Don’t delay getting to grips with the Competition Act

More than ever before, South African consumers read articles on huge fines being imposed on local companies for a wide range of competition law infringements, in particular, cartel behaviour.

Why do so many companies still turn a blind eye to antitrust legislation? International competition authorities have long histories of stringent competition law enforcement, and, under the Competition Act, South Africa has just completed a good ten years in the field. One would have hoped that, by now, South African companies would have woken up to the importance of the Competition Act, the sanctions and the reputational damage associated with contravening the Act.

One can only guess that the reason for non-compliance is a lack of proper understanding of the impact of the Act. We have often found that management and staff struggle to fully appreciate the objectives of the Competition Act. In particular, they show little understanding of the practical application of the principles contained in the Act to their business. The Competition Act is not a tick-box act, but a complex piece of legislation which requires specialised legal and economic interpretation. For example, did you know that one company may charge excessive prices, but another company, doing the same thing, would find itself on the wrong side of the Act? Do you know how excessive pricing is measured? When would a price differential constitute prohibited price discrimination? When is a rebate anti-competitive? Management must understand these (and other) concepts in the context of its industry to the end of obtaining legal certainty on their actions.

The much publicised Competition Amendment Bill is about to come into force. Probably the most striking feature is the introduction of personal and criminal liability on directors and managers who engage in cartel behaviour. (A cartel exists where competitors do not compete, but agree with each other to keep prices above the market price through various methods like volume restrictions, the allocation of markets or bid rigging.) The Bill has now been amended to remove the concern that directors and managers who did not know of the offending conduct could be criminally liable. This amendment is welcomed. However, it will be unwise to argue that because criminal liability only follows those with knowledge, rather put your head in the sand and ask no questions. Firstly, this is inconsistent with the fiduciary duties of a director, secondly, for the sake of the company and its directors and managers, anti-competitive behaviour has to be identified and discontinued and thirdly, knowledge does not automatically imply acquiescence.

Having regard to the negative economic effects associated with cartels, competition regulators around the world view cartels as the worst kind of antitrust behaviour. Regulators are also in close contact with each other when investigating cartels. The significant fines which are imposed on cartel members by international competition regulators (which can run into the billions) beg the question whether our local competition regulators have fully utilised their powers in terms of the Act. For example, although our Act allows for a maximum fine of 10% of total turnover, the maximum percentage fine which has been imposed so far is 8% of turnover. Can it be expected that our local authorities will follow in the footsteps of our international counterparts in so far as the levels of fines are concerned?

In the wake of the recent high profile regulatory findings, organisations would be well advised to evaluate their overall compliance programmes in order to determine the effectiveness thereof. Organisations must be wary of the false sense of security that is created by the mere existence of a compliance function. An effective compliance programme is one that has the ability to prevent and detect misconduct and to ensure that business is conducted in accordance with the requirements of all applicable legislation and regulations so as to protect the interests of shareholders, employees and the public at large.

Many companies are currently performing internal competition audits with the assistance of specialists in this field to uncover potential competition law infringements. In our experience, this is the correct approach to follow. The last thing a company needs is to be caught unawares should a customer or a whistleblower expose the company (and its directors and managers) to a complaint before the Competition Commission.

Anton de Bruyn (Head of the Competition Advisory Practice of KPMG), Anthony Smith (Head of the Regulatory and Compliance Service Practice of KPMG) and Odie Strydom (manager in the Competition Advisory Practice of KPMG)