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26 August 2010
While the Israeli Antitrust Authority (IAA) has been empowered to arrest suspects in antitrust investigations for years now, it had never made use of this power until recently. In the past, the IAA detained suspects for questioning, releasing them (sometimes subject to bail) after several hours of intense interrogation.
Two recent cartel investigations in the bakeries market and the water counters segment mark a possible change to this policy.(1)
The IAA's power to arrest antitrust suspects is stipulated in Section 46(d) of the Restrictive Trade Practices Law.(2) The execution of this power is subject to the Criminal Procedure (Enforcement Powers - Arrests) Law.(3)
The Arrests Law states three possible causes for arrest prior to indictment:
As already mentioned, the IAA's well-established practice was not to arrest antitrust suspects, but rather to detain them for questioning.
In October 2009 the IAA launched an investigation of the water counters segment amid suspicions of bid rigging, market division, breach of merger conditions and fraud offences. In an unprecedented move, the IAA arrested senior managers as well as lower-ranked officers for an initial 24-hour period, which was extended by a court order. The court explained that the arrests were warranted to prevent possible obstruction of justice. The court reasoned that the water counters segments was small, the suspects knew each other well and could have conspired to obstruct the investigation, as they had allegedly conspired to distort competition.
At first sight, the water counters arrests seem to be explained by the unique circumstances of the case. However, the use of arrests by the IAA in the subsequent bakeries investigation, launched in May 2010, indicates that a more fundamental change in policy has occurred. Here too, the IAA arrested the suspects and then obtained a court order extending the arrests on the grounds that arresting the suspects was necessary to conduct special investigative procedures.
In recent years the IAA has gradually and consistently aggravated enforcement actions in an effort to deter against violations of the antitrust law. This was achieved mainly by seeking more severe penalties for antitrust offenders. At first glance the use of arrests in the course of antitrust investigations seems to fit this trend, since arrests are likely to increase the risks associated with any antitrust wrongdoing. However, one of the core principles of Israeli criminal procedure law is that arrests are to be used only to prevent harm (to the public or to an ongoing investigation) and only as a last resort.
The fact that the IAA managed effectively to investigate cartels for years without the need to arrest casts doubt on the legality of a wide use of arrests in antitrust investigations.
Moreover, the primary reason on which the court in the water counters case based its decision was the premise that alleged involvement in conspiracy against competition makes it likely that the suspects will conspire to obstruct the investigation. Such reasoning is equally valid for any alleged conspiracy and can be used to justify arrests in almost any cartel investigation. The water counters decision completely ignored the fact that this reasoning is seemingly contradicted by the IAA's relative accomplishments in cartel investigations. Similarly, the bakeries decision does not address at all the IAA's investigative accomplishments and the fact that they were achieved without resorting to harsh measures such as arrests. Past performance arguably requires a very careful review of the use of arrests in antitrust cases to avoid unconstitutional harm to basic freedoms. This is especially important because many IAA investigations do not end with indictment - in many cases, civil enforcement measures are taken or none at all.
The use of arrests in future investigations should be carefully scrutinised to ensure that it is necessary and proportionate. Ensuring healthy competition is an important goal, but so is protecting basic freedoms. The IAA and the courts will need to strike the right balance between the two.
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