Friday, 11 December 2015

"Hard core" cartelists are criminals

Earlier this week the government said that it is flagging away criminalising cartels. The rationale was "the significant risk that cartel criminalisation would have a chilling effect on pro-competitive behaviour between companies": in other words, businesses could be put off from engaging in worthwhile cooperation for fear of straying into heavily penalised criminal territory.

Most of the reaction to the news was either positive or matter of fact.

Buddle Findlay said they had always opposed criminalisation, for the very reason the government has now recognised. They also felt that there had been a side benefit from the whole exercise: "While the need for prison jumpsuits for cartel conduct no longer exists, the threat of criminalisation has been a significant factor in renewed compliance training and focus for New Zealand businesses.  In our view, the threat of criminalisation by itself has been critical to deterring anticompetitive behaviour".

Simpson Grierson reported the news without taking any positions, though they picked up on something else that also might have gone off the government's radar - the proposal to bring the shipping lines under the Commerce Act. There is, of course, no good reason for shipping line cartels to be exempt from the competition law of the land, any more than there was any good reason for IATA, pre 1980, to run a global airline cartel.

Minter Ellison Rudd Watts said the change in tack would be "welcome news for businesses which have expressed strong concern about the potential chilling effect that criminalisation could have on legitimate pro-competitive activity". They also, correctly, said that "Criminalisation is a controversial issue, not least because of the difficulty in evaluating its deterrent effect", pointing out that for various reasons actual criminal prosecutions in Australia and the UK have been thin on the ground (I'd also spotted the Aussie development).

And Chapman Tripp's consultant Grant David said in the NBR that dropping criminalisation was a good idea, but there was a better reason for it, which was "the question should be whether it is appropriate to subject executives to serious risk of imprisonment for conduct that is uncertain in nature and can be deterred in other ways" (here's a link but it may be paywalled if you haven't signed up).

My own take is somewhat different. I've been left with distinctly mixed emotions.

There's the bleeding-heart liberal part of me that welcomed it. The western world - particularly the US, but more generally - is getting overfond of redneck policy, long on retribution and short on rehabilitation and prevention.  In that light, one less criminal sanction on the books isn't a bad idea.

And there's the economist part (and the barrack-room lawyer part) of me that can see the government's point about potential chilling effects on cooperation, particularly as other proposed changes to the Commerce Act were simultaneously making collaborative activity easier to organise. Easing up on cooperation on the one hand, and (arguably) making it more uncertain on the other, didn't make for a completely coherent policy package.


But on the other hand I have a deep, visceral dislike of "hard core" cartels, as they're often called in the competition enforcement business. These are the premeditated, concealed, hijackings of the competitive process: the ones with the coded messages, the throwaway mobile phones, the maps with the cartel members' territories, the furtive meetings in hotel rooms on the fringes of trade meetings in Osaka or Düsseldorf or Buenos Aires. These go beyond the concerns economists or lawyers might have about the affront to competitive markets: they are concerns every citizen ought to have about the proper operation of their society. "Hard core" cartels are in the same general territory as fraud and embezzlement, and ought to attract the same penalties.

Self-evidently, these sorts of rorts would never have been confused in the conspirators' minds with licit collaboration.

So I regret that the proposal, along with grey area "is it cooperation or is it collusion" activity, will also let the "hard core" cartels escape criminalisation. It can't have been beyond the wit of statutory draftmanship to have carved out a description of "hard core" cartel behaviour, and criminalised it, just as there are gradations of other bad behaviour (murder/manslaughter, reckless/dangerous/careless driving).

Let's get serious here. Piddling offences not worth the courts' time are prosecuted every day. But "hard core" cartels,  about as obnoxious and harmful as it gets when it comes to white collar crime, escape the dock. It's not right.

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