No Jail Time For Cartel Criminals.

An organization created from a formal agreement between a group of producers of a good or service, to regulate supply in an effort to regulate or manipulate prices. A cartel is a collection of businesses or countries that act together as a single producer and agree to influence prices for certain goods and services by controlling production and marketing.  Investopia

This week commerce minister Paul Goldsmith announced that after taking advice from the community, including law firms and directors that cartel criminalisation would have a chilling effect on pro-competitive behaviour between companies.

The funny thing of course is that cartel forming and competitive behaviour are mutually exclusive. Either a cartel prohibits competition or you have competition and no cartel.

It is important to understand that John Key is a member of one of the biggest cartels in the world. Namely the international banking cartel we understand as the reserve bank system operating in all but three countries. The three countries not part of the reserve banks system are Syria, Iran and North Korea.

Another cartel is of course the Oil producing countries or the OPEC cartel.

Here is the text of the interview with Paul Goldsmith (Hat tip Iain Parker from Public Credit or Bust blog)

—————————————

Plan for jail terms for cartels scrapped
Radio New Zealand
9 DEC 2015

The government has scrapped plans to introduce criminal sanctions including jail sentences for business people caught operating cartels.

The provision for criminal sanctions was contained in the Commerce (Cartels and Other Matters) Amendment Bill.
Cartels are where businesses boost profits by collaborating with rivals to keep prices high.
Announcing the back track yesterday, Commerce Minister Paul Goldsmith said the government had to consider the significant risk that cartel criminalisation would have a chilling effect on pro-competitive behaviour between companies.

Full transcript of Guyon Espiner (GE) interview with Paul Goldsmith (PG);

GE : Good morning
PG : Oh good morning Guyon
GE : How would it be that having criminal sanctions could have a chilling effect on competition – isn’t that what your trying to do – if you try to ward people off cartels?
PG : YES – I mean – I think the – look – the balance is – ah – when I look at it – I want to see directors of companies in New Zealand being very cautious about their decision making in relation to pro-competitive or anti-competitive behaviours.

Ah but – and so – that’s why we have had a very strong civil regime for a long period of time – decades – with very large substantial fines.

Ah the question is if you move to new regime where it is also the potential to go to jail with a criminal regime – ah then if the consequences – that ah – directors become ultra cautious in their decision making that has a cost to the economy because – ah – overall there is less – potentially less innovation – less risk taking and – ah – that has a kind of chilling effect on innovation in the economy as a whole and ah……
GE: While hang on – that doesn’t make any sense at all does it ?
I mean if you have got big fines in there why would they not have a chilling effect in themselves ?
PG: Well – its – its – its that extra step I suppose. So you know – for a long period of time we have – we have looked at the consequences of cartel activity – such as price fixing or restricting output or allocating markets between competitors.
All these things are very significant problems and so society has said if you do that – we will catch you and impose very significant fines which can run into the tens of millions of dollars.
GE: Yeah but? Ok if you look at what Simon Power (Former Minister of Commerce now left parliament to work at Westpac Bank high net worth customer services) said when he was going to introduce this – he said that criminalising cartel activity would bring New Zealand into line with the likes of the US – Canada – Australia and Britain – so why would we want to remain out of step with them – if its good enough for them to criminalise cartel activity – why is it not good enough for us ?
PG: Yep – well – so – so the question you have to ask is if every year parliament passes a new law which creates a new way for directors..
GE: While no – with respect that is not the question I asked – I have asked the question – what is the answer ?
PG : It is a cumulative effect – the cumulative effect is on the deciision making at the board level – and – you know – I perfectly agree there is an arguable point and in the year that I have been Minister I have been talking to a lot of people and there has been a very mixed view about this – whether its a good idea.

But there are a lot of people who are concerned about yet another way for directors to go to prison and – ah – in this area put potential consequence that you end up having a chilling effect on innovation and risk taking and we as a country certainly need our business to be….
GE: Could you answer that question please Minister ?
PG: Sure
GE: Why is t good enough for those other countries to have criminalisation of cartels and not for New Zealand – or to ask it another way – can you name another country that we compare ourselves with that doesn’t have criminalisation of cartel activity?
PG: Ah look – I don’t have an example off the top of my head but a lot of countries have recently introduced criminalisation – the Australians done it a few years ago and there’s been – I don’t think – a single case where they have actually prosecuted anybody and so…
GE: So where does the chilling effect argument come in then?
PG: Well because its the decision making – it – it – people see the prospect of potentially going to jail in an area where a judgement is incorrect – so – you know – your looking at such things as joint bids for contracts that can be pro-competitive I,e, legal or anti-competitive and what might be pro-competitive one year might turn out to be anti-competitive next year if the market conditions change.
GE: Or is this a case of a business friendly government who has been lobbied on this and who has actually backed down and the consumer is the loser because we are all going to be paying higher prices potentially if businesses get together and they know they are not going to jail – they can pay this off – they can pay fines off can’t they?
PG : Well if you think a $500,000 dollar personal fine is lite – then obviously you have got more money than I have.
GE: No – you don’t have to rely in me – I am going to go to Paula Rebstock who pointed out that financial penalties are not enough – as was clearly demonstrated in Australia with Quantas in the air cargo cartel and the Quantas said “we do not believe this or any further financial penalties will materially effect future operating results.
They didn’t care. They were big enough – but if you are going to say we are going to send you to prison – well that is a different story – is what you were asked to do – what you were going to do and you have backed down.
PG: Yeah – and – and surprise – surprise the government sometimes listens to feedback that it gets from the community and there is – there is a….
GE: Who in the community? Who in the community told you that this wasn’t a good idea?
PG: Well – well a number of law firms and – ah – um directors and….
GE: Ah – law firms and directors – did anyone from consumer advocacy point of view say hey no don’t send these guys to jail?
PG: Look its easy – very easy to puff out ya chest and say were going to be tough – we are going to send people to prison and we keep on doing that and if we are – and that is absolutely appropriate in many cases – such as fraud or in health and safety issues – but you have to ask yourself – while that” s fine – but there is a cost and the cost is that as a result you are sitting at the board table and there are lots of different ways you can go to prison – you become much more cautious in your decision making and I go back….
GE: While that is a good thing isn’t it?
PG: Indeed – you want directors to be very cautious if you push it to far and they end up being ultra cautious and not actually innovating and not taking risks it is a boundary and…
GE: You seem to be Minister – missing up innovation and cartels. I mean cartel is colluding together to actually shaft the consumer. That is what a cartel is. You are conflating that with innovation – I don’t understand?
PG: Well because there is a risk spectrum in all sorts of business decision making and where you have – ah – ah there is a lot of joint bids and collaboration that goes on between companies and another element of what this bill introduces brings in international shipping into the cartel regime – which has up till now been excluded and it also brings in a clearance regime so that businesses can come along to the commerce commission and say this is an arrangement that we are going to do – can you give us a clearance and – ah – you know – it is a very complex area of law.
And – ah – it – it – there – there are – as I say arrangements that may well be pro-competitive or decided to be pro-competitive one year and if the market changes they would be anti-competitive next year.
So its not as always black and white as you see. But the broader question is – what will be the signal that we send and the signal that we send is that the government definitely does take cartel and anti-competitive behaviour very seriously and….
GE: Just not seriously enough to go to jail ! We have to leave it there – we have probably spent enough time on this.

END

 

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