When big companies face criminal charges, what does it actually mean?

The Spinoff

a day ago

Noel Leeming is the latest big retailer to be criminally prosecuted by the Commerce Commission. But what do the charges actually mean, and will they make a difference to uncompetitive or unfair behaviour?
Last week, the Commerce Commission announced it was filing criminal charges against Noel Leeming in the Auckland District Court. The government's consumer watchdog claimed the electronics chain, which is owned by The Warehouse, had breached the Fair Trading Act, particularly in its 'price match' guarantee; often, according to the commission, products from other companies will not be matched, despite Noel Leeming advertising that they will.
'It's crucial that businesses promoting any price match offer factor in the overall impression of the claims they make, and that all information is clear to customers,' said Anne Calliman, the deputy chair of the Commerce Commission, in a press release.
It's not the first time the commission has filed criminal charges against retailers: Woolworths NZ, and some specific Pak'n'Save supermarkets (which are operated under a franchise model) were served with criminal charges last December for alleged breaches of the Fair Trading Act, while civil proceedings were filed against Foodstuffs North Island and Gilmours last week for alleged cartel conduct in breach of the Commerce Act. But what punishments can really be handed out? And does being served with criminal charges make a difference to how companies operate?
What is the Commerce Commission?
Great, starting with an easy one. The commission, also known as the CommComm (cute!), is New Zealand's competition, consumer and regulatory agency. An independent Crown entity, it's responsible for enforcing a few different laws.
Under the Commerce Act, the commission can conduct market studies into competition, investigate mergers between businesses which may reduce competition and harm consumers, and recommend that particular goods or services are regulated if there is little competition. If people have been engaging in cartel conduct (ie price fixing or bid rigging), the commission can bring civil charges under the Commerce Act, with penalties including fines of up to $500,000 for an individual and $10 million (or more) for a company. As of 2021, it can also bring criminal charges under this law which could lead to imprisonment of up to seven years for individuals.
Under the Fair Trading Act (FTA), the commission can investigate and prosecute companies and individuals for misleading pricing, including contract terms and pyramid schemes. It can file criminal charges through the District Court, with fines of up to $200,000 per offence for individuals and $600,000 per offence for companies.
The commission also enforces some parts of the Telecommunications Act (how people are charged for internet and phone services), the Dairy Industry Restructuring Act (how Fonterra charges for raw milk) and and the Credit Contracts and Consumer Finance Act (money lending).
People can report companies for suspected breaches of these acts, and the commission can respond by investigating and potentially filing civil or criminal charges.
So the Commerce Commission can't investigate or prosecute 'high prices' – it has to have a specific example of someone breaking the law?
Yeah, exactly. It might feel wrong that butter costs $11 – but a breach of the Fair Trading Act would be a misleading special, like butter being advertised as on special for $11 if that was actually the standard non-discounted price, or a shopper being charged $11 when the price tag said $10. Examples of this gathered by independent organisation Consumer and submitted to the ComCom led to Pak'nSave and Woolworths receiving criminal charges.
What's the difference between civil and criminal charges?
Whether civil or criminal charges are brought will depend on the particular legislation and all the circumstances of the conduct. Where there is a choice between the two, the commission will consider a range of factors including the standard of proof required (civil cases must be proved on the 'balance of probabilities' standard, but criminal cases require proof 'beyond reasonable doubt'), the seriousness of the conduct and its consequences and whether the conduct was deliberate or especially blameworthy.
Are there any recent examples of companies actually having to pay big fines?
Several. Last year, Kiwibank was found to have overcharged 35,000 customers by more than $6.8m, in breach of the Fair Trading Act. Kiwibank found the issues in its system and turned itself into the commission, which brought 21 criminal charges and the bank was fined $1.5m, as well as repaying the customers $9.2m to remediate. In a civil case last year, meanwhile, Foodstuffs North Island was fined $3.25m under the Commerce Act for using land covenants to block its rivals, and in 2023, One NZ copped a $3.6m fine under the Fair Trading Act for misleading customers about fibre broadband.
Has the Commerce Commission ever actually sent someone to prison?
Not yet, but in December last year, the High Court handed down its first criminal sentence for charges brought by the Commerce Commission under the Commerce Act, to Manesh Kumar, who rigged bids for NZTA projects. He received a sentence o f six months of community detention and 200 hours of community service.
Despite the term 'criminal charges', this doesn't usually lead to lawyers yelling at each other across a courtroom, holding up different pictures of price specials available at supermarkets. Many Commerce Commission cases are settled, with the company at fault agreeing to pay a fine and not engage in the bad behaviour again.
I've lost count of the articles I've read about how unfair and expensive the grocery sector is. Can the Commerce Commission make much of a difference to the fact that getting a few things for dinner always ends up costing $80?
After a market study in 2022 showed that New Zealand needed more competition in the grocery sector to get better prices, the Grocery Industry Competition Act was passed by the government. Since 2023, the Commerce Commission has had a specific grocery commissioner.
Yet the high prices, and the depressing headlines, continue. The commission has said that the grocery sector is one of its priorities for 2024/25. It hasn't just focused on supermarkets, but also alternatives, like filing criminal proceedings under the FTA against meal subscription company Hello Fresh for not telling customers that accepting a voucher meant they were resubscribing to the service. It's said the rules need to change so that smaller companies that sell groceries have more alternatives. But because there is so little competition in the sector, all these court cases and call-outs have made little difference. The Commerce Commission can only regulate the commercial sector as it is, not change the system as a whole. Finance minister Nicola Willis has said that breaking up the duopoly of Woolworths and Foodstuffs might be an option. 'Significant action may be required to foster genuine competition,' she said in March. For now, however, criminal charges or otherwise, the status quo remains.