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The lure of a lower penalty is a double-edged sword | South Africa | Norton Rose Fulbright

The lure of a lower penalty is a double-edged sword

13 February 2012

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This article was first published in Business Day

Early cooperation in competition investigations is crucial

Prompt and substantial cooperation with the competition authorities at the start of an investigation into alleged anti-competitive practices has yielded substantial discounts in administrative penalties in a number of recent cases. As soon as companies learn of an investigation, they should contact their legal advisors and conduct a thorough internal investigation in order to establish whether the Competition Act has been contravened. This places them in the best possible position to apply for leniency in terms of the Commission’s Corporate Leniency Policy, or to offer crucial documentary or oral evidence to the Commission. The Commission may then be prepared to grant a substantial reduction in the harsh administrative penalties which are otherwise payable by firms found to have contravened the Act.

In a recent cement industry case, the Commission agreed that AfriSam could pay a penalty of only 3 percent of its cement turnover (amounting to approximately R124 million) in terms of a consent order, instead of the fines of between 5 and 8 percent paid by cartel members in several other recent cases. The Commission emphasised that although Afrisam had admitted that it and its competitors had exchanged sensitive competitive information in order to maintain and monitor targeted market shares in contravention of the outright prohibition in section 4(1)(b) of the Act, a 3% fine was appropriate. The Commission indicated in its submission to the Tribunal that in deciding on the appropriate penalty, the Commission had taken into account the fact that AfriSam had conducted its own thorough internal investigation and had provided the Commission with detailed submissions, as well as copies of all relevant documentation in its possession, including statements from current and former representatives of the company which were compiled in the course of its internal investigation. The Commission stated that it “has adopted the approach that early and substantial cooperation should be recognised and rewarded with less stringent penalties, an approach that the Tribunal has confirmed”.

In the white maize milling investigation, the Commission similarly rewarded Keystone Milling for early cooperation after a representative of Keystone called the Commission to provide information regarding alleged collusion in the industry before realising that Keystone was already a respondent in the Commission’s investigation. Keystone cooperated fully with the Commission’s investigation. This included making available another Keystone employee who was able to corroborate the information that had already been provided. The Commission recognised that his evidence was particularly valuable, because he had previously worked for various other milling companies who were also cited as Respondents. As a result, the Commission agreed that Keystone should pay an administrative penalty of only R6.7 million, or 3 percent of its total turnover for the 2009 financial year. This consent order was confirmed by the Tribunal. However, other respondents in the investigation who have subsequently negotiated consent orders with the Commission have been required to pay 5 percent of their total 2009 turnover.

Because consent orders are ultimately a form of negotiated settlement, which may take into account a range of factors like the costs of ongoing litigation and a shift in the Commission’s enforcement priorities, it is difficult to tell from these recent cases whether the Commission has gone so far as to adopt the view that firms who initially opt to defend referrals to the Tribunal, and then only later decide to reach a settlement, should be penalised and pay higher fines than they would if they had settled in the early stages of an investigation. Whilst applying this principle might make the Commission’s work easier and facilitate the expeditious closing of cases, it is would clearly be unfair to penalise firms merely because they elect to mount bona fide defence, rather than admit to a contravention of the Act and conclude a settlement agreement as soon as a complaint is initiated. Very few cases involving the section 4(1)(b) prohibition on price fixing and market division have been heard to date by the Tribunal, and as a result, there is considerable uncertainty about the precise nature and scope of the prohibition. There may well be borderline cases - involving joint ventures or information sharing between competitors, for example - where companies may genuinely believe that that they have not contravened the Act or that their conduct should be characterised as falling outside the scope of the prohibition. In a jurisdiction where competition law is new and still developing, companies should not be discouraged by the risk of increased administrative penalties from ventilating these issues in a Tribunal hearing.