Grocery giant Loblaw Cos. Ltd. has admitted to participating in a scheme to increase packaged bread prices for more than 14 years, saying it will co-operate with a Competition Bureau investigation into the industry.
What is it, and how does it work?
Price-fixing, in the words of Canada’s Competition Bureau, is “consumer fraud.” It is a difficult crime to detect, because a price-fixing conspiracy between companies also resembles actual competition between firms.
An often-cited example is that of gasoline stations. If Station A sells gas for $1 a litre and moves the price up to $1.10, or down to 90 cents, and Station B then makes the same move, the actions resemble the motions of price-fixing but are deemed the movements of a competitive market.
Price-fixing happens when Stations A and B agree on a price. The U.S. Federal Trade Commission says: “Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms.”
Tough to prove
Because price-fixing is difficult to spot, and even more difficult to prove, the Competition Bureau and its peers in other countries rely on a confessor in such schemes. The first to come clean receives immunity. The next confessor gets a degree of leniency but still faces criminal charges and fines.
“These programs,” according to the bureau, “have consistently proven to be an effective means of uncovering and breaking cartel activities. … Without them, many cartels would go undetected.”
In Canada, price-fixing can lead to fines of as much as $24-million and jail time to a maximum of 14 years. Loblaw Cos. Ltd. and parent George Weston Ltd. are co-operating with the Competition Bureau as “an immunity applicant” in the current bread price-fixing case.
Studies indicate that only a minority of such schemes are ever uncovered, roughly one in five, said lawyer Michael Osborne, a competition law expert and partner at Affleck Greene McMurtry LLP in Toronto.
In 2015, Crown prosecutors dropped a criminal price-fixing case against Nestlé Canada and its former CEO Robert Leonidas. The case focused on a conspiracy to raise the price of chocolate bars. The probe began in 2007, when Cadbury Adams Canada sought immunity. In 2013, Hershey Canada pleaded guilty to price-fixing and paid a $4-million fine in a leniency deal. Civil action against the chocolatiers led to a class-action settlement of more than $20-million. In the case against Nestlé Canada and Mr. Leonidas, the Public Prosecution Service of Canada concluded there was “no reasonable prospect of conviction.”
Another long-running investigation, started in 2004 in Quebec, led to a variety of fines and sentences in a case about gasoline price-fixing in Victoriaville, Sherbrooke, and Magog; the Competition Bureau said it had used wiretaps to intercept more than 200,000 telephone conversations.
The agreement of price-fixing between operators involved several cents per litre of gas. An example of an intercepted call included: “Okay, I’ll let you call your people and I’ll call mine, and then at 10 o’clock at 95.4 cents.” Les Petroles Global Inc. paid a fine of $1-million. Six individuals were sentenced to 54 months but none served actual jail time.
The lysine case – and Matt Damon in The Informant
Lysine is an amino acid involved in the biosynthesis of proteins – and is used in animal feed. Archer-Daniels-Midland Co. and several other companies in the 1990s conspired to increase the price of lysine and were busted after an FBI investigation that started with informant Mark Whitacre, a one-time ADM executive. In 1996, the company paid a $100-million (U.S.) after pleading guilty. Several former ADM executives went to jail, including Mr. Whitacre.
Matt Damon played Mr. Whitacre in the 2009 movie The Informant! It was based on the 2000 book of the same name by journalist Kurt Eichenwald.
“The movie is a fantastic account,” said Mr. Osborne, the Toronto lawyer.
When Mr. Osborne taught at Dalhousie University’s law school in the early 2010s, he assigned the film to his students to watch. Some scenes are based on surveillance material gathered through Mr. Whitacre. The real footage has been distributed by the U.S. Department of Justice to lawyers in the competition law field such as Mr. Osborne as a teaching tool.
The Globe and Mail, December 21, 2017