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Osmose fined $1.8 million

Media Release

Issued 6 October 2006/051

Osmose fined $1.8 million in NZ's biggest cartel case

Osmose New Zealand, Osmose Australia and two Australian-based executives have been fined for participating in a cartel in New Zealand's wood preservative chemicals industry.

One executive, Mark Greenacre, was fined $100,000, the highest penalty ever imposed in New Zealand on an individual cartel member.

The wood chemicals case is New Zealand's largest cartel prosecution. In both civil and criminal actions, fines totalling over $5 million have been imposed on four companies and three individuals. Proceedings are ongoing against seven further corporate and individual defendants.

The affected part of the wood preservative chemicals industry was worth an estimated $35 million in 2002, and included the iconic "Tanalised" timber brand.

This week the Osmose companies were fined a total of $1.8 million for price-fixing, bid-rigging and attempts to exclude competitor TimTech Chemicals from the market. The fine comprised $1.075 million for price-fixing and $725,000 for the attempted exclusion of TimTech.

Osmose's former General Manager Mark Greenacre was fined $100,000 after he admitted extensive involvement in the cartel. Last month Greenacre pleaded guilty to criminal charges of lying to the Commission's investigators.

Another executive also admitted his personal involvement in the cartel. Colin Newell, Managing Director of Koppers Arch Investments from April 1999 to August 2000, was fined $20,000.
Commerce Commission General Manager Geoff Thorn said that cartels damage the New Zealand economy.

"Cartels raise prices above competitive levels, and harm the companies who buy the cartel's products as inputs for their own business," says Geoff Thorn.

"This cartel made Kiwi farmers pay more for fence posts and homeowners pay more for decking timber, and it also cost companies who treated timber, and companies who used treated timber."

"Cartels don't just cause harm by making their own market uncompetitive, they drag down the performance of other companies who have to pay their inflated prices."

Mr Thorn said the Commission was pleased that the Court was imposing high penalties for cartel behaviour.

"Cartels are hard to find, hard to break and hard to prosecute," said Mr Thorn.

"It is highly preferable to deter cartels from forming and the Commission will continue to seek high, deterrent penalties in cartel cases," said Mr Thorn.

Mr Thorn noted that the penalty imposed by Justice William in the Auckland High Court would have been higher if Osmose, Greenacre and Newell had defended the case all the way to trial.

Background
Mark Greenacre
Greenacre was fined $65,000 for price-fixing and $35,000 for the attempted exclusion of new competitor TimTech. His penalty was discounted because he admitted liability and co-operated with the Commission. Greenacre was General Manager of the Fernz Timber Protection group during 1998-2001, and moved to the same position in February 2001 when the New Zealand business of Fernz was sold to the Osmose chemicals group.

Greenacre was at all times based in Sydney, and continues to live in Australia. His operational responsibilities included the New Zealand businesses of Fernz and Osmose, and from his office in Australia he committed breaches of the Commerce Act that were enforceable by the Commerce Commission in New Zealand.

The Court took into account the fact that Greenacre admitted having lied to the Commerce Commission when interviewed in the course of the Commission's investigation. In September Greenacre was fined $7,000 in the District Court at Auckland for the offence under s103 of the Commerce Act of misleading the Commission.

Colin Newell
A Koppers Arch managing director has now also admitted his personal involvement in the cartel. Colin Robert Newell, Managing Director of Koppers Arch Investments Pty Ltd from April 1999 to August 2000, was fined $20,000 plus costs.

Newell was, and still is, an Australian resident. His conduct occurred six years ago, and took place in the 16 months before he retired. Notwithstanding those factors, the Court held that Newell had 'turned a blind eye' when he was in a senior position and could have stopped Koppers' collusion. Like Greenacre, Newell received a substantial discount for his early admission and co-operation with the Commission.

Wood chemicals cartel
The illegal behaviour occurred between 1998 and 2002 in markets for two wood preservatives, Chrome Copper Arsenate and Light Organic Solvent Preservative. The Commission's investigation opened in May 2002 after a complaint from competitor TimTech. The cartel members agreed to:
* share pricing information; * simultaneously raise prices; * not compete on price; * not compete for each other's customers; * attempt to exclude a new entrant, TimTech from the market; and * attempt to eliminate TimTech from the market once it had entered.

April sentencing of Koppers Arch
In 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.

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 not compete overseas. An OECD survey has confirmed that the parties to cartel agreements, for the most part, were 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.

Ongoing proceedings
The Commission's case continues against three corporate and four individual defendants and will not comment on the ongoing proceedings. The corporate defendants are Nufarm Ltd (formerly Fernz Corporation), TPL Ltd (formerly Fernz Timber Protection) and FChem (Aust) Ltd.

Previous NZ cartel cases
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 increased to be the higher of $10 million, three times the commercial gain from the conduct or 10% of turnover. For individuals the maximum penalty is $500,000.

The previous highest company penalty for a Commerce Act offence was $1.5 million imposed on three companies who formed a cartel in the meat industry in 1998. For individuals, the highest previous penalty was a $25,000 fine imposed on eye surgeon Dr Rogers for price-fixing.

Wood preservative chemicals market
Wood preservation of softwoods is a significant domestic and export industry. (Cartel member Koppers Arch is the owner of the well known "Tanalised" Timber brand.) The industry produces a range of products, from poles and fenceposts to house framing and decking timber. 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.

Criminal prosecutions for hindering investigation

In June 2005 Koppers Arch and its former General Manager Roy Parish pleaded guilty to breaching the Commerce Act by failing to provide documents required under statutory notices. Koppers Arch was fined $25,000 and Roy Parish was fined $8,000. In August 2006 Mark Greenacre for found guilty of lying to the Commission in a voluntary interview. Greenacre was convicted and fined $7,000. In August 2006 Osmose was found guilty of failing to produce documents required by the Commission under statutory notices. The documents included a price-list that Koppers had shared with Osmose. Osmose New Zealand was convicted and fined $13,000.

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.

ENDS

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