CIRC PRESS RELEASE - May 2006

CUSTODIAL SENTENCES AGAINST INDIVIDUALS IS MOST EFFECTIVE DETERRENT OF CARTELISATION, SAYS RICHARD WHISH

New Delhi, May 14, 2006

CUTS Institute for Regulation & Competition organised an Interactive Seminar on Competition Law in the capital on May 13, 2006. The event had Mr Richard Whish, Professor of Law, King’s College, and Non Executive Director at the Office of Fair Trading, UK and Mr Pradeep S Mehta, Secretary General, CUTS International address the issue ‘Competition Law of India with focus on International Cartels' from an international and national perspective, respectively.

Richard Whish said that countries across the globe should seek opportunities to further increase corporate fines, and that they should consider introducing sanctions against individuals, including criminal sanctions whenever any cartel is detected.

The principal purpose of sanctions in cartel cases is deterrence, Whish said. Strong sanctions against enterprises and individuals increase the effectiveness of leniency programmes. The level of penalties being imposed on firms is now substantial, and it can be anticipated that this trend will continue. The interesting development to watch for in the years ahead will be to see whether more countries pursue the idea of introducing criminal sanctions against individuals including imprisonment as well as the imposition of fines, he added.

Giving examples, Whish said that several countries including Canada, France, Germany, Ireland, Japan, Korea, Mexico, Norway, the Slovak Republic and the US provide for criminal sanctions, including in some cases imprisonment, to be imposed on individuals. These provisions attempt to address the problem that imposition of fines on companies may not have a sufficiently deterrent effect. This is especially in cases where cost of fines is simply transferred to customers through higher prices. Further, if a fine is so large that it results in insolvency and liquidation of a company, this will result in the loss of a competitor from the market, a somewhat perverse achievement for a system of competition law.

The obvious target of any system of law must be agreements between independent firms that are restrictive of competition. The hum-drum cartel that fixes the price of cement, or air fares, or insurance premiums does not provoke the same kind of debate as predatory pricing, tying and bundling; and yet cartels are the most harmful anti-competitive practice known to competition law, and should be the prime target of competition authorities.

Quoting the UNCTAD’s Model Law on Competition of 2004, Whish said that the crucial issue is how effectively these provisions are applied in practice, and the extent to which competition authorities and courts around the world have had to grapple with very much the same problems of interpretation of anti-cartel legislation.

Elaborating on the various tools available to competition authorities to battle against cartels, Whish said that firms that participate in cartels are usually fully aware of the unlawfulness of their conduct. It follows that competition authorities may find it very difficult to compile evidence that will satisfy a court to the required standard of proof that there has been illegal behaviour. Without doubt the adoption of whistleblowing and leniency programmes has been immensely important as it may be able to provide an authority with richly informative data about meetings, contacts, the participants in the cartel and the range of practices covered. It is vital that competition authorities are given the powers of investigation needed to track down evidence of sufficient quality to satisfy the standard of proof set by the law.

Citing the example of South Korea where the Korean Fair Trade Commission has established a reward system for those who report or give information about competition law violations, he stated that a ‘Reward Review Committee’ has been established to ensure a fair and transparent process for determining reward eligibility. The identification of informants is kept confidential.

Cartels appear to be alive and kicking throughout the world. Competition authorities around the world are more determined today than they have ever been to eradicate cartels. Even the adoption of competition laws with tough sanctions has not been sufficient to suppress cartel activity, as is demonstrated by the number of prosecutions that have been brought in recent years. It must be recognised that competitors are meant to compete with one another for the business of their customers, and not to cooperate with one another to distort the process of competition, Whish said.

In the years ahead the debate will be about the additional tools that are needed to make the battle against cartels more effective, and it is likely that more countries will decide that custodial sentences against individuals are, ultimately, the most effective deterrent, Whish observed.

Pradeep S Mehta spoke on the evolution of competition law in India. He informed participations about relevant provisions for tackling cartels in the Monopolies and Restrictive Practices (MRTP) Act of 1969 (the now outgoing law), and the Competition Act of 2002 (the newly enacted competition law). Mehta informed that the MRTP Act failed to deal with anti-competitive practices, as there is no definition or even a mention of certain offending trade practices. Some of the anti-competitive practices such as abuse of dominance, cartels, predatory pricing and bid-rigging are not specifically mentioned in the Act. The MRTP Commission was also unable to take any action against any of the international cartels that attracted the attention of other competition authorities. Cartel cases in vitamins, cement, transport (trucking) pharma-retailing, BOPP film (Biaxially Oriented Polypropelene film, used for packaging), rubber films were touched upon.

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