log in
All Articles | Back

Member Articles

Cartelists one step closer to jail  

by Andy Matthews Anna Rawlings Aaron Lloyd Stacey Shortall Oliver Meech Nicko Waymouth Rose Wang

Published: June, 2011

Submission: June, 2011


On 16 June the Commerce Minister Simon Power released the Exposure draft Commerce (Cartels and Other Matters) Bill (Exposure Bill). The Exposure Bill provides that individuals found guilty of criminal cartel conduct will face up to seven years imprisonment. Bodies corporate found criminally liable will face the current sanctions (ie the greater of $10 million or three times the commercial gain (or if the gain cannot be ascertained 10% of annual group turnover)). Currently cartelists only face civil proceedings in New Zealand. This development provides for significantly increased consequences for cartel conduct.

The Exposure Bill follows the Ministry of Economic Development’s (MED) earlier cartel criminalisation discussion paper in January 2010 and comments by Prime Minster John Key and Mr Power supporting the need to investigate whether cartel conduct should be criminalised.

Given the need for clarity around such an offence Mr Power stated that the Government has released the Exposure Bill for consultation before introducing it to Parliament "… to ensure the bill adequately supports pro-competitive business arrangements by providing greater certainty that they would not be prohibited and subject to criminal sanctions".

Following the consultation period the Government will make a final decision on whether to progress with criminalisation of cartel conduct. For the purposes of obtaining submissions on the Exposure Bill, explanatory materials, a draft Regulatory Impact Statement, and draft guidelines on immunity from criminal prosecution have been provided and are available here.


Many jurisdictions, including Australia, Canada, the United Kingdom and the United States, have existing criminal regimes and such a move would align New Zealand to many of its close trading partners. Criminal sanctions, particularly individual criminal sanctions, are widely regarded as the most effective deterrent against cartel conduct as many commentators consider businesses often accept civil penalties as a cost of doing business. In the wider scheme, a move to criminalisation can also be seen as part of a general trend to criminalise white collar crimes. Recent examples in New Zealand include the anti-money laundering, counter-financing of terrorism legislation, and criminal provisions dealing with insider trading.

The cartel offence

Rather than adopting the Commerce Act’s (Act) current prohibition against price fixing, which is concerned with the relevant conduct’s actual and likely effects on prices, the Exposure Bill describes the forms of conduct the offence will capture. That is, cartel provisions will mean arrangements between competitors that have the purpose of either fixing prices, restricting output, allocating markets or rigging bids. This follows the OECD’s definition of "hard core cartels". According to the explanatory materials, the focus on the conduct’s form is in response to concerns that an effects based approach would require economic evidence and make criminal trials considerably more complex. It is also thought that adopting a descriptive approach, as to the types of conduct that the prohibition is aimed at, will provide greater certainty as it avoids analysing whether particular conduct is likely to impact prices.

The Exposure Bill provides for dual civil and criminal cartel regimes. It is intended that the Commerce Commission (Commission) will be tasked with both investigating and commencing proceedings before referring the case to a member of a proposed specialist cartel prosecution panel which the Solicitor-General would establish. Whether the Commission pursues civil or criminal proceedings in a particular case will be based on yet to be developed guidelines by the Commission. Such guidelines could include similar factors as the Australian regulator’s prosecution guidelines including the length of the cartel, the significance of damage to consumers, previous cartel involvement and whether affected commerce exceeds a particular monetary threshold.

The criminal offence requires that the person possessed knowledge, at the time that they were entering into or giving effect to a cartel provision, that the relevant provision was a cartel provision. As the Cabinet Economic Growth and Infrastructure Committee cabinet paper (Cabinet Paper) notes, "knowledge of essential facts is most apt in relation to the circumstancesknowledge that the agreement is an agreement to engage in cartel behaviour’ is the appropriate mental element…"

The Exposure Bill also provides for up to 18 months imprisonment for individuals who fail to comply with a compulsory information gathering notice issued by the Commission, otherwise mislead the Commission, or obstruct a Commission employee while acting pursuant to a warrant. Currently individuals only face a maximum fine of up to NZ$10,000 per offence. The maximum fine for bodies corporate for the same conduct has increased from NZ$30,000 to NZ$1 million per offence. The limitation period for the Commission to initiate proceedings for such conduct has increased from six months to three years.

The exemption

The Exposure Bill replaces the Act’s current joint venture exemption, which can be ambiguous, with a broader collaborative activity exemption. The aim is for the collaborative activity exemption to apply to all collaborative pro-competitive/efficiency enhancing arrangements rather than being restricted to the undefined joint venture concept.

The availability of the collaborative activity exemption requires that the cartel provision is reasonably necessary for the purposes of the collaborative activity and that the collaborative activity is not carried on for the dominant purpose of lessening competition.

The Exposure Bill also contains exemptions for consortia bids on the basis that the person running the tender agrees that the parties may submit a joint bid (of particular relevance to infrastructure projects and syndicated loans by banks), and retains an amended joint buying exemption that is intended to remove uncertainty around the scope of "collectively acquired".

Defendants relying on an exemption as a defence will have the onus of proving on the balance of probabilities that the relevant exemption applies. For the collaborative activity exemption the defendant may also prove, on the balance of probabilities that:

  • they believed, at the time that they were entering or giving effect to a cartel provision, that the parties were involved in a collaborative activity; and

  • the relevant cartel provision was necessary for the purpose of the collaborative activity.

The Exposure Bill also contains amendments to the agency provisions of the Act. According to the Cabinet Paper this amendment is intended to close loopholes in the Act’s extraterritorial provision and ensure civil proceedings, including private damage claims, are not prevented due to jurisdictional issues. The amendment clarifies that the conduct of a person in New Zealand can be attributed to an overseas person in circumstances where the overseas person is directing the New Zealand person.

The limitations regarding the extra-territorial application of the Act were highlighted by the Supreme Court in Poynter. However, as the explanatory materials note, section 7 of the Crimes Act 1961 extends jurisdiction in the context of criminal conspiracies by providing that "…where any act or omission forming part of an offence, or any event necessary to the completion of any offence, occurs in New Zealand, the offence shall be deemed to be committed in New Zealand, whether the person charged with the offence was in New Zealand or not at the time of the act, omission or event".

Impact on leniency policy

Criminalisation will impact on the Commission’s granting of conditional immunity under its Leniency Policy. The Commission will not be able to grant immunity from criminal prosecution. An additional step will be required whereby the Commission makes a recommendation to the Solicitor-General that immunity from criminal prosecution be granted. The Solicitor-General will independently consider whether the applicant meets and will continue to meet the Commission’s criteria for conditional immunity, and make a decision within 10 working days as to whether it will provide a undertaking to stay any criminal prosecution against the applicant in respect of the particular cartel subject to fulfilment of ongoing obligations.

New clearance procedure

The Exposure Bill also provides for a clearance procedure for cartel provisions similar to the Act’s current procedure for mergers. Applicants would be able to apply for clearance on the basis that the proposed cartel provision would not substantially lessen competition.

For the Commission to grant clearance for a proposed cartel provision it must be satisfied that:

  • the cartel provision is reasonably necessary for the purposes of the collaborative activity; and

  • the collaborative activity would not have, or would not be likely to have, the effect of substantially lessening competition in a market.

Clearance would deem that the relevant cartel provision does not contravene the relevant restrictive trade practices provisions of the Act. A clearance may be revoked if it was obtained on the provision of false or misleading information or there has been a material change of circumstances since the clearance was given.


The Exposure Bill would repeal the current joint price recommendations exemption, which applies to price recommendations made to not less than 50 persons, given little economic justification for such an exemption. The Exposure Bill would also extend the statutory period for the Commission’s merger clearance process to 40 working days (currently 10 working days) to better reflect how long the process takes in practice.

Also repealed would be section 4(3) of the Act, which asserts broad jurisdiction in relation to overseas mergers affecting a New Zealand market(s). Given that such a provision raises difficult jurisdictional and enforcement issues it was considered desirable to repeal it and follow the Australian approach. That is, introduce a declaration mechanism allowing the Commission to apply to the High Court for a declaration in instances where an overseas person acquires a controlling interest in a New Zealand company where that acquisition is likely to substantially lessen competition. If a declaration is granted the New Zealand company must cease trading within six months. It is thought that the declaration mechanism will further encourage multinational merger parties to utilise the voluntary clearance process and be seen as "law abiding global citizens".

Issues not addressed

At this stage it is not proposed to provide a clearance mechanism for arrangements that do not include a cartel provision. Under the Exposure Bill resale price maintenance remains a per se prohibition and the issue of the Commission being able to accept behavioural undertakings in the context of mergers is not addressed. If a broader review was to take place the opportunity to provide greater consistency between New Zealand and Australia’s unilateral conduct provision could also be explored.


The Exposure Bill seems to be a reasonably sound first attempt at drafting criminal offences. While the details of the Exposure Bill will need to be worked through, it seems to seek to balance the reasonably clear broad form-based offence with an equally broad collaborative activity exemption for pro-competitive collaborations between competitors. Moreover, the provision of a clearance procedure for cartel provisions which are unlikely to substantially lessen competition, offers a particularly cost effective procedure to

obtain immunity compared with the current authorisation procedure. While it is not certain that the government will follow the criminalisation route the degree of global convergence in competition law and New Zealand’s desire to be seen as a jurisdiction that adopts best practice makes the move more likely. That would significantly increase the consequences for individuals who fall foul of the offence, and it is a timely reminder for businesses to take stock and audit their conduct.

The MED is accepting submissions on the Exposure Bill until 5:00pm, 22 July 2011 (submissions can be made via regular post to the MED and addressed to Cartel Criminalisation or can be emailed to [email protected]).

We invite you to contact one of our experts if you would like more information on cartel criminalisation or assistance with preparing a submission.






WSG Member: Please login to add your comment.


WSG's members are independent firms and are not affiliated in the joint practice of professional services. Each member exercises its own individual judgments on all client matters.

HOME | SITE MAP | GLANCE | PRIVACY POLICY | DISCLAIMER |  © World Services Group, 2021