Introduction
On 26 June 2009, criminal cartel legislation was introduced into Australia. Since that time only two criminal cartel prosecutions have been commenced by the Commonwealth Department of Prosecution (CDPP) on the recommendation of the Australian Competition and Consumer Commission (ACCC). On 18 July 2016, Japanese shipping company, Nippon Yusen Kabushiki Kaisha (NYK) entered a guilty plea to criminal cartel conduct.[1] NYK’s guilty plea follows any earlier guilty plea in 2014 to charges brought by the US Department of Justice (DOJ) for its involvement in a cartel in the international ocean shipping services market, for which NYK was fined $59.4 million.[2] On 15 November 2016, the ACCC commenced its second criminal cartel prosecution against K-Line. All indications are that K-Line is intending to contest these charges.[3]
Despite criminal cartel prosecutions being few and far between in Australia there has not been any sustained debate about the reasons for the ACCC’s slow start to criminal cartel enforcement. This lack of sustained debate may be due to a general acceptance by commentators of ACCC claims that the “long gestation” was due to the ACCC taking a “cautious” approach to the new cartel legislation.[4]
Contrary to ACCC claims, the reasons for the paucity of criminal cartel prosecutions since 2009 has been due to three main factors. First, that the ACCC lacks the necessary investigatory powers, resources and skills to effectively investigate criminal cartel conduct. Second, that the complexity of the legislation has impeded efforts to investigate and prosecute criminal cartels. Third, the fact that the legislation permits the ACCC to pursue cartels as either a civil breach or a criminal offence, may have created a bias towards civil cartel enforcement.
Criminal cartel legislation – a brief introduction
Australia
Australia’s criminal cartel laws are contained in Division 1 of Part IV of the Competition and Consumer Act 2010 (CCA). The main provisions are ss.44ZZRF and 44ZZRG.
S.44ZZRF
(1) A corporation commits an offence if:
(a) the corporation makes a contract or arrangement, or arrives at an understanding; and
(b) the contract, arrangement or understanding contains a cartel provision.
S.44ZZRG
(1) A corporation commits an offence if:
(a) a contract, arrangement or understanding contains a cartel provision; and
(b) the corporation gives effect to the cartel provision.
A cartel provision is defined as applying to four types of conduct:
(a) price-fixing; or
(b) restricting outputs in the production and supply chain; or
(c) allocating customers, suppliers or territories; or
(d) bid-rigging.
Ss.44ZZRJ and 44ZZRZ create mirror civil penalty provisions.
The two most notable differences between the criminal and civil cartel provisions are the evidentiary requirements and the penalties which apply.
While the physical element is the same for both civil and criminal provisions – namely the act of participating in the cartel or the making and/or giving effect to the cartel agreement – there is an additional fault element in relation to the criminal provisions which is knowledge or belief.[5] In practical terms, for a criminal prosecution the ACCC will also have to establish that an individual or corporation both:[6]
- intended to enter into a contract, arrangement or understanding; and
- knew or believed that the contract, arrangement of understanding contained a cartel provision.
The other main difference between the criminal and civil cartel provisions are the penalties. The maximum penalty which applies to an individual is imprisonment for up to 10 years and a maximum fine of $220,000 per contravention. By contrast, there is no term of imprisonment under the civil penalty provisions, and the maximum pecuniary penalty payable for an individual is $500,000 per contravention.
United States
In the US, cartels are prohibited under S.1 of the Sherman Act 1890 (SA) which provides:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.
While the US legislation is considerably shorter in length and facially less complex than the Australian legislation, it must be remembered that the apparently straightforward language of s.1 has been expanded upon and refined by US Courts for over 120 years.
(1) Investigating cartels
When the Rudd Government decided to introduce legislation to criminalise cartels, it had regard to international best practice, particularly the US approach to fighting cartels.[7] The Government accepted that if the law was to be effective there needed to be strong sanctions (ie 10 years’ imprisonment) and an effective immunity policy. There was also a recognition that the ACCC would require additional investigatory powers, including access to telephone interceptions and surveillance device warrants.
Despite the strong desire to replicate the US system, there appear to have been two major oversights when the new cartel laws were introduced in Australia – first, a recognition of the crucial role which the Federal Bureau of Investigation (FBI) plays in criminal cartel investigations and, second, the role of the grand jury in cartel investigations,
Cartel investigations
In the US, criminal cartel investigations are conducted almost exclusively by the FBI. The FBI is involved in all stages of the investigation, including having responsibility for:[8]
- executing all search warrants;
- conducting telephone intercepts;
- installing surveillance devices;
- interviewing potential defendants;
- obtaining information from third parties;
- pursuing investigatory leads;
- managing the chain of evidence;
- obtaining and analysing relevant documents; and
- giving expert evidence in court or before the grand jury.
In the evening of June 27, 1995, more than 70 FBI agents simultaneously raided the world headquarters of Archer-Daniels-Midland Company (ADM) in Decatur, Illinois and interviewed a number of ADM officers in their homes. Serving subpoenas authorized by a federal grand jury sitting in Chicago, the agents collected documents relates to ADM’s lysine, citric acid, and corn-sweeteners businesses. Within a day of two, investigators had also raided the offices of four other companies that manufactured or imported lysine. These subpoenaed documents, together with hundreds of secret tape recordings of the conspirators’ meetings and conversations, built a strong case that five companies had been illegally colluding on lysine prices around the world for three years.It is beyond serious debate that FBI agents are highly qualified and experienced criminal investigators. A FBI agent receives 20 weeks of intensive Basic Training at the FBI Academy before becoming an agent. This training focuses on a range of core skill areas, including interviewing, basic and advanced investigative and intelligence techniques, interrogation and criminal investigations. FBI agents must then complete further training on a regular basis.[10]
The role of the FBI in US antitrust investigations is in sharp contrast to the way cartel investigations are conducted in Australia. In Australia, it is the ACCC which has primary responsibility for conducting cartel investigations, with only minimal assistance from the Australian Federal Police (AFP), the specialist federal criminal investigatory agency which would be the most direct domestic counterpart to the FBI.
The AFP’s role in Australian criminal cartel investigations is limited to two main tasks:
- assisting ACCC investigators in the execution of search warrants issued under s.154X; and
- execution of telephone interception and surveillance device warrants.[11]
The AFP also sets up the technology required for telephone interceptions and gains access to relevant premises to install surveillance devices. In other words, the AFP is responsible for covertly breaking into the suspected cartelist’s premises to “plant the bugs”.
The AFP does not assist the ACCC in conducting searches, interrogating suspects, interviewing witnesses, managing the evidence and investigatory leads or analysing the evidence obtained through the use of telephone interceptions or surveillance devices. All of these investigatory tasks are undertaken by ACCC investigators.
ACCC investigators receive some basic investigatory training as part of a one week induction when they commence their employment. This training is conducted jointly by senior ACCC staff and AFP agents. However, the technical complexity of this training is quite low given that many of the ACCC officers have no previous investigatory experience or in some cases are not legally trained. Issues covered in the training include how to analyse the elements of the offence and create an evidence matrix, and basic rules of evidence. This initial training is supplemented by further ad hoc investigatory training.[12]
A key skill in conducting any criminal investigation is the ability to conduct a record of interview (ROI) with suspects. Indeed, it is standard CDPP practice to require the agency which has referred the matter to the CDPP to offer each prospective defendant an opportunity to participate in a ROI prior to any charges being laid.[13] The ACCC’s main problem in terms of conducting ROI’s with suspects is that most ACCC investigators have quite limited experience in conducting such interviews. This is because it is the ACCC’s standard practice to conduct interviews with prospective defendants pursuant to a s.155 Notice and further for the questioning to be undertaken by external barristers. This practice has prevented most ACCC investigators from acquiring these vital interviewing skills.
Therefore, a major concern about the ACCC’s approach to criminal cartel investigations is that the many ACCC investigators do not have the advanced investigatory skills or experience required to investigate criminal cartels. While ACCC investigators can very capably investigate civil cartels, the level of investigatory training is not adequate for investigating hard core criminal cartels.
The apparent lack of investigatory training and expertise within the ACCC has adversely impacted on the number of criminal cartel investigations which the ACCC has been able to investigate successfully.
Grand jury
Another crucial difference between the Australian and US criminal cartel investigation is the role of the grand jury.
The function of the grand jury is to investigate possible criminal violations and return indictments against culpable corporations and individuals. The grand jury has been described as:[14]
...a grand inquest, a body with powers of investigation and inquisition, the scope of whose inquiries is not to be limited narrowly by questions of propriety or forecasts of the probable result of the investigation, or by doubts whether any particular individual will be found properly subject to an accusation of crime.The grand jury has very broad powers of investigation, including the ability to compel witnesses to attend the grand jury to give evidence, to issue subpoenas and to pursue other investigatory leads.[15] The prosecutor presents a range of proposed investigatory steps to the grand jury, which then decides whether to pursue these investigatory or whether to pursue other investigatory steps.
Other features of the grand jury process, include that:
- it is not limited to considering admissible testimony;
- witnesses have no rights to object to the scope or propriety of the grand jury proceedings;
- witnesses are generally not permitted to have Counsel present with them in the grand jury room;
- the grand jury’s deliberations are conducted in secrecy; and
- any person involved in the grand jury process is not permitted to make public comment about the existence or nature of a grand jury investigation.
Further, it has been held in the US Courts generally “cannot unduly interfere with the essential activities of the grand jury nor encroach on the grand jury's or the prosecutor's prerogatives”.[16]
The existence and operation of the grand jury system in the US makes a crucial difference to the way the DOJ and FBI conduct criminal cartel investigations. While the ACCC has a wide range of intrusive coercive powers, the grand jury system provides the DOJ with access to a much broader range of investigatory powers, which are largely unfettered. Furthermore, the fact that much of the grand jury work can be undertaken in complete secrecy permits the DOJ to maintain the covert status of its investigations for longer periods of time than is generally the case with the ACCC.
(2) Complexity
(2) Complexity
As outlined above there are numerous differences between the Australian and US legislation for combatting criminal cartels. The Australian legislation is very prescriptive in outlining the types of conduct which are to be prohibited and the various defences which are available.
Indeed, criticism of the complexity of Australian criminal cartel provisions has been widespread. As stated by Russell Miller:[17]
First, the bill should be recast to focus only on hard-core conduct -- bid-rigging, naked price-fixing and market-rigging cartels – rather than trying to cover every conceivable eventuality in densely drafted offences, exceptions and exclusions. The current provisions of the act, carrying heavy financial penalties, have proved sufficient for other abusive conduct.
Second, we should recognise that the longer and denser the legislation is, the more difficult it will be for the DPP to secure and uphold convictions.
Third, we should focus on those who conspire to rig bids, fix prices and rig markets. Perpetuating the search to discover the differences between an "arrangement" and "understanding" in the context of a cartel is a barren exercise.
The Australian provisions have been compared quite unfavourably with the equivalent US provision. As stated by Justice Rares: [18]
There is a stark contrast between the complexity of the 20 pages specifying the cartel provisions in the Competition and Consumer Act and the apparent simplicity of the Sherman Act (15 USC §1)….
The precise circumstances in which that section (s1 Sherman Act) operates are not spelt out; rather the congress left that for the courts. No-one can say that competition in the United States of America has been unduly inhibited in the last 120 years by that enactment. As is well-known, many convictions have occurred and many anti-trust suits have succeeded in that country. Put simply, the section worked. You can explain its concept to a jury of 12 citizens who are not endowed with the reasoning power or intellect of Ludwig Wittgenstein…Furthermore, there is a risk that Australian criminal cartel laws will become even more complex if the Competition and Consumer Amendment (Competition Policy Review) Bill 2016 is passed.[19] The purpose of the Bill is to give effect to a number of the recommendations from the Competition Policy Review (aka the Harper Review). Included in the Bill are a number of amendments to the criminal cartel laws, primarily in relation to the joint venture (JV) defence contained in s.44ZZRO.
The three main changes being proposed are to extend the JV defence to include:
- arrangements and understandings to form a JV in addition to written JV contracts or agreements;
- cartel provisions which are claimed to be reasonably necessary for undertaking the JV; and
- JV for the acquisition of goods and services, rather than only those limited to the production or supply of goods and services.
The ACCC’s submission to The Treasury is quite blunt in its assessment of the likely effect of these proposed amendments. The ACCC states that it is concerned that the amendments may “have the unintended consequence of watering down Australia’s cartel prohibitions”.[20] The ACCC then issued the following warning:
The ACCC believes the amended joint venture exemption is likely to allow harmful collusive conduct…to escape prosecution because the conduct would no longer be regarded as ‘prohibited cartel conduct’. The ACCC is also concerned that the amendments will introduce evidentiary hurdles that will make it more difficult to proceed with criminal prosecutions and noted that the (CDPP) has previously raised these concerns in a confidential submission responding to the Harper Review’s recommendation.
There is a real risk that the proposed amendments will result in competitors seeking to establish sham JV’s in order to mask cartel conduct, as occurred in Canada.[21]
Another concern are the evidentiary hurdles that these amendments will create. The likely effect of these amendments will be to allow companies which have been accused of being involved in a cartel to claim that they were in fact engaged in an undocumented JV and that the cartel provision/s in question were reasonably necessary for undertaking the JV. It would then fall to the CDPP to disprove the claim that there was in fact an undocumented JV and, failing that, that the relevant cartel provisions were not reasonably necessary for undertaking the JV.
This task becomes even more problematic when one recognises that the CDPP will be required to establish these negative proofs beyond reasonable doubt to a jury of twelve jurors who must reach a unanimous verdict.
(3) Bias towards civil proceedings
The final major reason why criminal cartel prosecutions have been few and far between since the introduction of the laws in 2009 may be due to an unconscious bias within the ACCC towards the pursuit of civil cartel proceedings.
When the legislation was first introduced there was concern that the ACCC may use the threat of criminal proceedings as leverage to extract larger civil pecuniary penalties from cartel members. The ACCC responded to these concerns by making it crystal clear that such bargaining would not be occur – as stated by the then ACCC Chairman, Graeme Samuels:[22]
Another concern are the evidentiary hurdles that these amendments will create. The likely effect of these amendments will be to allow companies which have been accused of being involved in a cartel to claim that they were in fact engaged in an undocumented JV and that the cartel provision/s in question were reasonably necessary for undertaking the JV. It would then fall to the CDPP to disprove the claim that there was in fact an undocumented JV and, failing that, that the relevant cartel provisions were not reasonably necessary for undertaking the JV.
This task becomes even more problematic when one recognises that the CDPP will be required to establish these negative proofs beyond reasonable doubt to a jury of twelve jurors who must reach a unanimous verdict.
(3) Bias towards civil proceedings
The final major reason why criminal cartel prosecutions have been few and far between since the introduction of the laws in 2009 may be due to an unconscious bias within the ACCC towards the pursuit of civil cartel proceedings.
When the legislation was first introduced there was concern that the ACCC may use the threat of criminal proceedings as leverage to extract larger civil pecuniary penalties from cartel members. The ACCC responded to these concerns by making it crystal clear that such bargaining would not be occur – as stated by the then ACCC Chairman, Graeme Samuels:[22]
A person will not be permitted to seek to ‘trade off’ a possible criminal prosecution with civil settlement. This is not a subject for negotiation. Cartelists will not be able to stop this process by offering a fat cheque as a civil penalty. Nor will the ACCC put itself in a position where there might be a perception that it is using the possibility of a referral of a matter for consideration of criminal prosecution to leverage cooperation or resolution of civil proceedings.
If we were to be asked - “Is there a way that we can pay a significant financial penalty and avoid the prospect of a gaol sentence?” we will walk out of the room. The ACCC will not engage in any discussions on a civil resolution until it has formed a view as to the seriousness of the conduct, and in consultation with the CDPP, whether a criminal prosecution should be commenced.
It would be inappropriate for the ACCC to suggest to an individual or corporation that a criminal prosecution would not be pursued in return for the party agreeing to make concessions in relation to civil proceedings. However, that does not mean that there may not be an unconscious bias within the ACCC towards civil proceedings given the financial penalties which are available for criminal and civil cartel conduct.
As explained above, one of the differences between the criminal and civil cartel provisions is that individuals can be sentenced to a period of imprisonment of up to 10 years. However, the situation is quite different in relation to the maximum financial penalties which may be sought against corporations. Corporations may be liable for a maximum fine or pecuniary penalty not exceeding the greater of the following:
(a) $10,000,000;
(b) if the court can determine the total value of the benefits that:
As explained above, one of the differences between the criminal and civil cartel provisions is that individuals can be sentenced to a period of imprisonment of up to 10 years. However, the situation is quite different in relation to the maximum financial penalties which may be sought against corporations. Corporations may be liable for a maximum fine or pecuniary penalty not exceeding the greater of the following:
(a) $10,000,000;
(b) if the court can determine the total value of the benefits that:
(i) have been obtained by one or more persons; and
(ii) are reasonably attributable to the commission of the offence;
3 times that total value;
(c) if the court cannot determine the total value of those benefits - 10% of the corporation's annual turnover during the 12-month period ending at the end of the month in which the corporation committed, or began committing, the offence.
In other words, the ACCC can achieve exactly the same financial outcome against a corporation for engaging in cartel conduct regardless of whether it seeks to pursue a civil proceeding or a criminal prosecution.
The suspicion that the ACCC may have an unconscious bias towards pursuing civil proceedings over criminal proceedings is compounded by the knowledge that by taking a civil proceeding the ACCC is able to avoid the additional evidentiary requirements and the higher onus of proof required for criminal cases. Furthermore, the ACCC would be able to avoid the complications and risks associated with having to secure a unanimous jury verdict.
One difference in relation to the US cartel regimes are the remedies which the DOJ can seek if it decides to pursue a civil action in relation to cartel conduct. Contrary to the position which applies under the CCA, the DOJ is not able to recover pecuniary penalties in civil proceedings under s.1. The fact that civil pecuniary penalties are not available to the DOJ under the Sherman Act means that it has a much stronger incentive to pursue criminal prosecutions in all appropriate cases.
A review of various civil cartel actions taken by the ACCC since 2009, suggests that many of these matters either could not have been pursed, or would have been difficult to pursue, as criminal prosecutions.
For example, the detergent cartel involved cartel agreement which was made in 2008 and given effect to at the beginning of 2009.[23]
Similarly, the cartel agreements entered into between NSK and Koyo in relation to the supply of ball and roller bearings were made in 2008 and given effect to in 2009.[24]
It appears that the ACCC was attempting to pursue a criminal prosecution against members of the electrical cable supplier’s cartel. However, after consultation with the CDPP, it was decided that a criminal prosecution was not appropriate:[25]
(ii) are reasonably attributable to the commission of the offence;
3 times that total value;
(c) if the court cannot determine the total value of those benefits - 10% of the corporation's annual turnover during the 12-month period ending at the end of the month in which the corporation committed, or began committing, the offence.
In other words, the ACCC can achieve exactly the same financial outcome against a corporation for engaging in cartel conduct regardless of whether it seeks to pursue a civil proceeding or a criminal prosecution.
The suspicion that the ACCC may have an unconscious bias towards pursuing civil proceedings over criminal proceedings is compounded by the knowledge that by taking a civil proceeding the ACCC is able to avoid the additional evidentiary requirements and the higher onus of proof required for criminal cases. Furthermore, the ACCC would be able to avoid the complications and risks associated with having to secure a unanimous jury verdict.
One difference in relation to the US cartel regimes are the remedies which the DOJ can seek if it decides to pursue a civil action in relation to cartel conduct. Contrary to the position which applies under the CCA, the DOJ is not able to recover pecuniary penalties in civil proceedings under s.1. The fact that civil pecuniary penalties are not available to the DOJ under the Sherman Act means that it has a much stronger incentive to pursue criminal prosecutions in all appropriate cases.
A review of various civil cartel actions taken by the ACCC since 2009, suggests that many of these matters either could not have been pursed, or would have been difficult to pursue, as criminal prosecutions.
For example, the detergent cartel involved cartel agreement which was made in 2008 and given effect to at the beginning of 2009.[23]
Similarly, the cartel agreements entered into between NSK and Koyo in relation to the supply of ball and roller bearings were made in 2008 and given effect to in 2009.[24]
It appears that the ACCC was attempting to pursue a criminal prosecution against members of the electrical cable supplier’s cartel. However, after consultation with the CDPP, it was decided that a criminal prosecution was not appropriate:[25]
After a detailed evaluation of the circumstances and evidence, and consultation with the Commonwealth Director of Public Prosecutions, the ACCC determined that civil rather than criminal action was appropriate in this case. The ACCC had regard to a number of factors in reaching this view, including that the alleged conduct was not clandestine.
The ACCC provided a similar explanation for its decision not to pursue criminal proceedings against the parties involved in the alleged Mount Penny coal exploration licence tender cartel.[26] In this case, the CDPP’s concern was that some, but not all, of the relevant conduct had occurred prior to 2009.
On the other hand, the ACCC’s decisions not to pursue criminal proceedings in relation to the forklift gas cartel and the alleged cartel in the polycarbonate roofing industry are less easy to understand. In the first case, it appears that whilst the original agreement was entered into in 2006, it was still being given effect to by cartel members up until 2011.[27] Similarly, in the second case, the alleged cartel agreement was entered into in 2008, but was still allegedly being given effect to up until 2013.[28]
Proposals for reform
The level of criminal cartel enforcement which has occurred since 2009 has been sparse. Only two criminal prosecutions in eight years is an extremely low conversion rate, particularly with the knowledge that during that time the ACCC has received 36 first in markers, 21 proffers and referred 9 applications to the CDPP for criminal immunity. [29] It is imperative that steps be taken immediately to reverse this trend.
The first essential step which must be taken is to abandon the proposed amendments to the JV defence and the anti-overlap provisions set out in the draft Exposure Bill. These proposed amendments will make the criminal cartel provisions all but unworkable by adding complexity and evidentiary hurdles to the already difficult task of prosecuting criminal cartels. The Government must place great weight on the serious concerns expressed by both the ACCC and CDPP about the effect of these proposed amendments.
A second important change is to undertake a simplification process of the criminal cartel provisions. The government should be guided by the approach which the US legislators took over 120 years ago when they drafted the Sherman Act. There is a need for Australian criminal cartel provisions to be less prescriptive and more open to interpretation and development by the Courts.
The third important change is to amend the penalties which apply to corporations which engage in criminal cartels. Having identical financial penalties for both civil and criminal contraventions creates no incentives for the ACCC to actively pursue criminal investigations. Two options which may enliven the ACCC be more resolute in its pursuit of criminal prosecutions would be to increase the maximum base fine for criminal cartels from $10 million to $25 million and to increase the maximum turnover percentage fine from 10% of the corporation's annual turnover to 15% of annual turnover.
Finally, the most important change which must be made is to improve the way in which criminal cartels are investigated. This could be done by either enhancing the ACCC’s investigatory capabilities or alternatively mandating greater AFP involvement in ACCC criminal cartel investigations. The first option is to be preferred, as the prospect of requiring a third agency, namely the AFP, to play a larger role in criminal cartel investigations would no doubt complicate matters. Rather, the better approach would be for the ACCC to invest heavily in providing comprehensive investigatory training to all relevant staff and giving these staff opportunities to utilise these skills in real life settings, such as questioning potential defendants and witnesses in s.155 oral examinations. The ACCC would also benefit greatly from forging closer ties with the FBI and seeking to establish an investigatory training program which mirrors the nature and duration of relevant aspects of the Basic Training provided by the FBI.
Conclusions
Criminal cartel prosecutions in Australia have been few and far between and are set to become even scarcer if the proposed changes to the criminal cartel provisions are introduced, particularly the broadening of the JV defence. That these proposed amendments are unnecessary is beyond serious debate – the fact that there have only been two criminal prosecutions in eight years belies any claim that the criminal cartel provisions have adversely impacted any undocumented JV’s or JV’s for the acquisition of goods and services. It is vitally important for the continued relevance of Australia’s criminal cartel laws that these proposed amendments be abandoned.
A number of other changes must be made to the law and practice of criminal cartel enforcement. Simplification of the existing criminal cartel law is a major priority. The “byzantine complexity”[30] of the criminal cartel provisions make it exceedingly difficult to investigate and prosecute these crimes. Furthermore, steps need to be taken to create stronger incentives for the ACCC to pursue criminal cartel prosecutions over civil cartel proceedings. Whether the ACCC wishes to admit this fact or not, there are strong reasons for suspecting that the structure of the penalty regime which applies to cartel conduct has created an unconscious bias within the ACCC towards the pursuit of civil proceedings.
The Rudd Government naively believed that it could solve the problem of cartels in Australia once and for all by introducing harsh new criminal cartel provisions, supplemented by a comprehensive and effective immunity policy. Despite the Government’s best intentions in seeking to replicate world’s best practice, namely the US system of criminal cartel enforcement, the Government failed to identify two key features of the US system – namely, the fundamental role played by both the FBI and the grand jury in investigating hard core cartels. While there is no prospect of the introduction of a grand jury system in Australia, much needs to be done, and can be done, to enhance the investigatory capabilities of the ACCC. If criminal cartel enforcement is to make the transition from “few and far between” to the “dizzying heights”[31] of US criminal cartel enforcement activity, Australia needs to achieve world’s best practice in the investigation of hard core criminal cartels.
Proposals for reform
The level of criminal cartel enforcement which has occurred since 2009 has been sparse. Only two criminal prosecutions in eight years is an extremely low conversion rate, particularly with the knowledge that during that time the ACCC has received 36 first in markers, 21 proffers and referred 9 applications to the CDPP for criminal immunity. [29] It is imperative that steps be taken immediately to reverse this trend.
The first essential step which must be taken is to abandon the proposed amendments to the JV defence and the anti-overlap provisions set out in the draft Exposure Bill. These proposed amendments will make the criminal cartel provisions all but unworkable by adding complexity and evidentiary hurdles to the already difficult task of prosecuting criminal cartels. The Government must place great weight on the serious concerns expressed by both the ACCC and CDPP about the effect of these proposed amendments.
A second important change is to undertake a simplification process of the criminal cartel provisions. The government should be guided by the approach which the US legislators took over 120 years ago when they drafted the Sherman Act. There is a need for Australian criminal cartel provisions to be less prescriptive and more open to interpretation and development by the Courts.
The third important change is to amend the penalties which apply to corporations which engage in criminal cartels. Having identical financial penalties for both civil and criminal contraventions creates no incentives for the ACCC to actively pursue criminal investigations. Two options which may enliven the ACCC be more resolute in its pursuit of criminal prosecutions would be to increase the maximum base fine for criminal cartels from $10 million to $25 million and to increase the maximum turnover percentage fine from 10% of the corporation's annual turnover to 15% of annual turnover.
Finally, the most important change which must be made is to improve the way in which criminal cartels are investigated. This could be done by either enhancing the ACCC’s investigatory capabilities or alternatively mandating greater AFP involvement in ACCC criminal cartel investigations. The first option is to be preferred, as the prospect of requiring a third agency, namely the AFP, to play a larger role in criminal cartel investigations would no doubt complicate matters. Rather, the better approach would be for the ACCC to invest heavily in providing comprehensive investigatory training to all relevant staff and giving these staff opportunities to utilise these skills in real life settings, such as questioning potential defendants and witnesses in s.155 oral examinations. The ACCC would also benefit greatly from forging closer ties with the FBI and seeking to establish an investigatory training program which mirrors the nature and duration of relevant aspects of the Basic Training provided by the FBI.
Conclusions
Criminal cartel prosecutions in Australia have been few and far between and are set to become even scarcer if the proposed changes to the criminal cartel provisions are introduced, particularly the broadening of the JV defence. That these proposed amendments are unnecessary is beyond serious debate – the fact that there have only been two criminal prosecutions in eight years belies any claim that the criminal cartel provisions have adversely impacted any undocumented JV’s or JV’s for the acquisition of goods and services. It is vitally important for the continued relevance of Australia’s criminal cartel laws that these proposed amendments be abandoned.
A number of other changes must be made to the law and practice of criminal cartel enforcement. Simplification of the existing criminal cartel law is a major priority. The “byzantine complexity”[30] of the criminal cartel provisions make it exceedingly difficult to investigate and prosecute these crimes. Furthermore, steps need to be taken to create stronger incentives for the ACCC to pursue criminal cartel prosecutions over civil cartel proceedings. Whether the ACCC wishes to admit this fact or not, there are strong reasons for suspecting that the structure of the penalty regime which applies to cartel conduct has created an unconscious bias within the ACCC towards the pursuit of civil proceedings.
The Rudd Government naively believed that it could solve the problem of cartels in Australia once and for all by introducing harsh new criminal cartel provisions, supplemented by a comprehensive and effective immunity policy. Despite the Government’s best intentions in seeking to replicate world’s best practice, namely the US system of criminal cartel enforcement, the Government failed to identify two key features of the US system – namely, the fundamental role played by both the FBI and the grand jury in investigating hard core cartels. While there is no prospect of the introduction of a grand jury system in Australia, much needs to be done, and can be done, to enhance the investigatory capabilities of the ACCC. If criminal cartel enforcement is to make the transition from “few and far between” to the “dizzying heights”[31] of US criminal cartel enforcement activity, Australia needs to achieve world’s best practice in the investigation of hard core criminal cartels.
[1] ACCC, ‘Australia’s first criminal charge laid against NYK’, 18 July 2016
at http://www.accc.gov.au/media-release/australia%E2%80%99s-first-criminal-cartel-charge-laid-against-nyk
[2] DOJ, ‘Third company agrees to plead guilty to price fixing on ocean
shipping services for cars and trucks’, 29 December 2015 at https://www.justice.gov/opa/pr/third-company-agrees-plead-guilty-price-fixing-ocean-shipping-services-cars-and-trucks
[3] ACCC, ‘Criminal cartel charges laid against
K-Line’, 15 November 2016 at https://www.accc.gov.au/media-release/criminal-cartel-charges-laid-against-k-line
[4] Rob Sims, ‘Chairman’s address to the Law Council Workshop’, 5 August
2016 at https://www.accc.gov.au/speech/chairmans-address-to-the-law-council-workshop
[5] Graeme Edgerton and Luke Woodward, ‘Criminalisation of Cartels’ in
Michael Legg (ed), Regulation, Litigation
and Enforcement (Thomson Reuters, 2011), 243-4.
[6] Marcus Bezzi, ‘The conduct of cartel litigation: The ACCC enforcement
perspective on serious cartels – some key issues and practice considerations’,
Competition Law Conference, 29 May 2009, 4 at https://www.accc.gov.au/speech/the-conduct-of-cartel-litigation-the-accc-enforcement-perspective-on-serious-cartels-some-key
[7] Chris Bowen, ‘Making jail as real for cartels as the temptation to
steal’, Sydney Morning Herald, 5
November 2008 at http://www.smh.com.au/news/opinion/making-jail-as-real-for-cartels-as-the-temptation-to-steal/2008/11/04/1225560833543.html
[8] Ronald T Hosko, ‘Cartel prosecution: Stopping price fixers and
protecting consumers’, 14 November 2013 at https://www.fbi.gov/news/testimony/cartel-prosecution-stopping-price-fixers-and-protecting-consumers and FBI, ‘Success of
DOJ/FBI Partnership’, 21 November 2011 at https://www.fbi.gov/news/stories/success-of-antitrust-enforcement-partnership
[9] John M Connor, ‘Global cartels redux: The
Amino Acid Lysine Antitrust Litigation’, 21 May 2009, 1 at file:///C:/Users/Terceiro/Downloads/SSRN-id2520151.pdf
[12] As the ACCC does not provide public information about the investigatory
training it provides to staff, I have based my comments in this section on my
own experience as a former ACCC investigator and more recent informal
discussions with current and former ACCC staff members.
[13] Personal communication with Paul Shaw, Assistant Deputy Director, CDPP in context of
the preparation of the criminal prosecution against Chubb Security in ACCC v Chubb Security Australia Pty Ltd [2004] FCA 1750 at http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2004/1750.html?stem=0&synonyms=0&query=chubb%20accc
[14] Blair v. United States, 250 U.S. 273
(1919)
[15] I have based my observations about the operation of the grand jury in
the context of antitrust investigations on the DOJ, Antitrust Division Grand Jury Practice Manual, 9 February 2011 at http://federalevidence.com/pdf/LitPro/GrandJury/Grand_Jury_Manual.pdf
[16] United States v. United States District
Court, 238 F.2d 713 (4th Cir.), cert. denied, 352 U.S. 981 (1957).
[18] Justice Steven Rares, ‘Competition, fairness and the courts’, Federal Court of Australia, 24 May 2014
at http://www.fedcourt.gov.au/digital-law-library/judges-speeches/justice-rares/rares-j-20140524
[20] ACCC, ‘ACCC Submission to Exposure Draft
Consultation On Competition Law Amendments’, dated 5 October 2016, 1 at http://www.accc.gov.au/system/files/ACCC%20Letter%20to%20Treasury%20-%20Submission%20on%20Harper%20Exposure%20Draft%20legis....pdf
[21] Senate Standing Committee on Economics, ‘Trade Practices Amendment
(Cartel Conduct and Other Measures) Bill 2009 [Provisions]’, Commonwealth of Australia’, February
2009, 22 at http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Completed%20inquiries/2008-10/tpa_cartels_09/index
[22] Graeme Samuel, ‘Cartel reform and compliance with the Trade Practices
Act’, Speech to the Australian Corporate Lawyers Association National Conference,
13 November 2009, 11-12 at https://www.accc.gov.au/speech/cartel-reform-and-compliance-with-the-trade-practices-act
[23] ACCC, ‘ACCC takes action against alleged laundry detergent cartel’, 12
December 2013 at http://www.accc.gov.au/media-release/accc-takes-action-against-alleged-laundry-detergent-cartel
[24] ACCC, ACCC takes action against Koyo for alleged cartel conduct’, 15
July 2013 at http://www.accc.gov.au/media-release/accc-takes-action-against-koyo-for-alleged-cartel-conduct
[25] ACCC, ‘ACCC takes action against electrical cable suppliers for alleged
cartel’, 4 December 20124 at http://www.accc.gov.au/media-release/accc-takes-action-against-electrical-cable-suppliers-for-alleged-cartel
[26] ACCC, ‘ACCC takes action for alleged cartel conduct in the NSW
Government’s Mount Penny coal exploration licence tender process’, 25 May 2015
at http://www.accc.gov.au/media-release/accc-takes-action-for-alleged-cartel-conduct-in-the-nsw-government%E2%80%99s-mount-penny-coal-exploration-licence-tender-process
[27] ACCC, ‘ACCC court action alleges Sydney forklift gas supply cartel’, 23
August 2012 at http://www.accc.gov.au/media-release/accc-court-action-alleges-sydney-forklift-gas-supply-cartel
[28] ACCC, ‘ACCC takes action against alleged cartel conduct in the
polycarbonate roofing industry’, 23 June 2016 at http://www.accc.gov.au/media-release/accc-takes-action-against-alleged-cartel-conduct-in-the-polycarbonate-roofing-industry
[29]
Caron Beaton-Wells, ‘Immunity Policy: Revolution or Religion? An Australian Case-Study [2013] University of Melbourne Law School Research Series, Paper for the Antitrust Enforcement Symposium 2013, Pembroke College, University of Oxford, 22-23 June 2013, 12.
Caron Beaton-Wells, ‘Immunity Policy: Revolution or Religion? An Australian Case-Study [2013] University of Melbourne Law School Research Series, Paper for the Antitrust Enforcement Symposium 2013, Pembroke College, University of Oxford, 22-23 June 2013, 12.
[30] Rares, above n 18.
[31] Charles A James, ‘Statement to the Subcommittee on Antitrust, Competition and Business and Consumer Rights concerning Antitrust Enforcement Oversight’ United States Senate, 19 September 2002, 4 at https://www.justice.gov/archive/atr/public/testimony/200233.pdf
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