2021 Litigation Forecast - Cartel conduct: The introduction of criminal sanctions
The prospect of a criminal conviction and jail time for cartel participants from 8 April 2021, means that education about cartel conduct in New Zealand has never been more important.
From 8 April 2021, criminal sanctions for cartel conduct will come into force. The new criminal regime will operate in parallel with the current civil regime. The maximum fines will be the same as the civil penalties, but the criminal offence must be proven to the higher criminal standard of proof – beyond reasonable doubt – and will require proof of intent. Inadvertent behaviour will not give rise to criminal liability but may still breach the civil prohibitions.
An individual convicted for intentionally engaging in cartel conduct in breach of the Commerce Act 1986 will face a penalty of imprisonment for up to
seven years or a criminal fine of up to NZD500,000 or both. Companies cannot indemnify individuals for penalties or reimburse their legal costs if they are found to have breached the cartel prohibition and a penalty is ordered.
What can we expect?
The Commerce Commission’s focus areas for 2020/21 include educating businesses about cartels and its campaign to increase awareness of the cartel prohibitions ahead of criminalisation began in earnest in late 2020. We expect that the Commission will have a strong appetite to bring a criminal prosecution as soon as an appropriate case emerges. Cartel conduct has been criminalised in Australia for more than 10 years, and New Zealand corporations can gather insights from Australia’s experience to date:
- The Australian Competition and Consumer Commission’s (ACCC) approach to investigations has changed following criminalisation: search warrants are now regularly used to gather evidence, when previously search warrants were rare. We expect the Commission will make similar changes to its approach to cartel investigations.
- It took seven years after criminalisation for the first criminal prosecution of cartel conduct in Australia. The ACCC focused first on the “low hanging fruit” – the first prosecution related to cartel conduct which was part of worldwide investigations and prosecutions. The Commission has been very vocal about its desire for criminalisation and prosecution. Decision-making in New Zealand is very different to Australia. We therefore do not expect there to be the same delays in New Zealand – the Commission will bring a prosecution as soon as an appropriate case emerges, regardless of its origins.
We expect that the criminal process will create different opportunities and challenges for potential defendants. Strategic decisions on how to respond to an investigation, and whether to encourage employees to seek independent legal advice, will need to be made much earlier. Given the potential for employees to be exposed to prison time, companies must also consider employment law implications when making decisions and gathering information about an employee’s conduct. In particular, companies need to be careful to avoid inadvertently making admissions that may expose that employee to liability.
How to prepare?
Businesses should urgently prepare for the changes by:
- Ensuring that all employees and directors are aware of their obligations under the Commerce Act, especially around cartel conduct. A whole organisation approach is important because cartel conduct can often involve relatively junior employees.
- Putting in place formal compliance policies and frameworks, of which ongoing training is an essential element. A culture of compliance will reduce the risk of breaching the law and potential liability if a breach occurs.
- Preparing for how to react to any suspicions of misconduct or approaches from the Commission including what expert assistance to call on. The criminal regime creates a different environment for decision making and strategy needs to be carefully considered early on.