Sanchia Temkin
6 March 2008
Johannesburg — COMPANY directors and bosses face the prospect of having to pay huge fines out of their own pocket if they are found to be involved in cartel or price-fixing activities, according to tough new legislation being prepared for the cabinet's approval.
The move to hold directors personally liable and hit them in the pocket represents a major change in SA's approach to anticompetition legislation to bring it in line with best practice internationally. At present, competition authorities can only fine companies, up to 10% of revenue.
The Competition Amendment Bill is part of the government's attempt to crack down on cartel activity in a broader attempt to drive down the cost of basic foodstuffs. It also comes in the wake of a slew of high-profile probes into key sectors, such as motor vehicles, airlines, milk, bread, milling and pharmaceuticals.
Food giant Tiger Brands was recently fined about R100m by the Competition Commission after admitting to participating in bread and milling cartels.
Further, the Competition Tribunal flexed its muscles in a matter which it considered an abuse of dominance, imposing an administrative penalty on Mittal Steel of about R691m, the largest administrative penalty it has imposed to date.
The new law is expected to be presented to the cabinet next month. Besides updating the Competition Act and codifying the Competition Commission's corporate leniency policy, the bill seeks to strengthen the penal provisions of the act.
Mondo Ntlha, head of the competition practice group at commercial law firm Cliffe Dekker, said yesterday the current penalties were not considered stringent enough, and the proposals sought to make directors personally liable.
"The trade and industry department has been involved in a legislative review of the Competition Act, where -- given the global trend of strengthening cartel laws -- proposals are on the cards to hold directors personally liable for engaging in a cartel, including disqualifying them from directorships," Ntlha said.
The proposals also recommend that directors who engage in cartel activity be disbarred or disqualified for an unspecified period, and also be fined.
There is also the possibility of directors being placed on a blacklist. "Undoubtedly this will be very career limiting," she said. The recommendations stop short of criminal sanctions.
Heather Irvine, of commercial law firm Deneys Reitz, said: "The remedies provided for in the Competition Act did not deter cartel activity sufficiently."
There is evidence that cartels existed for many years before they were detected and prosecuted.
Competition commissioner Shan Rambaruth said there was a debate taking place in the public domain as to whether the misconduct of directors should be criminalised.
"The difficulty with criminalising such conduct is that the onus of proving the offence is so much greater than it presently is," Rambaruth said.
Holding directors personally liable for taking part in cartel activity would certainly be an option to be considered, he said.
Rambaruth said some practitioners were of the view that the maximum level of the fine imposed by the commission needed to be substantially increased. "Fines need to be a disincentive to crime. The commission does tend to maximise the fines."
Irvine said the proposals could lead to a new way of regulating business in SA.
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