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Double Trouble: SARS and the Competition Authorities

Thursday, 10 September 2009   (0 Comments)
Posted by: Author: Marianne Wagener
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Double Trouble: SARS and the Competition Authorities
SARS is not the only regulator imposing hefty fines on businesses.These days, the competition authorities have also been imposing large fines on South African companies.Massive fines on firms for violating competition law, amounting to over R400 million during the last calendar year alone, have highlighted the need for firms to not only manage their tax risk exposure, but also to implement properly structured competition law compliance programmes.

The competition authorities have shifted their focus from merger regulation to prosecuting prohibited practices.This is evidenced by the fact that in June 2009, the commission issued a press statement announcing an extensive investigation into supermarket chains and the major wholesalers and retailers for alleged contraventions of the Competition Act and also conducted invasive dawn raids on various role players in the cement industry.

Firms guilty of contravening the Competition Act face many far-reaching consequences ranging from high fines, unenforceable contracts, restrictions on conduct, reputational damage, substantial legal fees, the loss of valuable executive time and civil actions for damages in the High Court.

Amendments to the Competition Act which were signed by the President at the end of August (although it has not yet been promulgated), will strengthen the penal provisions of the act even more.This will be achieved by introducing criminal liability for directors and managers of companies that participate in cartel conduct.This amendment will bring our act in line with competition legislation in a number of other international jurisdictions where jail time has successfully been imposed on executives.

The authorities’ views have been articulated by the previous Chair of the Competition Tribunal, David Lewis, who commented during the hearing in relation to the Tiger Brands consent order that it is "increasingly held in competition law that the only penalty sufficient to deter cartel conduct is prison time … and [that] is a view, quite honestly, that we share”.

The problem, however, is that most individuals, despite these risks, still do not fully understand the act. Most firms in South Africa have still not implemented competition law compliance programmes. Compliance programmes should be tailored for the needs of each firm individually; but in broad terms, should involve at least four elements:

•A compliance audit to determine the level of competition law compliance and identify potential contraventions.
•A compliance manual to inform employees and management of the basic principles of competition law, the competition authorities’ enforcement powers, and to provide practical guidelines on how to abide by competition law. 
•Training seminars designed to provide practical guidance and an opportunity for employees to ask questions and discuss any concerns. 
•Regular monitoring of the programme and of staff concerns.

A compliance programme should also educate employees how to deal with a ‘dawn raid’.The Competition Commission has the statutory right to conduct unannounced raids during which they are allowed to enter and search a firm’s premises and confiscate documents like letters, presentations and strategy plans.These raids are becoming more common in South Africa, and staff members need to know how to deal with this situation and ensure that a raid is carried out in a legal and orderly manner.

A comprehensive compliance programme will not only actively assist a firm to comply with competition law, but would also allow the company to be prepared to deal with a situation where it has already transgressed the law: it may be possible to apply for leniency in terms of the Commission’s Corporate Leniency Policy, which grants firms the opportunity to apply for immunity from prosecution in return for their co-operation and information leading to the prosecution of the other cartel members.  

The existence of such a programme may be considered to be a mitigating factor by the Competition Tribunal when determining penalties, if a firm is found guilty.Businesses tend to resist implementing such practices because they are thought to be time consuming and expensive.However, with the competition authorities increasingly focusing on the war against prohibited conduct, in comparison to the risks involved (both for companies and in future for directors and management in their individual capacities), the cost in time and money spent on compliance is insignificant. 
Source: By Marianne Wagener (TaxTALK)



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