In its 2017 manifesto, the Labour Party outlined that, if elected, it would "criminalise cartels in line with other developed economies".
True to its word, on February 15 2018 Commerce and Consumer Affairs Minister Kris Faafoi tabled the Commerce (Criminalisation of Cartels) Amendment Bill in the House of Representatives.
The bill introduces a new criminal offence for cartel conduct, which includes a penalty for individuals of up to seven years' imprisonment. There will be a two-year transitional period before the offence comes into effect. Including this two-year lead-in period is a sensible way to allow market participants to become accustomed to the boundaries of the still new cartel provisions (introduced in late 2017) before exposing them to criminal penalties for breaching those provisions.
The bill also introduces a requirement for intention for criminal prosecution and a defence against criminal prosecution for individuals who believed that a cartel provision was reasonably necessary for a collaborative activity. An intention requirement and a belief-based defence are both necessary to distinguish civil behaviour from criminal so that defendants who lack the requisite mens rea (ie, intent) are not exposed to criminal penalties. That said:
- these requirements are likely to be complex to apply and prove in practice. That concern has also been identified by the New Zealand Commerce Commission, as has the pressure on its existing budget and capacity due to these complexities;
- at present, the bill requires only subjective belief that the cartel provision was reasonably necessary. Whether the defendant was involved in a collaborative activity at all is ascertained objectively. It should be enough to satisfy the defence that the individual reasonably believed that he or she was in a collaborative activity and that the cartel provision was reasonably necessary for the purpose of that collaborative activity; and
- the belief defence applies only to collaborative activities and does not apply to the other exemptions from cartel conduct – for example, the so-called vertical supply contracts exemption. There is no logical reason for this imbalance, which creates the risk of defendants being prosecuted criminally when they believed that one of the other exemptions applied.
The bill underwent its first reading on February 20 2018 and has been referred by the minister to the Economic Development, Science and Innovation Committee for consideration. The intention is for the bill to be enacted by April 2019.
The following materials are available on the ministry's website:
- a link to Faafoi's media statement announcing the tabling of the bill;
- a copy of the bill; and
- a copy of the Cabinet paper seeking approval to introduce a new criminal offence for cartels.
This development overturns the previous National Party-led government's decision to remove criminal penalties for cartel conduct from the Commerce (Cartels and Other Matters) Amendment Bill, citing the "risk that cartel criminalisation would have a chilling effect on pro-competitive behaviour between companies".(1) The risk was sufficiently material that criminal penalties should be removed.
The relevant Cabinet papers state that the government intends to schedule time for advancing the bill in the 2018 legislative agenda.
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