Criminalise cartels, says new Govt report

A new report suggests NZ follows the lead of many other countries and make cartel behaviour a criminal offence. Photo / Hawkes Bay Today

A report out today proposes criminalising cartels, with jail sentences as long as seven years.

The Ministry of Economic Development discussion paper also canvassed other deterrents such as increasing penalties to as much as $5 million for individuals, better rewards for whistle blowers and more resources for enforcement.

The paper considers the pros and cons of criminalisation and says there is case for it.

Hard-core cartels are formed when rival firms agree not to compete with each other. Cartels allow firms to raise prices above the competitive level without losing customers to rivals. Behaviour includes price fixing, bid rigging, market allocation and output restrictions.

Hard-core cartels are already prohibited under the Commerce Act but only subject to civil sanctions.

Australia recently introduced criminal penalties.

Commerce Minister Simon Power said cartel activities like price fixing and bid rigging were the most harmful form of anti-competitive business conduct.

"Such activities cause significant harm by reducing economic output, undermining trust in markets, slowing productivity growth, and distorting investment signals by making cartels appear more profitable than they would be in an undistorted market," he said.

"Businesses suffer and so do consumers, who have to pay inflated prices. And ultimately the wider economy also suffers."

Penalties, including jail time, could deter organisations from engaging in cartel behaviour, he said.

"Many cartels are so big that the current fines are seen as a cost of doing business, rather than a deterrent, so I believe it's time to look at further measures to deter potential cartels.

"Several countries, including the United States, the United Kingdom, Canada, and Australia, have criminalised cartel behaviour and it's important New Zealand keeps in step with those countries - and especially Australia."

Mr Power said he wanted to ensure businesses operating in both Australia and New Zealand faced the same consequences for the same anti-competitive conduct.

The report said criminal prosecutions would require a higher standard of proof which "may make it difficult to obtain convictions". There were also costs to be considered.

"The objective is to design an offence and penalty regime that deters hard-core cartels, while not deterring efficiency-enhancing cooperation arrangements," the report said.

Options for change included making the current civil law bans criminal bans which would mean businesses would be operating under the same rules. However, there was some uncertainty around price controls and may unfairly have an impact on franchises and networks.

Another option would be to adopt the Australian provisions. They would have the benefit of harmonisation and reduce costs for trans-Tasman businesses.

The report recommended a maximum sentence of between five and seven years for cartel offences.

The report also canvassed other ways to deter cartels including more funding for the Commerce Commission to enforce and educate on the issue, improving the leniency programme, rewarding whistle blowers and granting investigators covert surveillance powers.

It also suggested increasing the level of financial penalties, from the current maximum of $500,000 to $5 million.

"This change needs to be considered in the context of other possible penalties," he said.

The public can submit on the document until March 31.

- NZPA