Directors and managers may now be held criminally liable and be jailed for cartel conduct, although criminal liability provisions do not apply to cartel conduct engaged in before 1 May 2016. By Gomolemo Kekesi and Elisha Bhugwandeen
Until 30 April 2016, the penalty for cartel conduct was an administrative fine imposed on firms.1 But as of 1 May 2016, the stakes were raised: individuals behind this conduct may be held criminally liable and now face the real possibility of time behind bars.
Arguably the most egregious offence under competition law,2 cartel conduct has since the inception of the Competition Act been prohibited per se – meaning harm to competition is presumed and no defence is permitted. It relates to any agreement3 between rival firms to fix prices, allocate markets, or collude on tenders.4 So serious is this conduct that it is investigated by a special division within the Competition Commission that seeks to ‘uncover a new cartel every week’. No other prohibited practice has special resources at the Commission dedicated solely to it.
The Competition Amendment Act5 is now a double-edged sword extending punishment beyond firms to the directors or persons having management authority within firms.6 These individuals must have caused a firm to engage in cartel conduct, or to have ‘knowingly acquiesced’ in a firm engaging in the conduct.
One set of good news is that criminal liability provisions do not apply retrospectively, that is, to cartel conduct engaged in before 1 May 2016. Nevertheless, criminalisation is severe and has quite rightly caused a panic in the competition law space.
Courts will have to carefully consider the meaning of certain key terms within the newly enacted provisions, especially given the gravity of a finding of criminal conduct against an individual.While some terms are fairly clear, the legal meaning that will be attributed to other terms will need to be clarified. In terms of the Companies Act,7 ‘director’ means a member of the board of a company or an alternate director.8 The interpretation of the term ‘a position having management authority’ is not as straightforward. It arguably applies to all levels of the management chain but it may depend on the shareholders agreements, employment contracts or resolutions in place that confer management powers or authority to a person. In terms of the Prevention and Combatting of Corrupt Activities Act,9 categories of people deemed to be holding positions of authority include ‘a person responsible for the overall management and control of a business of an employee’.10
Delving further into key terminology, ‘caused the firm to engage’ seems to imply that a director or manager must have directly brought about, occasioned or created collusive engagements with competitors. The term ‘knowingly acquiesced’ is, in turn, defined as ‘having acquiesced while having actual knowledge of the relevant conduct’.11 This definition seems to imply that a director or manager must have had actual knowledge of the collusive conduct and failed to take any action to prevent it.
The sanction that may be imposed is a fine not exceeding R500 000 or imprisonment for a period not exceeding 10 years, or both a fine and imprisonment.12 For directors or managers, such a sanction means a criminal record, professional stigma, and significant reputational damage.
In terms of the Companies Act, cartel conduct may also arguably constitute a breach of a director’s fiduciary duties.13 A director will be disqualified if convicted in South Africa and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or an offence involving fraud, misrepresentation or dishonesty.14
It is important to note that a person can only be prosecuted for an offence if the relevant firm has acknowledged in a consent order that it engaged in cartel conduct, or if the Competition Tribunal or Competition Appeal Court has made a finding that the relevant firm engaged in a cartel conduct.15
The Commission’s Corporate Leniency Policy (CLP) has been hugely successful in uncovering cartel conduct. In terms of the CLP, a firm is eligible for total immunity if it is first in line to blow the whistle on fellow cartelists and discloses information that results in the successful prosecution of other cartelists. However, the CLP currently does not extend to individuals (that is, directors or managers). As things stand, the Commission may not seek or request the prosecution of a person if the Commission has certified that a person is ‘deserving of leniency’ in the circumstances.16 However, the ultimate discretion of whether or not to prosecute a person lies with the National Prosecuting Authority (NPA). Accordingly, there is much uncertainty regarding immunity for directors/managers of self-confessing cartelists. This may have a chilling effect on the CLP – an outcome that would be wholly undesirable given the extreme secrecy under which cartel conduct often takes place.
For greater protection, directors/managers may have to turn to other provisions of the Competition Act or to pre-existing criminal laws. For example, self-incriminating evidence provided to the Commission pursuant to a summons is not admissible as evidence in criminal proceedings against the person who made the statement, while the Criminal Procedure Act17 allows for immunity from prosecution for specified offences in return for a witness or co-perpetrator providing self-incriminating evidence.18 In short, directors/managers must insist on understanding their legal risks prior to divulging any information on cartel conduct.
From a process perspective, there is now an intersection between competition law and the criminal justice systems. It, however, remains to be seen whether the NPA is sufficiently equipped to effectively deal with the possible influx of new competition law related prosecutions.
While the wheels of change are now fully in motion, we may still be a long way from seeing effective prosecutions in the cartel space. There remain many fundamental questions and uncertainties on how prosecutions will be undertaken or how our competition authorities and the NPA will work together. It is also difficult to predict how successful a deterrent, criminalisation for cartel conduct will be in South Africa. However, major jurisdictions such as the United States of America also criminalise cartel conduct and a number of senior executives have been jailed there for cartel conduct. It may be worth gleaning some learnings from such jurisdictions to help us get under way. Nevertheless, if not already in place– competition compliance and proper internal whistle-blowing mechanisms is the only way to steer clear of this grave liability.
- Sections 59(1)(a) and (2) of the Competition Act 89 of 1998, as amended.
- Competition Commission v Patensie Sitrus Beherend Beperk (Competition Tribunal Case No 37/CR/Jun01), paragraph 35.
- Agreement is widely construed to mean a contract, arrangement or understanding, whether legally enforceable or not, oral or written, tacit or express.
- Section 4(1)(b) of the Competition Act 89 of 1998, as amended.
- Competition Amendment Act 1 of 2009.
The newly enacted section 73A(1) of the Competition Act states that:
‘(1) A person commits an offence if, while being a director of a firm or while engaged or purporting to be engaged by a firm in a position having management authority within the firm, such person –
(a) caused the firm to engage in a prohibited practice in terms of section 4(1)(b); or
(b) knowingly acquiesced in the firm engaging in a prohibited practice in terms of section 4(1)(b).’
- Act 71 of 2008.
- The same meaning is prescribed to a director in terms of section 4(4) of the Competition Act.
- Act 12 of 2004, as amended.
- Section 34(4).
- Section 73(A)(2) of the Competition Act.
- The recently enacted section 13 of the Competition Amendment Act, which amends section 74(1) of the Competition Act.
- Section 69 of the Companies Act.
- Furthermore, a director may also be liable for any loss or damages resulting from a breach of a director’s fiduciary duties, unauthorised or reckless trading, being party to acts or omissions which defraud creditors, employees or shareholders, or failing to vote against certain prohibited acts.
- Section 73(A)(3) of the Competition Act.
- According to the Competition Amendment Act, ‘deserving of leniency’ means that a firm or person has provided information to the Commission or otherwise cooperated with the Commission’s investigation of an alleged prohibited practice in terms of section 4(1)(b) to the satisfaction of the Commission.
- Act 51 of 1977, as amended.
- Section 204(1) of the Criminal Procedure Act provides that a co-perpetrator of a crime is compelled to give self-incriminating evidence and answer any question put to him by the prosecutor with regards to a specified offence. Sections 204(2) and (3) provide that, in return for providing such evidence, the witness or co-perpetrator shall be discharged from prosecution for the specified offence, subject to a number of significant limitations.
AUTHORS |Gomolemo Kekesi is a partner in the Competition Practice Area of Bowman Gilfillan Africa Group and Elisha Bhugwandeen is a former senior associate in the Competition Practice Area of Bowman Gilfillan Africa Group