Price-fixing executives will not be subject to jail terms after Government u-turn
The Government has backed off a key change to competition law, deciding that cartel activity - where companies or organisations fix prices - will not be a criminal offence.
In a statement Paul Goldsmith, the Minister of Commerce and Consumer Affairs revealed he was stripping criminal sanctions for cartel behaviour currently contained in a the Commerce (Cartels and Other Matters) Amendment Bill.
He said on Tuesday that after a year of consideration he had made an "on balance decision" that the costs of introducing criminal penalties outweighed the benefits.
"I want directors of companies to be very cautious about their decision making in this area, but if you move them to being ultra-cautious in their decision making, then there's an economic cost to that," Goldsmith said.
"If we keep providing new ways for directors to go to prison if the judgements are wrong then overall there's a potential chilling effect on innovation."
National has been grappling with whether to make cartel activity criminal for most of its time in Government.
Former Commerce Minister Simon Power launched a discussion document back in 2010, and in 2011 released draft legislation which would have meant those found guilty of serious offences could have been jailed for up to seven years.
"We all recognise the problem - that cartel activities such as price fixing and bid rigging are harmful forms of anti-competitive behaviour, and result in businesses and consumers paying inflated prices," Power said at the time, adding that criminalising cartel activity would bring New Zealand into line with the likes of the United States, Canada, Australia and Britain.
Goldsmith denied the move meant New Zealand remained out of step internationally, but could not name a comparative peer which did not criminalise cartel activity.
However he said that criminal penalties had been introduced to cartel law in Australia at "very significant cost" but had seen "very, very few, if any [cases] brought through".
The legislation will impose stiffer civil penalties, with individuals liable for fines of up to $500,000, while companies could be fined up to 10 per cent of turnover.
ACT leader David Seymour lobbied for criminal sanctions not to be part of the legislation.
"It's easy to envisage how honest New Zealand businesspeople may be deterred from legitimate growth-enhancing activity for fear of imprisonment," Seymour said, adding that the sanctions would have had the greatest impact on small businesses which did not have access to legal expertise during litigation.
"Furthermore, there is little evidence that cartels are a problem in New Zealand's small open economy, or that criminalisation would be a more effective deterrent than the already large fines available."
Green Party commerce spokeswoman Mojo Mathers said National had "gone soft" on white collar crime, after previously acknowledging that some businesses would see a fines as a cost of doing business, rather than a deterrent.
"Small markets, like New Zealand's, are particularly vulnerable to price gouging behaviour – just ask anyone going to a supermarket or paying their electricity bill," Mathers said. "Criminalisation has been shown overseas to be a more effective deterrent than a low fine structure."
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