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Regulation of Cartels in Emerging Economies - Optimal Enforcement Options for Nigeria

Authors:

Abstract

With the enactment of the Federal Competition and Consumer Protection Act (FCCPA) 2019, and the establishment of a competition regulator, this article undertook a critical analysis of the provisions on cartels, especially, the leniency and settlement procedures. It made a comparative study of the 20-year-old regime in South Africa (SA), an emerging economy that has recorded giant strides in cartel regulation, and argued that notwithstanding the criticisms and disadvantages of the leniency program and settlement procedure, their benefits outweigh the setbacks. In sum, the article identified a number of murky areas of cartel regulation in the new Nigerian competition law, made appropriate recommendations, and suggested the best optimal enforcement models.
Regulation of Cartels in Emerging Economies: Optimal Enforcement Options for
Nigeria
By
Enyinnaya C. Uwadi *
1. Abstract
Prior to the return of democracy in 1999, the Nigerian economy was characterised by
government sponsored monopolies and subsidies in key sectors of the economy. This led to
concentration of market power in the hands of few firms. Post 1999 marked a departure from
that norm and the commencement of a new policy direction towards a free market economy,
with successful attempts made at deregulating the economy. However, the country continued
to suffer from the anticompetitive practices of these few dominant firms, owing to the
absence of a competition law regime.
With the enactment of the Federal Competition and Consumer Protection Act (FCCPA) 2019,
and the establishment of a competition regulator, this article undertook critical analysis of the
provisions on cartels, especially, the leniency and settlement procedures. It made a
comparative study of the 20-year-old regime in South Africa (SA), an emerging economy
which has recorded giant strides in cartel regulation, and argued that notwithstanding the
criticisms and disadvantages of the leniency program and settlement procedure, their benefits
outweigh the setbacks. In sum, the article identified a number of murky areas of cartel
regulation in the new Nigerian competition law, made appropriate recommendations, and
suggested best optimal enforcement models.
2. What is a “Cartel”
Cartel, also known as conspiracy and collusion, is defined in several ways. One definition
sees cartel as a group of similar companies who agree prices between themselves in order to
increase profits and limit competition.1 Cartel is a collection of otherwise independent
businesses or countries that act together as if they were a single producer and thus can fix
prices for the goods they produce and the services they render, without competition.2
1* LLB (Abuja); BL (Nigeria); LLM Energy Law (Ibadan); LLM (Distinction) International Commercial Law
with Competition Law and Regulation (Reading, England). Should any reader wish to bring my attention to any
matters which they feel have been overlooked, underdeveloped, or that they disagree with, I may be contacted
directly at enyinnayauwadi@gmail.com.
Cambridge Business English Dictionary (CUP 2020)
<https://dictionary.cambridge.org/dictionary/english/cartel> accessed May 5 2020.
2 Chen James, ‘Cartel’ (Investopedia 2020) < https://www.investopedia.com/terms/c/cartel.asp> accessed May
5 2020.
1
These definitions establish the common features of a cartel to wit: a group of independent
competing firms within an industry, who come together in secrecy to manipulate prices and
output through means which include price-fixing, market sharing and bid rigging, for their
personal gain. Cartels are considered illegal in most jurisdictions due to the commercial harm
they inflict on consumers and the negative impact of their activities on the economy.
Cartel activities are regarded by scholars, courts and policy makers as one of the most
grievous offences in competition law. A number of reasons abound for this unilateral position.
The first is that the undertakings involved in the cartel are already aware that their conducts
are unlawful, hence they go to a great extent to maintain secrecy and avoid detection.
Secondly, due to the great difficulty, cost and time it takes competition authorities to detect
the cartel arrangement due to its secretive nature.
2.1 How are Cartels Detected?
As earlier mentioned, the formulation of cartels and the cartel agreement is entered in
secrecy, making its detection an enormous task. Since their detection creates a lot of
dilemma, it is therefore not fortuitous that competition authorities in various jurisdictions
have devised several strategies for detection. Measures adopted in the detection of cartels
include the following:
a. Mistake of cartel members: As common with every human endeavour, mistakes are
bound to happen. Unfortunately for cartels, a simple mistake by a member could
unmask their secrecy and reveal their existence. For example, an association of
bicycle retailers in South Africa advertised the existence of their cartel on its website.3
b. Dawn Raid: As the name implies, this refers to a raid which is conducted very early
before the commencement of the business of the day in order to recover an important
information or item which is vital in an investigation. The importance of dawn raids
which is backed by law4 is that it involves an element of surprise which is essential in
recovering evidence of the cartel arrangement. The raid allows the competition
regulator to invade the privacy of one or more than one member of the cartel by going
through their correspondences like email exchanges and diary entries where
correspondences relating to the cartel may have been logged.
c. Price War Signals: Price war refers to a situation where competitors repeatedly
reduce the price of goods below that which is offered by co-competitors and vice
versa. To serve as an illustration, this article will adopt A, B and C as the names of
3 David Lewis, Thieves at the Dinner Table: Enforcing the Competition Act (Jacana 2012) 209.
4 This is usually through an order of the court obtained by an ex parte application.
2
three gas stations who collude to form a cartel in the market for gas for a particular
area. If all of a sudden, A reduces the price of gas below that which is contained in the
cartel agreement, B and C will see this as an attempt by A to gain more customers,
because where competitors offer homogenous products of same quality, rational
customers will always go for a cheaper product. B and C will most likely retaliate by
reducing their own prices to a level below that of A, which could also make A to
match their offer. This repeated cycle is what is referred to as price war.
Therefore, a sudden occurrence of price war in a market which has been relatively
stable could be an indication that a cartel is finding it difficult to maintain the
collusion or that it is trying to punish an erring member, since the cartel agreement
being illegal is unenforceable in law. This indication though not a conclusive one
based on sufficient evidence could be a signal to the competition authority about the
existence of a cartel, and prompt them to carry out further investigation.
d. Whistle Blowing: Whistle blowing refers to a scenario where a member of staff of
one of the cartel undertakings exposes the cartel to competition authorities. This can
be done with or without revealing the identity of the informant. However, in emerging
markets, this strategy of detection exists more in theory than in reality because of the
immediate consequences to the informant who may suffer individually or collectively
with the firm. As an individual, he can be fired from the job and may be unable to get
another job due to the high rate of unemployment or because his reputation as an ‘spy’
will quickly spread among other firms in the industry. Collectively, he may suffer
from pay cut or be made redundant to cover for the loss incurred by the firm if it is
successfully prosecuted and fined. Whistle blowing by employees has recorded
tremendous success in detecting cartels in developing jurisdictions like South Korea
where the Korean Fair Trade Commission (KFTC) introduced the policy in 2002. The
KFTC offers an amount of reward to the informant from a percentage of the fines
levied on the cartels. This reward could be huge to an extent that senior managers
could be tempted to take the option of whistle blowing as a retirement plan.5
e. Self-Reporting / Snitching on the Cartel: Very similar to the preceding strategy,
self- reporting slightly differs from whistle blowing because the former involves self-
reporting by an undertaking involved in the cartel through a leniency program. The
difficulty in detecting cartels could lead to the establishment of a leniency program by
5 Daniel Sokol and Andreas Stephan, ‘Prioritizing Cartel Enforcement in Developing World Competition
Agencies’ in Daniel Sokol and others (eds), Competition Law and Development (Stanford University Press
2013) Ch 8.
3
the competition authorities in several jurisdictions. This program provides immunity
for the first member of the cartel who provides information about the cartel and
cooperates with the competition authority to secure the conviction of the other
members of the cartel. By offering immunity to the first applicant, the leniency
program provides an avenue for the competition authority to break the ranks of the
cartel. Subsequent applicants from the cartel who cooperate with the competition
authority received reduced sentences under the settlement procedure.
2.2 The Leniency Program and Settlement Procedure Compared
The leniency program has recorded tremendous success in several jurisdictions like the EU
where two thirds of the cartel investigations completed since 2001 were revealed by a cartel
member who in return received immunity from fines.6 The program is applauded because it
deters cartel activity by creating a situation of mistrust among the cartelists who will be under
a continuous threat of snitching on others or being snitched upon. Also, the cooperation of the
leniency applicant in providing all information and vital evidence is very valuable because it
speeds up the process, and saves the time and resources of the commission. The predictable
nature of the penalties under the procedure enables potential applicants to weigh their options
before deciding to break the cartel bond.
Conversely, it suffers from setbacks which include the criticism that the program offers a
reward for the bad conduct by way of immunity for the applicant. This immunity also
deprives the state of revenue which ought to have been generated from the fines.
Furthermore, the early admission of guilt by an applicant firm could impact on the evidence
which ought to have been discovered as to the extent of its participation in the cartel. This
could be a setback for victims of the cartel to bring follow-on action for damages.
The crux of the settlement procedure is that at a certain stage in the cartel investigation,
having seen the evidence at the disposal of the commission, the parties to the cartel accept
their participation and admit liability. To reward them for cooperation and in return to their
gesture for not wasting the time and resources of the commission any further, the commission
reduces the fine that it would otherwise have imposed on the cartel by a certain percentage
which usually does not exceed 10%. It should be noted that the commission cannot impose
settlement on the parties, and also the parties are not entitled to settlement as of right. Hence
settlements procedure does not entail a negotiation between the cartel and the commission on
the existence of the infringement or the amount of the penalty to be levied. The procedure is
6 Athanassios Skourtis, ‘Competition Law Module Seminar on Cartels’ (University of Reading, 2019).
4
applauded because it leads to quicker conclusion of cases since there will most certainly not
be any appeal on the settled decision, which saves the time and resources of the commission.
A major criticism of the settlement procedure which is similar to that of leniency is that it
entails a lesser degree of factual analysis which makes it difficult for the victims of the cartel
to bring follow-on claims for damage claims.
In sum, notwithstanding the criticisms and disadvantages of the leniency program and
settlement procedure, this article argues that their benefits outweigh the setbacks. This is
because in their absence, most cartels may never be detected or the competition regulator
may not have all the evidence needed to successfully prosecute a detected cartel, as a result of
the sophistry of the members. The point to note is that one of the cardinal objectives of
competition law is to prohibit cartels and not necessarily to generate revenue via fines and
penalties. The leniency program deserves all the accolades so far it enables cartels to be
detected and successfully prosecuted.
2.3 How are Cartels Regulated?
There are two ways of regulating cartels. These are public and private enforcements.
Public Enforcement entails regulation by the competition regulator or prosecuting authority,
pursuant to a competition legislation, which empowers the authority to detect, investigate,
sanction or prosecute firms and individuals who engage in prohibited cartel activities. This
could be in the form of fine based regulation like the EU; outright criminalisation; or a mixed
approach of fine and criminalisation which obtains in several jurisdictions like South Africa,
UK, US and Canada. Public enforcement is very fundamental and indispensable in the
regulation of cartels because with the instrumentality of state coercive powers and resources,
competition regulators are able to point corporate behaviour, public perception and culture to
pro competition ideals.
On the other hand, private enforcement refers to litigation instituted in the court or tribunal by
private individuals or firms who suffered damages arising from the existence and conduct of
a cartel. The essence of the claim is for the recovery of damages and/or the imposition of
injunctive reliefs. Although private enforcement could be triggered by a stand-alone action
prior to public enforcement, in most jurisdictions, it usually exercised post public
enforcement because the facts established during public enforcement and the evidence of
conviction weighs heavily in favour of the claimant. The idea behind private enforcement is
that restitution on the private individual who has suffered harm owing to the cartel’s unlawful
5
activities. Also, the success of huge damage claims against cartels,7 contributes to the
strengthening and maintenance of the enforcement of competition rules against cartels, by
serving as a deterrent in their formation and continued existence. Hence private enforcement
of competition law against cartels exist to complement policies and efforts geared towards
public enforcement.8
3. Example from an Emerging Economy (South Africa)
The institutions responsible for the implementation of competition law in SA are the
Competition Commission (Commission), the Competition Tribunal (Tribunal), and the
Competition Appeal Court (CAC) as established by the SA Competition Act.9
The Commission which is independent of executive and political interference and subject
only to the SA constitution and legislations,10 is headed by a Commissioner and at least one
Deputy Commissioner to be appointed by the Trade and Industry Minister.11 The enforcement
powers of the Commission are wide, encompassing a broad range of responsibilities geared
towards the protection of consumers and promotion of a free market.12
The Tribunal is composed of the Chairman and not less than three to a maximum of ten other
members, appointed by the President,13 and has jurisdiction over any matter that is prohibited
under the Competition Act.14 It equally hears appeal from and reviews the decision of the
Commission.15 In a similar vein, the CAC is established under Section 36 of the Act, and has
a similar status as a High Court in SA.16 It is composed of three judges appointed by the
President from the pool of High Court judges, of whom one of the three appointees is
designated as the Judge President.17 The CAC reviews the decisions of the Tribunal referred
7 For example, the Vitamins Cartel; See also Empagran S.A. v. F. Hoffman-LaRoche, LTD, 315 F.3d 338 (DC
Cir 2003)
8 See C-453/99 [2001] ECR I-6297 Courage Ltd v Crehan, where the ECJ established the right to damages by
private individuals. In this case the court held that the full effectiveness of Article 101 TFEU and, in particular,
the practical effect of the prohibition laid down in Article 101(1) would be put at risk if it were not open to any
individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort
competition.
9 Competition Act, act no. 89 of 1998 (amended in 2019 upon the presidential assent given on 13 February
2019); See also Eleanor Fox and Mor Bakhoum, Making Markets Work for Africa: Markets, Development and
Competition Law in Sub-Saharan Africa (OUP 2019) 92.
10 Competition Act s 20(1)(a).
11 Section 19.
12 Section 21; See also Competition Commission v. Pioneer Foods (Pty) Ltd. 2010 (91/CAC/FeblO) ZACAC 2
(S. Afr.).
13 Section 26 (2).
14 Section 27.
15 ibid.
16 Section 36 (1) (a).
17 ibid Subsection 2.
6
to it in terms of the Act, and also entertains appeals arising from the decisions of the
Tribunal.18
The above three enforcement bodies play key roles in the implementation of competition law
in SA.
3.1 Regulation of Cartels in SA
The Competition Act prohibits cartel activity in SA in the form of restrictive horizontal
practices to fix prices, allocate markets or collude in the tendering of contracts, as provided
under section 4 (1) (b) of the Act. The Commission holds a strong anti-cartel position which
they are very committed in enforcing.19 Cartel behaviour under the Act could lead to
administrative sanction in the form of a fine of up to 10% of the firm’s annual turnover,20 or a
criminal sanction of imprisonment or fine being imposed on the offending company and
directors,21 similar to the cartel regime of the UK,22 US23 and Canada24. Private enforcement
against cartelists is also permitted in SA should the Commission decide not to prosecute a
complaint. The original complainant can prosecute the matter before the Tribunal at his own
cost25, while customers who may have suffered harm as a result of the cartel activity may also
claim damages from the undertakings involved.26
In SA, collusive bidding and price fixing are the key cartel offences being prosecuted by the
Commission, followed by market division cases.27 Due to the damaging effect of cartels on
the economy generally and consumers in particular, the prosecution of cartels under the Act is
based on a per se rule, and there is no further need for the definition of the relevant market.
To put simply the Act presumes the anticompetitive effects of the cartel28 and once the cartel
agreement/arrangement or the mere existence of the cartel is established, the offence is
proved. This erases the burden on the commission to conduct a more in depth economic
analysis to determine the effect of the cartel on the relevant market.
18 Section 37.
19 Sasha-Lee Afrika and Sascha-Dominik Bachmann, 'Cartel Regulation in Three Emerging BRICS
Economies: Cartel and Competition Politics in South Africa, Brazil, and India - A Comparative Overview'
(2011) 45 Int'l Law 975.
20 Section 59 (2)
21 Section 74.
22 Enterprise Act, 2002, s 188.
23 Sherman Antitrust Act of 1890, 15 U.S.C. Section 1 (2004)
24 Competition Act, R.S.C. 1985, c. C-34 S 45(2) (Can.)
25 ‘Cartels in South Africa’, Interview with Pieter Steyn (Getting the Deal Through July 2018)
<https://gettingthedealthrough.com/intelligence/172/article/6247/cartels-south-africa> accessed 25 July 2019.
26 Section 65 of the Competition Act.
27 Steyn (n 25)
28 Chantal Lavoie, 'South Africa's Corporate Leniency Policy: A Five-Year Review' (2010) 33 World
Competition 141
7
The Commission recorded tremendous success in cartel prosecution following the adoption
of the Corporate Leniency Policy (CLP) and dawn raids.29 The CLP was first adopted in
200430 owing to the difficulty of investigating and prosecuting cartels in developing countries
of which SA is one. Various scholars noted the indispensable role played by the CLP in the
detection and regulation of cartels in SA and argued that its adoption led to the successful
prosecution of several key cartel cases of which the Bread Cartel31 is chief among them.32
The Bread Cartel case which is a locus classicus in cartel investigation and prosecution,
helped in instilling a competition culture in SA.33 Other cases where the CLP led to its
success includes the Pipes and Construction Cartel34 and the Milk Cartel35. The CLP is guided
by a number of principles and procedures. First is the ‘first to the door’ principle which
ensures that only one member of the cartel, and usually the first to ‘snitch’ on the cartel and
corporates with the Commission to secure the conviction of other cartelists, benefits from the
immunity. Although, the CLP does not provide any incentive for subsequent acts of
cooperation by other cartelists, the Commission has the discretion to negotiate the terms of
the leniency for them on an ad hoc basis. The second principle is that which ensures that an
applicant must admit to the infringement of Section 4 (1) (b) of the Competition Act before
being offered an immunity in an act of reciprocity. This is because in the absence of such an
express admission, the Commission may find it difficult in proceeding against the other
cartelists.36 The third principle is that the information provided by the first applicant should
be one relating to a cartel conduct which the commission is not aware; or aware of but does
not have sufficient information or started an investigation; or has opened an investigation but
does not have sufficient evidence to commence prosecution.37 The fourth principle is that the
immunity will be granted on a conditional basis to ensure the full cooperation of the applicant
throughout all the stages of the investigation until the final determination of the case at the
Tribunal or CAC as the case may be. This full cooperation will require the applicant to make
a full disclosure of all material facts and evidence at its disposal, expeditiously cooperate
with the Commission, and promptly stop any further participation in the cartel.38 A breach of
any of these three conditions will led to the revocation of the conditional immunity.
29 Lewis (n 1).
30 Dennis Davis and Lara Granville, ‘South Africa: The Competition Law System and the Country’s Norms’ in
Eleanor Fox and Michael Trebilcock (eds), The Design of Competition Law Institutions (OUP 2013) Ch7.
31 Competition Commission v. Pioneer Foods (Pry) Ltd. 2010 (15/CR/FebO7) (S. Afr.)
32 Lavoie (n 28); Lewis (n 3); Fox and Bakhoum (n 9).
33 Fox and Bakhoum, (n 9).
34 Competition Commission v. Cobro Concrete 2009 (23) CR I (CT) 1 2.1 (S.Afr.).
35 Competition Commission v. Clover Indus. Ltd. et. al. 2006 (103) CR 1 (CT) 1 34 (S.Afr.)
36 Lavoie (n 28) 147.
37 See Paras 5.5 and 10.1 (b) of the CLP.
38 Para 10.1(a) Of the CLP.
8
However, the successes recorded from the adoption of the CLP suffered a setback with the
criminalization of cartel conduct in May 2016,39 because the directors of a successful
leniency applicant firm were not certain of personal immunity from prosecution.40 This is
because the Commission was unable to guarantee personal immunity to the directors and
managers of leniency applicants because the power of prosecuting them was given the
National Prosecuting Authority (NPA), which is not bound by the Commission's
recommendations.41
In essence, the criminalisation of cartels under the SA regime restricts the powers of the
Competition Commission to civil and administrative fines and penalties, while the criminal
aspects lies with the National Prosecuting Authority.
4. Nigerian Experience
The FCCPA created two institutions for the purposes of enforcing its provisions namely; the
FCCPC and the Competition and Consumer Protection Tribunal (CCPT). It saddled them
with the responsibility of promoting competition in the Nigerian market by eliminating
monopolies, prohibiting abuse of a dominant position and penalizing other restrictive trade
and business practices.42
The FCCPA is the first comprehensive legal regime on competition law which is applicable to
all commercial activities within, or having effect in Nigeria.43 Its provisions are also binding
on all government departments and state owned corporations, and indeed all commercial
activities aimed at making profit and targeted at satisfying demand from the public.44 It
equally applies extraterritorially to any prohibited conduct by a Nigerian citizen or a person
ordinarily resident in Nigeria; a corporate body registered in Nigeria or carrying out business
within Nigeria; any person supplying or acquiring goods or services into or within Nigeria;
any person in relation to the acquisition of shares or assets outside Nigeria which results in
the change of control of the business, part of the business or any asset of the business in
Nigeria.45
The affairs of the FCCPC are managed by a Board made up of a Chairman, the Chief
Executive of FCCPC (Vice-Chairman of the Board), two Executive Commissioners and four
39 Section 73(A).
40 Steyn (n 25).
41 Section 73(A).
42 Explanatory Memorandum, FCCPA.
43 Section 2.
44 ibid.
45 Section 3.
9
non-executive Commissioners.46 The FCCPC has a wide range of anti-competition and
consumer protection responsibilities under the Act47 which are geared towards the
development and promotion of fair, efficient and competitive markets in the Nigerian
economy to facilitate access by all citizens to safe products and secure the protection of rights
for all consumers in Nigeria.
The CCPT, on the other hand, is composed of a Chairman who shall be a lawyer with 10
years post-qualification, and experienced in competition law, consumer protection or
commercial and industrial law; six other members with at least 10 years professional
experience in either of competition and consumer protection law, commerce and industry,
public affairs, economics, finance, or business administration.48 The CCPT adjudicates over
conducts prohibited by the FCCPA49 excluding criminal violations,50 entertain appeals from
and reviews any decision of the FCCPC,51 hear appeals on the decisions of sector-specific
regulators on competition and consumer protection matters, after the FCCPC had first
considered the appeal.52 The decision of the Tribunal is to be registered at the Federal High
Court for enforcement purposes only,53 while appeals on the Tribunal’s decision goes to the
Nigerian Court of Appeal.54
4.1 Regulation of Cartel in Nigeria.
Cartel activities proscribed under the FCCPA include price-fixing, conspiracy and bid-
rigging.55 An undertaking is prohibited from conspiring directly or indirectly by agreement,
threat, promise or any other means to influence upwards or discourage the reduction of the
retail price of other undertakings, unless the undertakings are interconnected undertakings as
defined under the Act.56
Similarly, an undertaking is prohibited from conspiring with another undertaking to limit,
prevent or unduly reduce competition in the production, purchase, sale, supply, rent or
transportation of any product, except where such was made in relation to the provision of a
46 Section 4.
47 Section 17.
48 Section 40.
49 Section 39 (2).
50 This is deduced from Section 51(1) which restricts the Tribunal to impose only administrative fines. This
provision robs the Tribunal of jurisdiction in criminal cases.
51 Section 47 (1)(a).
52 Section 47 (2).
53 Section 54.
54 Section 55 (1).
55 Part XIV.
56 Section 107.
10
service via the practice of a profession, where the maintenance of standards of competence
are necessary in the protection of the public.57
Likewise, where more than one undertaking agrees not to compete against each other in
response to a bid, or make a bid submission based on agreement with one another, except
where one of the undertakings is an affiliate or agent of the other, a case of bid-rigging will
be established.58
Cartel activities are criminalised by the FCCPA, and the penalty upon conviction is a fine not
exceeding 10% of the annual turnover in the preceding business year for a corporate body.
Where the violator is a natural person, the penalty upon conviction is a prison term not
exceeding 3 years and/or a fine not exceeding 10 million naira.59 Also, each director of the
violating corporate body is liable to be proceeded against in person, and upon conviction, be
dealt with in accordance with the above penalty prescribed for a natural person.
Similar to the regime in SA, cartel offences are per se violations and cannot be justified under
the rule of reason test. This implies that the undertakings involved cannot leverage on any
pro-competitive effect of their conduct to raise a defence. All that needs to be proved to
secure a conviction is the existence of the cartel arrangement.
Unlike the case of SA, the FCCPA does not contain a clear provision on private action for
damages against cartels. However, section 67(2) and (3) provides what could have been a
legal basis for private action except that it suggests that the right exists pre FCCPC’s
regulatory powers. The section gives the right of complaint to the FCCPC by anyone who has
suffered loss as a result of any restrictive agreement, and the FCCPC if satisfied with the
circumstances may exercise any of its powers under the Act, inclusive of an interim cease
and desist. It gives a further right of appeal to the CCPT if the person is not satisfied with the
decision of the FCCPC. The language of this section suggests that the complaint is targeted at
a restrictive conduct which is yet to be investigated and prosecuted by the FCCPC. This
provision does not meet with the requirements of a private action in damages which usually
comes after the admission of guilt by or conviction of the cartelists.
However, when the above section is read in conjunction with Section 146 and 149 (3) it
appears to allow for private action for damages against cartelists because it empowers a
person to enforce any right under this Act, a transaction or agreement, or otherwise resolve
any dispute with an undertaking that supplied the goods or services by referring the matter to
57 Section 108.
58 Section 108.
59 Sections 107-109.
11
either the undertaking, sector regulator, FCCPC or Court for determination. In resolving the
dispute, the FCCPC is empowered to award damages in favour of the complainant. In any
event, the position of this article exists as an opinion pending a judicial interpretation.
In contrast with the case in SA, the criminalisation of cartels under the FCCPA does not
restrict the powers of the FCCPC, rather the former expands the latter’s enforcement powers
to a wide range of anticompetitive conducts covering both civil and criminal infractions. The
power to impose criminal sanctions on cartels is the sole responsibility of the FCCPC,
however, it may refer the refer such violations to the office of the Attorney-General of the
Federation and Minister for Justice (AGF) for prosecution and imprisonment.60
On leniency, the FCCPA empowers the FCCPC to make regulations on a number of policies
for the effective implementation of the Act of which includes leniency.61 To the credit of the
FCCPC given its limited resources, it has published a number of regulations on some other
aspects of competition regulation, however, the regulation on leniency is yet to be published
as of today.
4.2 Real and Potential Murky Areas of Cartel Regulation in Nigeria
It is common knowledge that no legal legislation no matter how well-crafted is perfect. New
developments will always identify a lacuna, and necessitate judicial, legislative or
administrative intervention to address. These interventions are usually instigated by legal
arguments, lobbying and scholarly writings. For a new competition regime, judicial and
legislative intervention seems very unlikely in the immediate. This leaves the responsibility
of shaping the murky areas of the regime at its infancy stage on the Commission via
administrative interventions like the development of regulations; and scholars via publishing
erudite opinions via articles like this one. This section of the article will point out some
murky areas of cartel regulation under the FCCPA with the view of making recommendations
for the efficient regulation of cartels in Nigeria.
4.2.1 Jurisdiction Dilemma
Jurisdictional uncertainty appears to be a murky area in the prosecution of both civil and
criminal infractions under the FCCPA. Although the Section 39 (2) empowers the CCPT to
adjudicate over all prohibited conducts under the Act and exercise the jurisdiction, powers
and authority conferred on it under the Act or any other enactment, Section 51 (1) restricts its
powers to the imposition of only administrative penalties only for prohibited practices and
60 Section 113 (2).
61 Section 163 (2) (g)
12
violation of its interim orders. Contextually, the absence of powers to impose criminal
penalties on prohibited conducts implies that the CCPT lacks the power to sit over criminal
infractions under the Act generally and in particular, the provisions on the criminalisation of
cartels. If this is the case, the next question to ask is how will the criminal aspects of cartel
regulation be enforced? Section 113 (2) provides a guide. It provides that ‘the Commission
may prosecute or refer violations of criminal offences created under this Act to the office of
the Attorney-General of the Federation and Minister for Justice for prosecution and
imprisonment’. This section also creates a problem because it failed to mention the court
where such an infraction may be prosecuted.
Although the Act defines Court as ‘Court of Appeal’,62 its powers are only limited to
appellate judicial review of the decisions of the CCPT. In the absence of a clear provision on
the appropriate court to prosecute criminal violations under the Act, this article is of the
opinion that the general constitutional provisions of Section 251 of the 1999 Constitution of
the Federal Republic of Nigeria (CFRN) which grants an exclusive civil and criminal
jurisdiction to the Federal High Court (FHC) in a number of competition related issues will
apply. Two arguments support this position. Firstly, Section 251 of the CFRN grants an
original and exclusive criminal jurisdiction63 to the FHC over a wide range of corporate
issues relating to industrial monopoly, government revenue, operation of companies under the
Company and Allied Matters Act, banking, financial regulation and a number of other relates
commercial issues. Applying the ejusdem generis rule will most definitely bring competition
law within its jurisdiction. Secondly, criminal cases relating to Section 251 of the CFRN have
always been prosecuted at the FHC by federal government agencies like the FCCPC, and the
office of the AGF. It is therefore inconceivable that either the FCCPC or the office of the
AGF will prosecute criminal infractions of the FCCPA before any other court beside the
FHC, although in some cases where the criminal infraction is one which relates to simple
contract like price fixing and restrictive agreements, the State High Court could assume
jurisdiction.
In sum, a combined reading of Section 113(2) of the FCCPA and Section 251 of the CFRN
leads to the irresistible conclusion that the FHC retains the jurisdiction for the prosecution of
general criminal offenses and particularly, in relation to cartel under the FCCPA. It should be
noted however that the criminal jurisdiction of the FHC with regards to the FCCPA may not
62 Section 167 (1).
63 Section 251 (3) CFRN.
13
be exclusive. In any event, future legal fireworks and arguments on these jurisdictional
tussles will set the right tone for a definite judicial pronouncement.
A further potential jurisdictional tussle could arise from the powers of the CCPT over civil
cases, and that of the FHC. As already highlighted above, the Section 251 of the CFRN gives
the FHC exclusive jurisdiction over an extensive corporate provision of which some relate to
‘commercial and industrial monopolies … standards of goods and commodities and industrial
standards’64. The potential of the conflict comes to the fore with the provision appears to
equate the status of the CCPT to that of a high court by providing that appeals over the
decisions of the CCPT lies directly to the Court of Appeal, in a manner similar to appeals
over decisions of the FHC. A precedent for this is found in the Investments and Securities Act
(ISA) 2007 which makes the decisions of the Investments and Securities Tribunal (IST)
appealable to the Court of Appeal, an arrangement that has raised some legal controversies
over the years, having generated two opposing decisions from the Court of Appeal.
In the first case65 the Court of Appeal held that the provision of the ISA which confers
jurisdiction on the IST cannot override the jurisdiction conferred on the FHC by the CFRN
because the former is not a creation of the Constitution. However, in a more recent case66 the
decision of the Court was that in enacting the ISA, the legislature expressed a clear intention
to carve out from the extensive corporate jurisdiction of the FHC and assign an exclusive
jurisdiction over the operations of the capital and securities market to the IST as a specialist
Court.
I tend to agree with the second decision of the Court of Appeal because in enacting these
specialist laws like the FCCPA and ISA, the legislature established specialist tribunals to deal
with the disputes arising from these laws which are technical in nature and requires a higher
level of expertise, above the regular corporate related cases handled by the FHC. Further, the
members of these tribunals are subject to further professional expertise and qualifications.
For example, further to the 10 years post qualification experience as a lawyer required of
FHC judges, the FCCPA requires the chairman of the CCPT to be experienced in competition
and consumer protection law and industrial law, while other members of the tribunal should
have a minimum of 10 year experience in at least one area of consumer protection law,
commerce and industry, public affairs, economics, finance and business administration.67
Furthermore, a panel of the CCPT is composed by a minimum of three member of which one
64 Section 251 (1) (f)
65 SEC v Kasumu [2009] 10 NWLR (Pt. 1150) 509 at 535 paras A-C
66 Wealthzone Ltd v. SEC [2016] LPELR-41808(CA).
67 Section 40 (1).
14
member must have requisite legal training, experience and good knowledge of competition
and consumer protection matters.68
In contrast with the FHC which is composed by a single judge who may or may not be skilled
in competition law, the legislature demonstrated a clear intention to delineate civil causes in
this area of law and hand it over to CCPT. Notwithstanding the above reasonings and
decisions, there exists a high probability that the dilemma which played out in the
jurisdictional tussle between the FHC and IST will also manifest over the constitutionality of
the CCPT as encroaching on the powers of the FHC. It is therefore suggested that future
legislative intervention in this area should clear the air so that the new regime will not be
characterised by unnecessary jurisdictional uncertainties.
4.2.2 Political Interference
Where the FCCPC assigns the prosecutorial powers to the office of the AGF, it could open
doors to political considerations and agency inaction. In many emerging economies like
Nigeria, a small number of elites with political connections, and state owned enterprises
(SOEs) control large sections and strategic industries of the domestic economy respectively.
This could lead to enforcement inaction against these cartels and SOEs. 69 For example, the
AGF is a politically appointed office held at the pleasure of the President. He may be fired, or
his office may lose funding if it prosecutes cartels involving politically well-connected
entities. This potential challenge also comes to the fore when considering the constitutional
powers of the AGF to enter a nolle prosequi over any criminal proceeding instituted by his
office or any other authority.70 Therefore, where the office of the AGF or even the FCCPC
decides to prosecute these politically connected cartels and SOEs, the AGF or Director
General (DG) of the FCCPC could come under an immense pressure to discontinue the case
especially where the evidence weighs heavily against the defendants. Knowing that he could
be fired, and his replacement will do the same bidding, the AGF may likely cave into pressure
to save his job. On the other hand, the DG of the Commission whose office comes with a
statutory flavour could face the threat of retaliatory action by the state which could be in
various forms like the limiting of the commission’s powers, reduction of the budgetary
allocation, or outright overriding the powers of the commission like it happened a few years
ago in Columbia. The Columbia experience represents an extreme case of political
interference where the President of the country circumvented the competition commission’s
68 Section 48 (1) (2) and (5a).
69 Sokol and Stephan (n 5) 8.
70 Section 174 (1) CFRN.
15
opposition to the merger between the state owned Avianca and ACES Airline on the ground
that it will create a monopoly situation, and approved the merger, after which the head of the
Competition Commission resigned in protest.71
4.2.3 Inconsistency of Cartel Regulation with Prevalent Social Norms
Prior to the enactment of the FCCPA, an opposing view stood against the criminalisation of
cartel provisions. This view argued that prevalent social norms within the Nigerian context
opposes the idea of cartel criminalisation, and therefore will be a clog on the wheels of
enforcement.72 I tend to agree with this proposition. In developing countries like Nigeria,
close family ties are prevalent, and in several cases, family relatives and close friends control
a number of related businesses. Hence, it appears normal for them to relate with one another
and exchange business information as it is not be practically possible to stop them from doing
so. In fact, this close relationship between business rivals rarely attract any stigma and some
sections of the general public view the camaraderie with admiration. With the prohibition of
cartels and its criminalisation these ‘normal’ activities by friends and family relatives could
come under the definition of concerted practices, and amount to a conspiracy against the
general public. This situation could be a set-back for a leniency policy because in such an
environment ‘snitching’ on a business partner could be perceived to be more appalling than
the unlawful act itself, as it may be viewed as an attempt to ruin peoples’ businesses rather
than doing the right thing. Thus, a potential self-reporter could be deterred by the fear of
social and extra-legal repercussions of snitching which could range from isolation within
social and family circles, physical harm or death73 in extreme cases.
Furthermore, the importance of social norms in law enforcement cannot be undermined
because its alignment with the law complements with enforcement and makes it more
effective. However, the reverse appears to be the case with the criminalisation of cartels in
Nigeria. There is therefore an urgent need for public enlightenment and reorientation on the
damaging effects of cartels on consumers and the general public. In this way, the FCCPC will
be able to modify the current norm of apathy towards cartel behaviour and secure the
cooperation and support of the public towards the enforcement of provisions on cartel
criminalisation. Also, since the specialist CCPT lacks the jurisdiction to try criminal cases,
the judges of the state and federal high court who will be sitting over these criminal cases
71 Andrés Palacios Lleras, ‘Competition Law in Latin America: Markets, Politics, Expertise’ (DPhil Thesis,
University College London 2016) 149; ICN Curriculum Project, Developing Countries & Competition,
YouTube (Feb. 26, 2014), <www.youtube.com/watch?v=ZBBFNty2hsk> accessed 22 January 2020.
72 Enofe Bob, ‘Developing Countries, Nigeria, and Cartel Criminalisation: of Transplantation and Desirability’
(Socio-Legal Studies Association Annual Conference, Lancaster University, April 2016).
73 Sokol and Stephan (n 5)
16
need to be trained on competition law, to ensure that maximum sentences applied upon
conviction and not deliberately avoided.
4.2.4 Clarification of the Exemption
Section 108(2) creates an exemption from liability form cartels on conduct which relates only
to a service and to standards of competence and integrity that are reasonably necessary for the
protection of the public in the practice of a trade or profession relating to the service or in
the collection and dissemination of information relating to the service. This is a very vital
provision in the regulation of cartels because it can be a tool both in the hands of the regulator
(to withhold enforcement) and the cartels (as a defence). This article notes that importance of
having a guideline which clearly defines what qualifies as ‘protection of the public’ since its
definition is missing from the FCCPA. This is to avoid arbitrary use and subjecting the phrase
to abuse.74
5. Optimal Enforcement Options for Nigeria
The restriction of the fine on cartels to a single year’s turnover (10% turnover of the
preceding business year) appears to be insufficient to command full compliance with the
prohibition. It is generally accepted that fines ought to have an adequate deterrent effect, not
only to sanction the undertaking involved, but also to deter others from engaging in a similar
conduct. This provision could be a pat on the back where the cartel is one that has been
ongoing for a period of time, which means that its effect would have permeated and affected
the market negatively and caused injury to consumers over a long time. For example, a firm
that is involved in a cartel for a period of 10 years with an annual turnover of 1 million
dollars for that duration will find it very easy to pay the single year turnover fine which is
10% of a million dollars, rather than when the fine is pegged at 10% of the annual turnover
for each of the years it participated in the cartel. Also, the insufficiency of the fine could also
be a clog in wheels of a leniency program, because the single year turnover fine may be too
insignificant to pressurize one of the cartelists to snitch on others and apply for leniency.
To guard against a challenge of the dawn raid procedures on appeal, which could lead to
discountenancing the evidence obtained and setting aside decision of the FCCPC based on
technicalities, the commission should ensure that the raids are carried out in compliance to
the law and procedures. This is because appellate courts will usually give more
74 For more details on the public interest debate see, Enyinnaya C. Uwadi (2020, forthcoming) ‘A Case for
Public Interest Considerations in Merger Control Analysis with Reference to Competition Law Enforcement in
Developing Countries: The Example of South Africa’ (TDM, ISSN 1875-4120) April 2020 www.transnational-
dispute-management.com.
17
considerations to the fairness of the procedure rather than the anticompetitive effects of the
cartel,75 a reasoning which is in line with the established principle in the locus classicus of
Macfoy v UAC76 where Lord Denning held that ‘you cannot build something upon nothing
and expect it to stand’. With the amount of time and resources involved in detecting and
prosecuting cartels, it will be a big blow to the FCCPC if its decisions are set aside because of
technicalities, as this could result in loss of vigour, negative publicity, and loss of political
capital.
Furthermore, inasmuch as the strong anti-cartel position of the FCCPA in criminalizing cartel
is commendable, there is a high possibility that if a leniency program is not quickly adopted
by the FCCPC, detecting cartels could be an uphill task. This is because the Commission at
the moment may not be at a vantage position to discover, investigate and prosecute cartels,
owing to the challenges of it being a new agency with a shortage of technical expertise and
funds, while operating in a developing country with a weak competition culture.77 Indeed,
competition authorities from developed countries with their expertise and funding still have
some difficulties in detecting cartels. This led to the adoption of the leniency programs in the
fight against cartels. As discussed earlier, South Africa recorded tremendous success in cartel
prosecution following the introduction of the leniency program, but experienced a downward
trend upon the criminalization of cartel in 2016. Having highlighted the various benefits of
the leniency program and how it helped countries like SA as a central cartel enforcement tool,
this article believes that the SA CLP model portends several benefits which are worthy of
emulation for the Nigerian regime.
Recommendations
With the supposition that the FCCPC will introduce the leniency program as provided under
S 163 (2) (g) of the FCCPA, I will proceed with recommendations on the best approach for its
implementation. The first undertaking to self-report should receive conditional immunity
only on the condition that it cooperates with the FCCPC at all stages of the investigation and
prosecution by providing evidence and testifying against other members of the cartel. Then
the immunity shall be made unconditional. However, where it only self-reports, and drags
foot on further cooperation, the conditional immunity should be revoked. Subsequent
members of the cartel who admits guilt and cooperates with the FCCPC by providing
75 Lewis (n 1) 233.
76 Macfoy v UAC (1961) All ER 1169.
77 George Lipimile, CCC Leadership Perspective: Nudging Uganda And Nigeria Towards Competition
Enforcement’ <https://africanantitrust.com/category/nigeria/> accessed 29 August 2019.
18
additional evidence of significant value to that which is already in the possession of the
commission should receive reduced fine according to the order of their reporting. Where an
investigation is opened against a cartel and undertakings own up and plead guilty to the
allegations before a formal charge is filed, then the settlement procedure should avail them.
Additionally, since the cost of whistle blowing by the informant outweighs the benefit of
remaining silent, measures should be taken while developing the leniency guidelines to
ensure adequate financial incentive and protection for the whistle blowing employee of
cartelists. This will provide a sufficient incentive for the informant to come forward rather
than remain silent. Due to the dangers of being an informant, it is suggested that the incentive
should be sufficient to enable the informant to relocate to a safe environment. The money for
this could be realised from the fines imposed on the cartelists. South Korea is an example of a
country which has successfully prosecuted cartels and changed the widespread
anticompetitive corporate culture by increasing the amount of reward for corporate whistle
blowers who provide information to the KFCT.78
Collaboration with the judiciary is another area of importance in the regulation of cartels.
With the criminal adjudicatory powers of offences in the FCCPA falling under the jurisdiction
of the state and federal high courts, it is imperative for the FCCPC to liaise with the
leadership of these courts for the purpose of designating a number of judges to preside over
competition law cases. These judges will need further training on competition and consumer
protection law so that they can properly appreciate competition law technicalities, arguments
and submissions of parties, and dispense sound economic justice in line with the spirit and
letters of the Act.
Furthermore, it is important to guard against political influence in the activities of the
Commission, like it happened in Columbia, as it will negatively impact and stall every effort
and progress made towards the institutionalisation of a competition culture in Nigeria. To
address the problem of political interference as well as social norms, cartel enforcement
priorities of the FCCPC should be on conducts which are of public interest to the members of
the public and has the potential of generating wide and positive media coverage. Successful
prosecution and imposition of penalties have the potential of putting the Commission in the
good books of the public, which is a step towards changing the prevalent social norm of
apathy on cartel behaviours. Also, the benefits of enforcement in terms of revenue generated
from fines could build political capital for the Commission and get the political class on its
78 Sokol and Stephan (n 5) 11.
19
side. May I add a caveat that the primary purpose of competition law enforcement is not
revenue generation, but to promote competition for the general benefit of the public.
However, evidence of successful enforcement and revenues generated from fines is important
because it justifies any request for increased funding before the Parliament. With the ruling
class on its side, the FCCPC could then proceed against the hitherto politically connected
cartels as well as those involving SOEs.
From the argument on the restriction of the fine on cartels to a single years turnover, this
article recommends its amendment to cover the period of the duration of the cartel in order to
command a sufficient deterrence, and also to make it attractive for any participating firm to
snitch on the rest the of the cartelists in line with leniency regime.
Finally, dawn raids should be planned and strictly carried out in accordance to legislative
provisions and procedural rules. The FCCPC should ensure that it does not act in haste, and
first obtain an order from a court of competent jurisdiction before any raid, which should be
carried out in strict compliance with the court’s order, including the procedural guidelines.
6. Conclusion
This article concludes that cartel regulation is an aspect of competition law enforcement that
portends huge potentials and rewards in an emerging economy like Nigeria, and also for a
new competition regulator with limited resources like the FCCPA. This is because cartels are
per se violations of competition law which does not in essence require an in-depth economic
analysis to prove the alleged offence.79 Unlike other aspects of competition law which
requires the definition of the relevant market, its prosecution only requires the competition
commission to have a wide range of investigatory powers to get hold of sufficient evidence.80
In essence, the article has identified a number of murky areas of cartel regulation in the new
Nigerian competition law which includes jurisdictional dilemma and potential tussle for
jurisdiction over competition law disputes; political interference; inconsistency of cartel
regulation with prevalent social norms; non-clarification of the criteria for exempted cartels
on public interest grounds. This article suggested best optimal enforcement models and made
appropriate recommendations which includes broadening the restriction of the fine on cartels
from a single year’s turnover, to cover for the total number of years the cartel existed; strict
adherence to the rule of law and procedural guidelines on dawn raids; immediate unveiling of
the leniency regime which should also provide adequate protection and incentive for the
79 Fox and Bakhoum, (n 9).
80 Frederic Jenny, 'Cartels and Collusion in Developing Countries: Lessons from Empirical Evidence' (2006)
29 World Competition 109 at 135.
20
snitching cartelist; prioritisation of enforcement to cases which involve public interest and
attracts positive media coverage in order to build social capital; collaborating with the
judiciary in the development of a sound competition law jurisprudence.
In sum, this article recognises the challenges and peculiarities of competition law
enforcement generally and cartel regulation particularly in Nigeria. In all modesty, it strongly
advocates for the consideration of the various issues unveiled by this article which it believes
will be resourceful not only to the competition regulator, but to all relevant stakeholders in
the unending journey of competition regulation.
21
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