A cartel is a formal or informal group of otherwise independent businesses whose concerted goal is to lessen or prevent competition among its participants. Typically, cartel members enter into an agreement or arrangement to engage in one or more anti-competitive activities, such as to fix prices, allocate markets or customers, limit production or supply, or rig bids.
A conspiracy can be international, national or regional in scope, with various degrees of formality and secrecy. For example, a cartel can consist of a loose oral arrangement entered into by a group of local business people during a dinner conversation. Alternatively, the collusion might take the form of a highly structured set of membership rules established by a trade association and administered through an elaborate monitoring and enforcement regime.
Cartels are harmful because they typically result in higher prices for consumers and reduce the incentive for companies to cut costs and be innovative. For that reason, cartel behaviour is unlawful under the competition laws of most countries. Canada's Competition Act contains several provisions that prohibit cartel activity in its various forms. These provisions are found in sections 45 to 49 of the Act. Depending on the nature of the arrangement, a cartel could be unlawful under more than one of these provisions.
Under section 36 of the Act, victims of cartel activity may take private legal action against the participants for damages.
Major amendments to sections 45 and 47 of the Competition Act came into force on March 12, 2010.
Conspiracy, Section 45
Section 45 is the cornerstone cartel provision of the Competition Act. It makes it a criminal offence when two or more competitors or potential competitors conspire, agree or arrange to fix prices, allocate customers or markets, or restrict output of a product. This offence is known as a conspiracy, and is punishable by a fine of up to $25 million, or imprisonment for a term of up to 14 years, or both.
The Bureau recognizes that some desirable business transactions require explicit restraints on competition to make them efficient or even possible. As a result, the Competition Act provides an "ancillary restraints defence" to ensure that strategic alliances or other types of legitimate collaborations between competitors are not treated as criminal offences.
To qualify for this defence, the agreement must be:
- "ancillary" to a broader or separate agreement that includes the same parties;
- directly related to and reasonably necessary for giving effect to the objective of the broader or separate agreement; and,
- the broader agreement must itself be legal.
When the ancillary restraints defence applies, the Commissioner can still challenge the agreement before the Competition Tribunal as a civil matter, if there are substantial anti-competitive concerns.
Foreign Directives, Section 46
Section 46 makes it a criminal offence for a company carrying on business in Canada to implement any foreign directive intended to give effect to a conspiracy entered into outside of Canada that would contravene section 45 if it had been entered into in Canada.
This provision is targeted specifically at international cartel activity affecting Canada. It allows the application of the Competition Act even in situations where the actual conspirators are not located or incorporated in Canada. Penalties include a fine in the discretion of the court.
Under section 47, it is a criminal offence for two or more bidders, in response to a call or request for bids or tenders, to agree that one party will refrain from bidding, withdraw a submitted bid, or to agree among themselves on bids submitted, without informing the person calling for the bids of this agreement. Penalties for bid-rigging include a fine in the discretion of the court and/or a prison sentence of up to 14 years.
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