Friday, June 21, 2013

Canadian Competition Commissioner Cites Cargo Carrier Cathay Concerning Criminal Conspiracy Cartel

Yet Another Air Freight Scandal Continues After Bureau's Judgement
Shipping News Feature

CANADA – INDIA – WORLDWIDE – As a further investigation in India into unfair competition begins, the Canadian Competition Bureau has announced that Cathay Pacific pleaded guilty to criminal conspiracy under the Competition Act and was fined CA$1.5 million by the Ontario Superior Court of Justice for its participation in an air cargo price-fixing cartel relating to navigation surcharges that it imposed on international air freight shipments to and from Canada between April 13, 1999 and August 14, 2003. John Pecman, Commissioner of Competition, said:

"When the Bureau obtains evidence of wrongdoing, it does not hesitate to pursue those who engage in price-fixing agreements that harm Canadian businesses and consumers. These types of agreements represent one of the most egregious forms of anti-competitive behaviour."

During the early years of the century there were numerous airlines which indulged in cooperative practices which have latterly been deemed to have been illegal. There have been billions of Euros and dollars of various currencies in cartel prosecutions in Australia, the USA and Europe.

To date, the Bureau's air cargo surcharges investigation has resulted in eight criminal convictions, including Cathay, and fines of over CA$24 million. In 2009 - Air France (CA$4 million), KLM (CA$5 million), Martinair (CA$1 million), Qantas (CA$155,000), and British Airways (CA$4.5 million). In 2010, Cargolux (CA$2.5 million), and in 2012, Korean Air (CA$5.5 million).

The eight companies have pleaded guilty to fixing one or more air cargo surcharges, including fuel surcharges, for shipments on certain routes from Canada with the Bureau estimating that Air France, KLM and Martinair imposed air cargo surcharges totalling approximately $31.5 million during the period of the conspiracy. The Bureau's investigation into the alleged conduct of other air cargo carriers continues.

This investigation was commenced following a confidential immunity application. Under the Bureau's Immunity Program, the first party to disclose to the Bureau an offence not yet detected, or to provide evidence leading to the filing of charges, may receive immunity from the Director of Public Prosecutions, provided the party fully cooperates with the Bureau. Parties that approach the Bureau early in its investigation of criminal activities may also be able to benefit from leniency, such as reduced penalties, in return for their cooperation. Cathay have history in this, the company held its hand up when charged in New Zealand, reaping a 20% discount on their NZ$4.3 million fine on that occasion. Obtaining the cooperation of implicated parties through the Bureau's Immunity and Leniency Programs is one of Canada’s best weapons to combat these secret criminal anti-competitive agreements.

Under the current conspiracy provision in the Canadian Competition Act, it is a criminal offence for two or more competitors or potential competitors to conspire, agree or arrange to fix prices, allocate customers or markets, or restrict the output of a product. An offence under this provision is punishable by a fine of up to $25 million and/or imprisonment for a term of up to 14 years. In this case, the conduct occurred under the former conspiracy provision, which provides for a fine of up to $10 million and/or imprisonment for a term of up to five years.

To secure a conviction under the former conspiracy provision of the Act, the Bureau is required not only to prove an agreement between competitors to fix prices, but also that the agreement was likely to have an undue economic effect on competition in the market, this has the effect of significantly increasing the complexity of proving any violation of the legislation.

Elsewhere, reports suggest that the Competition Commission in India is to investigate a further cartel conspiracy complaint against Jet Airways, SpiceJet, Air India, GoAir and IndiGo for ‘levying a uniform fuel surcharge on air cargo’. The complaint has apparently been lodged by the Express Industry Council of India, representatives of express courier and cargo companies.

Cynics would point out that, although the huge fines are a definite disincentive to organising such anti-trust practices, it is currently the authorities which benefit, rather than the companies, and eventually of course the end user or consumer, without class actions being taken out against the guilty carriers. Even then it is doubtful if such reparations can ever filter down to those who have actually been affected rather than the direct customers, often a forwarding agent, of the airline involved in the scandal.