BRICS, cartels, collusion, fines, South Africa, Transportation

Shipping Cartel: Recent approach to fining in SA

By Michael Currie

AAT previously reported (here and here) that the SACC had been investigating cartel behaviour which allegedly took place between multiple shipping liners who transported vehicles for various Original Equipment Manufacturers (“OEMs”).

The investigation resulted in two consent agreements being concluded between the SACC and Nippon Yusen Kaisha Shipping Company (“NYK”) and Wallenius Wilhelmsen Logistics (“WWL”) respectively (the “Respondents”).

On 12 August 2015, the Competition Tribunal (“Tribunal”) was requested to make the consent agreements, orders of the Tribunal.

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In terms of the consent agreements, the Respondents had admitted that they had contravened Section 4(1)(b) of the Competition Act, 89 of 1998 (the “Competition Act”) on multiple occasions (between 11 and 14 instances), and accordingly agreed to pay administrative penalties of approximately R95 million ($ 8million) and R103 million (R8.5 million) respectively.

We had noted in our previous article on this matter, that in light of the SACC’s recently adopted Guidelines for the Determination of Administrative Penalties for Prohibited Practices (the “Guidelines”), it would be interesting to see how the SACC and the Tribunal go about calculating and quantifying an administrative penalty, when dealing with factual circumstances similar to this matter.

We had been concerned that in cases which involve cartel conduct relating to tenders (i.e. bid-rigging), the Guidelines will have limited application.  Andreas Stargard, an attorney with the Africa consultancy Pr1merio, notes:

There are two main reasons why there we view only a narrowly circumscribed application of the Guidelines in these particular circumstances:

  • Firstly, the Guidelines require in the case of bid-rigging that the affected turnover to be used for purposes of calculating an administrative penalty must be the higher of: the value of the bid, the value of the contract ultimately concluded, or the amount of money ultimately paid to the successful bidder. While this approach to calculating affected turnover when dealing with tenders such as those in the construction industry may be useful, the Guidelines present an anomaly when one is dealing with a tender, the value of which is subject to one or more variable and the tender contract has not been completed yet at the time of the calculation or imposition of an administrative penalty.

  • Secondly, and perhaps even more problematic, is that the Guidelines envisage that a party involved in cartel conduct should be fined for the tenders that the party successfully ‘won’, as well as being held liable for tenders that the party ‘lost’. In terms of the Guidelines, a party who was involved in ensuring that another company was awarded the tender (due to collusion), the ‘unsuccessful’ party will be subjected to an administrative penalty for such a tender as well. In this regard, the affected turnover that will be utilised to calculate the administrative penalty for the ‘unsuccessful’ party, the SACC would also choose the greater of the actual value of the bid submitted by the ‘unsuccessful party’, or the value of the contract or the amount ultimately paid to the successful bidder.

This in itself creates two further issues. The first is from a policy perspective; in terms of penalising the unsuccessful bidder, the unsuccessful bidder’s affected turnover would in most instances be either than the affected turnover of the successful bidder higher (because when a firm deliberately ‘loses’ a bid, they usually submit a cover bid which is higher than the ‘winning’ bid), or at a minimum the same value as the affected turnover attributed to the successful bidder. Thus it is conceivable that the ‘unsuccessful’ bidder while not having derived any benefit from the bid in question, would be subjected to a similar or greater administrative penalty than the successful bidder.

Furthermore, for purposes of reaching a settlement quantum, it is often not possible for the ‘unsuccessful bidder’ to know or calculate the value of the contract or the amount paid to the successful bidder. The only way to obtain such information would require information sharing between competitors, which raise a host of further competition law concerns.

Accordingly, while the adoption of Guidelines for purposes of ensuring greater certainty and transparency is created for parties who are potentially subjected to administrative penalties, the Guidelines have respectfully fallen short of doing that, when dealing with instances of bid-rigging.

The difficulty of applying the Guidelines to cases of bid-rigging was acknowledged by the SACC during the shipping cartel hearings before the Tribunal, a consequence of which saw the SACC adopt a novel and individualised strategy to calculating the administrative penalties which the Respondents ultimately agree to.

The SACC decided firstly that whichever strategy they adopt for purposes of calculating the Respondents financial liability, must be one that can be consistently and fairly applied to all respondents in the investigation.

Accordingly, the SACC decided to impose a administrative penalty of 3.5% of the Respondents’ turnover derived within or from South Africa, in respect of bids which the Respondents were awarded, and a lesser percentage of turnover was used in respect of bid’s which were not awarded to the Respondents.

The SACC thus acknowledge that it would not be fair to impose the same penalty quantum on the successful bidder on the unsuccessful bidder as well.

The M/V Thalatta, a WWL High Efficiency RoRo vessel

The M/V Thalatta, a WWL High Efficiency RoRo vessel (image (c) WWL)

When pressed on how the SACC reached a value of 3.5%, the SACC indicated that the Respondents’ willingness to engage the SACC and their commitment to settling the process was a weighty factor taken into account.

Importantly, the SACC decided to penalise each of the respondents cumulatively. In other words, for each instance of a contravention, the SACC imposed a penalty equal to 3.5% of the firm’s annual turnover (or a slightly lesser amount if the firm was the unsuccessful bidder’).

Section 59 of the Competition Act limits the amount of affirms administrative penalty to 10% of the firm’s annual turnover derived within or from South Africa in its preceding financial year.

Due to the fact, however, that the SACC ultimately imposed a cumulative penalty, the administrative penalty imposed on the Respondents exceeded 10% of the Respondents annual turnover.

On a side note, the SACC did use the annual turnover of the proceeding financial year as the based upon which to penalise the respondents, but rather opted to use the year 2012 which was the most recent year during which there was evidence of collusion.

Accordingly, the Commission has exercised a considerable degree of discretion when choosing a strategy for purposes of imposing an administrative penalty and while the SACC considered the sic-step approach to calculating an administrative penalty, opted rather to impose a turnover based percentage figure, and thus, we are left none the wiser as to how the Guidelines are actually going to be interpreted and implemented.

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BRICS, cartels, collusion, South Africa

(Belated?) auto-parts cartel allegations sweep S. Africa

south_africa

Following late on the heels of years-old international auto-parts collusion investigations, ZA Competition Commission issues press release

In its press release, the Commission quotes Thembinkosi Bonakele as saying that his agency’s “investigation into this pervasive collusive conduct joins similar investigations launched in other jurisdictions internationally” and states:

The information in the possession of the Commission suggests that from 2000 to
date, 82 automotive component manufacturers have colluded in respect of 121
automotive components. The 121 automotive components affected by the collusion
include, but not limited to, Inverters, Electric Power Steering ECU, Electric Power
Steering and Motors, Glow Plugs, Electric Power Steering systems, Rear
Sunshades, Pressure Regulator, Pulsation Damper, Purge Control Valves,
Accelerator Pedal Modules, Power Management Controller, Evaporative Fuel
Canister systems, Knock Sensors, Spark Plugs and Clearance Sonar systems.

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collusion, Madagascar, Mauritius

Beer cartels: First fine sought in Mauritius leniency matter

mauritius

madagascar

Precedential leniency case yields initial fine

The Competition Commission of Mauritius (“the Commission”) has recommended fines of approximately €487,000 and €158,000 be imposed on Phoenix Beverages Ltd (PLB) and Stag Beverages, respectively, for their involvement in a cartel.

This is the country’s first cartel investigation to be made public, and the first time a party has used its leniency programme.

Phoenix and Stag have been accused by the Commission of colluding to divide the Mauritian and Madagascan beer markets between the two manufactures. The alleged agreement between the parties involved Stag leaving the Mauritian market, allowing Phoenix to dominate the country’s beer market.

Phoenix applied for leniency prior to the 24 May 2014 deadline and consequently received reduced fine.  Both companies assisted the Commission with its investigation.

The Executive Director of the CCM, Mrs. Kiran Meetarbhan, said:

“Many jurisdictions have developed programs that offer leniency because of the many benefits that flow from having them. In line with international best practices, the CCM has not lagged behind in developing a leniency program that has been reinforced so as to grant full amnesty to the first reporting firm in addition to offering judicial security to informants.

This investigation triggered our first leniency application since the CCM’s inception. This is also the first cartel investigation which I have launched in my capacity as Executive Director for which I have recommended financial penalties in addition to other measures to address competition concerns.

I wish to commend the main parties’ approach in this investigation which has revealed a true spirit of cooperation.  Leniency programs create powerful incentives to enterprises to race to self-report at an early stage. Evidence can thus be obtained more quickly, and at a lower direct cost, compared to other methods of investigation, leading to prompt and efficient resolution of cases. This case provides a perfect example of the manner in which a leniency application coupled with the active cooperation of the main parties have led to the successful completion of the investigation within a remarkable three months’ timeline.

The fine[] recommended on Phoenix Beverages Ltd takes into account its leniency application, absent which, the fines would have been higher. Phoenix Beverages Ltd took advantage of the amnesty provisions, which lapsed on 24th May 2014. We cannot stress enough the importance of the leniency programme with regards to collusive agreements.

Several factors help to free an economy from the malicious effects of a collusive agreement including a strong political support towards fighting cartels and a resilient commitment to equip the competition agency with the appropriate legislative framework and adequate financial resources. The Government has signified its intention to further empower the Competition Commission in order to better fight cartels. This was announced by the Prime Minister in his address to the Nation this year.”

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AAT, BRICS, cartels, criminal AT, event, legislation, new regime, South Africa

Criminalisation of antitrust offences: not on short-term horizon

south_africa

Competition Commission not ready to pursue antitrust cases criminally – plus: AAT‘s recommendations

The newly (permanently) appointed Competition Commissioner, Tembinkosi Bonakele, has referred to a “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, it has not yet been implemented or effectively signed into law.

According to a MoneyWeb/ZA report, both he and his boss, Economic Development Minister Ebrahim Patel, had discussions on how and when to implement “to ensure that the necessary institutional capacity is available to apply the amendments.”  The initially effective provisions (relating to the SACC’s market-inquiry powers) went into effect last year, while the criminalisation provisions remain unimplemented.

In a somewhat remarkable and prudent self-assessment, the minister and SACC have now admitted that the Commission currently lacks “the institutional capacity needed to comply with the higher burden of proof in criminal cases,” according to the report.

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.

Historical and Legislative Background – and a bit of Advice

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 I 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“), I quoted a few highlights among them, asking somewhat rhetorically whether these were the words of fearmongers or oracles?

  • “Competition Bill to Pave Way for Criminal Liability”
  • “Tough on directors”
  • “Criminalisation of directors by far most controversial”
  • “Bosses Must Pay Fines Themselves”
  • “New leniency regime to turn up heat on cartels”
  • “New era in the application of competition policy in SA”
  • “Likely to give rise to constitutional challenges”
  • “New Bill On Cartels is a Step Too Far”
  • “Fork out huge sums or face jail time if found guilty”
  • “Disqualification from directorships … very career limiting”

I also quoted international precedent-setting institutions and enforcers’ recommendations, all of which tended towards the positive effect of criminal antitrust penalties:

OECD, 3rd Hard-Core Cartel Report (2005):

  • Recommends that governments consider the introduction and imposition of criminal antitrust sanctions against individuals to enhance deterrence and incentives to cooperate through leniency programmes.

U.S. Department of Justice, Tom Barnett (2008):

  • “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.”

While the presentation contained a lot more detail, the key recommendations that I summarised would seem to continue to hold true today, and may serve as guide-posts for Commissioner Bonakele and the EDD ministry:

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.

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

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Botswana, legislation, new regime, politics

Due process arguments come to the fore as the Botswana Competition Authority gears itself for enforcement

By Mark Griffiths (@markgjhb) and Wiri Gumbie

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In September and October, the Botswana Competition Commission (Commission) took its first two rulings on cartel enforcement. Both rulings have a keen (if not almost exhaustive) focus on due process. Given that due process arguments have tended to be prominent only after a wave of cartel enforcement in more established jurisdictions, the cases demonstrate how developing competition jurisdictions are setting their own learning curves by absorbing the lessons from elsewhere.

Having been set up in 2011, the Botswana Competition Authority (Authority) has been primarily active in merger control and has taken a number of prominent decisions, in particular, on the issue of the relevance and scope of public interest considerations in merger control decisions. Unlike other young authorities across the Africa continent, the Authority has also been keen to pursue cartel enforcement as a priority area. While it has undertaken a number of dawn raids in a range of sectors and is in the final stages of adopting a leniency programme, the Authority is only now taken its first steps to establish a clear enforcement record with alleged cartels in the public procurement of food rations and also the panel beating sector.

The first ruling concerns alleged bid-rigging in relation to the supply of food rations to the Botswana government. Super Trading, a food supplier, provided the Authority with details of how one of its directors allegedly provided its competitor,Ya Raheem, with commercially sensitive information which enabled Ya Raheem to win tenders during a sustained period. Following a raid by the Authority, Ya Raheem opted to settle with the Authority and admitted to bid rigging as well as providing details of its involvement.

Notwithstanding Ya Raheem’s admission, on 17 September 2013, the Commission refused to confirm the settlement on the basis that it considered that the Authority had failed to provide any evidence of Ya Raheem’s involvement in the alleged bid rigging. Evidence of payments allegedly received by Super Trading’s director from Ya Raheem did not, in the Commission’s opinion, substantiate any finding of an agreement between competitors. To put it mildly, the Commission was scathing of the Authority’s approach regarding the lack of evidential or material information. Moreover, the Commission dismissed the significance of the joint undertaking between the Authority and Ya Raheem, labeling it “as simply a report that did little to cure the defects in the main application…”

The key question arising from the Commission’s ruling is whether or not due process requires additional evidence (over and above an admission) to support a settlement in a cartel case? Given that Ya Raheem’s involvement in bid rigging was not in dispute, was it necessary for the Commission to insist on further evidence? Moreover, given that Ya Raheemadmitted to and gave details of its involvement in the alleged bid rigging as part of its settlement with the Authority, it is not clear what additional evidence the Commission required to satisfy itself that alleged bid rigging had taken place.

One would expect that an undertaking with a clear statement of the facts and nature of the offence would have satisfied the procedural requirements of the South African settlement procedure, a pertinent observation given the Commission’s reliance on South African precedent on the treatment of evidence in this case.

It could be questioned whether the Commission’s implicitly categorized the settlement as a ‘contested’ proceeding (as opposed to an ‘uncontested’ consent order), which would have inevitably led them to require the Authority to provide sufficient evidence of Ya Raheem’s involvement in bid rigging. Should the significance of this ruling be dismissed asa teething problem regarding the first settlement procedure or does it reflect a fundamental difference in how settlement proceedings will be treated in Botswana? If the latter, it may hamper the Authority’s ability to expeditiously conclude settlement proceedings, a tool that has proved spectacularly successful in South Africa.

The second ruling relates to an alleged concerted practice between panel beaters. Following the referral of the matter to the Commission, the alleged cartelists raised a number of due process issues prior to the substantive hearing of the facts. In particular, it was argued that the Commission was incompetent to rule in the matter as, given its role as both referee and player in the dispute, the parties under investigation were not guaranteed a fair hearing. The parties sought the relief that the matter be stayed pending the establishment of an independent and impartial body.

In sharp contrast to the tone and substance of its previous cartel ruling, on 30 October 2013, the Commission dismissed the procedural challenges in their entirety. Irrespective of the fact that the Commission is formally located within the Authority and also functions as a governing Board for the Authority, the Commission stressed that the roles and functions are clearly delineated in the Competition Act, with the Authority authorized to carry out investigations and then refer matters for adjudication to the Commission.

The Commission emphasized that due process was furtherguaranteed by the jurisdiction of the High Court over rulings of the Commission whereby it can remit matters back to theCommission, revoke, increase or reduce any financial penalty, give any direction of its own in substitution for that of the Commission and make any decision as it sees fit.

Underpinning the Commission’s ruling is an implicit acknowledgement of the fact that the institutional design of a competition regime is a policy decision relative to the best fit for a given jurisdiction (taking into account international best practice). Acknowledging that the Botswana model is a hybrid between the integrated (e.g. European Commission) and bifurcated model (e.g. South Africa), the Commission appeared uncomfortable with second-guessing the legislature’s view as to what model was most suitable for Botswana’s current circumstances.

The ruling demonstrates a welcomed openness to international precedence. The Commission makes explicit reference to ICN guidelines on institutional design, while there is implicit reference to the “full jurisdiction” jurisprudence of the European Court of Human Rights relating to the application of due process to administrative proceedings when the Commission emphasizes the full extent of the High Court’s review of the Commission’s rulings. This review process will be further probed in this case given that the parties have appealed the ruling.

These two recent rulings illustrate how in the relatively short period since their inception, both the Authority and the Commission have absorbed the lessons from more established jurisdictions and are forging their own path in the enforcement of the Competition Act. Both the Authority and the Commission are already grappling with complex issues of due process on par with those confronting their more established counterparts. For example, by contrast, it has taken decades to obtain an arguably definitive ruling on the application of Article 6 of the European Convention of Human Rights to the competition proceedings before the European Commission.

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