Conviction of Companies and their Superior Officers in an Envelope Cartel
The District Court in Jerusalem has convicted four companies and six of their superior
officers for taking active part in an envelope cartel between 1995 and 2002
Israel’s Restrictive Trade Practices Law was amended in 2000 to include the offence of violating the law under so-called severe circumstances. Severe circumstances are those under which significant harm to competition might be caused by one or more of the following: (i) the market share and the position of the accused in the market influenced by the offence; (ii) the term of the offence; (iii) the damage that was caused or that is expected to be caused to public welfare as a result of the offence; and (iv) the benefits that the accused had as a result of the offence. Severe circumstances allow courts to impose five years of imprisonment instead of three years for ‘regular’ antitrust offences.
The first indictment of parties accused of being part of a cartel under severe circumstances was submitted to the district court in Jerusalem in May 2004. According to the indictment, three major local envelope manufacturers and their superior officers ran a cartel from 1995 until it was exposed in October 2002. The companies and officers were accused of coordinating public tenders, including governmental tenders, tenders published by the postal authority, major telecoms companies, the national electricity company, banks, credit-card companies, universities and other institutions. The indictment was also issued against a fourth company which imports envelopes to Israel; it was accused of receiving payment from the other three companies to stop importing envelopes to Israel during 1997 and 1998.
In a detailed decision published in early July, the district court convicted the accused of most of the claims in the indictment. It held that the three local manufacturers had divided tenders and clients among themselves under a quantity mechanism, by coordinating their proposals in different tenders and the rate of discounts proposed to different major clients. The court also stated that the companies met to examine whether there were deviations between the actual winnings in the tenders and the mechanism they used to divide the tenders. If differences were found, they were balanced by transferring work from one company to another. The court also convicted the parties of paying the fourth company (the importer) for stopping the import of envelopes to Israel during 1997 and 1998.
However, the court held that the Israeli Antitrust Authority’s argument that the parties’ aggregate market share was around 80 per cent had not been proved. Consequently it decided not to convict the parties for being members of a cartel under severe circumstances, but rather as members of a ‘regular’ cartel. The penalties will be decided within a few months.
The authority provided information to show that immediately after the cartel was exposed on October 2002, the price of envelopes in public tenders dropped significantly. The authority believes that this is an indication of the significant damages that resulted from the cartel.
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