Criminal sanctions for cartel behaviour in South Africa have been introduced by the Competition Amendment Act, which was made effective law as from 1 May 2016.
By the introduction of an amendment under a new section 73A in 2009, the Competition Act provided for criminal sanctions to be imposed on individuals for certain competition law contraventions.
What are the sanctions and who do they apply to?
These criminal sanctions allow for a fine not exceeding R500 000 and a prison sentence of up to 10 years for individuals.
The sanctions apply to individuals who are directors or have 'management authority' within a firm, if such person either caused the firm to engage in prohibited cartel conduct or "knowingly acquiesced" in the firm engaging in such conduct. For purposes of the amendment, "knowingly acquiesced" means having acquiesced while having actual knowledge of the relevant conduct by the firm. The word "acquiesced" is not defined, but will be critical to understanding the scope of the section when it is first enforced. The Oxford English Dictionary defines "acquiesce" as "to accept or consent to something without protest".
Although the Act already provides for strict and harsh financial penalties, these are directed at firms and do not target individuals. The aim of the criminal sanctions is to punish offenders and to further deter future potential offenders.
Criticisms of the new provision
Whether this new provision will be successful remains to be seen. The main criticisms of the introduction of criminal sanctions are many and have come from a wide field, including the competition authority itself! Some of these criticisms follow.
First, criminal sanctions will certainly chill the incentive of individuals who may have been involved in possible cartel activity from providing information under the very successful Corporate Leniency Policy – the main and highly effective source of the Competition Commission's information for prosecution of firms for cartel behavior. This is because the competition authorities cannot guarantee immunity from prosecutions under criminal law of a person who applies for leniency on behalf of a firm in which he or she is a director or manager.
Second, criminal prosecution must take place through the criminal courts which have inadequate experience and mechanisms for implementation. This will rely upon close co-operation between the competition authorities and the National Prosecuting Authority, as well as a high level of new expertise in that department. It will also involve a duplication of effort in investigation and prosecution – over and above what has been done by the competition authorities in their investigation and hearings.
Third, it introduces a dual system of investigation and prosecution with different authorities, teams and evidence, as well as differing standards of proof required - a balance of probabilities for civil matters and beyond reasonable doubt in criminal matters. This means it can be difficult to successfully prosecute individuals under a regime which is not already geared for it.
Constitutionality of provisions not introduced
Interestingly, in what appears to be an acknowledgement of the strong argument regarding constitutionality of three sub-sections of the Amendment Act, certain provisions have not been introduced in their present form.
These are the provisions under sub-section 5 where the amendment introduces what has been described as a 'reverse onus' of proof. The reverse onus provision provided that an acknowledgment made in a consent order by the firm or a finding by the Competition Tribunal or the Competition Appeal Court that the firm has engaged in cartel conduct will serve as prima facie proof of the fact that the firm engaged in that conduct. The consent order or finding is against the relevant firm but the prosecution under criminal law is against the individual director or manager. Potentially then it offends against the constitutional rights to a fair trial or to be presumed innocent.
Other provisions which have not been introduced in their present form (perhaps also due to signalled constitutional challenge) relate to the prohibition on a firm from assisting an affected director or manager by paying for his legal defence and the prohibition on a firm from paying a fine imposed on a director for a hard core cartel.
Despite being forewarned of the difficulties of introduction, successful implementation and the risk of harming the good work of the authorities, government has decided as a matter of public policy that criminal sanctions should be introduced. This is no doubt to demonstrate its perception of the public outcry and displeasure with what may be perceived to be big business offenders who have escaped adequate sanction.