The government has agreed to remove the criminal sanctions for cartel behaviour from the Commerce (Cartels and Other Matters) Amendment Bill (Bill), which is currently winding its way through Parliament.

The criminalisation of cartels had drawn a high degree of scrutiny from the business community, as some feared it would be too easy to fall afoul of the provisions and its imposition could have a chilling effect on legitimate pro-competitive business activities.  The criminal sanctions under the Bill, included a sanction of imprisonment for up to seven years.

The original objective for its inclusion had been to promote detection and deterrence of cartel conduct and to ensure that New Zealand's competition regime was not out of step with overseas jurisdictions that have increasingly imposed criminal sanctions for cartel conduct (criminal sanctions exist in both Australia and the United Kingdom).

However, the Minister of Commerce and Consumer Affairs Paul Goldsmith announced that the inclusion of the criminal sanctions had been re-examined and "on balance" should be removed.  The following arguments were considered in reaching this decision:

Arguments for criminalisation

  • Improved detection: threat of imprisonment would provide an incentive to seek leniency and cooperate with the Commerce Commission (Commission)
  • Improved deterrence: threat of imprisonment and social condemnation of criminal conduct
  • Improved international cooperation: mirrors approach taken by other countries
  • Single economic market: advances a Single Economic Market with Australia by ensuring firms are faced with the same consequences for anti-competitive conduct (in Australia and in New Zealand).

Arguments against criminalisation

  • Chilling effect on pro-competitive activity: may deter legitimate and pro-competitive business activities
  • Increased compliance costs: to minimise risk of criminal liability companies and employees may seek more legal and expert advice
  • Poorly distinguishes between the criminal offence and civil prohibition: the Bill distinguished criminal cartels from civil cartels based on the 'intent' of the individual engaging in cartel conduct and not the cartel's impact. There is concern that intention alone may not convey sufficient blameworthiness, which creates some uncertainty as to what level of cartel harm would be required for a criminal proceeding and conviction
  • Administration and enforcement costs: the Commission would incur costs implementing the criminal regime, investigations would need to be investigated to a criminal standard, and criminal prosecutions may take longer than civil proceedings.  Also, corrections would incur additional costs for imprisoning convicted individuals.

You can read about our previous coverage of the Bill here.