Today, the East African reported on a stunning admission by the Chief Executive Officer of Kenyan mobile telco heavyweight Safaricom (itself no stranger to AAT telco competition reporting and proprietor of the massive M-Pesa mobile money network across East Africa). In the article, fittingly entitled “Safaricom rules out price war in Ethiopian market“, the business report quotes Mr. Peter Ndegwa as saying:
“From a pricing perspective, our pricing strategy is generally to be either in line or just slightly at a premium, but not to go for any price competition. The intention is actually generally to be closer to what the main operator is offering, especially on voice.”
Safaricom’s senior exec made his curious confession on a recent investor call. Says Andreas Stargard, a competition attorney with Primerio: “On these investor conference calls, there are usually several analysts and reporters on the line, listening in, and they commonly are also recorded. This would mean there exist clear prima facie evidence and several witnesses to these statements, as reported by the East African source.” He adds: “It remains to be seen whether any of the several competent authorities will investigate Safaricom’s express statement of a de facto ‘non-compete’ between the Ethiopian incumbent and the Kenyan upstart,” with the former (Ethiotel) boasting 54m subscribers, as opposed to the latter’s mere 1m users in-country.
POSSIBLE INVESTIGATIONS
When asked which government authorities would be authorized to investigate Safaricom’s “no price war” policy expressed by Mr. Ndegwa, according to the newspaper, Mr. Stargard noted that, beyond the domestic Ethiopian telecoms regulator, there existed at least two (2) competent antitrust bodies with jurisdictional authority: “For any potentially anti-competitive conduct occurring in Ethiopia that may have a cross-border effect (as mobile telephony usually does — especially with a foreign, here Kenyan, operator involved as well), I could see either the Ethiopian Trade Competition and Consumer Protection Authority (“TCCPA”) or the supra-national COMESA Competition Commission (“CCC“) under Dr. Mwemba’s reinvigorated leadership stepping in.”
As the latter has made clear in several public pronouncements recently, the CCC is poised to continue its non-merger enforcement streak, that is: investigating and prosecuting restrictive business practices, such as cartels and cartel-like behaviour. “We call it, CCC 2.0,” Stargard adds half-jokingly. He notes that both the TCCPA and CCC have all the necessary legislative instruments in hand to proceed with a preliminary investigation on the basis of the above quotes published by the East African:
In Ethiopia, the TCCPA could argue that “expressly avoiding a price war” is possibly in violation of Article 7(1) of the Ethiopian Trade Competition and Consumer Protection Proclamation (“Article 7(1)”), which provides that “(1) An agreement between or concerted practice by, business persons or a decision by association of business persons in a horizontal relationship shall be prohibited if:…(b) it involves, directly or indirectly, fixing a purchase or selling price or any other trading condition, collusive tendering or dividing markets by allocating customers, suppliers territories or specific types of goods or services”.
For COMESA, the CCC has conceivably two legislative tools at its disposal: First, Art. 16 of the Regulations (“Restrictive Business Practices”) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which (i) may affect trade between member states, and (ii) have as their object or effect the prevention, restriction or distortion of competition. Provision is then made (in Art. 19(4)) for the Article to be “declared inapplicable” if the agreement, decision or concerted practice gives rise to efficiencies and the like. Importantly, even though Art. 16 also applies to by-object practices, provision is made for an efficiency defence. Second, the CCC could resort to Art. 19 (“Prohibited Practices”), which focusses on “hard-core” cartel-like practices. Art. 19(2) provides that Art. 19 applies to agreements, arrangements and understandings, while sub-sections (1) and (3) provide that it is an offence for (actual or potential competitors) to fix prices, to big-rig or tender collusively, to allocate markets or customers, and the like.
DEFENCES
Safaricom and its domestic competitor (the government-owned, former absolute monopolist, Ethiotel) may of course offer — preemptively or otherwise — a pro-competitive explanation for their alleged “non-compete” agreement. However, in attorney Stargard’s view, such defences must be well-founded, non-pretextual, and they would be well-advised to have contemporaneous business records supporting any such defences at the ready, should an antitrust investigation indeed ensue.
“Indeed, it may appear to the authorities that Mr. Ndegwa’s quoted concession of ‘We won’t compete on price’ may be a sign of capitulation or at least a ‘truce’ between Safaricom and Ethiotel,” he surmises, “because as recently as mid-December [2022], the incumbent monopolist [Ethiotel] had threatened legal action against the Kenyan newcomer, claiming that Safaricom had ‘harrassed’ the incumbent’s customers and caused loss of service due to its actions.” An incoming competitor’s attempt at avoiding a civil lawsuit between it and would-be competitors would, of course, not constitute a legal defence to forming a (formal or informal) non-compete agreement on pricing, he adds.
“We have extensive experience counseling clients on how to successfully — and aggressively — defend against accusations of price-fixing, whether the allegations involve tacit collusion or express price or market-allocation cartel behaviour. While the parties here would likely not have a formalistic statute-of-limitations argument at their disposal, given the recent nature of the conduct at issue, I could imagine there being eminently reasonable ways of showing the harmless nature of the conduct underlying the, perhaps misleading, investor-call statements made by the executive,” he concludes.
The Competition Authority of Kenya (CAK, or the Authority) issued a public notice to members of professional associations who are seeking to set minimum chargeable fees for their members notifying them that they need to comply with the provisions of the Competition Act. The Competition Act (the Act) provides for parties to file an application for an exemption on behalf of any association whose agreements may contravene the Act. Notably, the determination of an exemption application factors in public-interest considerations. In addition to this, when an exemption is granted, the same is not perpetual the period of validity of the exemption is at the discretion of the Authority.
Regulation of professional bodies is governed by different sources under Kenyan law. This can occur either through statutory law or rules issued by the professional bodies themselves. In Kenya we have professional bodies regulated by statute and others are wholly self-regulatory. This in turn brings in the issue of self-regulation and regulation by statute. As such, if a professional body is allowed by law to prescribe fees applicable for certain services offered by members of that association. Therefore, in such an instance then the Authority cannot fault such an association because the actions of the association are sanctioned by the law. In such an instance, the correct course of action would be the Authority to first seek intervention from the courts to declare such activities authorized by the law as unlawful and if successful, then any future activities of the association that involve the prescription of fees will be subject to an exemption application.
In 2017, the Institute of Certified Public Accountants of Kenya (ICPAK) made an exemption application in regard to prescribing of fees charged by its members and the same was rejected by the Authority. Following the rejection of their application ICPAK has opted to bypass the Authority and has begun to push for the prescription of the fees through the law and in 2020, they published the proposed remuneration order. Similarly in 2020, the Engineers through the Engineers board of Kenya also have the draft scale of fees for professional engineering services.
As mentioned above, there is the issue of self-regulation versus regulation by statute. Relevant Kenyan law includes the Statutory Instruments Act, which provides for the making, scrutiny, publication and operation of statutory instruments. Statutory instruments include but are not limited to rules, guidelines or by-laws made in execution of a power conferred by an existing statute. It is important to mention the Statutory Instruments Act because under this law, all statutory instruments are required to carry out consultations with the Authority to establish whether the proposed instrument restricts competition. It is however unclear whether the opinion of the Authority matters because despite complying with this requirement. What would be interesting to watch for now is whether ICPAK is successful in its quest for setting of professional fees there being a gazette notice where the CAK rejected its exemption application over the same subject matter.
Associations that self-regulate fall squarely within the jurisdiction of the CAK and that is why the Authority has in the past successfully pursued contraventions by trade associations like in 2016, the association members in the advertising industry who were involved in price fixing were penalized. This can be compared to the activities of the Law Society of Kenya which are governed by statutes which empower it to recommend to the Chief Justice fees to be charged in relation to certain services offered by its members.
In conclusion, while the CAK may be justified in its quest to reign in the behavior of professional associations that are engaged in conduct that may amount to price-fixing, there needs to be a balance in the approach the CAK takes, where protection of fair remuneration is taken into account while preventing what would amount to abusive conduct. That being said, the CAK should also consider challenging the other laws that are in place that allow the professional associations to engage in conduct that it believes should be subject to an exemption application.
On May 24, 2021, the Competition Authority of Kenya (CAK or Authority) issued a notice to the manufacturers of bread on how to label the breads sold to consumers. The CAK claimed the producers were in contravention of Section 55 of the Competition Act 12 of 2012 (“Act”). Section 55(a)(i) of the Act states that “a person commits an offence when, in trade in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, he— (a) falsely represents that— (i) goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use” . The This section found application in, inter alia, relation to the labelling of FMCG such as bread sold to consumers.
The CAK’s first concern was that the labels on the bread were illegible, thereby denying the consumer sufficient information. Second, the producers were directed to adjust the information on the wrappers from “Best before” to “Sell by” to indicate the date of expiration. This adjustment will make this information clearer to the consumers, according to the Authority. Sources close to the investigation stated that bread manufacturers had taken liberties with proper labeling previously and had been ‘mischievous’ with labels, as they initially placed the expiration date on the disposable part of the wrapper, thereby depriving consumers of reliable information after opening the packaging. Thereafter, upon being directed by the regulator that the information should be on the actual bread wrapper, the manufacturers purportedly caused the printing of the information to be illegible.
Regarding the issue of weight and ingredients, the bread manufacturers now have an obligation to indicate the correct weight as well as the ingredients of their breads. It was found that some breads alleged to have milk or butter while in reality they did not. Such conduct by manufactures amount to false information. This is itself a breach of the law under both the Competition Act and the Standards Act.
The CAK has the overarching consumer protection mandate, as provided under the Constitution and the Competition Act of Kenya. While carrying out this consumer protection mandate, the Authority must consult with the Kenya Bureau of Standards in all matters involving definition and specification of goods and the grading of goods by quality. Indeed in 2016, the Authority entered into a memorandum of understanding (MOU) to enhance cooperation with Kenya Bureau of Standards. Section 60 (1) of the Competition Act also makes it an offence for any person to supply goods which do not meet the consumer information standards prescribed by law.
Ruth Mosoti, a competition and consumer protection attorney with Primerio Ltd. in Nairobi, notes that the Authority’s chief “essentially informed the producers that compliance with the law was not a pick-and-choose buffet style option. In this instance, the consumer information standard is defined under the Standards Act and that is why the bread manufacturers have been directed to comply as Authority head Mr. Wang’ombe Kariuki correctly put it.” Kariuki stated: “manufacturers have no latitude to elect which laws to adhere to”. The specific standards in question refer to labeling.
The Authority has taken a soft enforcement approach with a focus on compliance rather than imposing the maximum penalty as prescribed by law. Contraventions of the consumer protection provisions attract a penalty of a maximum of ten million Shillings ($100,000) or imprisonment for a term not exceeding five years. One can only assume that the assertion by the Authority that no actual harm to consumers had been recorded yet as a result of the contraventions by the bread manufacturers must have influenced this soft-enforcement approach.
The Competition Tribunal (“Tribunal”) recently handed down a precedent-setting decision in the case of Majid Al Futtaim Hypermarkets Limited vs Competition Authority of Kenya and Orchards Limited which will not only set the scene on how the competition authorities will tackle the enforcement and assessment of buyer power in Kenya but will also have substantial consequences for retailers in Kenya.
In casu Orchards Limited (“Orchards”) alleged that Majid Al Futtaim Hypermarkets Limited (“Majid”) abused its buyer power. Majid is the operator of the supermarket “Carrefour”, which is supplied with probiotic yoghurts by Orchards. Majid was alleged to have abused its buyer power by: transferring commercial risks to Orchards; refusing to receive Orchards’ goods for reasons which could not be ascribed to Orchards; unilaterally terminating or de-listing the commercial relationship without notice and for no justified reason; applying rebates and listing fees marked as discounts; and requiring Orchards to deploy staff as its own cost.
The Tribunal ultimately upheld the Competition Authority of Kenya’s (“CAK”) judgment in finding, inter alia, that Carrefour abused its buyer power in relation to Orchards. While the Tribunal’s decision brings much-needed clarity on various issues, in particular how it will conduct its assessment of buyer power, which represents an area in competition law that has historically been unregulated, the assessment itself appears to only brush the surface in an analysis which typically (and with regard to comparative jurisdictions) necessitates a robust and thorough analysis.
The Commission, in reaching its decision vis-à-vis the existence and abuse of buyer power, based its decision on the Competition Act No 12 (“Act”), the Buyer Power Guidelines under part III of the Act, and international best practice. Section 24(2B) of the Act stipulates that the authority, in determining buyer power, must take into consideration:
“a) the nature and determination of contract terms;
b) the payment requested for access to infrastructure; and
c) the price paid to suppliers”
Section 24(2D) of the Act stipulates that buyer power means:
“…the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favorable terms, or to impose a long-term opportunity cost including harm or withheld benefit which, if carried out, would significantly be disproportionate to any resulting long-term cost to the undertaking or group of undertakings.”
Of particular concern is the Tribunal’s approach and rationale in determining whether Majid had buyer power and whether it had abused its buyer power. Importantly, the Tribunal appears to be jumping the gun so to speak in expressing that “…the influence of power of the buyer becomes evident when the buyer engages in the offending conduct” and therefore, “by engaging in conduct which amounts to abuse of buyer power, there’s buyer power”. (our emphasis)
According to the Tribunal, the Act defines buyer power by reference to its effects. In casu, “abuse” was evidenced by, inter alia, declining to renegotiate terms, onerous rebates and listing requirements, and the refusal to take delivery of products that were delivered. This represents a notable departure from traditional competition law assessments of buyer power in various respects. In South Africa, for example, the assessment first centres around the existence of buyer power (which requires the buyer to be dominant), followed by whether there has been an abuse of that buyer power. Michael-James Currie from the Primerio International team notes that the Tribunal has essentially put the cart before the horse and notes that astute competition law counselling requires these trends and policy shifts to be well considered.
By engaging in what appears to be an ex-post assessment, the Tribunal’s judgment does not provide much insight or guidance to parties on how to ensure their conduct is aligned with the relevant provisions or how to negotiate trading terms common to commercial practice without facing potential accusations of abuse of buyer power.
Precedent on “buyer power” is scarce and therefore the precedent set by the Tribunal on the matter is of considerable importance both in Kenya and throughout Africa. When viewed comparatively the legislative framework governing “buyer power” in South Africa differs from the Tribunal’s judgment mainly on the requirement of “dominance”.
Section 8(4)(a) of South Africa’s recently amended Competition Act provides;
“It is prohibited for a dominant firm in a sector designated by the Minister in terms of paragraph (d) to directly or indirectly, require from or impose on a supplier that is a small and medium business or a firm controlled or owned by historically disadvantaged persons, unfair:
(i) prices; or (ii) other trading conditions.”
Contrastingly, the Buyer Power Guidelines under Kenyan law state:
“It is not necessary for the buyer to have a dominant position in the market. Although the provisions of abuse of buyer power are included under the provisions of abuse of dominant position, when assessing conduct that amounts to abuse of buyer power, proof of dominance is not a mandatory criteria.”
Additionally, the Tribunal did not undertake a robust assessment of the relevant market, or an analysis of potential foreclosure concerns, consumer welfare or efficiency. Rather, and instead of focusing on anti-competitive effects (which jurisdictions such as South Africa undertake), the Tribunal appeared to be more concerned with fairness to suppliers.
What remains to be seen is how the Tribunal will distinguish between, inter alia, those buyers who extract favourable trading terms by virtue of being dominant in the market vs those buyers who are not, without first undertaking a comprehensive assessment of the buyer’s position in the market.
This judgment, being the Tribunal’s first in relation to the abuse of buyer power, will shape the way in which buyer power will be assessed in Kenya. As such, it is vital that the competition authorities provide comprehensive guidance and much needed certainty to businesses.
The latest episode #122 of Sheppard Mullin’s popular NOTA BENE podcast features Primerio’s Andreas Stargard, exploring “Africa Q2 Check In: Economic Growth and Relevance.”
Africa continues to strive for economic growth through various trade partnerships and foreign investments, but long-standing challenges remain an impediment in certain respects. Is Twitter’s decision to open an African base in #Ghana any indication of the continent’s economic potential? We’re joined by #Africa competition and markets expert, Andreas Stargard, a co-founding senior member of Primerio Ltd., as he shares insights on Africa’s economic outlook in Q2 of 2021.
You can listen to it for free on all major ‘podcatchers,’ including here:
Three years after an intricate East-African antitrust saga involving global European and Asian paint manufacturers, the industry is in the region’s competition-law news again.
By Andreas Stargard
Upon receiving allegations, in 2018, of cartel-like practices among paint manufacturers and undisclosed distributors, the Competition Authority of Kenya (CAK) launched an investigation into the companies suspected of breaching competition rules. These investigations later uncovered that four firms, namely: Crown Paints, Basco Products Limited, Kansai Plascon and Galaxy Paints were deemed guilty of collusion and price-fixing, subjecting the purchasers to unreasonably high prices for various paint brands. The CAK has since revealed its findings to the Kenyan Parliament.
Crown Paints has a flagship brand called DuraCoat, which includes paint products for both interior and exterior finishing (painting and waterproofing). Dura Brands’ exposed collusion with the other three companies sparked fears that consumers had been buying these products at artificially inflated prices. This is particularly significant given that Crown Paints is listed on the Nairobi Securities Exchange and is a heavyweight in the local Kenyan paints market, with further regional subsidiaries in Uganda and Tanzania (all COMESA member states).
Ruth Mosoti, Primerio Ltd.’s Kenyan competition practitioner, notes that the “CAK ultimately found that all four companies were in direct contravention of section 31 of the Competition Act, which addresses restrictive trade practices that prohibit companies from colluding with one another in order to determine product prices, as well as control when and to whom they will offer pricing discounts. The CAK alleges that these are all anti-competitive behaviors that are to the detriment of the consumer as well as other, outside competitors.”
In its Annual Report to Parliament, the CAK noted: “The investigations with respect to three other paint manufacturers and distributors were concluded in July 2019 with the Authority making a preliminary finding that the parties were involved in an anti-competitive agreement on prices, discount structure and transport charges.”
In line with section 36(c) and (d) of the Act, the CAK is entitled to impose financial penalties “to remedy or reverse the infringement or the effects thereof” which may span “up to ten percent of the immediately preceding year’s gross annual turnover in Kenya of the undertaking or undertakings in question”.
Of the four Companies, Basco Products Limited was the only company that did not challenge the CAK’s preliminary ruling and paid a penalty amount of Sh20.799 million. The company further agreed to abstain from committing any similar breaches in the future. While the other subject companies initially appealed the decision handed down by the CAK, AfricanAntitrust.com editorial staff have now learned that up to 3 of the accused firms have opted to settle, having withdrawn their appeals.
COMESA
It is also pivotal to note that on the 25th of February 2021, the COMESA Competition Commission (CCC) issued a cautionary note specifically pertaining to the consequences of forming artificial barriers to free trade, such as collusive practices and other horizontal agreements hindering competition.
The CCC — in its recent bid to become a fully-fledged competition enforcement agency that investigates not only merger activity (as it had done primarily so far) but also pursues hard-core antitrust offences such as cartels — made reference to Article 16 of the Regulations, prohibiting “all agreements between undertakings, decisions by associations of undertakings and concerted practices which: (a) may affect trade between Member States; and (b) have as their object or effect the prevention, restriction or distortion of competition within the Common Market”.
The Kansai paint allegations described above would fit the bill, but we shall see what cartel matters the CCC will pursue going forward, and in which industry segments… The CCC has stated that it “…will work closely with the national competition authorities in the Member States to ensure that offenders are detected, investigated and punished”. Furthermore, there is particular focus on “hard enforcement through screening, detection, investigation and punishment of offenders”.
Africa is a continent of 1.2 billion people. From a consumer potential standpoint it matches China or India. Yet historically, it has suffered from the lingering shadows of its colonial past, in addition to its current fractures, hostility, and ever-present corruption.
The continent is emerging fast, however, and is quickly accelerating into the 21st Century marketplace both from an investment and growth opportunity. From the digital revolution and increased free trade, to innovation in various industries, Africa may be the next market frontier to unfold into accelerated multinational presence.
In this podcast episode (available gratis on Apple, Spotify, and Sheppard Mullin‘s web site), Michael P.A. Cohen is joined by Africa competition and markets expert, Andreas Stargard, as he shares his insight to help multinationals navigate the African landscape.
What do the Africa markets look like from a multinational business opportunity perspective?
Which countries in Africa have established markets? Which ones have growth potential?
How and why has China’s investment and influence across Africa intensified over the last couple of decades?
What type of digital revolution is taking place in Africa?
Is there a huge opportunity for mobile money on the continent?
How is free trade shaping up across the African continent? How do the AfCFTA’s goals tie in?
What Free Trade cooperation agreements exist among the East, West and South African nations? Will they succeed?
Where is Africa leading innovations?
How will African wars and corruption impact its ability to grow a multinational marketplace?
Who’s speaking:
Michael Cohenis the creator of the Nota Bene podcast. He began his career as an Assistant Special Prosecutor, investigating and prosecuting organized crime involvement with the failure of local financial institutions in the early 1990s, and has since practiced globally at several top law firms. In 2015, Michael joined Sheppard Mullin’s storied antitrust practice with a goal of putting his 25 years experience to work to complement the firm’s longstanding antitrust litigation group, helping to bridge government antitrust enforcement in Washington, D.C. to the firm’s strengths in Brussels, San Francisco and Los Angeles.
A co-founding senior member of Primerio, a business advisory firm helping companies do business within Africa from a global perspective, Andreas Stargard is legal, strategic, and business advisor to companies and individuals across the globe. He focuses on antitrust and competition advice, white-collar counseling, contract dispute and negotiation, and resolution of global business disputes, including cartel work, corruption allegations and internal investigations, intellectual property, and distribution matters. He has written and spoken extensively on these topics and many others. Andreas also advises clients on corporate compliance programmes that conform to local as well as global government standards, and has handled key strategic merger-notification questions, including evaluation of filing requirements, avoidance strategies, cross-jurisdictional cooperation, and the like.
Following the (thus far rarely used) “Block Exemption” procedure under Section 30 (2) of the Kenyan Competition Act, the Competition Authority of Kenya (“CAK”) has proposed a new set of draft Guidelines as to competitor collaborations during the COVID-19 pandemic, so as to assist with the country’s economic recovery efforts. It specifies five (5) focus sectors, namely Manufacturing, Private Healthcare, Aviation, Travel & Hospitality, and Health Research. The Guidelines are ostensibly inapplicable to firms that engage in economic activity outside these five sectors.
In issuing its soon-to-be finalized guidance, the CAK wishes to provide “direction to undertakings in making a self-assessment as to whether the agreements, decisions or practices which they intend entering into will qualify for block exemption within the Covid-19 Economic Recovery Context without the need to seek the Authority’s intervention.” (A.(4))
A key aspect, in the view of antitrust litigator Andreas Stargard, is the renewed attention given to “public-interest factors” in competition law.
He believes that this concession to non-traditional competition-law theory is “necessitated by the broad economic havoc COVID-19 has wrought, including on historically peripheral-to-antitrust aspects such as overall employment, public health, en masse business closures, and the like, which would normally not be highly relevant factors in the strict sense of conducting a rigorous competition-law analysis.”
Stargard continues that “Condition III of the CAK’s so-called ‘Self-Assessment Principles‘ expressly highlights this element, namely forcing firms to evaluate whether their proposed collaboration with competitive entities is ‘in the public interest, such as creation of employment’,” citing para. 11(vii) of the draft Block Exemption Guidelines on Certain Covid-19 Economic Recovery Priority Sectors.
The CAK’s proposal thus strongly echoes what its regional sister authority, the COMESA Competition Commission (“CCC”) openly discussed as early as July of last year. As we wrote in our assessment of the official CCC staff’s thoughts on competition enforcement amidst the pandemic in 2020:
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.”
As Andreas Stargard observes, “just as COVID-19 is truly global, Kenya and COMESA are likewise not alone in their quest to master the difficult balancing act between sufficiently enforcing their domestic or regional antitrust laws versus allowing reasonable accommodations to be made for necessary competitor collaborations in light of the pandemic’s impact. Indeed, other enforcers have also made accommodations for such unusual collaborative efforts, given the emergency nature of the pandemic.”
In the U.S., the federal antitrust agencies have issued analogous guidance for competitors, issuing a joint guidance document specifically on health-care providers collaborating on necessary public-health initiatives. What stands out is the agencies’ express invitation for health-care players to take advantage of the (now-expedited to 7 days’ turnaround time) business-review/opinion-letter procedures. Mr. Stargard notes however that, unlike the Kenyan proposal of “self-assessment“by the affected entities, the American approach still necessitates an affirmative approach of the enforcers by the parties, seeking official sanctioning of their proposed cooperation by submitting a detailed explanation of the planned conduct, together with its rationale and expected likely effects.
By way of further example, in Canada, as the OECD notes, the government “has developed a ‘whole-of-government action’ based on seven guiding principles including collaboration. This principle calls on all levels of government and stakeholders to work in partnership to generate an effective and coherent response. These principles build on lessons learned from past events, particularly the 2003 SARS outbreak, which led to dedicated legislation, plans, infrastructure, and resources to help ensure that the country would be well prepared to detect and respond to a future pandemic outbreak.”
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!”
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.”
African Antitrust & Competition Law 