How White-collar criminals benefit from leniency provisions in New Zealand law
Lisa Marriott & Edward Willis* If you look at the justice policies of the main political parties you’ll see references to gangs (ACT), violent criminals (National), greater investment in policing (Labour), social justice (Green Party) and problems with the criminal justice system (Te Pāti Māori).
What you won’t see is any reference to white-collar crime. This could perhaps be because New Zealand doesn’t have a lot of it. But a more realistic view is that we don’t invest in detecting, deterring or punishing white-collar crime. We don’t even really talk about it.
Take cartels as an example. Cartels are essentially where two or more businesses agree not to compete. This affects competitive markets and hurts consumers, causing increased prices (via price fixing) or decreased supply (by restricting output).
But cartels are notoriously difficult to detect due to an absence of formal arrangements and their inherent secrecy.
Leniency for whistleblowers
Cartel activity was criminalised in 2021 in Aotearoa New Zealand. Anyone found guilty can now face a prison sentence, along with substantial financial penalties.
However, the rules offer generous leniency and immunity provisions for cartel participants who reveal the existence of the cartel to the Commerce Commission. The commission won’t take legal action against the whistleblower if they cooperate in the prosecution of the other cartel members.
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The aim of these provisions is to destabilise cartels by encouraging whistleblowing. They serve as a deterrent because they make joining a cartel riskier by increasing the likelihood of getting caught. Requiring the whistleblower to cooperate in a prosecution increases the likelihood of successful cases due to the evidence that can be presented to the court.
Along with this leniency, the whistleblowing firm may remain anonymous and not suffer the reputational damage attached to other cartel participants. The disclosing individual or firm also retains all the benefits of the offending.
Where a firm is involved in cartel behaviour, any leniency or immunity granted is typically extended to directors, officers and employees involved in the conduct.
By the numbers
Such provisions have existed since 2004. Before criminalisation in 2021, leniency was automatic for self-reported cartel activity where there was no existing investigation, if the whistleblower met certain conditions, including admitting and stopping the bad behaviour and providing evidence for any prosecution.
Since 2012, 106 firms or individuals have been charged with anti-competitive conduct.
Our data shows an upward trend in leniency applications and a significant increase in applications for leniency and immunity in 2022 after criminalisation. Requests for leniency averaged 4.4 per year prior to 2022 but increased to 19 in 2022. We found that 43 of the 44 requests for leniency prior to 2022 were granted, while nine of the 19 requests in 2022 were granted.
A further concession made to cartels is the adjustment of penalties when it’s decided firms can’t pay the financial penalty that would otherwise apply. While not unique to cartels, four of ten recent anti-competitive cases had penalties reduced when the company claimed it couldn’t pay.
In one case, potential financial penalties ranged between NZ$400,000 and $650,000. In the end this was reduced to $62,500 based on what it was determined the company could pay.
The problem with leniency
The situation raises several questions and issues. First, the messaging is problematic. Offering leniency implies a certain level of acceptance by the community.
As cartel activity is often described as the most serious form of anti-competitive conduct, it’s difficult to reconcile this with an absence of sanctions for those who admit participating in it.
Secondly, there’s the question of equality of treatment in our justice system. Is it fair that only certain (white-collar) offenders enjoy leniency provisions? Anyone participating in cartel conduct can apply for immunity or leniency. This is not the case for those engaged in other criminal activity.
Third, is justice served when a firm can retain the benefits from the historic cartel activity and incur no formal sanction? This can mean the party that engages in the most serious misconduct, such as instigating the cartel, can avoid sanction. Meanwhile, less culpable participants are punished.
Fourth, there’s the problem of reducing or removing financial penalties. We acknowledge the Sentencing Act requires the court to consider the ability of an offender to pay. But we also suggest a market outcome is achieved if a financial sanction results in an offending firm ceasing to trade.
Finally, while it can be argued that leniency provisions help detect cartels, it can also be argued that an absence of leniency provisions deters cartel activity due to the potential for sanctions.
What appears to be a focus on detection rather than deterrence is inconsistent with the approach taken with most other criminal activity. There may well be responses to these questions and issues that prove satisfactory to the community. But they are not obvious.
We need a public debate about why certain types of white-collar criminals have a standing offer of immunity or leniency for confessing to their bad behaviour and divulging the details of others who may be complicit. Justice is challenged when people engaging in the same activity receive different sanctions, and any pretence of getting tough on cartel crime is undermined.
This article was first published at TheConversation.com
Lisa Marriott is Professor of Taxation, Te Herenga Waka — Victoria University of Wellington
Edward Willis is Associate Professor at Otago Law School and teaches parts of the Legal System and Jurisprudence courses at the University of Otago, as well as Competition Law.