Australia: Australia Targets Cartel Conduct With New Criminal And Civil Offenses

Following the international trend towards criminalizing cartel offenses, the Australian Senate passed a bill on June 16 that amends the key antitrust law in Australia, the Trade Practices Act 1974, by introducing parallel civil and criminal sanctions on cartel conduct. The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2009 now awaits Royal Assent (provided by the Governor-General of Australia), which is expected in about one week. The law will become effective 28 days thereafter.

The new Australian criminal sanctions on cartel offenses bring the penalties more in line with those in the United States. Individuals face a maximum jail term of 10 years and/or fines of up to AUD$220,000 (US$173,690). This mirrors the 10 year maximum imprisonment term in the United States, but the U.S. individual statutory maximum fine remains higher at US$1 million. Australian corporations now will face fines for criminal conduct that are the greater of: AUD$10 million (US$7.9 million), three times the value of the gain from the cartel, or, where the gain cannot be determined, 10 percent of the annual turnover of all related entities in Australia. By contrast, the statutory maximum in the United States is set at US$100 million, although fines in excess of the statutory maximum may be imposed of up to twice the gross gain derived from the crime or twice the loss of the victims of the crime.

With fines linked to a company's annual turnover, theoretically the Australian authorities could impose fines as high as those recently imposed by the European Commission. The EC can impose fines of up to 10 percent of a company's annual revenues; but unlike the new Australian law, the EC fines have a higher ceiling, as they are based on worldwide revenues. In May, the EC leveled a fine of approximately US$1.45 billion on U.S.-based chipmaker Intel Corporation, the highest individual fine ever imposed by the EC. The Intel fine represented 4.15% of Intel's 2008 worldwide revenues.

Under the Amendment, a person must not make, or give effect to, a contract, arrangement or understanding that contains a "cartel provision." These are defined as any provision that relates to (1) price fixing, (2) restricting outputs in the production and supply chain, (3) allocating customers, suppliers or territories, or (4) bid-rigging, by parties that would otherwise be in competition with each other. The burden of proof for the new criminal offenses requires the proof of fault elements under the Australian Criminal code and proof beyond a reasonable doubt. The prosecution must prove beyond a reasonable doubt that the party must have intended to enter in the arrangement and to have had the knowledge or belief that it contained a cartel provision. Civil penalties under the Amendment for the same conduct without the fault elements or higher standard of proof are the same as for existing violations of the Trade Practices Act: for individuals the fine maximum is AUD$500,000 (US$397,000), and for corporations the civil penalties have the same maximums as those for criminal conduct under the new legislation.

The criminal and civil offences as defined are similar but there is no guidance in the Amendment or the Trade Practices Act about whether cartel conduct should be pursued civilly or criminally in any given case. That decision is left to the Australian Competition and Consumer Commission ("ACCC"). The ACCC has not offered guidance on how it plans to make this decision after the Amendment, but there is an existing Memorandum of Understanding ("MOU") between the ACCC and the Commonwealth Director of Prosecutors ("CDPP"), which states that the ACCC will refer conduct to the CDPP to consider for criminal prosecution where: (1) the conduct is long-standing or has significant market impact; (2) the conduct causes significant detriment to the public or significant loss or damage to customers; (3) one or more of the alleged participants have previously been found by the court to have participated in or have admitted to participating in criminal or civil cartel conduct; and, (4) the value of the affected commerce is more than AUD$1 million (US$800,000). The MOU also sets out criteria that the CDPP will consider in deciding whether to prosecute a company for cartel conduct (the MOU predated individual criminal liability, so it does not address individuals), including: the impact of the cartel conduct on the market, the scale of detriment caused to consumers or the public, and whether any of the cartel members have been found by a criminal or civil court, or have admitted, to have engaged in cartel conduct.

The ACCC does have an immunity policy for cartel conduct. Presently, the immunity policy only applies to civil contraventions of the Trade Practices Act by corporations. Nonetheless, the ACCC immunity guidelines do state that if criminal sanctions are introduced for cartel conduct, the ACCC will reconsider its immunity policy and guidelines in light of those changes.

A further change to existing law in the Amendment is the repeal of the existing price-fixing prohibition in Section 45A of the Trade Practices Act, but provisions that ensure certain types of conduct are not treated as cartels were left in place, including resale price maintenance, exclusive dealing, and mergers. The Amendment does create an exception for joint ventures, though it is limited to contractual joint ventures, not joint ventures based on an arrangement or understanding, and is thus narrower than the current civil joint venture exception.

There is a worldwide trend towards criminalizing cartel offenses. As discussed in a prior Jones Day Alert on the introduction of this legislation in the Australian Parliament, South Africa's National Assembly also had passed an amendment to its Competition Act 1998 that would also criminalize individual cartel offenses. But the South African President has not yet signed the Competition Amendment Bill, which is not a mere formality like Royal Assent in the Australian context. Under the South African Constitution, the South African President must either sign the bill or refer specific sections to the Constitutional Court to address any constitutional concerns.

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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