Anti-trust agency lays down tough rules to break down trade cartels

Trade associations in the financial and agriculture sectors have less than two months to crack down on cartels within their jurisdiction that have continued to swindle consumers of their hard-earned income through unethical trade practices.

The Competition Authority of Kenya (CAK) wants the lobby groups to hire independent assessors to interrogate their business processes to encourage sound competition. The associations are required under a new approach - Special Compliance Process (SCP) to assess their operating systems, memorandum and articles of association, agreements, minutes, among other business procedures before end of September this year.

Once done, the trade organisations should deposit the revised copies of trade rules and operating systems by September 30, 2015. The process to investigate whether the said business players have abused their trading rules thus distorting competition in the local market started in June after publication of a notice in the Kenya gazette.

CAK Director General Wang’ombe Kariuki said the anti-trust agency will ensure the targeted economic sectors are free of cartels swindling consumers their hard earned sweat through fixing prices and distorting trade practices. “Our concern under the new programme is to ensure trade rules that are against competition law are tackled. Equally, the initiative is aimed at cracking down on cartels and other trade groups that have been minting billions of shilling through immoral trade behaviours,” said Mr Kariuki.

Against exploitation

The SCP process he said is aimed at identifying and rectifying past behaviours largely blamed for curtailing competition as cartels set prices, segment the market and abuse dominance.

Some of the unethical trade practices the trade associations are accused of include; directly or indirectly fixing purchase or selling prices, dividing markets by allocating customers, suppliers, areas or specific types of goods or services and abuse of market dominance.

Kariuki, in a notice in local dailies on Friday explained that CAK held workshops with the trade groups in June and July and engaged international experts on special compliance to induct the business community on the glaring areas. “The response has been positive and we expect all the trade groups will comply with the terms of the gazette notice. Further, the process seeks to encourage the spirit of fair competition in the local market and thus ensure consumers are protected against exploitation by trade associations,” he added.Failure to check on the unethical trade practices, Kariuki stated has contributed to high cost of doing business in the economy and thus contributing to low investments.

He said since June, the management of the trade lobbies ought to have hired independent assessors to interrogate their business processes and identify systems and rules that have been inhibiting sound competition. “CAK will then embark on a rigorous process to study the revived copies and then give recommendations by February 2015,” he added.

Agriculture and financial service sectors, he said are being targeted because of their substantial contribution to the economy and equally forms the foundation of investment in Kenya.

Failure to comply with the directive, Kariuki warned it will force the authority to initiate investigations and any group or person found to have contravened competition law will be fined Sh10 million or sentenced to five years in jail.

The Competition Authority of Kenya Act No. 12 of 2010 Sections 21, 22, 23 and 24 places stiffer penalties to any trade group involved in anti-competitive behaviour. Targeted trade associations include Kenya Bankers Association, Association of Kenya Reinsurers, Association of Kenya Insurers, East African Tea Trade Association, Kenya Coffee Traders Association, Kenya Tea Development Agency, Cereals Millers Association, Kenya Association of Stockbrokers and Investment Banks.

In April this year, CAK fined Association of Kenya Re-insurers (AKR) Sh721,715 for engaging in unethical trade practices. The association was accused of unfairly setting minimum insurance rates to be charged to members of the National Intelligence Service (NIS) when the latter made public intention to renew its group life scheme.

Fixing price

The association recommended a minimum premium rate of 15 per mille (cost per thousand) to insurance companies after NIS announced intention to renew its group life scheme for the 2013/2014 financial year. This, Kariuki said, contravenes section 22(1) (b) of the Competition Act No.12 of 2010.

“NIS wanted to renew its group life scheme for the 2013/2014 financial year. AKR wrote to companies urging them not to price the activity below 15 per mille. NIS complained to us and immediately we launched investigations which revealed that the association had breached the antitrust regulations by fixing price,” said Kariuki in April.

Current members of the AKR include, Kenya Reinsurance Corporation; African Reinsurance Corporation, East Africa Reinsurance Company, Zep-Re (PTA Reinsurance Company) and Continental Reinsurance Limited Kenya.

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