How about a “Go to Jail” agreement?

How about a “Go to Jail” agreement?

October 9, 2021

When we hear the word "prison", our tendency is to think of murder, rape or theft offences ... Our first thought would probably not be going to jail for executing an agreement. Sometimes, however, an agreement may expose a party thereto, and in the case of a corporation, also its directors and officers, to criminal offenses punishable by up to five years in prison. Welcome to the world of antitrust and restrictive arrangements ...

Israeli law prohibits any act of infringement on competition and sets as a criminal offence any case where a corporation or a person is a party to a "restrictive arrangement" - "an arrangement made between persons conducting business, according to which at least one party restricts itself in a manner that prevents or reduces business competition between itself and the other parties to the arrangement, or part thereof, or between itself and a person who is not a party to the arrangement.” In 2019, the Israeli Antitrust Law was amended and beyond the cosmetic change in the name of the law, which was renamed to "The Economic Competition Law", a number of substantial changes were made to the law, including aggravating the punishment for those who were a party to a restrictive arrangement (the amendment increased the maximum punishment from 3 to 5 years). In addition, the amendment widened the liability of directors and officers to offenses of the corporation or its employees, if the officer did not do “everything possible” to prevent such offence, instead of the prior language that absolved from criminal liability when the offense was committed unknowingly. In other words, the new wording raised the standard of care required of directors and officers to prevent infringement of competition.

The amendment is in line with the tendency of Israeli Courts in recent years to expand the use of criminal liability in cases of infringement of competition, including the use of prison sentence. Although there is no consistency as to the severity of punishment, verdicts granted after the amendment detail the need for aggravated punishment. For example, in a case decided in the Jerusalem District Court in September 2021, a director of a computer company was a party to restrictive arrangements designed to coordinate prices to allow certain companies to win a tender for services. The Court sentenced the director to a term of five and a half months imprisonment and clarified that the imprisonment is part of the trend of aggravated punishment for such offences.

Because the definition of "restrictive arrangement" is broad and because the Courts' tendency seems to be to aggravate punishment of directors and officers for antitrust offence, it is vital to consult an attorney with experience in the field of contracts and antitrust, who can ensure that the agreements that the company enters into will not be considered restrictive arrangements or such that require prior approval under the law. In addition, and to the extent that the arrangement is anchored in writing, it is certainly important to ensure its proper wording in order to minimize the exposure of the corporation and its directors and officers.