Getting a fair deal for consumers
Commerce Commission chair Mark Berry talks cartels, whistleblowers and consumer compensation with Tim Hunter.
For a man whose job involves grappling with the forces of corporate darkness, Mark Berry is disarmingly twinkly.
Dapper in legal pinstripes and cufflinks, he seats himself at the head of the Commerce Commission's Auckland boardrooom table and tiptoes through a conversation about secret cartels, dawn raids, and multimillion dollar settlements.
"It's fair to say it's one of the sexy areas of commercial legal practice," he says, delivering the line deadpan, with only a small wrinkle around the eyes.
Berry, chairman of the commission since April 2009, gives every appearance of enjoying the hefty weight of its work.
This is just as well. On the commission's books at the moment are cases involving an alleged cartel in foreign exchange trading, alleged mis-selling of interest rate swaps, the price of broadband internet, supermarket supply deals and the purchase of Carter Holt Harvey's pulp and paper business by Japanese interests.
The forex investigation was the result of a whistleblower dobbing in alleged co-conspirators.
Under a policy known as "leniency", the commission can grant immunity from prosecution in exchange for evidence of an illegal cartel. In April, the commission said it was probing possible manipulation of currency rates and influencing of benchmarks after someone had applied for leniency.
Beyond that it has said nothing. Berry remains discreet.
"All I can say at this stage is it's one of the publicly known cartel cases we are doing at the moment," he says. "We're having to go through the factual matrix and work out what kind of harm it's having in the New Zealand marketplace. That's pretty upfront in our investigation basket."
The commission's forex probe follows similar action by more than a dozen regulatory authorities around the world, including in Britain, the United States, Switzerland, Hong Kong and Australia, as well as civil legal action.
Banks named as defendants in a class action lawsuit filed in New York in March are Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, RBS, and UBS.
The allegations, which are denied, say the banks manipulated exchange rates used in an important benchmark known as the London close.
"By communicating directly with one another, including in closed network chat rooms with incriminating names such as ‘The Cartel', ‘The Bandits' Club', and ‘The Mafia', defendants exchanged confidential customer order information and trading positions," says the complaint.
Last week Britain's Serious Fraud Office opened a criminal investigation into allegations of fraudulent conduct in the forex market, adding to a reported criminal probe by the US Department of Justice and the Federal Bureau of Investigation begun last year.
Berry is saying little about the New Zealand issues, save that they are linked to the global probe.
"I think you'll find the cartel conduct is of a uniform international kind. It's a question of just working out whether any parties in New Zealand are in the frame of that cartel and, if so, what commercial harm has arisen out of that."
The identity of the Kiwi squealer remains secret, but will inevitably become clear if the commission takes legal action.
"When we got these international cartel cases first of all the person who's got immunity is required to produce a great deal of evidence and to make themselves available," says Berry. Failure to come up with the goods can mean the immunity is withdrawn.
The commission is in close contact with overseas regulators, "but the evidence we are using is driven off information provided by the immunity applicant for the most part".
Once it has its claws in a case, the commission has extensive power to demand interviews with people and to search premises, although Berry won't be drawn on progress so far.
"We're still largely information gathering," he says, and it's hard to tell how long the investigation will take.
But what about those words - "one of the publicly known cartel cases". So there are more not publicly known?
Yes, says Berry. Most of the six or seven current cartel investigations are under wraps.
"In terms of investigation techniques it is better that it's not widely known in the marketplace prior to us getting to interview people or put information requests. You don't want documents disappearing."
Asked if his office has the powers to do its job, he says: "Yup, we do.
"One thing we recently have got in the fair trading arena is the power to compel people to actually give evidence and to appear before us as witnesses. Up until last year that power wasn't there and people were slowing down our investigations."
Berry picks his words carefully, saying precisely what he wants to say and no more.
People who have worked with him say he is highly principled in his focus on executing the law, with a lawyer's reserve that guards against revealing his own views.
The son of a Radio New Zealand manager, Berry was born in Invercargill and raised in Dunedin. His undergraduate law degree is from the University of Otago and he spent five years there as a member of the law faculty.
With no inclination to follow his father into broadcasting - "I wasn't attracted into that territory," he says - Berry's career in competition law was mapped out early on at law firm Bell Gully, where he became involved in several significant cases in the late 1980s.
The draw was the intellectual challenge, not the opportunity to fight for a cause.
"People get a bit confused that a lawyer's representing the client's interests," he says. "We're not like economists who have to come with an independent viewpoint. All we ever do is advocate for the position our clients want to take. It's easy for lawyers to that extent - you don't have to be agreeing with the cause they may have."
Did he ever find that hard?
"No, not really."
That impartiality is a good fit with his commission chairmanship, a role requiring the administration of the law as it stands.
He cites the unpopularity of some commission decisions as evidence of its independence. The Government's displeasure at the commission's draft decision on the wholesale price of copper broadband was one example.
In November last year the commission recommended the wholesale broadband service provided by Chorus should effectively fall to $34.44 a month from the current $45, a price also below the Government's planned entry level price for fibre of $37.50.
This was not helpful to the Government's costly policy to subsidise fibre installation nationwide and led to Prime Minister John Key considering legislation to over-rule the commission.
The commission's decision was led by Telecommunications Commissioner Stephen Gale, not Berry, but he is happy to answer for it.
"There was a lot of noise around the fact we might be politically interfered with and I would have thought that ruling would indicate those suspicions are unfounded. We do operate as an independent agency and our independence is respected politically."
Ironically, the same decision prompted angry demands from some fund managers that political interference was required.
One of the most outspoken was Australian fund manager Simon Conn of Investors Mutual, who wrote to the prime minister complaining that the decision was a "complete misreading of the legislation".
Berry calmly knocks it back. "It was a bit surprising that analysts and others in the industry didn't see that coming," he says.
Everyone knew the rules the commission would have to apply and should have realised the legislation implied a significant price difference. "It's interesting that Chorus did appeal our decision and [the ruling by] Justice Kos did say there was always going to be a pricing sea change."
But criticism goes with the territory. "No matter what our rulings are, the regulated entities are going to say we've not been kind enough to them and the consumer groups are saying we're not looking after them."
Still, the commission appears most proud of the decisions favouring consumers. Its famous victory in obtaining a $60m settlement for alleged mis-selling of Credit Sails investment securities by investment bank Credit Agricole and broker Forsyth Barr is regularly trotted out as evidence of its effectiveness.
Berry himself took part in the final stages of the settlement talks and clearly takes satisfaction from the outcome because the victims were mostly "mum and dad" investors aged over 70 years.
"They'd lost virtually all of the money they had put in Credit Sails and it was to the credit of Forsyth Barr and Credit Agricole to come to the party in the way they did."
Ultimately it is a legal requirement that the commission acts to protect the long-term interests of consumers, but Berry seems to find the goal congenial.
"I know the staff in this organisation get a lot of satisfaction out of taking steps to protect vulnerable consumers, because we do see some very sharp practices.
"Where you can put right those injustices, sure we all get a lot of satisfaction out of that."
The swaps case
In December 2013 the Commerce Commission said it would sue ANZ, ASB and Westpac over their sale of interest rate swaps contracts to farmers, alleging breach of the Fair Trading Act. The announcement followed a six-month investigation of the way swaps were sold by the banks between 2005 and 2009. The swaps were complex deals purporting to protect farmers from rising interest rates. However, in practice they led to higher debt costs for farmers, to the benefit of banks. Commerce Commission chairman Mark Berry says the case is more complicated and time-consuming than the compensation claim for Credit Sails, where investors had similar experiences. "The interest rate swaps factual matrix is more complex in that we've had to look at the individual case studies of farmers one by one," says Berry. In each case the commission has had to trace the documentation of deals with individual farmers, including how each bank manager communicated it. After asking more farmers to come forward in May, a further 80 told the commission of their complaints. There are now about 240 farmer complainants in the case. The commission had aimed to file the lawsuit in March but it has yet to do so. In April it said it would make a further announcement mid-year after talking to each bank. Last month it said it was in ongoing discussions with the banks, implying an out of court settlement is on the cards. Berry said: "There is a possibility of resolution if satisfactory arrangements can be made." "We are dealing with each of those banks individually so there may be different timelines for those banks but we are doing all we can to bring things to a conclusion, given there are farmers who have suffered loss and damage. "If a settlement option was on the table that enabled them to be compensated we would look seriously at that so long as the settlement offer was appropriate." How do you tell what is appropriate? "It is a judgment call," says Berry. "There is a discount factor that takes account of litigation risk."
Sunday Star Times