Australia: Criminalising Cartels - Confusion Or Clarity?

Last Updated: 22 September 2008
Article by Ross McInnes

Key Points

  • Submissions on the draft cartel bill highlight concern and confusion over the distinction to be drawn between criminal and civil conduct under the proposed Bill, and the impact on the ACCC's Immunity Policy.
  • Corporations doing business in Australia should be prepared to audit their operations for compliance when the new laws come into force.

"So long as you are only talking about money, the company can at the end of the day take care of me - when you talk about taking away my liberty, there is nothing that the company can do for me." - Graeme Samuel

The exposure draft of the Trade Practices Amendment (Cartel Conduct and other Measures) Bill 2008 was distributed for comment by the Government earlier this year. The Government called for submissions on the draft legislation and while almost everybody seems to agree that serious cartel conduct needs to be criminalised, the differing views expressed in the submissions highlights divided opinion on the manner in which the Government proposes to distinguish criminal cartel conduct.

The proposed criminal offence

The draft Bill would create a criminal offence for making, or giving effect to a contract, arrangement or understanding (CAU) that contains a cartel provision "with the intention of dishonestly obtaining a benefit". The dishonesty element is the proposed key distinguishing legislative factor between whether conduct will be liable for criminal prosecution.

A cartel provision is defined in the draft Bill as a provision in a CAU relating to:

  • price fixing; or
  • restricting outputs in production or supply chain; or
  • allocating customers, suppliers or territories; or
  • bid-rigging;

by parties that are, or would otherwise be, in competition with each other.

The maximum penalties proposed for criminal conduct are:

  • for an individual - a term of five years imprisonment and a fine of AU$220,000;
  • for a corporation - a fine the greater of AU$10 million or three times the value of the benefit from the cartel or if the value cannot be determined then 10 percent of the corporation's annual turnover.

The submissions made to Treasury are available on its website, and are now the subject of Government scrutiny. It is expected that a re-drafted Bill will either be tabled in Parliament or released for further public comment in the coming months. Of particular interest is the range of views expressed in relation to:

  • the proposed requirement of proof of a "dishonest intent" to gain a benefit from the cartel as a key element to determining criminal liability under the offence;
  • concerns about the impact of criminal sanctions on the ACCC's Immunity Policy; and
  • the move to allow the ACCC to refuse to comply with requests for documents either under subpoena or via the discovery process.

The dishonesty element

It is proposed that the term "dishonesty" be defined as dishonest according to ordinary people's standards and known by the defendant to be dishonest according to ordinary people's standards. There was a mixed response to the proposed dishonesty element. Some submissions considered the inclusion of the element appropriate in that it mirrors legislation recently passed in the United Kingdom, and adheres to concepts already contained in other Australian legislation such as the Criminal Code Act and the Corporations Act. Others criticised the element and highlighted that practical difficulties that may be encountered by a jury in applying it to cartel conduct. For starters, such conduct may not be easily identifiable due to the subjective nature of the dishonest intention element.

A recent article in the Australian Financial Review suggested that the Government was seriously considering removing the dishonesty requirement from the criminal cartel offence ("Labor toughens up criminal cartel laws", Monday 18 August 2008, p 1). If that occurs, it is not clear how the Government will distinguish between criminal and civil cartel conduct.

The respective immunity policies of the ACCC and DPP

Under the proposed regime the ACCC would be responsible for investigating, and the DPP would be responsible for criminal prosecution of any conduct deemed to be "serious cartel conduct".

Some submissions raised concerns about the interaction between the ACCC and the DPP and how that may affect the ACCC's Immunity Policy. A successful Immunity Policy, which grants immunity to the first cartel participant to break ranks and admit its involvement in a cartel to the ACCC, is widely recognised as a fundamental feature of a successful cartel enforcement regime. In 2005 the ACCC introduced a new and improved Immunity Policy to encourage a race to the ACCC's confessional.

Many submissions highlighted the uncertainty in the draft legislation about how the ACCC and the DPP will interact with one another, and how their respective Immunity Policies will operate. With the introduction of criminal penalties there are concerns that the incentive to apply for immunity will diminish as the Immunity Policy does not currently provide any immunity from criminal prosecution or penalties.

In the draft Memorandum of Understanding between the ACCC and the DPP it is proposed that the decision as to whether a specific individual or corporation will be granted immunity from civil liability will be determined by the ACCC in accordance with the Immunity Policy, while the question of whether they will be granted immunity from criminal liability will be determined by the DPP in accordance with the Prosecution Policy of the Commonwealth. However, the Immunity Policy and the Prosecution Policy contain different eligibility criteria for immunity and reflect fundamentally different approaches as to when immunity should be granted.

At best this may create doubt and confusion as to the operation of immunity for whistleblowers, and at worst the concern is that it will severely impact on the attractiveness of the ACCC's Immunity Policy.

Next steps?

Several calls were made for the draft Bill to be amended in light of the submissions received and for a second round of public scrutiny to be undertaken.

Whether or not the public gets another opportunity to analyse the proposed legislation remains to be seen. In any event, it is clear that criminal penalties for serious cartel conduct are coming. Businesses operating in Australia should familiarise themselves with the concepts highlighted in the draft Bill and prepare to overhaul their compliance programmes when the draft Bill, whatever its form may be, becomes law.

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.

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