Cartel conduct in South Africa is pervasive and has significant implications for the economy.
It is against this backdrop that competition authorities and legislators have paid significant attention to combating and tackling cartel behaviour in South Africa.
Most recently, the widely publicised case of the rand-fixing saga has broken the internet in South Africa.
It was alleged that between 2007 and 2013, Standard Chartered bank and 26 other banks violated S 4(1)(b) (i) and (ii) of the Competition Act by fixing prices and allocating the market of the USD-ZAR currency pair. Consequently, the bank reached a settlement agreement with the Competition Commission.
This settlement agreement has now been confirmed by the Competition Tribunal. In terms of this order, Standard Chartered bank admits liability for the contraventions described above and confirmed that it had ceased to be a part of the cartel. It also agreed to fully co-operate with the Competition Commission in order to prosecute the other cartel participants.
To this end, the bank vowed to provide evidence within its disposal, written or otherwise, that could be legally utilised for such purpose. The bank also pledged to refrain from engaging in cartel conduct in the future as well as any other prohibited practice. Furthermore, the bank agreed to continue to implement its competition compliance programmes and to circulate statements summarising the settlement agreement to its employees, managers and directors that have market-making responsibilities within 30 days. Finally, the bank agreed to pay a fine of approximately R43 million to the Competition Commission as an administrative penalty.
This notwithstanding, many commentators, political parties and members of the public have called for stricter measures to be taken against the bank, especially the directors. One of the possible remedies that can be taken lies within S 73A of the Competition Act.
Section 73A provides that a director, or a person with (or purporting to have) management authority, commits an offence if they cause a firm to engage in cartel activity, specifically, price fixing, market allocation and collusive tendering, or acquiesce (having knowledge of the actual conduct) to the firm engaging in cartel conduct.
Section 73A(3) is interesting for our present analysis. It provides that subject to S 73A(4), a person may be convicted for the offence of “causing or permitting a firm to engage in a prohibited practice” in respect of cartel offences only if the relevant firm has acknowledged in a consent order, as contemplated in S 49D of the Competition Act, that it has engaged in one or more of the prohibited practices detailed in S 4(1)(b) of the Competition Act.
In the alternative, S 73A of the Competition Act can be triggered if the Competition Tribunal or the Competition Appeal Court has made a finding that the firm in question has engaged in a prohibited practice in terms of S 4(1)(b). Therefore, the admission by a firm to being a party to cartel conduct, which is a key feature of consent orders, becomes a future nemesis to directors. This is because it can become the very basis upon which criminal conviction can be sought against the very same directors of the firm.
In this particular instance, the bank has admitted its liability with respect to violation in respect to prohibited practices. This means that the directors of Standard Chartered bank can be potentially pursued by the authorities for their part in the scandal.
Nevertheless, S 73(4) of the Competition Act contains an important caveat. It provides that the Competition Commission “may not seek or request the prosecution of a person for an offence in terms of this section if the Competition Commission has certified that the person is deserving of leniency in the circumstances” and “may make submissions to the National Prosecuting Authority in support of leniency for any person prosecuted for an offence in terms of this section, if the Competition Commission has certified that the person is deserving of leniency in the circumstances”. This is to say that in this matter, one (or more) of the directors of Standard Chartered may escape liability of this provision in the event that the Competition Commission is of the view that that person is deserving of leniency.
Section 73(A) as an incomplete provision
It is also important to note that the remaining sections of S 73A as inserted by S 12 of Act 1 of 2009 are yet to be proclaimed. While S 73(A) (1)–(4) came into force on May 1, 2016 via Proclamation 25 of 2016, there has been no progress on the implementation of the final two provisions. This could be explained by the fact that the constitutionality of S 73A of the Competition Act had been a focal point of debate since the promulgation of the amendment in August 2009.
Section 73A(5) provides that “in any court proceedings against a person in terms of this section, an acknowledgement in a consent order contemplated in section 49D by the firm or a finding by the Competition Tribunal or the Competition Appeal Court that the firm has engaged in a prohibited practice in terms of section 4(1)(b), is prima facie proof of the fact that the firm engaged in that conduct”.
In essence, therefore, this provision, which has been subject to heavy criticism, introduces a reverse onus on the accused in that they have the onus of rebutting the averments of the Competition Tribunal or the Competition Appeal Court in criminal proceedings. This criticism has been based on the fact that the proviso contradicts constitutionally entrenched rights in S 35 of the Constitution, such as the right to a fair trial and the right to be presumed innocent.
To this end, commentators and scholars have expressed disquiet on how problematic this reverse onus is. This may lead to instances where justice is miscarried. For instance, it has been said that an accused could be confronted with evidence that is taken on its face value as being key to the offence, yet the accused may not have been afforded a chance to challenge the veracity of this evidence.
It is further contended that in the process of making an acknowledgement of guilt via a consent order, the firm may not have referred specifically to the accused in question.
Finally, it is also claimed that the finding of the Competition Tribunal or Court is made on a civil scale, which is on a balance of probabilities, which is on a lesser scale than that in a criminal matter. All these problems point to the inherent shortcomings of S 73A(5). It is no wonder the provision is not yet in force years later after the earlier provisions came into effect.
To date, at least to my knowledge, I have not seen any case in which S 73A has been successfully invoked. In Competition Commission v Delatoy Investments (Pty) Ltd and Others, the court however considered to use S 73A as a remedy in a case where the directors abused the separate juristic personality of holding companies and utilised the companies for their own devices.
The Tribunal observed that while it was possible to utilise S 73A of the Competition Act, and in so doing, pierce the corporate veil, this was not an appropriate approach given that there was another route available to find recourse.
Therefore, it could be said that, in this case, the Competition Commission may seek to invoke S 73A to pursue the directors of the bank.
However, this is unlikely given the complexity of pursuing this angle.
Lifting the corporate veil requires that directors be prosecuted in their personal capacity and this requires the involvement and lead of the National Prosecution Authority. Furthermore, the fact that other provisions of S 73A have not come into effect raises doubt around the effective use of this provision since it cannot be read as a whole as it is still incomplete.
*Dr Kondo is a senior lecturer in Competition Law in the Department of Mercantile and Labour Law at UWC. He holds a BCom degree and LLB, LLM and LLD degrees from UWC.