Cartel conduct back in the spotlight
|Focus:||Australian Competition and Consumer Commission and cartel conduct|
|Industry Focus:||Energy, Resources & Infrastructure, Financial Services, Medical & Pharmaceutical, Property, Insurance|
Do you fully understand the boundaries of cartel conduct and the impact it can have on you and your business? If not, now would be a good time to acquaint yourself.
As part of its strategy to prevent cartel conduct, the Australian Competition and Consumer Commission (the “ACCC”) has released a short film called 'The Marker' which highlights what can happen to those who involve themselves in cartels. This film and other information relating to cartel conduct can be viewed at www.accc.gov.au/cartels.
Whilst this film is an excellent educational tool to illustrate to employees the effect that participating in cartel conduct may have on their lives, legal counsel and other senior management still need to be familiar with the cartel conduct provisions in the Competition and Consumer Act 2010 (Cth) (the “Act”), and train their employees in this area.
What is cartel conduct?
Under the Act, it is an offence to:
- make a contract or arrangement, or arrive at an understanding, containing a “cartel provision”; or
- give effect to that “cartel provision”.
The difficulty in communicating the boundaries of the offence to employees is that the definition of “cartel provision” in the Act is long and complex.
In summary, two conditions must be satisfied.
Firstly, the parties to the contract, arrangement or understanding must be likely to be in competition with each other (or would have been likely to have been in competition with each other but for the contract, arrangement or understanding that gives rise to the cartel provision).
Secondly, the provision must either:
- have the purpose, or likely effect, of fixing, controlling or maintaining the price of, or any discounts, rebates or credit for, any goods or services supplied, acquired or resupplied by any of the parties (i.e. price fixing); or
- be for the purpose of:
- restricting or limiting production or supply by one or more parties;
- market sharing; or
- bid rigging.
What are the penalties?
The penalties that may be imposed upon those that engage in cartel conduct are of real significance to both companies and individuals. Cartel conduct may be tried as a civil and/or a criminal offence. The maximum penalty for corporations is a fine of the greater of:
- $10 million; or
- three times the benefit reasonably attributed to the cartel; or
- where that gain cannot be readily ascertained, 10% of the annual turnover of the body corporate (including any body corporate related to that body corporate) in the first 12 months of the cartel.
Under the civil penalties, individuals may be fined up to $500,000 and, as a criminal offence, an individual can be sentenced to up to 10 years in jail and fined up to $220,000. As a further disincentive for individuals, they should be aware that the Act also prohibits their employer or insurer from indemnifying them for their defence costs or any penalty where they are found guilty. They may also be disqualified from managing corporations.
Further education needed
You would think the far-reaching effects of a cartel conduct conviction, and particularly the threat of jail, would be a sufficient deterrent, but recent research found that over half of business people did not even know that cartel conduct was a criminal offence, and almost one in 10 said that they would be likely to engage in cartel conduct if the opportunity presented itself. This suggests that many businesses have a way to go to educate their employees about the dangers of cartel conduct.
In our experience, businesses often struggle with the sometimes counter-intuitive nature of some of the provisions of the Act, as well as the concern that “everyone else is doing it, so why can’t we?”. Unfortunately, the “everyone else is doing it” line carries little weight, and businesses that find themselves struggling to compete because of anti-competitive behaviour in their industry would be better served raising those concerns with the ACCC, rather than joining in the offending conduct.
The ACCC certainly don’t turn a blind eye
In a timely fashion, at around the same time as 'The Marker' was released, the ACCC instituted proceedings in the Federal Court against Renegade Gas Pty Limited and Speed E Gas (NSW) Pty Limited, alleging cartel conduct. This conduct included an agreement not to supply liquid petroleum gas cylinders for forklifts to each other’s customers.
The ACCC alleges that these companies agreed:
- not to approach each other’s customers;
- not to offer to supply forklift gas to each other’s customers; and
- offered to supply forklift gas to the other’s customers at a price that they knew was not likely to induce the customer to change suppliers.
If proven, this type of alleged behaviour would be classic cartel conduct – both price fixing and market sharing.
Allegations of cartel conduct are also taking centre stage this month, when the ACCC’s main proceedings alleging cartel conduct against Singapore Airlines, Cathay Pacific, Emirates, Air New Zealand and Thai Airways are due to commence in Sydney’s Federal Court.
These proceedings relate to allegations of price fixing in the international air cargo carrying market, and arrangements or understandings between carriers that are alleged to have fixed the price of fuel surcharges, security surcharges and other rates. With $58 million in penalties having already been awarded in proceedings finalised against other airlines (including a penalty of $20 million imposed upon Qantas), the ACCC will no doubt again be seeking significant penalties, to both punish past cartel behaviour and to act as a deterrent to others that are tempted to do so in the future.
Education and management
Cartel conduct is treated very seriously by the ACCC, as the effect on competition, prices and consumer choice can be significant. The ACCC has extensive powers to investigate and prosecute cartels, and stamping out cartel conduct is clearly high on its agenda.
All businesses should make it a priority to ensure that their staff understand what cartel conduct is, and make it clear to their staff that cartel conduct will not be tolerated as a business practice. Directors and senior management need to take responsibility for the introduction of conduct and programs that will ensure adequate training and monitoring. An education program should be put in place, and this program backed by company policies. Someone should be appointed as a compliance officer to monitor training and compliance, as well as to field concerns from employees that the company may engaging in illegal trade practices.
Where a business suspects that any employees may be engaging in cartel conduct, it should seek advice promptly to determine how to deal with the matter. As 'The Marker' illustrates, the ACCC does offer immunity in certain circumstances, and your ability to take advantage of this may depend on swift and informed action.
The detrimental impact that cartel conduct allegations can have on a business makes it imperative that businesses give this issue attention as a real priority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.