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Investigating Cartels Topics
Investigating Cartels Resources
Investigating Cartels
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, mutually allocate markets or customers, limit production or supply, rig bids, or to exclude other competitors from the market through the use of boycotts.
A cartel 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, inefficiencies and reduced economic output. 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 that 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.
Bill C-10, which received Royal Assent on March 12, 2009, amended sections 45 and 47 of the Competition Act. The amendments to section 45, however, will not come into force until March 12, 2010.
Key Information:
Conspiracy, Section 45
Section 45 is the cornerstone cartel provision of the Competition Act. It makes it a criminal offence when two or more persons agree or arrange to prevent or lessen competition unduly or to unreasonably enhance the price of a good or service. This offence is known as a “conspiracy” and is punishable by a fine of up to ten million dollars, or imprisonment for a term of up to five years, or both.
In a prosecution of a conspiracy offence, the prosecutor must prove, beyond a reasonable doubt, that the accused had entered into an agreement or arrangement which, if implemented, would or would likely prevent or lessen competition unduly or enhance prices unreasonably. The courts have ruled that the word “unduly” expresses a notion of seriousness and significance. It is a combination of market power and behaviour likely to injure competition that makes a lessening of competition undue.
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.
Bid-rigging
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 at the discretion of the court and/or a prison sentence of up to fourteen years.
Bid-rigging is a fraudulent practice that cheats companies and governments, and hence consumers and taxpayers, out of the benefits that a competitive marketplace would normally produce. When businesses engage in bid-rigging, their purpose is usually to win the contracts at uncompetitive prices. An uncompetitive price could be a price that is artificially high (in the case where the tendering authority is buying goods or services) or artificially low (where the tendering authority is selling goods or services, for example, the right to harvest timber on Crown land, or the right to operate a taxi stand at an airport). In both of these situations, bid-rigging imposes a financial cost on the tendering authority that would not have been incurred if the transaction prices were determined by a truly competitive process.
Conspiracy Relating to Professional Sport, Section 48
Section 48 makes it an offence to conspire to unreasonably limit the opportunities for players or competitors to participate in professional sport, or to unreasonably limit the opportunity for a person to negotiate with, and play for, the team or club of the person's choice. This provision allows the court to consider the international nature of a league, and the desirability of maintaining a reasonable balance among the teams or clubs participating in a league.
This provision is designed principally to address arrangements in professional sport which, on objective examination by a court, limit the choice of a player when he or she graduates from amateur to professional sport and which would unreasonably limit the choice of teams to play for upon acceptance into a professional sport. Of particular concern are contracts imposed upon players which are self-repeating and which bind the player indefinitely to any team to which the player may be, from time-to-time, assigned.
Penalties include a fine at the discretion of the court and/or a prison sentence of up to five years.
Conspiracy Among Federal Financial Institutions, Section 49
This provision makes it a criminal offence for banks or federally incorporated trust, loan or insurance companies, to enter into an agreement or arrangement with respect to interest rates or service charges on deposits or loans, or with respect to the kind of services to be provided or the persons or class of persons to be served. This provision contains a number of exceptions intended to ensure that these prohibitions do not inhibit the legitimate operation of the financial system.
Penalties include a fine of up to ten million dollars, or imprisonment for a term of up to five years, or both.
