Collusion criminalised – New criminal provisions in the Competition Act

For the first time in South Africa, directors and managers will face jail time for participation in a cartel. Minister Patel announced yesterday that the amendments to the Competition Act which introduce criminal liability for cartel conduct will come into effect from 1 May 2016.

The amendment will introduce criminal liability for directors and individuals with ‘management authority’ who are responsible for - or knowingly acquiesce - in cartel conduct. Cartel conduct includes the fixing of prices and trading conditions, market division, and collusive tendering. Staff members at all levels in the management chain (not only directors) are potentially at risk of prosecution.

An individual can only be charged if the company involved has been found to have contravened the cartel provisions by the Competition Tribunal, or it has admitted a contravention in a formal consent order. Individuals will be able to seek leniency from the competition authorities in the same way that companies can at present, however enforcement of this offence will be handled by the Department of Public Prosecutions and the criminal courts, so immunity from the competition authorities may not be enough to shield managers from prosecutions.

At the time that the amendments were signed, concerns were raised about whether the criminal provisions are in line with the Constitution, and particularly whether they uphold an accused’s right to be considered innocent until proven guilty. Noticeably however, those parts of the amendments which caused the greatest concern have not been brought into effect, including those which state that a finding of the Tribunal of cartel conduct or a consent order constitutes proof for the purposes of the criminal prosecution that the company engaged in cartel conduct. The amendments preventing companies from paying fines or legal fees of their employees criminally charged also have not been brought into effect. However, the constitutionality of these provisions may still be raised as a defence by anyone charged under the new law.

It appears that it will be left to the prosecuting authorities to determine what the appropriate penalties will be, since the sections setting out the criminal penalties for this conduct are not included in the sections brought into effect from 1 May.

What should companies and their directors do to protect themselves against these increased risks? Recommendations include: 

• The implementation of a suitable competition law compliance programme. 
• Development of robust monitoring and reporting procedures so as to establish an early warning system for leniency applications. 
• A regular internal review of all agreements and practices of your business, particularly in the context of industry associations where staff interact with competitors.
• Roll-out of training providing guidance on how to react in the event of a dawn raid - search and seizure proceedings are increasingly a favourite weapon in the Competition Commission’s arsenal.