CML4602S Research Paper - 1409972nicolesarahlee-bsocscllbprojectsandpapers.yolasite... · 13 Burger-Smidt op cit note 11; Luke Kelly ‘The introduction of a “cartel offence”

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee

1. INTRODUCTION

Cartel activity concerns firms entering into arrangements with one another for the purpose of

regulating the material terms on which they will compete.1 Such terms are usually non-efficient and

non-beneficial for consumers, since they ordinarily comprise the “restrictive horizontal practices” that

are prohibited in terms of section 4 of the South African Competition Act (the Act).2 Cartel behaviour

commonly occurs when firms feel oppressed by larger and more economically powerful consumers.3

Cartels are perceived as being the “most egregious form of anti-competitive behaviour”, as they

contravene the basic principles that competition law and policy seek to achieve.4 Resultantly, the

competition authorities make cartels a priority in competition law enforcement.5 The problem for the

authorities, however, is that cartel activity is difficult to detect and expose.6 This problem has led the

authorities to offer immunity to those who come forward to disclose cartel behaviour, and who

cooperate with the authorities in exposing it. In South Africa (SA), such immunity takes the form of

the Corporate Leniency Policy (CLP).7 The threat of civil action has existed alongside the CLP;

however, these threats hardly ever materialised.8 While the CLP assisted in combatting cartel activity,9

such activity had not stopped occurring. Thus, the threat of civil action did not appear to be a sufficient

enough deterrent in SA.10 It was, therefore, not irrational for a criminalisation provision, section 73A,

to have been inserted into the Act. In any event, criminalising cartelisation has become an international

practice. Yet, while criminalisation seems to be the obvious solution, the wording of section 73A’s

1 Leonardo Kyriacou Comparative Analysis of the Corporate Leniency Policy of the South African Competition Commission (unpublished LLM thesis, University of Pretoria, 2014) at 1; Gregory J Werden ‘Sanctioning Cartel Activity: Let the Punishment Fit the Crime’ (2009) 5 European Competition Journal 19 at 22. 2 Act 89 of 1998 (the Act); Werden op cit note 1 at 22-23. 3 William Kolasky ‘Criminalising cartel activity: Lessons from the US experience’ (2004) 12 Competition & Consumer Law Journal 207 at 220. 4 Natalia Lopes, John Setch and Emily Gauntlett ‘Cartel enforcement, the CLP and criminal liability – are competition regulators hamstrung by the Competition Act from co-operating with the NPA, and is this a problem for competition law enforcement?’, Presented at the Seventh Annual Competition Commission, Competition Tribunal and Mandela Institute Conference on Competition Law, 5 and 6 September 2013 at 2, available at http://www.compcom.co.za/wp-content/uploads/2014/09/Cartel-Enforcement-Paper-Final-2013-08-20.pdf, accessed on 29 September 2016. 5 Kyriacou op cit note 1 at 2. 6 Werden op cit note 1 at 25. 7 Lopes op cit note 4 at 2. 8 Andrew Smith and Mkhululi Stubbs ‘The Competition and Constitutional Conundrum: Cartels, Criminalisation and Complex Monopolies’ available at http://www.bowmanslaw.com/article-documents/SibergrammeCompetitionLaw2of2009.pdf, accessed 29 September 2016. 9 Lopes op cit note 4 at 2. 10 Smith op cit note 8.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee enacted and proposed provisions might be inherently unconstitutional, and might propagate certain

other undesirable effects.11

In the light of the above, this dissertation will argue that although the criminalisation of cartel activity

is both necessary and desirable in SA, section 73A, in its current form, fails to give proper effect to the

objectives of South African Competition Law; is inconsistent with some of the rights and values of the

South African Constitution12 and, therefore, is in urgent need of reform. In formulating this argument,

the dissertation will consider the reasons for criminalising cartel activity, as well as the advantages and

disadvantages of the same. It will then evaluate the constitutional and other implications of section

73A’s enacted and proposed provisions. Finally, in contemplating section 73A’s reform, it will seek

guidance from the competition law of foreign jurisdictions.

2. THE REASONS FOR CRIMINALISING CARTEL ACTIVITY

Competition law’s primary objective is to foster consumer welfare by regulating anti-competitive

market behaviour. This can only be achieved by making quality and reasonably priced products and

services available to consumers. To ensure this, the market needs to be robust enough to force firms to

produce more and better innovative products and services, as well as to sell such products and services

at prices that will persuade consumers to purchase them from the most efficient market competitor.13

Cartel activity, being a type of monopoly, has the tendency to rob consumers of the above-mentioned

benefits.14 Cartelists manipulate the market and reduce competition by price-fixing and market-

sharing. They thereby force consumers to pay higher prices for lower quality products and services;

11 Ahmore Burger-Smidt ‘Criminalisation of Cartels: A Potential Cure with Side Effects’ Legal Brief March 2016, available at http://www.werksmans.com/wp-content/uploads/2016/03/060683-WERKSMANS-march-criminalisation-of-cartels.pdf, accessed on 29 September 2016. 12 The Constitution of the Republic of South Africa, 1996 (the Constitution). 13 Burger-Smidt op cit note 11; Luke Kelly ‘The introduction of a “cartel offence” into South African law’ (2010) Stell LR 321 at 322; Markus Meridian The Criminalisation of Cartel Conduct in South African and the United Kingdom (unpublished LLM thesis, University of Cape Town, 2012-2013) at 10. 14 Werden op cit note 1 at 23; Meridian op cit note 13 at 9; Kelly op cit note 13 at 322; Dominique Arteiro ‘A New Era Dawns – Criminalisation of Cartel Conduct’ Legal Brief May 2016, available at http://www.werksmans.com/wp-content/uploads/2016/05/A_NEW_ERA_DAWNS_CRIMINALISATION_OF_CARTEL_CONDUCT.pdf, accessed on 29 September 2016; Kyriacou op cit note 1 at 1-2.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee and thus shrink consumer surplus.15 Therefore, they make certain products and services out of reach

for some consumers, and unreasonably expensive for others.16

Cartels have particularly devastating outcomes for the poor and vulnerable in developing and third

world nations, such as SA, especially when the prices of staple foods are fixed.17 An example of this

is the ‘bread cartel’ case,18 in which the competition authorities deduced that the bread cartel in that

case caused particular prejudice to people living in poor and rural South African communities, since

bread formed part of their staple diet.

The negative consequences of cartel conduct can also have a ripple effect. Such conduct can result in

non-cartelists charging higher prices for their products and services;19 and can lessen the demand for

labour in society, since cartels generally lessen productivity.20

Since cartels do not offer any legitimate economic or social benefits, and adversely affect the daily

survival of ordinary people, it is arguable that civil sanctions do not go far enough to illuminate the

immorality of cartel activity.21 However, while the immorality of such activity could constitute a

reason for criminalising such activity, it is not necessarily a primary reason.22

The nature of competition law is regulatory. Regulatory laws are forms of state policy, and, in the

competition law context, portray the State’s willingness to intervene in the social and economic

activities that occur amongst the population, where this is necessary. In line with the theory of

utilitarian punishment, the main function of regulatory laws is deterrence, which is most adequately

attained when society can benefit from the cost of non-compliance being imposed on a single person

or firm.23

15 Burger-Smidt op cit note 13; Arteiro op cit note 14; Kyriacou op cit note 1 at 51-52; Tsholofelo Letsike ‘The criminalising of cartels – How effective will the new Section 73A of the Competition Amendment Act be?’, Presented at the Seventh Annual Competition Commission, Competition Tribunal and Mandela Institute Conference on Competition Law, 5 and 6 September 2013 at 5, available at http://www.compcom.co.za/wp-content/uploads/2014/09/THE-NEW-SECTION-73A.pdf, accessed on 3 October 2016; Meridian op cit note 13 at 10. 16 Meridian op cit note 13 at 8-9; Burger-Smidt op cit note 13. 17 Meridian op cit note 13 at 11; Kelly op cit note 13 at 323. 18 Competition Commission v Pioneer Foods (Pty) Ltd [2010] ZACT 9. 19 Letsike op cit note 15 at 5. 20 Meridian op cit note 13 at 10; Letsike op cit note 15 at 5. 21 Burger-Smidt op cit note 13; Kelly op cit note 13 at 324. 22 Kelly op cit note 13 at 324. 23 Ibid.


Successful regulation in competition law cannot be achieved by the imposition of fines alone. While

fines contribute to the national budget,24 and, thereby, benefit society by reducing its overall tax

burden, cartelists merely view fines as part of their trading costs, which are easily recoverable by them

putting up their prices. Moreover, in some industries, cartel operations are so profitable that, after

completing a cost-benefit analysis, the likelihood of having to pay a fine has an insignificant deterrent

effect. Conversely, even though the authorities may vary the fine that is to be imposed,25 it is possible

that fining smaller firms could result in them scaling down or having to close, which would be

disastrous for employees, investors and the particular market.26

Therefore, a more primary reason for criminalising cartel activity is, arguably, the deterrence of

potential offenders.27

3. THE ADVANATGES OF CRIMINALISING CARTEL ACTIVITY

3.1. Increased deterrence

Not only is deterrence a primary reason for criminalising cartel activity, it is also an advantage of the

same. Greater deterrence of the most egregious manifestations of cartel conduct will have substantial

advantages for productivity, and for the effective operation of markets. Criminal sanctions would

discourage firms from engaging in cartel conduct, as they introduce the threat of highly personal

punishments that pose more of a risk to an individual’s reputation than financial penalties do.28 As

more powerful deterrents, criminal penalties also have the potential to compliment leniency policies

like the CLP. Since the threat of criminal penalties is more serious than that of financial ones, it is

likely that such penalties will better encourage whistleblowing and cooperation with the competition

authorities.29 Criminal liability, however, can also encourage more secretive cartel activity.30

24 Section 59(4) of the Act. 25 Section 59(3) of the Act. 26 Kelly op cit note 13 at 323. 27 Werden op cit note 1 at 24; Kelly op cit note 13 at 324. 28 Ministry of Economic Development: Manatu Ohanga ‘Cartel Criminalisation’ at 29, available at http://www.mbie.govt.nz/info-services/business/competition-policy/cartel-criminalisation/documents-images/Cartel-Criminalisation-Discussion-Document.pdf, accessed 30 September 2016; Letsike op cit note 15 at 5-6. 29 Ministry of Economic Development op cit note 28 at 29. 30 Chantal Lavoie ‘South Africa’s Corporate Leniency Policy: A Five- Year Review’, Presented at the Third Annual Competition Conference, 4 September 2009 at 16, available at http://www.compcom.co.za/presentations-third-annual-competition-conference, accessed on 29 September 2016.


3.2. Moral condemnation

Similarly, moral condemnation is both a reason for criminalising cartel activity and an advantage of

the same. Cartelists intentionally engage in deceitful conduct for their own personal gain. Such conduct

also has the effect of preventing consumers from reaping the benefits that they would otherwise reap

in competitive markets. Cartel conduct, therefore, falls outside the ambit of what is generally

considered morally acceptable.

The law plays a significant role in the shaping of morality, and criminal sanctions usually signify moral

condemnation. Thus, criminalising cartel activity would proliferate the community’s distaste for such

activity, which, in turn, would probably reduce the occurrence of cartels, or at least encourage their

detection and exposure.31

3.3. International cooperation

Another advantage of criminalising cartel activity is that it will allow for better cooperation in cross-

jurisdictional proceedings. Generally, competition laws do not permit individuals to be prosecuted,

unless their conduct resulted in harm occurring within their own jurisdictions. Thus, cooperation

between national and international competition enforcement agencies is mostly informal and limited.

However, cooperation treaties can be invoked to permit international competition authorities to

formally investigate cartel activity within their own jurisdictions, even in the absence of harm.

Where national jurisdictions have not criminalised cartel activity, international jurisdictions might

perceive them as being uncommitted to global competition law enforcement; and such a perception

can affect international cooperation even more adversely.32 Fortunately, SA has criminalised cartel

activity, and directors of international firms that participate in cartels can be prosecuted in SA,

provided that such participation has an effect within SA.33 However, South African courts’ efforts to

eliminate cross-jurisdictional cartel behaviour is impeded by difficulties in establishing jurisdiction

over foreign directors. SA is also not party to many treaties and extradition agreements, which makes

31 Ministry of Economic Development op cit note 28 at 30. 32 Ibid. 33 American Natural Soda Ash Corporation and Another v Competition Commission of South Africa [2005] ZASCA 42.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee it easy for international offenders to be fugitives in SA.34 Thus, SA might still be perceived as

frustrating global competition law goals.

3.4. Individualisation

A final advantage of criminalising cartel activity is that it targets individuals, which enables the

competition authorities to circumvent corporate governance mechanisms, and indirect methods of

penalty enforcement. Targeting individuals also means that each and every anti-trust violation can be

brought into the public eye, alerting the public to the exacting effects of these kinds of violations, and,

hopefully, increasing deterrence and moral condemnation.35 Hence, the advantage of individualisation

compliments the advantages identified in 3.1. and 3.2. above.

4. THE DISADVANTAGES OF CRIMINALISING CARTEL ACTIVITY

4.1. The difficulty of determining optimal sanctions

One of the principal disadvantages of criminalising cartel activity is the difficulty that is associated

with determining which criminal sanctions would most effectively deter cartelisation. In essence, the

difficulty is that the incidence of cartel behaviour cannot easily be quantitatively measured. This is

because such behaviour is an unlawful conspiracy that is almost always covert.36 As such, the intensity

and duration of cartel participation is usually not easily ascertainable. Moreover, cartel arrangements

can take on many different forms.37

4.2. The higher standard of proof and the nature of criminal proceedings

The higher criminal standard of proof, beyond a reasonable doubt, is another principal disadvantage

of criminalising cartel activity. While the objective of imposing criminal penalties upon offenders is

to safeguard consumers, the higher criminal standard of proof has made it difficult for competition

tribunals to prove the existence of cartel conduct, especially in complex cases involving economic

analyses. Additionally, prosecutors have to face restrictions in criminal proceedings that they do not

34 Walter Mushi Regulating Cartel Activity in South Africa (unpublished LLM thesis, Nelson Mandela Metropolitan University, 2012) at 185. 35 Letsike op cit note 15 at 15. 36 Terry Calvani and Torello H Calvani ‘Cartel sanctions and deterrence’ (2011) 56 The Antitrust Bulletin 185 at 201. 37 Kyriacou op cit note 1 at 2; Lopes op cit note 4 at 2.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee have to face in civil proceedings.38 For instance, they may not admit unconstitutionally obtained

evidence in criminal proceedings.39 These difficulties in obtaining convictions might result in the

competition authorities avoiding the criminal cartel regime altogether, which would likely place it into

disrepute.40 In turn, this would have a negative impact on the authorities’ enforcement function, as

well as on deterrence.41

4.3. Anti-competitive behaviour

The other principal disadvantage of criminalising cartel activity is that it can have the effect of

suppressing pro-competitive behaviour. This would usually occur when the definition of prohibited

conduct is not carefully considered in the legislation, and thus when there is legislative overreach.

Such overreach would tend to cause firms to shift their focus from being pro-competitive, to ensuring

that they are not caught up in allegations of cartelisation. Any ambiguity in the law could, therefore,

quash lawful conduct that is beneficial to either competition or efficiency.42 It will be seen in 5.2.

below that the wording of the offence in section 73A(1) is capable of having this effect.

4.4. More strain on the criminal justice system

The fact that South Africa’s criminal justice system is already overburdened is another disadvantage

of criminalising cartel activity.43 If criminal sanctions are to effectively deter cartel conduct, it is

significant that offenders are actually prosecuted within a reasonable time, and are imprisoned.

Otherwise it might be inferred that SA does not treat cartelisation as a serious offence.44

4.5. The issues surrounding imprisonment

Following on from the disadvantage in 4.4. above, is the disadvantage that South Africa’s incarceration

facilities are extremely overcrowded with convicted and awaiting trial prisoners. The costs of

maintaining South Africa’s incarceration facilities are also relatively high; and given the country’s

current economic climate, it is unlikely that more financial resources will be allocated to incarceration

38 Burger-Smidt op cit note 13; Ministry of Economic Development op cit note 28 at 31. 39 Section 35(5) of the Constitution. 40 Burger-Smidt op cit note 13; Ministry of Economic Development op cit note 28 at 31. 41 Ministry of Economic Development op cit note 28 at 31. 42 Ibid at 30; Burger-Smidt op cit note 13. 43 Kyriacou op cit note 1 at 61; 126. 44 Philile Mahlungu Enforcement Against Cartels in South African Competition Law: Advanatges and Challenges (unpublished LLM thesis, University of Pretoria, 2014) at 48-49.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee anytime soon. It is therefore arguable that prison sentences and pre-trial incarceration be reserved for

‘particularly dangerous persons’. In other words, persons who pose actual or imminent threats to the

life or limb of other persons, or to public safety in general.45 Cartel offenders do not seem to fit this

category of persons.

4.6. The time and costs of criminal proceedings

Another disadvantage of criminalising cartel activity is that criminal investigations are generally

lengthier and more expensive to carry out than civil ones. This is due to a number of factors, such as

the higher standard of proof and the need for the strict rules of evidence to be complied with. The costs

are also often difficult to estimate.46

4.7. Implications for the competition authorities

Imposing criminal sanctions upon individuals will undoubtedly require the competition authorities to

work much harder in order to detect and prosecute cartel conduct.47 This disadvantage of criminalising

cartel activity would result if subjecting individuals to criminal penalties does indeed encourage more

secretive cartelisation, rather than deterrence. It is also related to the disadvantage described in 4.2

above.

4.8. Challenges for the defence

A final disadvantage of criminalising cartel activity is that it will greatly exacerbate the challenges

already facing defence attorneys in cartel investigations. In each prosecution for cartelisation, there

will be at least four impediments that defence attorneys will have to endure. Firstly, it will be difficult

for a defence attorney to represent both the firm and its individual personnel in the same trial, unless

both have decided to cooperate with the competition authorities. Even then, the attorney will have to

be alert to the fact that individual senior level personnel who face prosecution might require separate

defence counsel to ensure that there is no conflict of interest. This is a difficult judgment call to make.48

Secondly, there is the issue of who is going to pay the attorney’s fees when the attorney represents an

individual employee, especially if that employee came forward to disclose the firm’s cartel

45 Ministry of Economic Development op cit note 28 at 31. 46 Ibid at 32. 47 Kyriacou op cit note 1 at 59-60. 48 William Kolasky ‘Criminalising cartel activity: Lessons from the US experience’ (2004) 12 Competition & Consumer Law Journal 207 at 214-15.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee involvement.49 Thirdly, it is not uncommon for an individual employee, who is subject to prosecution,

to enter into a joint defence arrangement with his firm, which is also subject to prosecution. The

problem is that this arrangement may itself provide evidence of collusive behaviour. Finally,

prosecutors have the tendency to become hostile when pursuing ‘obstruction of justice’ charges against

cartelists.50

5. SECTION 73A OF THE ACT

5.1. The criminal offence

On May 1st 2016, section 73A(1)-(4) of the Act came into effect, albeit not retrospectively. Section

73A(1) of the Act prescribes that it is a criminal offence for a firm’s directorial or managerial personnel

to cause the firm to engage in, or to knowingly acquiesce in the firm’s engagement in, certain

prohibited practices with its competitors.51 The prohibited practices are those listed as “restrictive

horizontal practices” in section 4(1)(b) of the Act: directly or indirectly fixing prices or other trading

conditions; dividing up markets by allocating consumers, suppliers, territories, or particular products

or services; and colluding in tenders.52 The wording of section 73A(1) appears to criminalise both

successful cartels and the entering into cartel arrangements, even if such arrangements are eventually

unsuccessful.53

There are four types of cartelists that section 73A(1) intends to cover: minor cartelists, incompetent

cartelists, unlucky cartelists and naïve cartelists. Minor cartelists are those that intend to enter into

cartel arrangements; however, due to the nature of their business, their cartels cause little harm.54

Incompetent cartelists are those that enter into cartel arrangements with a clear intention for such

arrangements to reduce competition, but that fail to establish a workable cartel.55 Unlucky cartelists

are those that clearly intend to enter into cartel arrangements, but are unable to successfully implement

their cartels, because of circumstances that are beyond their reach.56 Finally, naïve cartelists are those

49 Ibid at 215. 50 Ibid at 216. 51 Arteiro op cit note 14; Lopes op cit note 4 at 3; Toto Fiduli, Kwena Mahlakoana and Makgale Mohlala ‘Does section 73A of the Competition Amendment Act 1 of 2009 creates reverse onus?’, Presented at the Seventh Annual Competition Commission, Competition Tribunal and Mandela Institute Conference on Competition Law, 5 and 6 September 2013 at 1, available at http://www.compcom.co.za/wp-content/uploads/2014/09/Conference-Paper-on-Reverse-Onus.pdf, accessed 29 September 2016. 52 Arteiro op cit note 14; Meridian op cit note 13 at 7; Burger-Smidt op cit note 13. 53 Ministry of Economic Development op cit note 28 at 36. 54 Ibid. 55 Ibid at 37. 56 Ibid.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee that enter into cartel arrangements without being aware of the unlawfulness of such arrangements.57

However, it is well known that ignorance of the law is no defence.58

In terms of section 74(1)(a) of the Act, a firm’s directorial or managerial personnel who contravene

section 73A(1) may be liable either to pay a fine of R500 000.00, or to a term of imprisonment of up

to ten years.59

5.2. Subsection 1: threshold issues

There are three thresholds that the National Prosecuting Authority (NPA) would have to satisfy before

being able to successfully prosecute individuals for the offence in section 73A(1). Such thresholds

might prove to be problematic in practice.

Section 73A(1)(a) establishes a causation threshold by requiring the NPA to show that the individual

caused the firm to be involved in a prohibited practice. Presumably, the ordinary criminal law causation

standard would apply. Thus, the NPA would have to show that the individual caused the involvement

beyond a reasonable doubt. An issue that arises here is what evidence is sufficient to prove such

causation. In other words, it is unclear whether direct, tangible evidence is required, for instance, a

cartel agreement that has been signed with the individual’s signature; or whether indirect evidence

would suffice, such as proof that the individual attended a cartel meeting.60

Section 73A(1)(b) requires the NPA to establish that the individual being prosecuted is a director or

occupies a managerial position of authority in the firm allegedly engaged in a prohibited practice.

Other than directors, it is not clear which of a firm’s individuals could be said to occupy managerial

positions of authority. In certain cases, therefore, this threshold might prove difficult to satisfy.61

Subsection 1(b) also requires the NPA to show that the individual occupying the directorial or

managerial position knowingly acquiesced in the firm’s engagement in a prohibited practice. Read

with subsection 2, this means that the individual must have had actual knowledge of the firm’s conduct.

Any appeal to constructive knowledge, therefore, appears to be explicitly ruled out. Moreover, the way

in which the subsection has been phrased provides directors and managers with an opportunity to

57 Ibid at 38. 58 S v De Blom 1977 (3) SA 513 (A). 59 Burger-Smidt op cit note 13, Lopes op cit note 4 at 3; Fiduli op cit not 51 at 1. 60 Kelly op cit note 13 at 330; Zandile Ramalohlanye An Assessment of the Suitability of the Criminal Cartel Offence in South African Competition Law (unpublished LLM thesis, University of Cape Town, 2013) at 49. 61 Ramalohlanye op cit note 60 at 49.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee dispute allegations of acquiescence on their part. This would be particularly easy without any direct,

tangible evidence of the director or manager’s actual knowledge of the firm’s cartelisation.62 Hence, it

would appear to be very challenging for the NPA to meet the threshold of ‘knowingly acquiesced’ in

subsection 1(b) beyond a reasonable doubt.63

5.3. Subsection 4: implications for the CLP

As mentioned in 1. above, it is difficult for the competition authorities to detect and expose cartel

activity; and that it was this difficulty that led to the CLP’s implementation.64 The CLP sets out a

framework in terms of which the Competition Commission (the Commission) may grant a “first to the

door” self-confessing individual, who is authorised to act for the firm alleged to have participated in

the cartelisation, immunity from criminal prosecution before the Competition Tribunal (the Tribunal).

This immunity only applies to conduct falling within the ambit of section 4(1)(b) of the Act, and will

only be granted upon the self-confessing individual fulfilling various conditions and requirements.65

To date, the CLP has proved to be very useful in detecting and exposing cartels.66

Section 73A(4) of the Act provides for how the CLP will operate in the context of criminally

prosecuting cartel activity. In accordance with the subsection, the Commission is empowered to certify

that a director or manager, who has allegedly committed the offence in section 73A(1) of the Act, is

deserving of leniency. Once the Commission has so certified, it may not seek or request the NPA to

prosecute the director or manager in question. The Commission is, however, entitled to make

submissions to the NPA in support of leniency for any director or manager who is being prosecuted,

and who has been certified as deserving of leniency by the Commission. Despite this, the NPA is

empowered to have the final say as to whether a director or manager, who has been certified to be

deserving of leniency by the Commission, should be prosecuted; and the Commission can never fetter

the NPA’s discretion here.67

With the enactment of section 73A(4) of the Act, however, it is unlikely that the CLP could ever

provide complete immunity from criminal prosecution, because the Commission is incapable of

62 Kelly op cit note 13 at 330-31. 63 Ibid at 331; Ramalohlanye op cit note 60 at 50. 64 Lavoie op cit note 30 at 12. 65 Arteiro op cit note 14. 66 Lavoie op cit note 30 at 15. 67 Arteiro op cit note 14; Lopes op cit note 4 at 14; Kelly op cit note 13 at 329-30; Letsike op cit note 15 at 11; Kyriacou op cit note 1 at 58-59.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee compelling the NPA to grant leniency.68 The inability of the Commission to interfere with the NPA’s

discretion to grant leniency is an issue, since, unlike the Commission, the NPA lacks competition law

expertise, and is inexperienced in cartel investigation and enforcement.69 While the NPA might heed

to the Commission’s submissions, this is most definitely not guaranteed; and in any event, the CLP is

explicit that its immunity does not safeguard self-confessing individuals from any civil or criminal

liability that results from them contravening section 4(1)(b) of the Act.70 The fear is, therefore, that the

threat of criminal liability, the wording of section 73A(4) and the NPA’s lack of expertise and

inexperience will have a chilling effect on the CLP’s efficacy.71 Directors and managers will now

certainly think twice before approaching the Commission for leniency.72 The problem though is that

the CLP is even more necessary in the context of criminalising cartel activity. As mentioned in 3.1.

above, this is because such criminalisation has the potential to encourage more secretive cartelisation.73

Hence, the wording of section 73A(4) will likely produce a few catch 22 situations.74

5.4. Subsection 5: the potentially unconstitutional reverse onus

Although it is yet to be enacted, section 73A(5) of the Act appears to create a reverse onus clause. The

proposed subsection stipulates that in any criminal proceedings against a director or manager being

prosecuted for the offence prescribed in section 73A(1), an acknowledgement in a consent order by

the firm in question, or a finding by the Tribunal or Competition Appeal Court (the CAC), that the

firm has been involved in a prohibited practice in terms of section 4(1)(b), is prima facie proof that the

firm was involved in that practice. The effect of the subsection is to place the onus on the director or

manager to disprove the firm’s engagement in the prohibited conduct; thus effectively creating a

reverse onus.75

Reverse onus clauses are the exception rather than the rule. This is because, according to the common

law, in the normal course of criminal proceedings, the State has the onus of proving all the elements

of the offence with which an accused has been charged beyond a reasonable doubt.76 Where a reverse

onus is present, the accused is required to disprove the offence with which he has been charged on a

balance of probabilities. Therefore, even if the accused is able to cast a reasonable doubt on the State’s 68 Arteiro op cit note 14; Lopes op cit note 4 at 14; Kelly op cit note 13 at 330. 69 Kelly op cit note 13 at 328; Kyriacou op cit note 1 at 62. 70 Arteiro op cit note 14; Lopes op cit note 4 at 14; Kelly op cit note 13 at 330. 71 Lopes op cit note 4 at 14; Kelly op cit note 13 at 329. 72 Kelly op cit note 13 at 330. 73 Kelly op cit note 13 at 330; Kyriacou op cit note 1 at 65. 74 Kyriacou op cit note 1 at 65-66. 75 Fiduli op cit note 51 at 1. 76 Ibid at 2, 4; Smith op cit note 8.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee prima facie case, this is insufficient and he will likely be convicted.77 Hence, reverse onus clauses offer

the State some relief when trying to prove an accused’s guilt;78 and in the prosecution of cartel activity,

such relief is welcome given the difficulties in proving the existence of cartel conduct on the higher

criminal standard of proof, as elucidated in 4.2 above.

Reverse onus clauses are, however, treated with particular scrutiny, since they ordinarily infringe

individuals’ fundamental constitutional rights to a fair trial, to be presumed innocent until proven guilty

and to have sufficient time and adequate facilities to prepare a proper defence.79 Moreover, the value

system introduced by the Constitution recognises that an individual’s freedom may not be taken away

lightly; and presumptions which impose a real risk of conviction, despite the presence of a reasonable

doubt – such as reverse onus clauses - are clearly inconsistent with this recognition.80 Nonetheless,

reverse onus clauses are not automatically unconstitutional.81

The courts have endorsed a two-legged test to determine the constitutionality or otherwise of reverse

onus clauses.82 Firstly, it must be determined whether or not the clause infringes the accused’s right to

be presumed innocent until proven guilty beyond a reasonable doubt. This leg of the test will be

satisfied if the clause exposes an accused to a real risk of being convicted, even though there might be

a reasonable doubt as to his guilt.83 Such a risk is imposed by subsection 5, since a director or manager

can be convicted of the offence in section 73A(1) despite there being no actual evidence of the firm

having been involved in a prohibited practice.84 If the director or manager exercised his right to remain

silent, or led evidence that created a reasonable doubt, but that was insufficient to disprove the prima

facie consent order or finding, he would be at risk of conviction. Yet, the consent order could have

been entered into for an entirely different reason; or the finding could have been made in proceedings

to which the manager or director in question was not a party. Therefore, the subsection creates a true

reverse onus that is unconstitutional.85 Secondly, it must be determined whether the clause constitutes

a justifiable limitation of the rights that it infringes. This leg of the test requires three main factors to

be considered and balanced out: the purpose of the reverse onus clause, the importance of the clause

and the real risk of conviction that it exposes the accused to, despite a reasonable doubt being present.

The apparent purpose of subsection 5 is to ensure that the Tribunal or CAC, rather than a criminal 77 Fiduli op cit note 51 at 4; Smith op cit note 8. 78 Ibid. 79 Fiduli op cit note 51 at 1; Kyriacou op cit note 1 at 55; S v Coetzee 1997 (4) BCLR 437. 80 Fiduli op cit note 51 at 7. 81 Smith op cit note 8. 82 Ibid. 83 Ibid; Coetzee supra note 79. 84 Smith op cit note 8. 85 Ibid.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee court, establish a director or manager’s guilt. Arguably, this is not a legitimate purpose, as neither the

Tribunal nor the CAC are ‘ordinary courts’; yet, section 35(3) of the Constitution entitles all accused

persons to trials before ordinary courts. This illegitimate purpose, coupled with the real risk of

conviction that the subsection imposes, do not seem to make the subsection a justifiable limitation of

the rights that it infringes.86

The position is further aggravated when considering the relationship that the proposed subsection

would have with sections 56(3) and 49A(3) of the Act.87 Section 56(3) entitles the Tribunal to order

persons to answer questions or adduce evidence, irrespective of it being self-incriminating to do so.

Section 49A(3) qualifies section 56(3) by prohibiting self-incriminating evidence from being admitted

into subsequent criminal proceedings for cartel conduct; and thereby encourages directors and

managers to make disclosure of anti-competitive behaviour. This is in line with the Act’s overall policy

objectives.88 Moreover, the privilege against self-incrimination is a long-standing fundamental right to

which all accused persons are entitled in South African law.89 The right now also benefits from

constitutional protection.90 Subsection 5, however, would render the purpose of section 49A(3) and

the privilege nugatory, since it appears to provide a back door through which directors and managers’

self-incriminating evidence can be admitted into criminal proceedings in which they are being

prosecuted. This is because the subsection makes the Tribunal’s finding, which is ultimately based on

directors and managers’ self-incriminating evidence, prima facie proof against directors and managers

in subsequent criminal proceedings. The subsection would thus infringe the privilege against self-

incrimination; and, given the significance that is attached to this privilege, it is unlikely that such

infringement would be justifiable.91

Hence, it is likely that the subsection will not pass constitutional muster if it is to be enacted and

subsequently challenged.

86 Ibid. 87 Ibid. 88 Lopes op cit note 4 at 8. 89 Ibid at 7; R v Camana 1925 AD 570. 90 Section 35(3)(j) of the Constitution. 91 Smith op cit note 8.


5.5. Subsection 6: a possible violation of the rule of law

Like section 73A(5), section 73A(6) is yet to be enacted. It is, however, arguable that the purpose of

the proposed subsection is an obvious and unjustifiable infringement of the rule of law, and that the

subsection is therefore unconstitutional.92

The subsection prohibits firms from directly or indirectly paying fines that have been imposed on

directors or managers who have been convicted of the offence in section 73A(1), as well as from

indemnifying, reimbursing, compensating or otherwise defraying the expenses incurred by such

individuals in defending their prosecution, unless such prosecution has been abandoned or the

individuals have been acquitted.93

At first glance, the rationale underpinning subsection 6 appears to be sensible, since, after all, the

director or manager is the individual responsible for the firm’s involvement in the cartel activity.94 On

closer inspection, however, the prohibitions appear to be rather broad. Such broadness can pose

problems for smaller firms, as competition litigation is usually highly complicated, lengthy and,

therefore, expensive. In a private company, for example, the owners, shareholders and decision-makers

might be the same individuals. Moreover, the company might be such individuals’ only source of

income.95 Thus, to prohibit them from agreeing with one another to borrow funds from the company

seems to violate their rights to choose legal representatives, and to prepare adequate defences.96

The Constitution and the rule of law demand that laws be rational and non-arbitrary in their

application.97 In other words, laws must be rationally related to legitimate government purposes, and

thus must not be arbitrary.98 According to its long title, the Act appears to have been created for the

purposes of, inter alia, evaluating and controlling restrictive practices. Such purposes indicate the

legislature’s commitment to deal firmly with anti-competitive conduct for reasons related to the public

interest and the economy. Such purposes seem to be legitimate. While it would be a stretch to argue

that the first prohibition in subsection 6 is arbitrary, the second prohibition is certainly arbitrary, since 92 Ibid. 93 Section 73A(6) of the Act. 94 Kyriacou op cit note 1 at 55. 95 Ibid. 96 Ibid at 55-56; Smith op cit note 8. 97 Smith op cit note 8. 98 New National Party of South Africa v Government of the Republic of South Africa and Others 1999 (3) SA 191 (CC); Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan Council and Others 1999 (1) SA 374 (CC).

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee preventing a director or manager from preparing a full defence cannot be rationally related to

evaluating or controlling restrictive practices. It is rather the criminalisation of cartel activity itself that

is rationally related to achieving such purposes.99

It is also possible to argue that subsection 6 imposes a risk of incarceration upon directors and

managers, and, as such, it violates their constitutional right to freedom and security. If such violation

is established, it would not appear to be justifiable, because it is completely out of proportion to the

purposes that the Act seeks to achieve.100

Hence, section 73A(6)(b) of the Act, if it were enacted, would seem to be unconstitutional in one way

or another.

6. CONCLUSION AND RECOMMENDATIONS FOR REFORM

This dissertation has argued that while criminalising cartelisation is both necessary and desirable in

SA, section 73A of the Act, as it currently stands, does not properly give effect to the aims that South

African Competition Law seeks to achieve; tends to contravene certain constitutional rights and values

and, hence, needs to undergo reform. The dissertation began by considering the reasons for

criminalising cartel conduct, whereby it found deterrence to be a primary reason and immorality to be

a secondary one. It then proceeded to deal with the advantages and disadvantages of criminalising

cartel behaviour. Here, increased deterrence, public moral condemnation, international cooperation

and the individualisation of the criminal process were identified as advantages. The following

disadvantages were established: difficulties in determining what constitutes optimal sanctions for

cartelisation, the higher standard of proof and strict rules of evidence found in criminal proceedings,

the potential of criminalisation having a chilling effect on pro-competitive behaviour, the criminal

justice system is already overburdened, the resources for imposing criminal penalties are already

insufficient, criminal investigations are lengthy and expensive, the competition authorities would have

to work much harder if criminalisation indeed causes more secretive cartel activity and there are

various challenges that defence attorneys will have to endure during cartel investigations and

prosecutions. Despite this long list of disadvantages, criminalising cartel conduct is still necessary and

desirable in SA, since the threat of civil action alone has shown to have had an insignificant deterrent

effect. Finally, the dissertation evaluated the constitutional and other implications of the enacted and

99 Smith op cit note 8. 100 Ibid; section 12(1) of the Constitution.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee proposed provisions of section 73A. It found that the thresholds created by section 73A(1) appear to

make it particularly difficult for the NPA to successfully prosecute cartel offenders; that section 73A(4)

would likely result in the CLP falling into disuse, since it is unlikely that the CLP could ever provide

complete immunity from criminal prosecution; that section 73A(5) encompasses an apparent

unconstitutional reverse onus and that the prohibition in section 73A(6)(b) seems to violate the rule of

law. It is therefore clear that section 73A is in need of urgent reform.

When contemplating section 73A’s reform, guidance can be sought from the competition law of

foreign jurisdictions. In accordance with the approach adopted in the United States, United Kingdom

and Europe, a separate specialist competition division, comprising the competition authorities

themselves, should be established within the NPA. Such specialist division ought to be given the

ultimate authority to deal with the section 73A offence.101 This approach will alleviate the uneasiness

surrounding the the NPA’s ability to grant or refuse leniency, given its lack of competition law

expertise and inexperience in cartel investigation and enforcement. Thus, it will assist in enhancing

the CLP’s credibility.102 There is also the Australian approach, which is slightly less drastic. According

to this approach, the competition authorities could enter into a Memorandum of Understanding (MOU)

with the NPA, in terms of which both authorities could agree that greater investigative and

prosecutorial powers should be given to the competition authorities. Alternatively, the MOU could

provide in detail for how the competition authorities and NPA are to coordinate their functions. The

MOU could also prescribe that the Commission’s section 73A(4)(b) submissions be the overriding

consideration when the NPA decides whether to prosecute.103 Moreover, in accordance with the

Australian approach, the legislature could make provision in the CLP for the granting of immunity to

second and subsequent individuals who wish to cooperate, but who failed to qualify for leniency.104

As regards the reverse onus in section 73A(5), direction can once again be taken from Australia.

Instead of a reverse onus, subsection 5 could create defences that impose evidentiary burdens.105 As

far as the thresholds in section 73A(1) and the unlawful prohibition in section 73A(6)(b) are concerned,

there is little explicit guidance from other jurisdictions. However, the legislature clearly ought to

implement guidelines that define “position having management authority”, and that prescribe what

evidence would be sufficient to prove causation beyond a reasonable doubt for the purposes of

101 Mushi op cit note 34 at 182; Wouter PJ Wils ‘Is Criminalisation of EU Competition Law the Answer?’ (2005) 28 World Competition 117; Mahlungu op cit note 44 at 49. 102 Mahlungu op cit note 44 at 49. 103 Mushi op cit note 34 at 182; Mahlungu op cit note 44 at 47-48; Fiduli op cit note 51 at 9. 104 Mahlungu op cit note 44 at 46. 105 Fiduli op cit note 51 at 9.

Competition Law Research Paper - The Criminalisation of Cartel Activity in South Africa (2016) By Nicole Lee subsection 1. Finally, the use of further exceptions in subsection 6(b) would logically seem to cure its

apparent unlawfulness.


7. REFERENCE LIST

Primary Sources

Reported South African Cases

American Natural Soda Ash Corporation and Another v Competition Commission of South Africa

[2005] ZASCA 42.

Competition Commission v Pioneer Foods (Pty) Ltd [2010] ZACT 9.

Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan Council

and Others 1999 (1) SA 374 (CC).

New National Party of South Africa v Government of the Republic of South Africa and Others 1999

(3) SA 191 (CC).

R v Camana 1925 AD 570.

S v Coetzee 1997 (4) BCLR 437.

S v De Blom 1977 (3) SA 513 (A).

Legislation

The Competition Act 89 of 1998.

The Constitution of the Republic of South Africa, 1996.

Secondary Sources

Conference Papers

Fiduli, Toto, Mahlakoana, Kwena and Mohlala, Makgale ‘Does section 73A of the Competition

Amendment Act 1 of 2009 creates reverse onus?’, Presented at the Seventh Annual Competition

Commission, Competition Tribunal and Mandela Institute Conference on Competition Law, 5 and 6

September 2013 at , available at http://www.compcom.co.za/wp-content/uploads/2014/09/Conference-

Paper-on-Reverse-Onus.pdf, accessed 29 September 2016.


Lavoie, Chantal ‘South Africa’s Corporate Leniency Policy: A Five- Year Review’, Presented at the

Third Annual Competition Conference, 4 September 2009, available at

http://www.compcom.co.za/presentations-third-annual-competition-conference, accessed on 29

September 2016.

Letsike, Tsholofelo ‘The criminalising of cartels – How effective will the new Section 73A of the

Competition Amendment Act be?’, Presented at the Seventh Annual Competition Commission,

Competition Tribunal and Mandela Institute Conference on Competition Law, 5 and 6 September

2013, available at http://www.compcom.co.za/wp-content/uploads/2014/09/THE-NEW-SECTION-

73A.pdf, accessed on 3 October 2016.

Lopes, Natalia, Setch, John and Gauntlett, Emily ‘Cartel enforcement, the CLP and criminal liability

– are competition regulators hamstrung by the Competition Act from co-operating with the NPA, and

is this a problem for competition law enforcement?’, Presented at the Seventh Annual Competition

Commission, Competition Tribunal and Mandela Institute Conference on Competition Law, 5 and 6

September 2013, available at http://www.compcom.co.za/wp-content/uploads/2014/09/Cartel-

Enforcement-Paper-Final-2013-08-20.pdf, accessed on 29 September 2016.

Internet References

Arteiro, Dominique ‘A New Era Dawns – Criminalisation of Cartel Conduct’ Legal Brief May 2016,

available at http://www.werksmans.com/wp-

content/uploads/2016/05/A_NEW_ERA_DAWNS_CRIMINALISATION_OF_CARTEL_CONDUCT.p

df, accessed on 29 September 2016.

Burger-Smidt, Ahmore ‘Criminalisation of Cartels: A Potential Cure with Side Effects’ Legal Brief

March 2016, available at http://www.werksmans.com/wp-content/uploads/2016/03/060683-

WERKSMANS-march-criminalisation-of-cartels.pdf, accessed on 29 September 2016.

Ministry of Economic Development: Manatu Ohanga ‘Cartel Criminalisation’, available at

http://www.mbie.govt.nz/info-services/business/competition-policy/cartel-criminalisation/documents-

images/Cartel-Criminalisation-Discussion-Document.pdf, accessed 30 September 2016.


Smith, Andrew and Stubbs, Mkhululi ‘The Competition and Constitutional Conundrum: Cartels,

Criminalisation and Complex Monopolies’ available at http://www.bowmanslaw.com/article-

documents/SibergrammeCompetitionLaw2of2009.pdf, accessed 29 September 2016.

Journal Articles

Calvani, Terry and Calvani, Torello H ‘Cartel sanctions and deterrence’ (2011) 56 The Antitrust

Bulletin 185.

Kelly, Luke ‘The introduction of a “cartel offence” into South African law’ (2010) Stell LR 321.

Kolasky, William ‘Criminalising cartel activity: Lessons from the US experience’ (2004) 12

Competition & Consumer Law Journal 207.

Werden, Gregory J ‘Sanctioning Cartel Activity: Let the Punishment Fit the Crime’ (2009) 5 European

Competition Journal 19.

Wils, Wouter PJ ‘Is Criminalisation of EU Competition Law the Answer?’ (2005) 28 World

Competition 117.

Theses

Kyriacou, Leonardo Comparative Analysis of the Corporate Leniency Policy of the South African

Competition Commission (unpublished LLM thesis, University of Pretoria, 2014).

Mahlungu, Philile Enforcement Against Cartels in South African Competition Law: Advanatges and

Challenges (unpublished LLM thesis, University of Pretoria, 2014).

Meridian, Markus The Criminalisation of Cartel Conduct in South African and the United Kingdom

(unpublished LLM thesis, University of Cape Town, 2012-2013).

Mushi, Walter Regulating Cartel Activity in South Africa (unpublished LLM thesis, Nelson Mandela

Metropolitan University, 2012).


Ramalohlanye, Zandile An Assessment of the Suitability of the Criminal Cartel Offence in South

African Competition Law (unpublished LLM thesis, University of Cape Town, 2013).

CML4602S Research Paper - 1409972nicolesarahlee-bsocscllbprojectsandpapers.yolasite... · 13 Burger-Smidt op cit note 11; Luke Kelly ‘The introduction of a “cartel offence”

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