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Executive fined for obstructing investigation

Cartel company, executive fined for obstructing investigation

Wood preservative chemicals company Osmose New Zealand and former Osmose Group General Manager Mark Greenacre have been fined for obstructing a Commerce Commission investigation.

The criminal convictions are the latest development in proceedings against a cartel that operated in New Zealand’s wood preservative chemicals industry from 1998 to 2002. The affected part of the industry was worth an estimated $35 million in 2002, and included the iconic “Tanalised” timber brand.

In addition to today’s guilty pleas on criminal charges, Osmose and Greenacre continue to be defendants in the Commission’s civil case against the cartel.

In the District Court in Auckland, Osmose New Zealand pleaded guilty to a charge of failing to comply with section 98 notices requiring the provision of documents to the Commission, and was fined $13,000. The maximum penalty is $30,000.

The document not provided was a non-public price list Osmose had obtained from cartel member Koppers Arch. Judge Boucher described the price list as a “particularly pertinent document which was not provided under the notices and should have been.”

Australian-based executive Mark Greenacre admitted he lied to Commission investigators. In particular, Greenacre had denied having meetings with his competitors and sharing pricing information, but has now admitted that collusion. Greenacre was fined $7,000. The maximum penalty is $10,000.

Judge Boucher commented that hindering Commission investigations was “a matter Parliament intended to be taken seriously."

The Commission brought civil proceedings in April 2005 against 15 defendants. A number of those individuals and companies have since admitted breaching the Commerce Act.

These include the Koppers Arch companies, which were fined a record $3.6 million in April. In June 2005, Koppers Arch and its former general manager, Roy Parish were also convicted on criminal charges of obstructing the investigation.

Commerce Commission Chair Paula Rebstock said that while the cartel behaviour itself was being addressed in the ongoing civil proceedings, the criminal prosecutions for hindering the Commission’s investigation were important.

“Cartels are by definition secretive and dishonest, which makes uncovering them extremely difficult,” says Ms Rebstock.

“These fines and criminal convictions show how seriously the Court views any attempt to hinder a Commission investigation.”

Background
Osmose obstruction of investigation
Between 2003 and 2005 the Commission issued statutory notices under section 98 of the Commerce Act requiring Osmose to provide a range of documents. These included a non public price list it had obtained from Koppers Arch. When Osmose provided documents, the Commission saw the price list was missing. Osmose then supplied the list to the Commission, claiming it had been found in a cupboard in the General Manager’s office.

Cartels
Cartels are groups of businesses or individuals who, instead of competing against each other to offer consumers the best deal, secretly agree to work together and keep prices high. Cartels harm competitors by sharing customers with other cartel members, and by squeezing non-cartel members out of the market. Cartels harm the New Zealand economy by making other businesses pay inflated prices for goods, resulting in more expensive end products that can’t compete overseas.

In 1998 the OECD Council for Competition considered cartel behaviour “the most egregious violation of competition law and hence a principal focus of competition policy and enforcement.” An OECD survey confirmed that the parties to cartel agreements, for the most part, are not honest business people who inadvertently become involved in a technical violation. Rather, they fully realised that their conduct was harmful and unlawful, causing them sometimes to go to great lengths to keep their agreement secret.

Previous penalties against Koppers Arch companies
On 6 April 2006, the High Court imposed record penalties on Koppers Arch Wood Protection (NZ) Limited and its Australian parent company, Koppers Arch Investments Pty Limited, after the companies admitted participating in a cartel in the wood preservative chemicals industry between 1998 and 2002. The $3.6 million comprised $2.85 million for price-fixing and $750,000 for attempts to exclude a new entrant competitor from the market.

Previous highest penalties
This is the first significant cartel case to be brought since Parliament doubled the maximum penalties that can be imposed on companies for breaching the Commerce Act’s prohibition on cartels. In 2001 the maximum penalty per offence for companies was doubled from $5 million to $10 million. For individuals it is $500,000.

Before this cartel case, the previous highest company penalty for a Commerce Act offence was imposed in Commerce Commission v Taylor Preston in 1998. Penalties of $1.5 million were imposed on each of the three largest defendants. For individuals, the highest previous penalty was imposed in the Commerce Commission’s case against South Island eye surgeons. In that case, eye surgeon Dr Rogers was fined $25,000 for price-fixing.


Wood preservative market
Wood preservation of softwoods is a significant domestic and export industry. It produces a range of products, from poles and fenceposts to house framing and decking timber. One of the cartel participants, Koppers Arch, is the owner of the well known “Tanalised” timber brand name.

The chemicals involved in this proceeding are Chrome Copper Arsenate and Light Organic Solvent Preservative The market for these two chemicals is estimated to have reached around $35 million per annum in 2002. There are significant downstream export markets of NZ grown and treated timber to Australia and the USA in particular. The Commission also considers that the behaviour will have had an effect on the price paid by consumers for treated timber products.

Previous criminal prosecutions for hindering investigation
The Commission’s investigation was hindered by the defendants at various stages. In November 2004 the Commission prosecuted KANZ and its former General Manager Roy Parish under s103 of the Commerce Act for withholding relevant documents. In June 2005 KANZ and Roy Parish pleaded guilty to offences under the Commerce Act. KANZ was convicted and fined $25,000 and Roy Parish was convicted and fined $8,000.

Ongoing proceedings
The Commission’s case continues against a number of corporate and individual defendants.

Leniency and co-operation policies
These proceedings did not result a cartel member coming forward to an enforcement agency, providing admissions and information in exchange for “first through the door” leniency. The Commission’s investigation was well advanced before any admissions were forthcoming.

The Commission encourages participants in anti-competitive conduct to approach the Commission at an early stage to admit liability. If they sign a Leniency agreement with the Commission they can be immune from Commission prosecution.


Commission media releases can be viewed on its web site www.comcom.govt.nz

Ends

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