Cartel conduct can now be punished with a term of imprisonment of up to 7 years, after the Commerce (Criminalisation of Cartels) Amendment Act 2019 came into effect today.
Cartel conduct includes price fixing, market allocation and bid rigging (see Background below).
The financial penalties for cartel conduct were already significant: individuals can be fined up to $500,000 and companies can be fined up to $10 million, three times commercial gain or 10% of turnover per year per breach. Now, businesses and individuals can be liable for criminal conviction and individuals convicted of engaging in cartel conduct could face a term of imprisonment.
“Cartel conduct harms consumers through higher prices or reduced quality, and it harms other businesses which are trying to compete fairly. The introduction of possible imprisonment for cartel conduct underlines just how serious and harmful this offending is,” said Commerce Commission Chair Anna Rawlings.
Prior to cartel criminalisation coming into effect, the Commission undertook a campaign to increase awareness of cartel conduct and the new criminal penalties.
“From our face to face advocacy work we know some people do not understand what cartel conduct is or that it’s illegal, and that’s why we have been running our campaign over the last few months,” said Ms Rawlings.
The ‘Scene of a crime’ campaign features two videos which depict illegal cartel conduct:
- two building company owners fix prices by agreeing to manipulate bids for a job
- two real estate agents engage in market allocation by agreeing to stop competing for listings; one will stay north of ‘Main Road’, and the other will stay south.
The camera then pulls out to reveal CRIME SCENE tape.
“Our videos and advertisements appeared in national news media and across social media channels and drove record levels of traffic to the Commission website where they can be viewed alongside our written guidance. Now more than ever, businesses and their staff need to make sure they understand the kind of commercial arrangements they should avoid to stay on the right side of cartel laws,” said Ms Rawlings.
Businesses or individuals wishing to report cartel conduct should contact the Commission as soon as possible. The Commission can grant leniency to the first member of a cartel to approach it, provided they meet the requirements for leniency. See the Leniency policy.
Businesses and individuals can also use the Commission’s anonymous whistleblower tool.
Examples of cartel conduct
Example one: Market allocation and price fixing
Three businesses compete to sell farm machinery. They agree to allocate the areas that they could sell to by agreeing one business would only sell in the North Island and the other two businesses would only sell in the South Island. They also agree 6-monthly price increases and a “scoresheet” to make sure all of them stick to the agreement.
This is a cartel involving market allocation and price fixing.
Example two: Bid rigging
A group of companies in the fire alarm and sprinkler installation business meet regularly to discuss tenders. They call it a “coffee club”.
For every tender, participants decide who will win the tender and submit prices just above the agreed winner. This makes the tender process look legitimate while ensuring bidders supply at higher prices.
This is a cartel involving bid rigging.
In September 2020 two Hamilton-based real estate companies were fined a total of $4 million. This brought to $23 million the total penalties in a series of cartel cases against 13 real estate companies and three individuals.
Other cases include:
- Settlement reached in equine air freight price-fixing proceeding, July 2020
- Nelson pharmacy fined $344,000 and director $50,000 for price-fixing, June 2020
- Ronovation to pay $400,000 for price fixing in Auckland real estate market, September 2019
- Final settlement reached in livestock price fixing case, October 2017
- Carter Holt Harvey fined $1.85m for “classic” price fixing breaches, March 2014
- Air freight cartel cases end with nearly $12m in penalties, April 2014