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HG Alert: Proposed criminalisation of hard core cartel conduct - Jun 2009

On 3 December 2008, the Federal Government introduced the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill into the House of Representatives. The Bill passed through the House of Representatives and is currently before the Senate.

If it becomes law, the Bill will have far-reaching implications for the conduct of trade and commerce in Australia. It will make it a criminal offence to make or give effect to a contract arrangement or understanding that contains a “cartel provision”.

The Bill defines a criminal cartel provision as a condition contained in a contract, arrangement or understanding between competitors that relates to:

  • price fixing;
  • restricting outputs in the production or supply chain;
  • sharing or allocating customers, suppliers or territories; or
  • rigging a tender process.
The Bill establishes a maximum jail term of 10 years and/or a fine not exceeding $220,000 for criminal cartel offences by individuals.

For a company, the fine for a criminal cartel offence will be the greater of:

  • $10 million;
  • three times the total value of benefits gained from the offence; or
  • where the total value of the benefits gained from the offence cannot be determined, 10 percent of the company’s annual turnover during the 12 month period ending at the end of the month in which the company committed the offence.

The Bill signals a “get tough” approach on serious (sometimes known as “hard core”) cartel conduct. Although the application of criminal sanctions to this behaviour is acceptable in principle, and is the law of most of Australia’s major trading partners, serious questions have been raised about whether the Bill goes too far and will stifle legitimate commercial activity if it becomes law.

The Australian Competition and Consumer Commission’s policy

The Australian Competition and Consumer Commission’s immunity policy for cartel conduct, published in August 2005, grants immunity to a party satisfying a number of conditions. For example, the party must be the first to apply for immunity in respect of the cartel, can not have coerced others to participate in the cartel, and must have ceased involvement in the cartel or indicated to the Commission that it will stop involvement.

Under the Bill, the decision whether to grant immunity from criminal proceedings will lie with the Commonwealth Director of Public Prosecutions, not the Commission. Under the proposed policy, the Director will retain an overall discretion in deciding whether to grant immunity, even if the threshold criteria specified in its policy are otherwise met. This is different from the Commission’s immunity policy, where immunity is automatic upon satisfying certain conditions.

The significant differences and inconsistencies between the two approaches, both in terms of the stage at and conditions under which immunity will be granted, are likely to deter would-be whistle blowers from seeking immunity from the Director. Detecting serious criminal cartel behaviour could become more difficult and unlikely as a result.

Exemptions and defences

The Bill lists a number of situations in which criminal and civil offences will not apply. Those situations are:

  • Where a company has given the Commission a collective bargaining notice in relation to a contract, arrangement or understanding containing a cartel provision.
  • Where a company applies for authorisation for a contract arrangement or understanding containing a cartel provision that will not come into operation unless and until authorisation is given.
  • Contracts, arrangements or understandings between related companies.
  • Where a contract containing a cartel provision is for the purposes of a joint venture:
    • for the production and/or supply of goods and services; and
    • which is carried on by a company formed by the joint venture parties.

Although these exceptions aim to make sure that the Bill does not prevent legitimate business activities that will benefit the economy or the general public, some commentators have argued that the Bill does just that.

Criticisms of the Bill

Much of the debate about the Bill has centred on the proposed joint venture exceptions. One school of thought says that the Bill’s joint venture defences are too narrow and could result in the criminalisation of legitimate joint venture activity.

The alternative view is that the defences are too broad and that the parties to cartels will be able to shelter from the Bill under the umbrella of ‘artificial’ joint ventures.

Conclusion

There seems to be a general consensus that Australia should have criminal offences and penalties for cartel behaviour. The Bill certainly brings Australia into line with the stance our major trading partners take towards cartel conduct, which is important to effectively deter cartel behaviour from crossing national boundaries.

The main area of debate is whether the Bill casts the net too widely and exposes participants in ordinary commercial activities to a criminal penalty.

Our main criticism is that the drafting of the Bill is extremely complicated. Previous experience shows that the more an Act of Parliament tries to cover every eventuality, the more likely it is that unanticipated situations will arise, creating uncertainty and disputes. Almost invariably, the solution to the unexpected problem is an even more complicated amendment. Legislation on this important topic should first be easily understood by business people and their advisers, and second be able to be used effectively and quickly by the Australian Competition and Consumer Commission in response to serious cartel behaviour. In our view, the proposed Bill satisfies neither of these objectives.