gold Mining Company Limited, and Goldfields Limited (based on diseases allegedly contracted by the class members). The firm is also involved, again jointly with Abrahams’, in the bread price-fixing class action in South Africa.
Source: Getty Images via ZIMBIO
AfricanAntitrust.com has an unwritten policy of not commenting on issues irrelevant to antitrust or competition law (that would be: race) and instead staying on topic (that would be: antitrust and competition law).
What do soccer stadiums, LCD panels, and lysine** have in common? Price-fixing might be one answer. Record antitrust fines might be another, closely related, response.
The South African Competition Commission (“Commission”) has obtained settlements of 1.5 billion rand or about €113 million with up to 15 construction companies. This constitutes, by our reckoning, a new record for the Commission.
The fast-track settlement procedure used by the agency (in all but 3 cases, in which the accused firms chose not to pursue fast-tracking) shortened the time necessary to reach finality on the deals. It also allows the Commission to free up its manpower resources to work on other matters, since maintaining full-fledged investigations in all of the now-settled cases would have been a long and arduous process for all parties involved — as we reported previously on AfricanAntitrust.comhere and here, the scope of the ZA construction-sector bid-rigging investigation has ballooned beyond even the wildest dreams of enforcers.
The Commission’s press release sheds further light on the breakdown of the fines per party, covering conduct since September 2006 in over 300 instances of bid-rigging:
Post-scriptum: The fines, although record-setting, are lower than expected by investors. Consequently, shares in the affected undertakings have soared 1-3%, as reported by BusinessReport here.
** Sorry – I strayed a bit from the original alliterative title here. (Otherwise, I could not have made the “record fines” point…)
African Antitrust & Competition Law 