23 March 20215 minute read

Cartel activity criminalised in New Zealand

From 8 April 2021, individuals and businesses will be subject to criminal sanctions for cartel conduct.

In addition, on 10 March 2021 a new bill was introduced to Parliament, which contains several key changes, including the addition of an 'effects test' to section 36 of the Commerce Act and the removal of the current exceptions in the Commerce Act relating to intellectual property (IP) rights.

Despite many companies having compliance systems in place, there remains a constant risk that any business (or its subsidiaries) can become involved in cartel activity. Aiscension, DLA Piper's new AI-enabled service, can enhance a business’s compliance initiatives by offering the ability to rapidly detect cartel activity, resulting in faster, more effective, and more accurate outcomes. 

Criminialisation of cartel activity

On 8 April 2019, the Commerce (Criminalisation of Cartels) Amendment Act received royal assent.  This makes cartel activity a criminal offence from 8 April 2021. 

In summary, the amendment created a criminal offence where an individual or business intentionally enters into an agreement which contains a cartel provision. A cartel provision is a provision in an agreement between competitors that has the purpose, effect or likely effect of either fixing price, restricting output, or allocating markets. Such conduct is strictly prohibited, irrespective of its effect on competition in any market. We outlined other key changes to the Commerce Act in a previous update (see previous amendments).  

For individuals, the offence carries a penalty of up to 7 years imprisonment, a fine of up to $500,000, or both. 

Corporates can either be fined up to $10 million, three times the value of the commercial gain resulting from the cartel provision, or 10 per cent of the businesses turnover per year in which cartel conduct was engaged in. 

Any cartel agreement entered after 8 April will be subject to the threat of criminal sanction. If a cartel agreement was entered into before 8 April 2021, continuing to give effect to that agreement after 8 April 2021 will also be criminal. 

Further New Amendments

On 10 March 2021, the Commerce Amendment Bill was introduced to Parliament.  The Bill contains several key changes, the most substantive of which are the addition of an 'effects test' to section 36 of the Commerce Act and the removal of the current exceptions in the Commerce Act relating to intellectual property (IP) rights.

The change to section 36 of the Commerce Act has been on the cards for a while now, with a Cabinet paper presented in February 2020. Under the proposed changes, entities with substantial market power will be prohibited from engaging in conduct that has – or is likely to have – the effect of substantially lessening competition in a market.  This replaces the current focus on purpose and has the potential to penalise a wider range of conduct than is currently prohibited. The proposed changes would align New Zealand law with recent changes made in Australia. 

The Bill also proposes to remove the current exceptions in the Commerce Act relating to the protection of IP rights. The Commerce Act includes exceptions for granting IP licences that authorise conduct that would otherwise be prohibited by an IP right, or for attempts to enforce a statutory IP right. 

Finally, the Bill proposes to increase the maximum penalty for anti-competitive mergers and clarifies the application of the Commerce Act to covenants and other interests in land.

The Bill indicates that most of the changes will come into force a year after the Bill is passed. In the meantime, there will be an opportunity for submissions to be made as the Bill works its way through the Parliamentary process. 

How can I protect myself and my business?

The criminalisation provisions come into force in a matter of weeks, so it is crucial that businesses take immediate action if there is concern over provisions in any current agreements. 

In addition, it is a good time to assess your continued compliance programme and the ways in which you assess your potential risk.

DLA Piper is thrilled to announce a revolutionary tool to assist clients with detecting and preventing cartel activity; Aiscension. Aiscension revolutionises risk detection by combining DLA Piper’s legal know-how with cutting-edge AI technology, a ground-breaking machine learning tool unlike anything else available in the world.  

Aiscension has the ability to analyse vast amounts of data and identify documents relevant to many forms of cartel activity, such as price fixing, market sharing, bid rigging, information exchange and collective boycotts. Through Aiscension, we can offer clients a faster, more effective, and more accurate way of detecting and preventing cartel behaviours. 

If you would like to find out more about the product or require assistance regarding any of the proposed legislative changes, do not hesitate to get in touch with one of the members of our competition team.