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

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

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

In a potential first, Malawi’s Competition and Fair Trade Commission’s (CFTC) Chief Executive Officer, Ms Charlotte Malonda, recently announced that the CFTC is investigating a UK-based supplier of textbooks, Mallory International, for alleged cartel conduct.  Mallory had partnered up with a local company, Maneno Books Investments, as part of a joint venture, called “Mallory International JV Maneno Enterprise”.  In addition, other companies also being investigated include Jhango Publishers, South African based Pearson Education Africa, Dzuka Publishing Company and UK based Trade Wings International.  

The investigation follows complaints received by the Human Rights Consultative Committee as well as a number of its constituent civil society organisations and NGOs.  The allegations include price fixing and collusive tendering vis-à-vis tenders issued by the Malawian government for the supply of pupils’ text books.  [Editor’s Note: “Contrary to the statements in our original article, the actual complaint by HRCC and FND alleged neither price fixing nor collusive bidding. Its main allegation was that unjustified objections were made to contract awards in Malawi, and that attempts were made to dissuade publishers from issuing authorisation letters to particular bidders. Neither of these allegations was true, and no evidence to support either of them was ever produced. The complaint was dismissed by CFTC in August 2018.”]

The Nyasa Times quoted the CFTC head as confirming that the agency had “received a few complaints about allegations of a cartel and other procurement malpractices, hence our commencement of the investigations to get the bottom of the matter.”

Based on the language of Section 50 of the Act suggests that the sanctions for committing an offence in terms of the Act requires the imposition of both a penalty and a five year prison sentence. Although not aware of any case law which has previously interpreted this provision, the wording of the Act is particularly onerous, particularly in light of the per se nature of cartel conduct.

Section 33 of the Competition and Fair Trade Act prohibits collusive tendering and bid rigging per se. Furthermore, a contravention of section 33 is an offence in terms of the Act carries with it not only the imposition of an administrative penalty, which is the greater of the financial gain generated from the collusive conduct or K500 000, but also criminal sanctions, the maximum being a prison sentence of five years, notes Andreas Stargard, a competition attorney:

“The Malawian competition enforcer, under Ms. Malonda’s leadership, has shown significant growth both in terms of bench strength and actual enforcement activity since her involvement began in 2012.”

The Act is not clear what “financial gain” means in this instance and whether the penalty is based on the entire revenue generated by the firm for the specific tender (allegedly tainted by collusion) or whether it applies only to the profit generated from the project. Furthermore, it is unclear how this would apply to a co-cartelist who did not win the tender. The Act may be interpreted that the “losing bidder” is fined the minimum amount of K500 000 which equates to appox. USD 700 (a nominal amount) while the “winner” is penalised the value of the entire tender value (which would be overly prejudicial, particularly if turnover and not profit is used as the basis for financial gain).

Although the investigation has only recently commenced and no respondent has admitted to wrong doing nor has there been a finding of wrongdoing, this will be an important case to monitor to the extent that there is an adverse finding made by the CFTC. Unless the Malawian authorities adopt a pragmatic approach to sentencing offending parties, section 50 of the Act may significantly undermine foreign investment as a literal interpretation of the Act would render Malawi one of the most high risk jurisdictions in terms of potential sanctions from a competition law perspective.

It may also result in fewer firms wishing to partner up with local firms by way of joint ventures as JV’s are a particularly high risk form of collaboration between competitors if there is no clear guidance form the authorities as to how JV’s are likely to be treated from a competition law perspective.