The politics of cartel criminalisation: a pessimistic view from Australia

Since the late 1990s there has been a global movement towards tougher enforcement of anti-cartel laws, including the proscription of criminal penalties for serious cartel conduct¹ or so-called “hard-core” collusion.² The movement has been orchestrated by the United States’ antitrust authorities as part of an aggressive strategy to deal with international cartels.³ A decade on and there are now a substantial number of countries across every continent that have introduced criminal sanctions for collusion between competitors.⁴ However, in many instances, the challenges involved in implementing and enforcing a criminal regime in jurisdictions outside of the United States are also only just becoming evident.⁵

In particular, questions are being asked about the extent to which criminalisation has the support of key stakeholders, whose support is critical to ensuring that the deterrent threat of criminal penalties is real and not simply theoretical.⁶ In Japan, for example, criticism has been directed in the past at the regulator, the Japanese Fair Trade Commission, in relation to perceived reticence on its part to bring criminal actions for breaches of its competition laws.⁷ In Ireland, recent experience with price fixing prosecutions has led to concerns about the level of commitment on the part of the prosecutorial and judicial authorities to criminal enforcement.⁸ In Britain, recent empirical research casts doubt on whether members of the public, from which jurors will be drawn for cartel trials, will embrace the idea of sending price fixers to jail.⁹

However, perhaps even more disturbingly, the Australian experience to date highlights the difficulty of shifting to a criminal regime without sufficient political support. That experience, charted in this article, demonstrates that without a strong commitment by the national government, cartel criminalisation may be doomed from the start. In Australia, the campaign to criminalise was initiated and has been led by the regulator, the Australian Competition and Consumer Commission (“ACCC”). Yet, despite a high profile, politically astute and seemingly effective campaign by the ACCC, questions remain as to when criminalising legislation is likely to be introduced and, when (or if) enacted, whether it will have the level of practical support by government required for its proper enforcement. Australia is not alone in facing such questions. Sweden, for example, is another country in which the government entertains serious reservations about criminalisation as an appropriate response to cartels, albeit in that jurisdiction, unlike in Australia, it appears that such reservations are shared by the regulator.¹⁰ In Austria, in 2002 criminal sanctions in fact were removed from the statute books for all breaches of the cartel prohibitions (except bid rigging). This was at the behest of a newly elected conservative government that apparently saw decriminalisation as an important element of its promised “modernization” of business law.¹¹

After summarising the background, this article sets out the aspects of the Australian government’s approach to cartel criminalisation to date that give cause for concern and, where relevant, draws comparisons with the experience in Britain. In particular, it draws attention to:

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  the historical reluctance of Australian governments to treat anti-competitive conduct as criminal;
  
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  the delay by the government in introducing the relevant legislation in the current instance, despite finally having accepted in principle the need for criminal sanctions;
  
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  the process adopted by the government in drafting the legislation, a process that has been characterised by a lack of transparency and consultation;
  
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  aspects of the design of the proposed cartel offence and policy for its enforcement that are ill-conceived, albeit not surprisingly given the deficient process adopted for determining these matters so far;
  
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  the underwhelming nature of the proposed sanctions relative to the government’s rhetoric regarding the seriousness of the activity to be criminalised; and
  
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  the prospect that the powers and resources given to the agencies responsible for implementing the new criminal regime will be inadequate given the formidable task that confronts them.
  

In 2001 the then Chairman of the ACCC, Allan Fels, called for the introduction of criminal sanctions for serious forms of business collusion in Australia.¹² The call for criminalisation was formalised in the ACCC’s submission¹³ to an independent committee (“the Dawson Committee”) charged with the task of reviewing Australia’s competition legislation, the Trade Practices Act 1974 (Cth) (“the Act”), in 2002.¹⁴ In its January 2003 report, the Committee agreed that the current civil penalty regime was an insufficient deterrent to the business community and it recommended that criminal sanctions be introduced, subject to the resolution of definitional and procedural issues and consideration of the implications for the ACCC’s leniency policy.¹⁵

The government accepted the recommendation of the Dawson Committee “in principle” and promised to “further consider” the matter, while guardedly emphasising the need for any new criminal penalty regime to apply broadly, not to impose “significant additional uncertainty and complexity for business” and to “work well in the context of the Australian legal system.”¹⁶ A government working party on penalties for cartel behaviour was convened in October 2003 for the purposes of resolving these and other issues.¹⁷ The working party reported to the government some time in 2004 and on 2 February 2005, the Treasurer announced in a press release that criminal sanctions for “serious cartel behaviour” would be introduced.¹⁸ The “cartel offence” proposed by the Treasurer would:

“Prohibit a person from making or giving effect to a contract, arrangement or understanding between competitors that contains a provision to fix prices, restrict output, divide markets or rig bids, where the contract, arrangement or understanding is made or given effect to with the intention of dishonestly obtaining a gain from the customers who fall victim to the cartel.”¹⁹

The proposal indicated that the maximum penalties for individuals for a cartel offence will be a term of imprisonment of five years and a fine of AU $220,000.²⁰ For corporations, reflecting civil provisions introduced with effect from 1 January 2007, a fine that is the greatest of AU $10 million or three times the value of the benefit derived from the cartel or where that value cannot be ascertained, 10% of annual group turnover.²¹

Historical reluctance

A historical account of the approach taken to trade practices penalties indicates a strong reluctance on the part of Australian governments, particularly of a Liberal (conservative) persuasion, to embrace a criminal mode of enforcement.²² In the first attempt at competition regulation in this country, the Australian Industries Preservation Act 1906 (Cth), there were criminal penalties that attached to the prohibitions on restraints of trade and monopolisation,²³ reflecting developments in the United States and the provisions of the Sherman Act 1890. However, in what may now appear as something of a legislative aberration, those penalties have been explained on the basis that the legislation was aimed largely at curtailing incursions by overseas business interests into Australian markets.²⁴ They thus did not require the government to confront the notion of treating Australian businessmen as criminals. The legislation had a short life in any event, being declared largely constitutionally invalid by the High Court in litigation concerning the reserved powers of the Commonwealth in 1909.²⁵

Criminal penalties were removed from the subsequent Trade Practices Act 1965 (Cth) which, being modelled predominantly on the English rather than the American approach to antitrust, adopted an administrative rather than a judicial method of enforcement.²⁶ One explanation for this backward step in enforcement terms may be that, in this instance “the businessmen affected were Australian, and very much ‘like us’ as far as the Government was concerned. Such men could not be criminal and it was inappropriate to criminalise their business behaviour.”²⁷ Amendments in 1971, again at the instigation of a Liberal government, declaring resale price maintenance illegal, were similarly non-criminal in character, allowing for civil damages and injunctive orders to be made.²⁸

The current Act was introduced by a Labor government the members of which, it has been said, were “far less inclined than the Liberals to imagine themselves in the position of businessmen.”²⁹ Their “basic impulse” to criminalise found expression in the case of the consumer protection provisions but stopped short of full criminalisation in the case of the competition provisions, opting instead for the hybrid pecuniary penalty on account, it seems, of concerns that criminal penalties would be more difficult to enforce.³⁰ The difference in approach taken to the two sets of provisions might also be explained by the fact that many of the practices covered by the consumer protection provisions (misleading advertising, false pretences and the like) involved an element of fraud, long recognised as a criminal offence. On the other hand there was little precedent in English law for classifying the practices covered by the restrictive trade provisions as criminal offences.³¹

In 1977, unhappy about the criminal sanctions in the Act but sensitive to the increasingly powerful consumer lobby, the then Liberal-Country Party coalition government retained criminal offences for contraventions of the consumer protection prohibitions, but removed the option of imprisonment.³² Since then, the possibility of re-introducing criminal penalties for breach of the competition provisions has been toyed with at times but not seriously considered,³³ that is, until the ACCC’s proposal in 2001. With the benefit of this historical perspective, the significance of the current proposal from the government’s point of view starts to become apparent and its reticence to act at least understandable (even if not defensible).

Delay

It has been more than four and a half years since the recommendation by the Dawson Committee that serious cartel conduct be criminalised and the government is yet to introduce the relevant legislation to Parliament. The Treasury papers for the 2006 Commonwealth Budget indicated that the legislation would be introduced to Parliament in the winter sittings of that year.³⁴ However, the bill was not introduced. No explanation for the delay was offered. However, it was evident that the government in effect was pipelining the various trade practices reform packages then under consideration, using the promised cartel crime bill as leverage in negotiation with parliamentarians who were standing in the way of its other reforms, relating primarily to merger review processes and predatory pricing provisions.

In August 2007, the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill and Federal Court Amendment (Criminal Jurisdiction) Bill were listed on the government’s website as legislation proposed to be introduced in the spring sittings of Parliament.³⁵ Almost certainly non-coincidentally, this listing occurred within days of increased pressure to take action over petrol prices (and renewed ACCC calls for criminal sanctions for cartel conduct in this context),³⁶ as well as publicity given to significant penalties for price fixing in the air-conditioning industry,³⁷ a global airline cargo cartel in which the national carrier Qantas has been implicated³⁸ and the announcement of an ACCC investigation into price fixing in stevedoring operations on Australian wharves.³⁹ Subsequently, a federal election intervened and the fate of bills was left hanging on the outcome.

Even with acknowledgment of the historical significance of the reform and the complexities involved in drafting the relevant provisions, such delay may still be described as “without defence.”⁴⁰ This is particularly so when one compares the process recently undertaken in Britain. There the government issued a White Paper proposing criminal sanctions for cartel conduct in July 2001 and the Enterprise Act 2002 (UK) containing the criminal provisions was introduced to Parliament, less than a year subsequently, in March 2002. It received Royal Assent on 7 November 2002.

Clearly, there are differences between the Australian and British experience with competition regulation which may explain why the process was so much quicker and evidently much less agonising in the latter jurisdiction than in the former. In Britain it was no doubt material that cartel criminalisation was just one element of an overall shake-up of competition policy by the British Labor government following its re-election - a shake-up likely to have been influenced to a large extent by the increasingly active approach to enforcement on the part of the European Commission.⁴¹ Thus, in Britain, criminalisation was an initiative that was driven by the government rather than by the Office of Fair Trading (“OFT”) which, up until the reforms in 1998, had been a relatively weak and ineffectual authority.⁴² Whereas, in Australia, by contrast the criminalisation initiative was led by the ACCC rather than the government and in a climate in which the government had been under siege by the big business lobby for some years to rein in a regulator that was viewed as too powerful and increasingly unaccountable.⁴³

Moreover, events in the course of the current Australian election campaign have given further reason to doubt the government’s commitment to cartel criminalisation. In October 2007, the ACCC scored a major victory in an action it had taken in relation to cartel conduct in the cardboard packaging industry by one of Australia’s largest manufacturing companies, the Visy group, and their owner, billionaire and reknown philanthropist, Richard Pratt. Agreement was reached to settle the case involving admissions, a public apology and submission to record-level penalties, more than doubling the previous maximum corporate penalty imposed for collusion in Australia.⁴⁴ It might have been expected that these events, which received extensive media coverage, would provide the government with the welcome opportunity to justify and explain further its commitment to criminal penalties for such conduct. However, to the contrary, in the inevitable media frenzy that followed, several political leaders (not least of all, the Prime Minister) expressed publicly their admiration for Pratt and his contribution to Australian business and society.⁴⁵

Indeed, in the same breath as praising and indicating his personal liking of the Visy owner, the Prime Minister refused to commit the government to cartel criminalisation.⁴⁶ This led to a conflicting statement by the Treasurer⁴⁷ and subsequent media reports suggested that in fact there was also a degree of backbencher unrest about the proposal given its implications for small business owners.⁴⁸ There were also reports that, despite supporting criminalisation in its submission to the Dawson Committee, there are some members of the powerful business lobby group (the Business Council of Australia), who have been pressuring the government to abandon its proposal.⁴⁹ All in all, the resultant impression is of a government under siege and struggling with substantial internal conflict and uncertainty about whether criminalisation is a step that is both necessary and desirable.

Deficient process

Given the significance of this change in approach to cartel regulation in Australia, it might have been expected that the government would engage in a transparent and consultative process to ensure not only that the reform is justified but also that the complexities involved in its design and implementation would be resolved with input from all relevant stakeholders. The process to date, however, has been just the opposite.

The Dawson Committee, which did have the benefit of submissions from a range of bodies and persons on the subject, failed inexplicably to tackle the issues in depth, hand-balling it back to the government with only an “in principle” recommendation.⁵⁰ The working party comprising representatives from the ACCC, the Attorney-General’s Department and the Commonwealth Director of Public Prosecutions, was then convened. The working party did not call for submissions publicly, it is not known whether it undertook any consultation beyond the bodies represented upon it and it did not release its report or its recommendations for public consumption. A subsequent request for access to its report under freedom of information (“FOI”) legislation was refused by Treasury and it was indicated that consideration was being given to issuing a conclusive certificate to deny access to the report on public interest grounds.⁵¹ The effect of such a certificate would be to limit substantially the type of merits review available in respect of a refusal of access under the FOI statute. However, on even this question, the government is delaying in making a decision – delay that it is hard to conclude is not politically motivated given the election campaign and the media coverage being given to the issue in light of the Visy affair.⁵²

The process adopted in relation to the working party is inconsistent with the government’s Office of Best Practice Regulation policy statement.⁵³ It is in marked contrast to the practice commonly adopted in the areas of corporate and financial services regulation in which public discussion papers or draft exposure bills are routinely released in relation to proposed amendments. Indeed, somewhat ironically, the government is currently undertaking a review of sanctions for contraventions of corporate law (even more ironically, one of the questions being whether to scale back reliance on criminal sanctions) and that review is being undertaken in the public arena with extensive provision for consultation.⁵⁴ What arguably should have occurred in relation to cartel criminalisation is that the government should have referred it to the Australian Law Reform Commission which has a strong track record of dealing with difficult and complex subjects, and publishing detailed reports with clear recommendations based on wide consultation. Moreover, this body only recently examined and reported on the related subjects of federal civil and administrative penalties and sentencing of federal offenders and hence would be well placed to examine the issues involved in cartel criminalisation.⁵⁵

The Australian process may also be compared with the process in Britain where the government published its White Paper in which it set out its intention to criminalise hard-core cartels, its rationale for this approach and the basic elements of the proposed criminal regime.⁵⁶ The White Paper called for comments and submissions to inform the legislative drafting process.⁵⁷ This was followed by the publication of a report commissioned by the OFT by Sir Anthony Hammond QC and Sir Roy Penrose OBE on the legislative and procedural changes required to operate a criminal regime.⁵⁸ The report indicates that the authors interviewed 51 people associated with the initiative.⁵⁹ Upon publishing it on its website, the OFT invited comments on any aspect of the report.⁶⁰

Problematic aspects of offence design and enforcement policy

There are aspects of the government’s proposed design and policy for enforcement of the cartel offence that are ill-conceived and appear not to have been properly thought through. Two, in particular, may be singled out for criticism.⁶¹

First, it is proposed that dishonesty be an element of the mens rea for the offence.⁶² This proposal mirrors the approach that has been taken in the United Kingdom,⁶³ albeit in no other jurisdiction that has a criminal regime.⁶⁴ In both jurisdictions, the rationale for introducing this requirement has been that it will facilitate distinction between the conduct attracting criminal penalties and conduct that will remain subject to the civil prohibition.⁶⁵ In short, dishonesty has been seen as a way of communicating the seriousness of the conduct that is subject to criminal sanctions.⁶⁶ Yet this, as a rationale, has been described as “seriously flawed.”⁶⁷ The common law test of dishonesty, invoking the “standards of ordinary people” and the idea that defendant have known his or her conduct to be dishonest according to such standards,⁶⁸ has been shown in other contexts to cause problems for juries.⁶⁹ It will almost undoubtedly be problematic also in relation to cartel activity given the ambiguity surrounding both the harmfulness⁷⁰ and moral wrongfulness⁷¹ of such activity.

Apparently, in supporting the requirement of dishonesty despite these evident flaws, the Australian government has chosen to ignore even the advice of the Commonwealth Director of Public Prosecutions – quite astonishingly, given that it is the DPP (or members of that office) who will be responsible for persuading juries of guilt under the new offence.⁷² Indeed, the DPP’s concerns appear borne out by the recent British research, referred to earlier, which confirms that juries are likely to struggle with these concepts. A March 2007 survey of the British public found that only 6 in 10 Britons (63% of respondents) regard price fixing as dishonest, many (65%) could not relate price fixing to any other practice with which they were familiar (only 7% thought theft, 8% fraud) and, perhaps most disconcertingly, only 1 in 10 (11%) considered that it warranted imprisonment.⁷³

Secondly, in an attempt to confine the proposed criminal regime in Australia to cartel conduct that is “serious” in terms of harm to competition, it has been proposed that the ACCC criminally investigate only those cases in which the combined value of the line of commerce affected by the cartel exceeds AU $1 million within a twelve month period.⁷⁴ This aspect of the proposal bears some resemblance to the approach taken in the United Kingdom where one of the questions asked by the Serious Fraud Office in deciding whether or not to prosecute under the cartel offence in that jurisdiction is whether “the value of the alleged fraud exceed[s] £1 million.”⁷⁵ However, the importance of this criterion is downplayed somewhat, described as “simply an objective and recognisable signpost of seriousness and likely public concern rather than a main indicator of suitability.”

As has been pointed out elsewhere, that the fact the value of commerce affected by the cartel conduct exceeds AU $1 million does not in itself mean that the impact on competition has been serious.⁷⁶ Thus, the threshold, being based on a fixed monetary value, has the potential to be both under-inclusive and over-inclusive, depending on the size of the market in which the cartel members operate.⁷⁷ One possible solution that has been suggested is that prosecutions be limited to cases where the specific line of commerce likely to be affected by the cartel represents a minimum percentage (say, based on the US Sentencing Guidelines, 20%) of the value of sales by all competitors who compete in that specific line of commerce in the relevant geographic market over a relevant time period, linked to the commission of the offence.⁷⁸ However, that rather sensible suggestion has been rejected by the government.⁷⁹ Questions also have been raised as to whether the threshold should be made a jurisdictional element of the offence, or whether it should be merely a guide to the exercise of prosecutorial discretion.⁸⁰

In relation to the proposed sanctions, a maximum term of imprisonment of five years is by no means an overwhelming indicator of the government’s supposed conviction regarding the need for criminal sanctions for serious cartel conduct. A recurring rationale offered for cartel criminalisation by both the regulator and politicians is that it is analogous to other so-called “white collar” criminal offences and hence should be treated analogously.⁸¹ However, even a cursory glance at the Commonwealth Criminal Code Act 1995 (Cth) demonstrates that what is proposed by the government does not amount to analogous treatment. Under the Code, the offences of obtaining property by deception and conspiracy to defraud a Commonwealth entity attract a maximum jail term of 10 years.⁸² Such comparisons have led one commentator aptly to remark that the proposed maximum is “difficult to reconcile with the rhetoric of politicians and others that serious cartel conduct is akin to theft, fraud or extortion.”⁸³

In terms of international standards the proposed maximum jail term could also be said to smack of compromise. It is certainly nowhere near the top end of the scale, alongside countries such as the United States and Mexico that have a 10 year maximum. Rather, it could be described as “middle-of-the-range”,⁸⁴ bearing in mind that there are other jurisdictions including Britain, at the same level as is proposed in Australia with five years;⁸⁵ and others below that, with maximum terms of 3 or 4 years.⁸⁶

It is proposed further that individuals be subject to a maximum fine of AU $220,000.⁸⁷ However, the current civil maximum is AU $500,000. This disparity is mystifying, especially when the position in other jurisdictions is compared – in the United States the maximum individual penalty is US $1 million⁸⁸ and in the United Kingdom, it is unlimited.⁸⁹ One explanation for the low maximum is that criminal conviction also attracts other adverse consequences including the social stigma of being branded a criminal and being excluded or disqualified from certain activities.⁹⁰ However, such reasoning “does not explain why, in cases where jail is not considered by a court to be an appropriate sentence, the maximum fine should be lower than the maximum civil penalty for the same or very similar conduct.”⁹¹ A possible explanation is that the proposed maximum fine would be commensurate with the position under the Corporations Act 2001 (Cth) which provides for fines of up to AU $220,000 for individuals who breach its criminal provisions.

The evidentiary challenges involved in proving a cartel conspiracy have been apparent under even a civil regime for some time and have been highlighted in recent litigation brought by the ACCC in relation to price fixing in the petrol industry.⁹² Criminalisation will only aggravate these difficulties given the higher standard of proof. With this in mind, the government’s willingness to authorise telecommunications interception and other modes of electronic surveillance for the purposes of criminal investigations will be critical. So far, it is unclear whether the government will be prepared to invest the ACCC with this kind of power.

With the proposed maximum jail term of 5 years, it will not be possible to obtain a warrant for telecommunications interception under the Telecommunications (Interception and Access) Act 1979 (Cth), given that that Act applies only in relation to offences with a 7 year jail term.⁹³ Media reports suggest that the ACCC will be required to refer requests for phone–tapping to the Australian Federal Police.⁹⁴ This may cause delay and give rise to inter-agency bungling. It may even lead the ACCC to consider proceeding under other offences, such as conspiracy to defraud,⁹⁵ which do allow for telecommunication interceptions.⁹⁶ Antitrust authorities in the United States, Canada and the United Kingdom have such powers.⁹⁷ Moreover, other Australian corporate regulators have them.⁹⁸ It is difficult to understand why the ACCC should be any different.

In terms of financial support, a funding package for the agencies involved in implementing the new criminal regime in Australia was announced in May 2006.⁹⁹ The package included AU $18.2 million over four years for legal expenses for the ACCC and AU $7.2 million to support investigations and enforcement. It further included AU $4.4 million over four years for the DPP for cartel prosecutions and AU $3.9 million for the Federal Court to hear cartel trials. Leading practitioners have described these figures as inadequate to fund major cartel prosecutions against the powerful, often internationally supported, deep-pocketed interests behind serious cartel activity.¹⁰⁰ In the Visy case, for example, the respondents agreed to pay the ACCC’s costs estimated at between AU $10 million and AU $20 million,¹⁰¹ that is conceivably equal to the entire amount allocated to the ACCC over four years to meet all of its criminal cartel-related expenses. Of course, these figures pale into insignificance when compared with the fees generated in the United States and Europe where cartel litigation has become “significant legal business.”¹⁰²

Political support for cartel criminalisation is essential for several reasons. First, and most obviously, such support is necessary in order for the necessary legislation to be drafted, introduced to Parliament and, ultimately, enacted. Secondly, the government will need to be prepared to consult widely and work through the complex and, at times, controversial aspects of the legislation – in particular, as it relates to the scope of the new offence and the sanctions imposed for its commission. Thirdly, it is inevitable that the government’s commitment to criminalisation will be tested by lobbying on the part of business groups and their political sympathisers seeking to prevent the legislation being introduced and/or to curtail the extent of the powers and resources given to the agencies charged with implementing it.¹⁰³ Fourthly, the government must be prepared to invest those agencies with adequate powers and resources to vigorously enforce the criminal regime, taking on formidable opponents and their legal teams. Finally, the extent to which the attitude of the government towards criminalisation will shape the perceptions of other stakeholders should not be underestimated. Business, the public, the media and, to a lesser extent the judiciary, will take cues from their political leaders as to the desirability and appropriateness of criminal penalties for cartel participants.

On each of these points, the Australian government scores poorly in its performance to date. There is still good reason to think that criminalising legislation will be enacted in this country, and that it is a question of when rather than if Australia will join the United States’ “coalition of the willing” in introducing criminal penalties for serious cartel conduct. This is especially so if the opposition Labor party takes government on 24 November 2007 (as the polls suggest is likely) given that it has indicated its intention to introduce criminal sanctions within 12 months, if elected.¹⁰⁴ That said, for the reasons previously cited, continuing political support will be necessary if the new regime is to be effectively enforced.

The difficulties being experienced outside of the United States in garnering support for cartel criminalisation from relevant stakeholders have been described as “growing pains through which most of the developed world will establish effective criminal antitrust regimes.”¹⁰⁵ That is, indeed, an optimistic view. As the experience in Australia (and other places) attests, when manifested in a substantial lack of political will, such pains may prove fatal to a national criminalisation movement and can only weaken the progress being made at the international level to combat serious cartel activity wherever it occurs.