You’re NYKKed (nicked)! – Australia’s first successful criminal cartel prosecution

Introduction

In August 2017, the ACCC achieved its first successful prosecution under the criminal cartel provisions of the Competition and Consumer Act 2010 (CCA) against Nippon Yusen Kamushiki Kaisha (NYKK).[1]  There is no doubt that this was a ground-breaking moment for the ACCC given that the criminal cartel provisions were introduced nine years ago, in 2009.  The case is also notable for the quality and comprehensiveness of the judgment delivered by Justice Wigney of the Federal Court of Australia.  Justice Wigney has a great deal of experience in relation to criminal matters, which he was able to bring to bear in his judgment.[2]

ACCC Chairman Rod Sims was also quick to claim that the case demonstrated that the ACCC’s investment in building a substantial team of specialist criminal cartel investigators was paying off:

To put all this another way, our criminal cartel machine is now built, and running at its appropriate capacity. You will now see its continuing output.[3]

While it is true that the NYKK case was a very positive outcome for both the ACCC and for criminal cartel jurisprudence in Australia, its seems decidedly premature to claim that the ACCC’s criminal cartel machine is now built and running at appropriate capacity.  Such a judgment can only be made once the ACCC has successfully investigated, and the CDPP has successfully litigated, a contested criminal cartel prosecution.

Background

NYKK’s conduct arose from a longstanding global cartel in the market for the supply of ocean shipping services for “roll-on, roll-off” cargo, primarily cars and trucks.  The other shipping companies implicated in the cartel were:

•  Mitsui OSK Lines Ltd
• Kawasaki Kisen Kaisha Ltd
• Toyofuji Shipping Co.
• Nissan Motor Car Carrier Co and
• Wallenius Wilhelmsen Logistics AS.

 The cartel offence related to:

• the fixing of freight rates on shipping routes to Australia
• the rigging of bids in response to requests for bids by the motor vehicle manufacturers, and
• the allocation of customers (ie motor vehicle manufacturers) between the members of the cartel. 

Justice Wigney found that whilst NYKK’s conduct had occurred over an extensive period of time, the charges only related to the three-year period from 2010 to 2012.  He also found that NYKK’s illegal conduct had involved 69,348 new vehicles and that NYKK had derived revenue of AU$54.9 million and profit of AU$15.4 million from the contracts which were the subject of the illegal conduct [para 6].

Overseas investigations

Justice Wigney also described the cartel investigations which had been conducted by overseas competition regulators.  He referred to the Japan Fair Trade Commission (JFTC) and the United States Department of Justice (DOJ) which had commenced their investigations on 6 September 2012 with dawn raids at a number of offices of both NYKK and the other shipping companies implicated in the cartel [para 160].

The ACCC commenced its own investigation at around the same time, on 10 September 2012.  In stark contrast to the way in which the JFTC and DOJ commenced their investigations, the ACCC did not conduct a dawn raid but instead decided to send a fax to NYKK’s Australia office. Somewhat embarrassingly for the ACCC it appears that their fax was sent to the wrong number. As noted by Justice Wigney:

It would appear that the ACCC’s fax did not come to the immediate attention of management of NYK Australia or NYK because it was received by a fax machine located in the container shipping sales department of NYK [para 162].

Overseas investigations were subsequently commenced by the Competition Commission of South Africa, Chile’s Fiscalia National Economica, and China’s National Development and Reform Commission.

Significant penalties were levied against NYKK in a number of these jurisdictions:

• United States – US$59.4 million
• Japan - AU$157 million administrative surcharge
• South Africa – AU$10 million
• Chile – US$25 million.

NYKK was not fined in China as it was the immunity applicant. The other participants in the cartel was fined a total of US$65 million [para’s 163-170].

Sentence

In approaching the task of determining the appropriate sentence, Justice Wigney outlined the relevant legislative scheme namely Part IB of the Crimes Act.  The relevant checklist of factors to be taken into consideration in determining sentence are listed in section 16A(2) of the Crimes Act:

(a)     the nature and circumstances of the offence;

(b)     other offences (if any) that are required or permitted to be taken into account;

(c)      if the offence forms part of a course of conduct consisting of a series of criminal acts of the same or a similar character--that course of conduct;

(d)     the personal circumstances of any victim of the offence;

(e)     any injury, loss or damage resulting from the offence;

(ea)   if an individual who is a victim of the offence has suffered harm as a result of the offence--any victim impact statement for the victim;

 (f)     the degree to which the person has shown contrition for the offence:

(i)      by taking action to make reparation for any injury, loss or damage resulting from the offence; or

(ii)     in any other manner;

 (fa)  the extent to which the person has failed to comply with:

(i)             any order under subsection 23CD(1) of the Federal Court of Australia Act 1976 ; or

(ii)            (ii)  any obligation under a law of the Commonwealth; or

(iii)         (iii)  any obligation under a law of the State or Territory applying under subsection 68(1) of the Judiciary Act 1903;

about pre-trial disclosure, or ongoing disclosure, in proceedings relating to the offence;

(g)     if the person has pleaded guilty to the charge in respect of the offence--that fact;

(h)     the degree to which the person has co-operated with law enforcement agencies in the investigation of the offence or of other offences;

(j)      the deterrent effect that any sentence or order under consideration may have on the person;

(ja)    the deterrent effect that any sentence or order under consideration may have on other persons;

(k)      the need to ensure that the person is adequately punished for the offence;

(m)    the character, antecedents, age, means and physical or mental condition of the person;

(n)     the prospect of rehabilitation of the person;

(p)     the probable effect that any sentence or order under consideration would have on any of the person's family or dependants.

As is an apparent, a number of the section 16A(2) factors relate specifically to individual defendants, as opposed to corporate defendants.

Nature and circumstances of the offence - section 16A(2)(a)

Justice Wigney stated that NYKK had committed a very serious offence which required condign or appropriate punishment [para 204].  As set out in the agreed facts, NYKK had given effect to the cartel on at least 20 separate occasions over a three-year period.  Having said that the CDPP presented an indictment containing a single “rolled up" charge, rather than 20 separate charges [para 206].

Maximum penalty

Based in the “rolled up” charge, the maximum fine for the offence was $100 million or 10% of NYKK’s annual Australian turnover [para 208]. Despite some attempts by NYKK to argue for a lower maximum penalty (ie three times the illegal profits made from the cartel or approximately $45 million) these submissions were rejected by the Court [para 212].

Justice Wigney also noted that both the CDPP and NYKK had “controversially” taken the Court to various civil penalties imposed by the Court in relation to civil cartels and other anti-competitive conduct. Again, the Court rejected these submissions as being of little assistance in the determination of the appropriate sentence for a criminal offence [para 221].

Duration and scale of conduct

The Court found that the conduct the subject of the charges had continued for three years. However, the Court also noted that the relevant cartel agreements had been in place for substantially longer than three years – in fact, one of the relevant agreements had been in place for 15 years, since 1997.  Justice Wigney stated that this earlier conduct was relevant to sentencing as an aggravating factor [para 224].

The Court also found the scale of the conduct to be substantial, impacting on a significant and valuable market. Justice Wigney stated that:

There could be little doubt that anti-competitive conduct the subject of the charge had the capacity to substantially limit or distort the competitive setting of freight rates in the relevant routes to Australia, the likely result being that rates were higher than they would have been in a competitive market. [para 226].

Deliberate, systematic and covert conduct

Justice Wigney found that NYKK’s conduct was systematic, well-orchestrated and involved a high-level of planning and coordination [para 240]. He also found that steps were taken by NYKK managers to hide their illegal conduct by communicating orally over the telephone and at face-to-face meetings and either not documenting these communications or documenting them in such a way as to hide the substance of the communications [para 241].

Seniority of managers engaged in illegal conduct

There was no dispute that senior NYKK managers were the driving force behind the illegal conduct [para 244].

Profitability of illegal conduct

It was agreed that NYKK generated revenue of $54.9 million and profits of $15.4 million from the contracts the subject of cartels.  However, it was not possible to calculate the actual revenues and profits directly attributable to the cartel conduct [para 245].

Impact on victims - section 16A(2)(d)

There did not appear to be a significant amount of evidence in the case about the actual impact of the illegal cartel agreement on victims (ie the major new car manufacturers and ultimately Australian consumers).   Due to the absence of evidence, Justice Wigney surmised that there was likely to be significant impact on markets and the economic system, although the amount could not be quantified [para 252].

Contrition and rehabilitation - sections 16A(2)(f) and (n)

The Court found that NYKK had demonstrated genuine contrition.  NYKK had also made significant changes to its management and compliance structures which indicated that NYKK’s prospects of rehabilitation were high [para 253].

Plea of guilty - section 16A(2)(g)

The Court found that NYLL had entered a plea of guilty at the earliest opportunity:

Full recognition should be given to the remorse, acceptance of responsibility and willingness to facilitate the course of justice demonstrated by the plea. [para 255]

NYKK Cooperation - sections 16A(2)(h) and 16AC

NYKK agreed to fully cooperate with the ACCC investigation, including facilitating interviews with NYKK executives who could not have been compelled by the ACCC to come to Australia to attend interviews [para 264]. 

In the relevant Statement of Agreed Facts put before Justice Wigney, an ACCC officer gave evidence that NYKK had provided “full, frank and truthful disclosure and cooperated fully and, in most instances, expeditiously, on a continuing basis throughout the ACCC’s investigation” [para 264].

Furthermore, NYKK agreed to plead guilty to a “rolled up” charge at a very early stage and signed an undertaking pursuant to section 16AC of the Crimes Act 1914 to provide future assistance.

Interestingly, Justice Wigney also referred in his reasons to confidential evidence which had been filed in the case which could not be referred to with any specificity.  He described this confidential evidence as “potentially significant”. Whilst one can only speculate about this evidence, it most likely relates to evidence from NYKK of other separate and significant contraventions of the CCA. For example, the existence of a cartel in a related market, such as the container shipping market [para 268].

Justice Wigney concluded that in all the circumstances the appropriate discount for NYKK’s past cooperation, assistance, plea of guilty, contrition and remorse was 40%, He also allowed a further discount of 10% for NYKK’s future cooperation [para’s 267 and 269].

Deterrence - sections 16A(2)(j) and (ja)

In considering the issue of deterrence the Court is required to consider both specific and general deterrence. However, in this case the Court found that specific deterrence was not a significant consideration as such specific deterrence had already been achieved, as demonstrated by NYKK’s contrition. Accordingly, the main purpose of the penalty in this case was general deterrence or to deter other companies which may be weighing up whether to engage in cartel conduct [para 274].

Adequate punishment - section 16A(2)(k)

The main question in relation to this factor was the weight which the Court should accord to the penalties paid by NYKK in other jurisdictions in relation to the cartel conduct.  The Court concluded that while some weight should be given to the overseas penalties, these penalties should not be given significant weight. This was because these overseas penalties related to different routes, contracts and customers [para 275ff].

Antecedents - section 16A(2)(m)

A highly relevant factor in mitigation was the fact that NYKK did not have a prior record of corporate criminal misconduct in Australia or indeed elsewhere [para 284].

Appropriate Sentence

After weighing up all of the above factors Justice Wigney determined that the appropriate penalty for NYKK’s conduct was half of the maximum penalty – ie $50 million.  He then applied a 50% discount to the appropriate penalty to arrive at a total penalty of $25 million. 

It is worthwhile to quote in full Justice Wigney’s comments about how he arrived at the penalty:

299.     Having regard to all of the relevant features and factors, and giving them appropriate weight, the appropriate sentence in all the circumstances is a fine of $25 million. That fine incorporates a global discount of 50% for NYK’s early plea of guilty and past and future assistance and cooperation, together with the contrition inherent in the early plea and cooperation: meaning that but for the early plea and past and future cooperation, the fine would have been $50 million. Of that 50% discount, 10% relates to future cooperation. For the purposes of s16AC of the Crimes Act, it is stated that the severity of the sentence imposed on NYK has been reduced because NYK has undertaken to cooperate with law enforcement agencies in proceedings relating to alleged offences committed by others and that the sentence that would have been imposed but for that reduction was $30 million.

300.     Cartel conduct of the sort engaged in by NYK warrants denunciation and condign punishment. It is inimical to and destructive of the competition that underpins Australia’s free market economy. It is ultimately detrimental to, or at least likely to be detrimental to, Australian businesses and consumers. The penalty imposed on NYK should send a powerful message to multinational corporations that conduct business in Australia that anti-competitive conduct will not be tolerated and will be dealt with harshly. That is so even where, as here, the decisions and conduct are engaged in overseas and as part of a global cartel. As has already been explained, but for NYK’s cooperation and willingness to facilitate the administration of justice, the penalty would have been substantially higher. That should serve as a clear and present warning to others who may have, or may be considering or planning to, engage in similar conduct.

Jumping the gun

The ACCC should be applauded for its efforts in investigating the NYKK cartel case. After a clumsy start, the ACCC appears to have conducted a thorough investigation which lead to the preparation and presentation of a sound brief of evidence to the CDPP.  Unfortunately, Rod Sims’ claims that the ACCC's “criminal cartel machine is built and running at appropriate capacity” sounds more like hubris than an accurate assessment of the challenges facing the ACCC in successfully investigating and prosecuting a contested criminal cartel case. 

Based on my own personal experience of representing clients in ACCC criminal cartel investigations, it is apparent that the ACCC has a great deal more fine tuning to do in relation to its criminal cartel machine. For example, I acted for a client in 2015 who was the subject of a criminal cartel investigation in which the ACCC had executed a number of search warrants.  It became apparent in the course of that particular investigation that the ACCC had made at least five fundamental mistakes in the execution of its search warrants.  After these five mistakes were pointed out to the ACCC, it decided to terminate its investigation of the matter (admittedly without conceding that it had made any of the alleged mistakes!)

The true proof of the effectiveness of the ACCC criminal cartel machine will be when it successfully investigates and the CDPP successfully prosecutes a contested criminal cartel matter.  In order to succeed in a contested criminal cartel case, the ACCC will have to ensure that it:

• properly executes all search warrants and maintains a proper chain of evidence
• carefully selects appropriate witnesses for trial and
• genuinely seeks to identify and address all potential weaknesses in its case prior to submitting a brief of evidence to the CDPP.

The CDPP will only be able to succeed in a contested criminal trial if it is able to:

• navigate all of the evidentiary requirements in terms of proving the physical elements (ie the act of participating in the cartel or the making and/or giving effect to the cartel agreement) and the additional fault elements (ie knowledge or belief) of the cartel offence; and
• address all of the various defences which may be raised by the defendant/s, including the recently expanded joint venture defence. 

Significantly, in order to be successful in the prosecution the CDPP will also have to prove its case beyond reasonable doubt to the satisfaction of a jury and achieve a unanimous jury verdict.

While the ACCC and the CDPP have the capacity to successfully run contested criminal cartel prosecutions, this will only be possible if the ACCC tones down the hubris and accepts that there is still an enormous amount of work to do on fine tuning its “criminal cartel machine”.  A good starting point would be for the ACCC to take steps to engage with legal practitioners who have been on the other side of a criminal cartel investigation in a genuine effort to learn from its mistakes.

[1] Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876 (3 August 2017) at https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2017/876.html

[2] As stated in Justice Wigney’s Federal Court biography, prior to his appointment, his Honour practiced as a barrister who specialized in, in complex "white collar" crime and civil penalty contraventions (in particular insider trading and other financial market offences, directors' duties, taxation, fraud and money laundering), competition and consumer law, administrative law, taxation and commissions and inquiries. Justice Wigney had also previously worked as a solicitor at the Commonwealth Director of Public Prosecutions. Interestingly, Justice Wigney also worked on an earlier ACCC - CDPP criminal prosecution of Chubb Australia Pty Ltd in 2004 as junior to Des Fagan SC - Australian Competition and Consumer Commission v Chubb Security Australia Pty Limited [2004] FCA 1750 (30 December 2004) at http://classic.austlii.edu.au/au/cases/cth/FCA/2004/1750.html

[3] Rod Sims, “Criminal cartel investment pays off”, ACCC Media Release, dated 5 August 2016 at https://www.accc.gov.au/media-release/criminal-cartel-investment-pays-off