Cartel conduct is a crime in Australia which occurs when businesses agree to act together instead of competing against one another in order to increase members' profits. Cartel conduct falls within four main categories, namely, fixing the prices of goods or services, rigging bids, sharing markets, and controlling the amount of available goods or services. The offence of cartel conduct carries penalties of up to 10 years imprisonment and/or $10 million according to the competition laws, namely the Competition and Consumer Act 2010 (Cth).
In Australia, participating in cartel conduct is a criminal offence, with individuals and businesses involved risking significant fines and jail terms. For specific advice, we recommend speaking to white collar crime lawyers.
WHAT IS A CRIMINAL CARTEL LAWYER?
A criminal cartel lawyer is a criminal lawyer who specialises in criminal cartel law in Australia across any state or territory. Criminal cartel law falls within the commonwealth laws, which means that it applies to all regardless of the state or territory you live in.
WHAT IS CARTEL CONDUCT?
A ‘cartel' is where businesses agree to act together, instead of competing against each other, in an attempt to increase members' profits.
It is criminalised due to how it can restrict economic growth via artificially increasing prices for consumers and businesses, reducing innovation and choice, and restricting the growth of other uninvolved businesses.
Cartel conduct is an ‘umbrella' term, with conduct largely falling into four main categories, being fixing the prices of goods or services, rigging bids, sharing markets, and controlling the amount of available goods or services.
Cartel conduct is yet another type of corporate crime. Here is more on the difference between white collar and corporate crime.
PRICE FIXING | WHAT IS PRICE FIXING?
Cartel price fixing occurs when businesses agree upon prices to charge, instead of setting competitive rates against each other.
Such an agreement may be regarding prices for selling or buying goods or services, minimum prices, how prices or discounts are set, or rebates, allowances, or credit terms.
The arrangements may be formal or informal between businesses.
Signs of price fixing include where suppliers raise prices at the same time, at a rate that seems unreasonable and not explained by changes in the cost of inputs.
However, there can be difficulties in proving price fixing due to how companies will often independently change their prices matching other competitors to compete for business.
It is therefore important that businesses are independently making decisions regarding prices, based on the current market.
Price Fixing Examples
An example of price fixing includes if owners of a group of local retail stores met up and decided to all increase their prices of candles to a certain amount.
This illustrates how price fixing negatively impacts consumers, inevitably making them pay more than they ordinarily would.
SHARING MARKET CARTEL | WHAT IS MARKET SHARING?
Market sharing occurs where businesses agree to divide a market between themselves, to make it so that they don't have to compete.
This may include an agreement where businesses avoid producing each other's goods or services, or assign different types of customers to each competitor, with an understanding not to encroach.
Members of a cartel involved in market sharing may seek to differentiate customers based on geographical location, demographic information, or other specific needs.
Market sharing inevitably restricts choices on price, quality, and services for consumers, as there is less competition in the market for consumer's business.
What is bid rigging? Bid rigging or ‘collusive tendering' occurs when suppliers agree upon who should win a tender, and the associated price obtained.
A tender is essentially the process by which a business who requires goods or services invites other businesses to submit proposals to provide these goods or services.
Members of a cartel involved in bid rigging may seek to take turns at winning tenders by manipulating the process.
This may also involve providing rewards for the losing businesses such as payments or subcontracts.
To achieve this, members may not bid at all, provide a high quote, withdraw a winning bid, or include unfavourable terms to the client, to ensure that the chosen business will ‘win'.
Therefore, signs of bid rigging include where regular suppliers decline to tender, or where a winning business regularly subcontracts to competitors that submitted higher bids to the tender.
An example would include where a tender is put for a business to supply windows for a new building, with numerous window manufacturers then deciding upon, between themselves, who would gain it.
The manufacturers may then overbid, driving the price up, with the winning bid (lowest) thus well over the actual price of the job. Businesses may then seek to take turns doing so with various tenders.
Output restrictions occur when businesses agree to limit the amount of relevant goods and services.
Controlling output is most often done in an attempt to increase prices, due to scarcity increasing the value of available goods or services.
COMPETITION LAWS | CARTEL CONDUCT OFFENCES IN AUSTRALIA
Cartel conduct is criminalised under Division 1 of Part IV of the Competition and Consumer Act 2010 (Cth).
As per section 79, individuals (including directors, officers, and employees of corporations) who attempt, aid, induce contravention, or knowingly contravene a cartel offence, face a maximum penalty of 10 years imprisonment and/or a $444,000 fine.
Corporations face a maximum fine that is calculated based on the greater of: 10% of the annual turnover of the company in the last year, three times the total value of benefits obtained by members in connection with the offence or $10,000,000.
The main defence applicable to engaging in cartel conduct is the ‘joint venture' defence.
A joint venture refers to an agreement where multiple businesses develop an entity and contribute equally to it via funding and thus share expenses, as well as resulting revenue and assets.
The cartel provisions must be contained within the parties' ‘contract, arrangement or understanding' in relation to the joint venture.
It must also be for the purposes of the venture, and reasonably necessary for undertaking it.
The defendant bears the burden of proof in proving this defence and its elements.
Criminal sanctions for cartel conduct were introduced in 2009.
The Australian Competition and Consumer Commission will seek to refer cartel conduct to the Commonwealth Director of Public Prosecutions for criminal prosecution where it is deemed covert, to have cause serious economic harm with significant impact on the market, or one or more alleged participants has previously participated in such conduct.
CARTEL CONDUCT EXAMPLES
In 2019, the Japanese shipping company Kawasaki Kisen Kaisha Ltd or ‘K-Line' was convicted of criminal cartel conduct and ordered to pay the largest ever criminal fine imposed under the Competition and Consumer Act, totalling $34.5 million.
The company pleaded guilty to engaging in a cartel with other shipping companies in Australia between 2009 and 2012, which fixed the prices of transporting cars, trucks, and buses.
There were over 20 identified instances in which the company gave effect to cartel provisions between 24 July 2009 and 6 September 2012.
This was prosecuted under a single charge of giving effect to cartel provisions, contrary to s44ZZRG(1) of the Competition and Consumer Act 2010 (Cth).
They essentially had participated in an arrangement with other vehicle shipping companies, where it was agreed that the companies involved would not seek to alter their existing market shares of cargo from manufacturers or otherwise try to win existing business from each other.
This impacted the transportation prices of cars, trucks and buses to Australia from the US, Asia, and various European countries, including manufacturers such as Nissan, Suzuki, Honda, Toyota, Isuzu.
In 2022, individuals connected to the Sydney money remittance business ‘Vina Money' were sentenced over engaging in cartel conduct.
Vina Money participated in price fixing of the Australian dollar/Vietnamese dong exchange rate and the transaction fees charged to customers who were sending money from Australia to Vietnam.
The conduct took place between January 2012 and August 2016.
Vina Money and Hong Vina operated competing money remittance businesses in Footscray, Victoria, and in Cabramatta, NSW.
Both businesses utilised Sacombank, a large Vietnamese commercial bank, to make payments in Vietnam on their behalf.
The businesses communicated between each other, with Sacombank encouraging them to agree on exchange rates, instead of competing.
They also agreed to stop discounting their fees and charged full transaction fees in their branches.
Four individuals including former company secretaries, directors and shareholders were sentenced to terms of imprisonment, however, were released on recognisance orders to be of good behaviour, without serving time in custody.
They are the first individuals to be sentenced under criminal cartel laws.
Here is more on white collar crime examples.