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Ex-Competitions Tzar calls for action that could kill hugely successful Leniency Policy
You’d have to look far and wide to find a more decent human being than David Lewis. An anti-apartheid struggle activist, he applied his brilliant mind to drafting and enforcing South Africa’s desperately needed revamped Competitions Law. We have engaged many times over the years and his excellent book, Thieves at the Dinner Table, is heartily recommended. It provides an inside look at the way business used to work in South Africa – and in some cases still does. Lewis’s master stroke in winning the war against collusion was the Corporate Leniency Programme which offered immunity to the first company to own up. This gives colluding companies a huge incentive to tell on each other – as happened with the construction firms in the recent three year investigation. I asked Lewis, now retired from the Competitions Tribunal, to discuss his recent comments that the colluding builders should be criminally charged – a perspective that flies in the face of what he argued for in his book, and something which would put the Corporate Leniency Policy at risk.
ALEC HOGG: Corruption Watch is calling on those affected by collusion in the construction industry to sue the companies involved for damages. Joining us for more on that and for some background to all of this is David Lewis, Executive Director of Corruption Watch, father of Competition authorities in South Africa…David?
DAVID LEWIS: I was in right at the beginning – yes.
ALEC HOGG: You were the man who got all of this going. It’s quite interesting that you’re now calling for something that might affect your trump card – your (Corporate) Leniency Policy. Just explain this to us.
DAVID LEWIS: Yes. You’re one of the first people to point that out and you will remember that when I was in the Competition authorities, the Competition authorities opposed criminalisation.
There’s something very special about this particular cartel and that is that it’s a bid-rigging cartel which I think is a particularly pernicious form of anti-competitive conduct
and it seems reasonably clear that without criminalising the Competition Act, the provisions of the Prevention and Combatting of Corrupt Activities Act outlaws bid-rigging cartels in the case of public sector contracts. And so it’s a very particular form of, as I say, of collusive conduct but one that I think seriously warrants criminal sanctions.
ALEC HOGG: But David, then the people who admitted, the people who signed over in terms of the leniency program – in other words; told on each other – were actually digging their own holes…potentially their own graves.
DAVID LEWIS: Potentially. I don’t understand that individuals have yet been implicated. I mean this is one of things that we’re calling for. I mean the public outcry – the public demand that individuals be held to account for this is impossible to ignore. And you know, indeed it might impact negatively on the leniency program and that would worry me a great deal. But I think that one has the situation now where the public do not accept that the penalties meet the offence and to some extent they’re right and to some extent we’ve held that all along.
ALEC HOGG: But let’s get perspective on this, David. There were roughly, in the period under review, 20000 projects that construction companies were involved in. According to Mike Wylie (WBHO chairman in his interview on Power Lunch, 8 July) 55 of these were affected in some way. Now 55 out of 20,000 is hardly endemic at the one end and secondly, of course; one project is too many. But aren’t we losing perspective if you can throw your whole leniency program overboard just to try and make an example of these people?
DAVID LEWIS: Well I repeat: firstly, we know of 55, however many there are that were – projects that were caught. We don’t know that.
ALEC HOGG: Well, the construction needed to look thoroughly and told you how many there were. Sorry – not you; the people who used to be you David.
DAVID LEWIS: They told the Competition authorities but yes; I repeat that this public sector bid rigging has a
quality that is different from I think, most forms of collusive conduct. And for that reason it’s the one form of collusive conduct that falls foul of the Anti-Corruption legislation because I think it is a particular species of corruption. And it’s under that legislation that we’re saying…and the Hawks are already on record as investigating this and the Commission is cooperating with the Hawks. But yes, it may make detection or it may make (future) leniency applications less likely.
It may also send an incredibly strong signal that the risks, even though on sort of probability without the leniency programs are smaller, the consequences would be catastrophic for any business executive.
ALEC HOGG: We know that cartels were endemic in the Apartheid regime. We know that that’s the way business used to be done. The government supported it. But post-1994 and post I suppose 2000 (when the Competition Act was promulgated) and you put the date really in 2007 in your book when Nick Dennis admitted (CEO of Tiger Brands who resigned after the bread cartel was exposed). You said no more was Business South Africa arrogant. Now they were nervous about the Competition authorities. Things have changed. You’ve achieved your objectives. Are we now not putting – with the construction sector in particular – the whole infrastructure program at some kind of risk?
DAVID LEWIS: I would have hoped that things had changed and I’m pretty certain that they have changed for the better but the incentives – and not only in South Africa – the incentives to engage in collusive conduct are so great that nothing but persistent rigorous enforcement will change that. I mean the American Anti-trust authorities believe absolutely emphatically that even treble damages – which you have in the United States which I think we should have here as well…
ALEC HOGG: Which means?
DAVID LEWIS: Which means that when companies are sued for damages as a result of cartel conduct and the damage is calculated by the court they are trebled because of the scale of profiteering involved in collusive conduct. So the Americans believe that even treble damages are not sufficient and that imprisonment is absolutely essential. And I mean we’ve had to argue with them and explain why in our circumstances, and in the circumstances of many other countries, criminalisation poses particular challenge and those are as you’ve said to the leniency program.
ALEC HOGG: You speak a lot in your book to the subject of criminality and how it isn’t just as open and shut as ‘These are the bad guys. Let’s put them in jail’. But in fact we want to fix business in South Africa by bringing in this leniency program and letting people own up.
DAVID LEWIS: Absolutely.
ALEC HOGG: So wouldn’t sending them to jail be wrong?
DAVID LEWIS: Well, in general as you’ve pointed out and I’m happy to acknowledge – in general – probably not something that I would favour.
And I still would not favour the criminalisation of the Competition Act and I do want to underline that.
This would not be criminalisation of competition conduct as much as it would be criminalisation of corrupt conduct and it’s the one area in which the two interface.
ALEC HOGG: I must ask you, David. Business Day ran a piece earlier this week on their front page where it was a letter from the public sector saying ‘please get together, construction industry. We’ve got a problem in not being sure that we’ll build these stadiums before the 2010 World Cup. We want you to work together’. Isn’t that a little bit different to what is being projected as collusive activity?
DAVID LEWIS: Well, that letter has been presented as evidence that the companies were invited or were provided with a platform at any rate to engage in collusive conduct. That happens, you know, believe it or not, in other circumstances as well and it’s not a defence. It’s certainly not a legal defence. But you know, I feel about these companies. I mean these are amongst our few seriously world-class companies and it comes from – again – the economic history of South Africa where they’ve built deep-level gold mines and they’ve done all sorts of massive projects. These are companies which you really think…if any company is in need of the protection of a cartel you would hope that it’s not these companies; that they can engage on their own merits. They know what their capacity is. They know what they should bid for, what they shouldn’t bid for and if their margins were somewhat squeezed by having to compete with their competitors these are the kind of companies that would be – and to some extent already are – building stadiums all over the world; building mines all over the world. They have that capacity. They have that skill. They have that capital and that’s what they should be doing. They should not be profiteering in the domestic market by, in this instance, allocating contracts.
ALEC HOGG: But how could they be profiteering if they’ve got the lowest margins of nine industries investigated by Stats South Africa? In the past I think there’s no question; they profiteered. We know that. But since 2007 they claim there’s been nothing much going on.
DAVID LEWIS: Well, it appears that from what I understand from the settlement agreements; it appears that the margins on these projects were rigged. I mean this is precisely what they did. And what I understand it to be – you would probably know this better than me – are in fact very lucrative margins. So I don’t know what’s been happening over the industry as a whole but they have been surviving in the industry as a whole and maybe they’ve been competing internationally to improve their margins. And in this instance they decided that they wouldn’t do that.
* Alec Hogg is a Business Keynote Speaker, online publisher, writer and broadcaster
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