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Investigations

Initiating an investigation

Who can initiate an investigation of potential cartel conduct?

The Competition Commission may initiate an investigation either on its own initiative or following a complaint by a third party or receipt of information from a whistleblower. However, the Competition Act provides that an investigation may not be initiated after the expiry of three years from the date on which the conduct ceased – there remains a debate about whether cessation only occurs once the effect of the conduct ceases and no case has definitively resolved this issue.

If an investigation is initiated by complainants or third parties, what rights (if any) do they have?

If the Competition Commission investigates a third-party complaint and decides not to refer it to the Competition Tribunal or prosecute, the third party may refer the complaint to the tribunal and privately prosecute the case in place of the commission and at the third party's cost. 

What obligations does a company have on learning that an investigation has commenced?

No obligations arise automatically on learning of an investigation. However, a company should immediately assess the risks arising from the investigation.

What obligations does a company have if it believes that an investigation is likely?

No obligations arise automatically. However, a company should immediately assess the risks arising from the investigation.

What are the potential consequences of failing to act or delaying action?

Immunity from penalties is available only to the firm which is ‘first to the door’. As such, delays may result if another member of the cartel applies for and receives immunity. The risk of individual criminal prosecution is now an important factor to be taken into consideration, especially regarding the decision of whether to apply for leniency. Directors and managers are likely to appoint their own legal advisers to protect their rights. It is important to carefully assess the evidence of a cartel contravention so that a fully informed decision may be taken on whether to apply for leniency.

Formal stages of investigation

What are the formal stages of and approximate timeframe for investigations?

There are no formal stages and it is for the Competition Commission to decide how to conduct its investigation. Under the Competition Act, the commission has one year from the date of the submission of a third-party complaint to investigate and decide whether to refer the matter to or prosecute it before the Competition Tribunal. This one-year period may be extended by agreement with the complainant (if any) or with the approval of the tribunal. There is no such time limit for investigations initiated by the Competition Commission.

Investigative powers

What investigative powers do the authorities have?

The Competition Commission has the right to:

  • summons witnesses;
  • require the delivery of documents; and
  • enter and search premises and seize documents and other property on the premises (so called ‘dawn raids’). 

What is the geographic reach of public enforcement actions?

The Competition Commission's enforcement actions are, practically speaking, limited to South Africa. However, in principle, Competition Tribunal orders and Competition Appeal Court judgments can be enforced outside South Africa – subject to compliance with relevant local laws – although, to date, such extraterritorial enforcement has not been sought. 

When is court approval required to invoke these powers?

Court approval is required for a warrant to conduct a dawn raid, although a Competition Commission inspector may enter and search premises – other than residential premises – without a warrant, with the permission of the owner or person in control of the premises or if he or she has reasonable grounds to believe that a warrant would be issued, but that the delay would defeat the object or purpose of the entry and search. 

Are searches of business and personal premises authorised? If so, which bodies carry out searches and will they wait for legal advisers to arrive?

Yes – see above. The searches are carried out by Competition Commission inspectors and police officers. They are not obliged to wait for legal advisers to arrive.

What level of cooperation with the authorities is required and what are the consequences for failing to cooperate?

Compliance with a warrant is legally required. It is a criminal offence to hinder, oppose, obstruct or unduly influence a Competition Commission inspector in performing his or her duties, which may incur a fine of up to R2,000 and a six-month jail term. 

Is in-house legal advice or attorney work product protected by the law of privilege? Does this extend to the advice of in-house counsel?

Yes, but the communication must have been made in confidence for the purpose of obtaining legal advice and in a professional legal capacity. The Competition Act specifically allows the right to refuse the inspection or removal of privileged documents or articles. In such circumstances, the registrar or sheriff of the High Court may be requested to attach and remove them for safe custody until a court determines whether the information is privileged. 

Are any other limitations imposed on investigatory powers in order to safeguard the rights of those under investigation?

Competition Commission inspectors cannot exceed the provisions of the warrant issued for an entry and search or enter and search premises without a warrant without complying with the requirements outlined above. To do so is a criminal offence, which may incur a fine of up to R2,000 and a six-month jail term.

The Competition Act sets out requirements for the conduct of an entry and search, including:

  • having strict regard for decency and order and each person's right to dignity, freedom, security and privacy;
  • advising and allowing a person to exercise his or her right to be advised by an attorney before being questioned;
  • issuing receipts for any articles removed from the premises; and
  • using only reasonable force to overcome resistance to the entry and search.

A person summonsed by the Competition Commission is not obliged to answer any question if it is self-incriminating and any self-incriminating answer is not admissible in criminal proceedings against that person, except in cases of perjury or certain offences under the Competition Act relating to providing false information and failing to answer questions truthfully or fully. 

What is the process for objecting to an authority’s exercise of its claimed powers?

One must apply to the courts or the Competition Tribunal for an order reviewing the Competition Commission's conduct. One could also – depending on the circumstances – apply to the court, to set aside a warrant authorising an entry and search. 

Publicity and confidentiality

What information about investigations will be made publicly available and at which stage(s) of the process?

The Competition Act allows the protection of confidential information and a leniency application under the Competition Commission's leniency policy is undertaken on a confidential basis (although the commission is entitled to use such information, including in Competition Tribunal proceedings).

The Competition Commission's media releases and other publications will not include information which is subject to confidentiality claims. The commission's decision to investigate a cartel and refer or prosecute a cartel – as well as settlement agreements and Competition Tribunal judgments, in both cases excluding confidential information, (if any) – are made public. 

Is any information automatically confidential and is confidentiality available on request?

Confidentiality must be claimed over information. The Competition Commission is bound by the confidentiality claim unless the Competition Tribunal determines otherwise on application by the commission or an interested third party.

International cooperation

Do the authorities in your jurisdiction cooperate with authorities in other jurisdictions?

The Competition Commission is an active member of the International Competition Network. The commission is increasingly focusing on regional as well as international cooperation. In 2016 10 Southern African authorities signed a cooperation agreement and the Competition Commission has signed bilateral cooperation agreements with the Kenyan, Mauritian, Brazilian, Russian, Indian, Chinese and European authorities and regional authorities (eg, the Common Market for Eastern and Southern Africa).

Do the relevant enforcement authorities request waivers so as to allow for increased cooperation with authorities in other jurisdictions? What are the consequences of declining to grant a waiver?

Waivers are occasionally requested. In practice, the Competition Commission generally does not take action against a firm which declines to grant a waiver, although one of the conditions of leniency, as well as in settlement agreements, is an obligation to cooperate fully with the commission. There have been no cases where leniency or immunity has been revoked, or a settlement agreement has been alleged to have been breached, as a result of a refusal to grant a waiver. 

Decisions

How is a cartel investigation resolved? Are settlements, plea bargains or other negotiated resolutions available?

Cartels investigations are resolved either by a referral by the Competition Commission to the Competition Tribunal or a settlement agreement between the commission and the relevant firm. 

What is the process for negotiating a settlement, plea bargain or other negotiated resolution? Do such resolutions require court or other approval?

There is no formal settlement process, but the Competition Commission is generally amenable to settlement negotiations on an ‘off the record’ basis and may offer discounts of between 10% and 50% off the penalty. Settlement agreements must be submitted to the Competition Tribunal for approval (the tribunal generally does not refuse such approval in practice). In a 2013 construction cartel matter, an innovative fast-track settlement process was used by the Competition Commission to incentivise firms to settle in return for reduced penalties. 

If a settlement is not reached, what is the procedure for adjudicating a charge of cartel conduct?

The process is known as a referral to the Competition Tribunal and commences with a referral affidavit by the Competition Commission, to which the respondent firm must file an answering affidavit. The  commission may respond by filing a replying affidavit. The next stage is a discovery process with regard to relevant documents. There may be various interlocutory applications relating to points of law, the discovery process and other technical and procedural matters. A pre-hearing conference is usually convened before the tribunal to deal with matters relevant to the hearing. The tribunal may summons witnesses. Third parties with a material interest in the matter (eg, a complainant) may intervene in the proceedings with the tribunal's consent.

Which party must prove its case? What is the relevant standard of proof?

The Competition Commission bears the primary onus of proving the respondent firm’s cartel conduct. The standard of proof is a balance of probabilities. 

Is there a hearing? If so, what is the process for submitting evidence and testimony?

Yes, a formal hearing will be held before the Competition Tribunal. The tribunal hearing is generally public (in camera testimony must be approved by the tribunal on justifiable grounds) and is similar to court proceedings with each side able to cross examine the other's witnesses. Witness statements are exchanged before the tribunal hearing.

What are the accused’s procedural rights?

The process is designed to give the respondent firm a fair and reasonable opportunity to defend itself. The respondent is entitled to:

  • have legal representation and raise points of law (eg, that the referral is time barred);
  • bring interlocutory applications (eg, for better discovery by the Competition Commission and further particulars on the matters set out in the commission's referral affidavit); and
  • lead its own witnesses and experts and cross examine the Competition Commission's witnesses and experts.

Appeal process

What is the appeal process?

Competition Tribunal decisions may be appealed by either the Competition Commission or the respondent firm to the Competition Appeal Court. Cross appeals by the respondent in the appeal are also permitted. A notice of appeal, the appeal record and heads of argument must be lodged with the court.

To what extent can the appeal body review the agency’s findings of fact, legal assessment and penalties?

The Competition Appeal Court is empowered to confirm, amend or set aside a Competition Tribunal decision or remit a matter back to the tribunal for a further hearing.

Penalties

Penalties for companies

What are the potential penalties for companies involved in a cartel?

 Under the Competition Act, penalties may be up to 10% of the firm’s South African turnover and its exports from South Africa during the preceding financial year. Penalties are imposed by the Competition Tribunal and not the Competition Commission in a useful separation of powers, which gives the respondent firm some recourse if it is unable to agree a penalty with the commission as part of a settlement.

Are there guidelines in place for penalties? If not, how are penalties normally calculated?

The Competition Commission's penalty guidelines are helpful as they set out the commission's general approach – which is based on case law to date – towards calculating penalties. The starting point is calculating the so called ‘affected’ turnover, which is the annual turnover of the firm in South Africa and its exports from South Africa based on sales of products or services affected by the contravention.

The so-called ‘base’ amount is then calculated on a scale from zero to 30% of the affected turnover. The base amount is then multiplied by the number of years of participation in the contravention. The penalty can be adjusted upwards or downwards with regard to various aggravating and mitigating factors, but is always subject to the statutory 10% cap based on the firm's total annual turnover (ie, not just affected turnover) in the financial year preceding that in which the penalty is imposed.

The Competition Commission's penalty guidelines controversially provide that it may impute a penalty to the holding company of a cartel member and calculate the penalty having regard to the South African turnover of the holding company, as opposed to that of the cartel member only. The commission's approach is open to challenge as parental liability is not provided for in the Competition Act and there has not yet been a case on this point.

Do the authorities take into account any penalties imposed in other jurisdictions?

Under the Competition Act, the Competition Tribunal must consider the following factors when determining an appropriate penalty:

  • the nature, duration, gravity and extent of the contravention;
  • any loss or damage suffered;
  • the respondent’s behaviour;
  • market circumstances;
  • the level of profit derived;
  • the degree of the respondent's cooperation with the authorities; and
  • previous contraventions of the act.

However, this list is not necessarily exhaustive and the Competition Tribunal may take other factors into account, including if the cartel was active worldwide and not just in South Africa. However, the fact that penalties have been imposed in other jurisdictions (and their amount) would generally not be seen as a mitigating or relevant factor, particularly as the South African penalty is based on South African turnover and exports.

How can a company mitigate its exposure to fines?

First, by being the first to be granted leniency by the Competition Commission, in which case 100% immunity from penalties can be obtained – subject to complying with the conditions for immunity. If leniency is not available, exposure to penalties may be mitigated by means of a settlement with the commission. The commission may offer a 10% to 50% discount off the penalty. The size of the discount depends on various factors, including:

  • the level of cooperation and assistance offered to prosecute other cartel members;
  • the timing of the settlement (the sooner the better); and
  • proactive and full disclosure of other anti-competitive conduct.

If a settlement with the Competition Commission is not achieved and the commission refers the firm to the Competition Tribunal, the firm may make representations to the tribunal regarding the size of the penalty and mitigating factors. The tribunal's decision on a penalty may also be appealed to the Competition Appeal Court.

Penalties for individuals

What are the potential penalties for individuals involved in a cartel?

From May 1 2016, directors and managers face fines of up to R500,000 and up to 10 year’s imprisonment. Although there have not yet been any prosecutions, this is likely in the near future. The Competition Commission's penalty guidelines controversially provide that the commission may impute a penalty to the holding company of a cartel member and this may have personal liability implications for the directors and managers of the holding company.

Where a defence to a cartel offence exists, a criminal prosecution may still be possible under South Africa's wide-ranging anti-corruption laws, although there have been no such cases dealing with cartels to date. 

Do the authorities take into account any penalties imposed in other jurisdictions?

There have been no cases to date, but the imposition of penalties in other jurisdictions could be raised as a mitigating factor depending on the facts and circumstances of the particular case.

Is a company permitted to pay a penalty imposed on its employee?

Under the Companies Act, a company may not directly or indirectly pay any fine imposed on a director convicted of an offence. The term ‘director’ includes:

  • alternate directors;
  • former directors;
  • members of board or audit committees; and
  • certain company officers. 

Is a company permitted to continue to employ an employee involved in cartel conduct?

Yes, it is for the company to decide whether to dismiss or take other disciplinary action against an employee involved in cartel conduct.

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