Business owners or any individual found to have participated in a cartel can face up to 10 years in jail, after South Africa brought a new provision in its Competition Act into effect on Sunday. But will it act as a deterrent?
The SA government and others have begun to consider a more heavy-handed approach to combating cartels (see this earlier post), which a recent study by the World Bank found raised food costs for the poor in South Africa by an average of 15%.
Yet while moves are still a foot to criminalise cartels in Chile, the New Zealand government in December dropped a bid to criminalise cartels, over concern that criminalisation would have a chilling effect on pro-competitive behaviour.
South Africa joins several other emerging economies including Brazil, where criminal sanctions are used (see the map in this recent presentation). The US, UK, Japan, Canada, Korea, Australia and a number of European countries also have such sanctions.
Among these, in Brazil as of last year more than 350 executives were facing criminal proceedings for alleged cartel offences (under Brazil’s Economic Crimes Law).
However legal experts in South Africa believe criminalising cartel activity would have a negative effect on the commission’s corporate leniency programme, if for example a director of a firm feared being held criminally liable if they spilled the beans.
There has also been some criticism put out in the public that the criminalisation of cartel activity could be unconstitutional.
Ahmore Burger-Smidt, director and competition law specialist at Werksmans Attorneys told Business Day TV that the legislation provides that a consent order can be used in the finding by competition authorities as prima facie evidence of collusive activity having been proved. Linking the two could however be problematic, she points out.
In those countries with highly concentrated markets it is all too easy for firms - big and small - to continue extracting high rents and prices from consumers. The poor have the most to lose. This makes criminal charges seem fair.
Yet will criminalising cartel activity help boost the economy by making it less attractive for existing firms to bar new firms from entering?
A 2003 report by the OECD (at a time when about half a dozen countries had criminal penalties against individuals) said there was no evidence proving the deterrent effects of criminal or monetary sanctions on individuals
The SA government is not content at just adding criminal sanctions. In a speech last month the Minister of Economic Development Ebrahim Patel (pictured above) revealed that further changes to competition legislation are imminent.
Yet the World Bank says prosecution alone isn't enough, South Africa must improve regulations which lower the barriers of entry and cost of doing business for new entrants. Like this the state is likely to play a bigger role in encouraging more open markets.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a