Friday, 16 February 2018

Back to square one

First we were going to criminalise cartels - the main effect being that business executives could go to jail. That was back in October 2011 when a bill was introduced which allowed for a criminal cartel offence in addition to the existing civil offence (where companies and employees can be fined, but not jailed). And if you think October 2011 is ancient history, you're right, but then you haven't been following the recent pace of competition policy reform in New Zealand.

Criminalisation wasn't the only thing on the bill's menu. It also made various other changes, including splitting out 'cartel' into three distinct infringements (price-fixing, collective output restrictions, and divvying up markets). And it provided both exemptions from cartel accusations for various desirable business activities such as joint ventures, and a new mechanism where businesses could get a new kind of okay ('clearance') from the Commerce Commission for cartel provisions that were "reasonably necessary" for a collaboration, in addition to the existing 'authorisation' route.

The proposals made it through the Select Committee process, but in December 2015 the National government yanked the criminalisation bit (the rest of the bill made it through, a mere five years and ten months after it had been introduced). I wasn't happy about the yanking. As I said at the time
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.
or a little later
For cases that fit the classic hard core model - anti-competitive intent that is manifestly not bona fide, secrecy, collusion, persistence, materiality - it's beyond absurd that the shop assistant who pockets $25 from the till will end up in the District Court, whereas the shadowy guys who meet on the fringes of industry fairs to steal $25 million from the public won't hear the knock of the cop at their door.
And now reason has prevailed, with the news that criminalisation is back on again. MBIE's write-up of the new Commerce (Criminalisation of Cartels) Amendment Bill can be read here, and the Cabinet paper proposing the return to square one is here.

I had some interesting exchanges on Twitter when I welcomed the tack back to the original course. As one guy sarcastically put it, "Great. I look forward to the bright line definition of cartel behaviour which unmistakably distinguishes it ex ante from pro-competitive cooperation and coordination in all circumstances, and absolutely no chilling effects through uncertainty. Brilliant".

That's fair comment, and indeed the potential chilling effect was the stated rationale for the yanking in the first place.

But personally I think there are enough safeguards to prevent chilling desirable collaboration or - more importantly - miscarriages of justice where people end up jailed for well-meant behaviour. There has to be a clear intention, or as the Cabinet paper put it in paragraph 23, "this mental element of the offence will target the offence to those persons who meant to engage in cartel conduct or who would be aware that this result would occur in the ordinary course of events". And people will be able to argue that they genuinely thought one of the collaboration/cooperation exemptions applied.

I did wonder about paragraph 33 of the Cabinet paper which said
The [Commerce] Commission has raised concerns about the breadth and complexity of the defences proposed. It will raise these concerns at Select Committee.
Concerns about the complexity - maybe. Concerns about the breadth: if the Commission thinks the defences aren't robust enough and need bolstering, excellent, but if it thinks they've gone too far, I can't agree. This is an area where criminalisation really needs to catch only the "hard core" cartels, and nothing else, and the protections need to be industrial strength to prevent a mistaken view of clause 206 in a joint venture agreement turning into a two year sojourn in Mount Eden.

I'm no lawyer (as my lawyer friends occasionally point out) but if anything I'd err even further on focussed targeting of the provisions. As extra protection, I'd be inclined to have a closer look at that "intention" element and tighten it up a bit more, especially that second leg of being "aware that this [cartel] result would occur", and at some stage the Select Committee is likely to get my best impression of the mens rea bits of Legally Blonde.

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