SOUTH AFRICA TOUGHENS ANTITRUST LAW

C O N F I D E N T I A L PRETORIA 001944


DEPARTMENT PASS USAID FOR MARJORIE COPSON AND FEDERAL TRADE
COMMISSION FOR NICK FRANCZYK

E.O. 12958: DECL: 09/22/2019
TAGS: ECON EIND AID SF
SUBJECT: SOUTH AFRICA TOUGHENS ANTITRUST LAW


1. (SBU) Summary: South Africa has enacted a law to
criminalize cartel activity and regulate abusive oligopolies.
The law is largely a reaction to the disclosure of pervasive
cartel activity in South Africa. However, the law could
complicate the work of the Competition Commission. The
Commission has a long-standing relationship with the U.S.
Federal Trade Commission and would like additional U.S.
assistance in the area of cartel investigation. End Summary.

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New Law to Toughen Antitrust Enforcement
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2. (U) President Zuma has signed a controversial bill to
amend the Competition Act of 1998. The bill aims to
strengthen antitrust enforcement in South Africa by:

-- Imposing criminal penalties on directors and managers who
fix prices, divide markets, or collude on tenders;

-- Empowering the Competition Commission to act against
oligopolies (called "complex monopolies" in the bill) that
undermine competition by engaging in consciously parallel or
coordinated conduct (such as price leadership),even when
there is no agreement between the oligopolistic firms; and

-- Empowering the Competition Commission to engage in broad
market inquiries into the state of competition in markets
without reference to the conduct of any particular firm.


3. (SBU) The move to criminalize cartel activity has sent
shock waves through South Africa's business community, which
often winks at anti-competitive abuses heretofore treated as
civil offenses. However, the bill's criminal provisions are
seen as vulnerable to constitutional challenge, as they allow
civil findings of cartel activity to be used as prima facie
proof of cartel activity in criminal cases, thus shifting
part of the burden of proof onto defendants. Earlier this
year, President Motlanthe (Zuma's predecessor) had returned
the bill to parliament for reconsideration, citing concerns
about its constitutionality. Parliament declined to modify
the bill.

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More Power, More Problems
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4. (C) In a meeting with Deputy Econ Counselor, Deputy
Competition Commissioner Tembi Bonakele acknowledged that
"complex monopoly" cases could be time-consuming and
expensive to litigate, given the difficulty of showing that
firms have acted in a "consciously parallel" manner. The law
would be used sparingly, he confided, predicting that
enforcement would be limited to steel, petrochemicals,
telecom, and a few other sectors that were historically
dominated by state-owned monopolies (since privatized).
Bonakele also confirmed reports that the Commission had not
sought authority to pursue complex monopolies, preferring
instead to open market inquiries into these sectors.
However, the bill's drafters in the Department of Trade and
Industry (DTI) were determined to give the Commission broad
powers to pursue oligopolies, which they see as a serious
problem in South Africa.


5. (C) Bonakele agreed that criminalizing cartels could
complicate the work of the Competition Commission, which is a
civil enforcement agency, not an arm of the police. In
particular, he said the Commission must reach an
understanding with the National Prosecution Authority (NPA)
to protect the Commission's corporate leniency policy (CLP).
Note: CLP shields cartel members who acknowledge wrongdoing
and give evidence against other cartel members. It has
played a key role in exposing several highly abusive cartels.
End Note. Bonakele warned that CLP will collapse if
managers and directors fear that coming forward could expose
them to criminal liability. He was hopeful that NPA would
agree to be bound by leniency decisions of the Commission,
even though "prosecutors are jealous of their authority and
discretion."


6. (C) According to Bonakele, the move to criminalize
cartels was a response to the disclosure of widespread cartel
activity in recent years. The public was especially shocked
by the disclosure of price fixing in the bread industry, he
said. Since CLP rules were clarified in May 2008, the
Commission has been flooded with leniency applications,
especially in the construction and industrial products
sectors.

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Praise for Federal Trade Commission
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7. (SBU) Bonakele expressed gratitude for the U.S. Federal
Trade Commission's long-standing, USAID-funded program to
build capacity at the Commission. "FTC has been incredibly
helpful, and we have an excellent relationship," he said.
Looking to the future, Bonakele said the Commission would
also like to build ties to the U.S. Department of Justice and
to receive technical assistance in cartels investigation.
"The Commission is going to set up a unit dedicated to
cartels," he said. "We want the investigations to yield
evidence usable by prosecutors. We hope the U.S. can help."

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Comment
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8. (SBU) The apartheid economy was characterized by
extraordinary levels of concentration. In 1990, for example,
more than 80 percent of the Johannesburg Stock Exchange was
owned by only four conglomerates (Anglo-American, Sanlam, Old
Mutual, and Rembrandt). Undoing oligopolies and introducing
competition was a top ANC priority, leading to the enactment
of the Competition Act in 1998, and to the creation of the
Competition Commission a year later. In its early years, the
Commission focused on scrutinizing mergers. Lately it has
stepped up enforcement against cartels, uncovering abuses in
sectors such as steel, fertilizers, construction, and food.
The Commission has won kudos from the press and public, and
is now seen as one of South Africa's most successful law
enforcement agencies. Private sector and legal contacts
agree it is changing the way business is done here.


GIPS