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Commerce Commission sends reminder to industry

Commerce Commission reminds industry: comply with statutory information requests or face prosecution

The Commerce Commission is prosecuting three airlines for not providing information and documents during an investigation into allegations of price-fixing and other anti-competitive conduct in the air cargo industry.

The Commission has filed criminal charges against Cathay Pacific Airways, Singapore Airlines and Aerolineas Argentinas. The charges relate to alleged non-compliance with statutory notices issued under the Commerce Act in October 2007. These notices compulsorily required that the airlines provide documents and information to the Commission by a specified date in November 2007.

Statutory notices are a key investigative tool used by the Commission to gather evidence in its investigations of potential breaches of the Commerce Act including alleged cartel activity. Parties who receive notices cannot refuse to supply documents or information to the Commission as this may prejudice an investigation.

The District Court in Auckland is being asked to determine that a failure by the three airlines to provide the information as requested is a breach of section 103 of the Commerce Act. The penalties for breaching section 103 are summary conviction and fines of up to $30,000 for companies.

"Any failure to comply with Commission statutory notices that form part of a Commission investigation is a serious enforcement issue," said Commission Chair Paula Rebstock. "The information the Commission alleges was not provided in accordance with the notices could potentially be relevant to the Commission's investigation."

Ms Rebstock said, "Cartels are insidious and cause extensive damage to the New Zealand economy. They are difficult to detect and extremely difficult to investigate because of their secretive nature. If the current investigation concludes that there is a breach of the Commerce Act, the Commission will be seeking to file proceedings in the High Court later this year. The Commission will continue to strongly pursue cartels involved in price-fixing and other anti-competitive conduct."

Ms Rebstock said that increasing the effectiveness of the Commission's enforcement activity against cartels was a continuing strategic priority for the Commission. The Commission's leniency and cooperation policies are the most effective tools in helping to detect and investigate cartels. Statutory notices are also an effective tool and the Commission relies heavily on them to gain evidence from the parties under investigation.

As the investigation into an alleged cartel in air cargo markets to and from New Zealand is continuing, the Commission will be making no further comment at this time.

Background

Cartels Cartels are groups of businesses or executives who, instead of competing against each other to offer the best deal, secretly agree to work together and keep prices high. Cartels harm competitors by sharing customers with other cartel members, rigging bids, agreeing to charge higher prices than they would be able to charge in a competitive market, restricting volumes and by squeezing non-cartel members out of the market. Cartels harm the New Zealand economy by making consumers and other businesses pay inflated prices for goods. This also results in exports being more expensive and thus less competitive in overseas markets.

Alleged cartels operating in the air cargo market The Commission is investigating allegations that certain airlines have colluded and reached agreements and understandings on the level of cargo rates including fuel surcharges on international flights to and from New Zealand. Airlines earn more than an estimated $400 million each year transporting air cargo to and from New Zealand. A number of airlines are cooperating with the Commission's investigation. Overseas competition authorities are also investigating the air cargo market.

In the United States – British Airways, Korean Air, Qantas and Japan Airlines have settled and agreed to pay record fines. Most recently, Air France KLM has also settled in the US courts and has been fined US$350 million. In total, the US courts have already awarded penalties of US$1.2 billion against airlines for participation in a cartel that has increased air cargo rates to and from the United States. At least one US air cargo executive will pay a fine and also serve a sentence in a US prison as a result of his activity in a cartel.

Previous criminal prosecutions for non compliance with Commerce Act statutory notices In June 2005, the Commission obtained convictions against Koppers Arch (NZ) Limited and its former General Manager under section 103 of the Commerce Act for deliberately withholding relevant documents that the Commission had requested through statutory notices in the wood preservative chemicals cartel investigation. In August 2006, as part of the same cartel investigation, the Commission obtained convictions against Osmose New Zealand Limited for also failing to provide documents that had been requested by the Commission through a statutory notice and the former Osmose Australasian Group General Manager for providing misleading and deceiving information in an interview.

Leniency and Cooperation The Commission encourages participants in cartels to approach the Commission as soon as possible to admit liability. Companies or individuals who bring a cartel to the Commission's attention can gain immunity from prosecution through the Commission's Leniency programme. Companies or individuals who wish to admit their guilt once the Commission has started to investigate a cartel can cooperate with and assist the investigation in return for a lower level of enforcement in the form of discounts on penalties, subject to the agreement of the High Court.

The Commission's leniency and cooperation policies are published on the Commission's website www.comcom.govt.nz

ENDS

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