Colluding to stop collusion: competition agencies are working together to detect competition issues in global supply chains

Covid-19 has caused significant issues for supply chains and in some instances, business have cooperated responsibly to ensure New Zealand continues to be supplied with essential goods and services.

New measures are being taken globally to investigate whether anti-competitive activities have emerged in response to global difficulties.  This follows on the back of more recent investigation and enforcement activity by the Commerce Commission in the shipping sector.

International working group

It is common in difficult operating conditions for there to be concerns that businesses may seek to cooperate with one another in some form.  In doing so, care needs to be taken to ensure that any cooperation does not breach competition laws.  The Commerce Commission recently announced it has joined competition regulators from Australia, Canada, United Kingdom, and the United States, in a working group to identify potential cartel conduct in global supply chains, consistent with its zero tolerance approach to collusion and anti-competitive behaviour. The working group is intended to detect and identify illegal cartel behaviour. 

The working group is a result of the multilateral assistance and co-operation framework that was signed by the above regulators in late 2020.  The framework was designed to enhance international cooperation on competition enforcement.  The framework provided the signatories with a structure for secure sharing of investigative information and cross-border evidence gathering. 

In relation to the identification of cartel conduct in global supply chains, Anna Rawlings, the New Zealand Commerce Commission Chair, identified the working group will be part of an enhanced effort to share intelligence and use existing tools to help detect and investigate potential cartel conduct.

Recent proceedings in the supply chain

The announcement regarding the multilateral working group follows the Commerce Commission filing proceedings against two New Zealand freight forwarding companies, Mondiale Freight Services Limited (Mondiale) and Oceanbridge Shipping Limited (Oceanbridge).  The Commission alleges Mondiale and Oceanbridge entered into agreements with competing freight forwarders not to compete for their customers.  A penalty hearing will be scheduled shortly.

Internationally, the United States investigated the conduct of international freight liners in 2019 and last year the United States, European Union and China met and determined there was, so far, no evidence of anti-competitive behavior in container shipping.  However, following allegations of collusion and record profits during Covid-19, the working group will take a closer look at the conduct of companies in the global supply chains.

While the supply chain is a global industry, there is a not a global approach to regulation.  The working group is intended to enhance the approach to regulation in this space.

Cartel conduct may be criminal conduct

Cartel behaviour carries significant risk of financial penalties.  In New Zealand, the maximum fine that can be imposed on a company is the greater of $10 million, three times the commercial gain of the contravention, or 10% of the company’s turnover per breach.

In addition to financial penalties, from 8 April 2021 businesses and individuals became exposed to criminal convictions with the possibility of imprisonment for participating in cartel behaviour.  Given that the new penalties only apply to conduct on or after 8 April 2021, and investigations can take some time to proceed to prosecution, we have not yet seen the Commerce Commission pursue criminal penalties for cartel behaviour.  However, it can be expected that will only be a matter of time.  In the meantime, the Commerce Commission has recently stepped up its education campaign, reminding businesses of their obligations under the Commerce Act 1986 and the risks and consequences of contraventions, as well as the Commerce Commission’s leniency policies for reporting cartel behaviour.

Specialist advice recommended

The Commerce Commission’s increased scrutiny on supply chains, coupled with higher levels of potential penalties, means that those involved in the supply chain need to be acutely aware of their obligations and take measures to appropriately address the risk of any cartel or anti-competitive conduct, and know how to respond if any concerns arise. 

We have a unique set of skills in both the trade and transport and competition spaces, with a extensive experience advising specifically on supply chain issues. 

If you would like to discuss competition issues impacting the supply chain in your business please contact Simon Cartwright or Glen Holm-Hansen or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

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Contact the expert team at Hesketh Henry.
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