10 year jail terms for cartel conduct - final Bill released

The facts:
  • Legislation providing criminal penalties for cartel conduct will be introduced into Parliament by the end of 2008.
  • Penalties include jail terms of up to 10 years.
  • Criminal provisions will no longer require proof of ‘dishonesty’ - ‘knowledge’ or ‘belief’ that you are engaging in cartel conduct will be sufficient.
  • Criminal offence provisions remain wide and complex.  A wide range of conduct could fall within the criminal provisions.
  • As with the first draft, this Bill does not just introduce criminal sanctions, it also largely re-writes the civil TPA competition prohibitions.  The new rules are wider than current, and some of the exemptions narrower.
  • Not just new arrangements are caught - giving effect to existing arrangements will also be caught.  An arrangement involving competitors that is currently legal may therefore be illegal in 2009.  
  • Joint ventures and other arrangements with competitors will all need to be reviewed for compliance with the new provisions.  In some cases, notifications to the ACCC or authorisation may be required.

Background

The Federal Government yesterday released a revised draft of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (Cartel Conduct Bill).  The Bill will be introduced to parliament by the end of the year and provides a maximum 10 year jail term for individuals who participate in ‘serious cartel conduct’.  This will put Australia in line with countries such as the United Kingdom and the United States who have already introduced jail terms for cartel conduct.

This Bill has been a long time coming.  The Dawson Inquiry recommended criminal penalties for cartel conduct in 2003.  The Liberal government announced in 2005 that it would adopt this recommendation, but never did.  By contrast, when Labor came to power they were quick to act, releasing the first draft Cartel Conduct Bill in January.  The rush, however, resulted in a draft bill that was widely criticised.  This new, final draft is the outcome of Labor’s subsequent consultation process.

Key prohibitions

Broadly, the Cartel Conduct Bill defines a cartel provision as a contract, arrangement or understanding (CAU) between competitors that fixes prices, restricts outputs, allocates customers, suppliers or territories, or rigs bids.

Making or giving effect to a CAU will be criminal if done in the knowledge or belief that it contains a cartel provision.  This means that a range of conduct other than the Government’s touted ‘hard core cartel conduct’ could be caught up in the criminal provisions.  If the ‘knowledge or belief’ element is not satisfied, making or giving effect to the CAU may still constitute a civil contravention.

The current price fixing prohibition will be repealed and replaced by the new provisions.  The existing prohibition on market sharing and collective boycotts, however, will remain as a parallel regime, largely duplicating the new provisions.

The ACCC also gains new telephone interception powers.

What changes from the initial draft?

  1. 10 year jail terms.  Cartel conduct now carries penalties of up 10 years’ jail for individuals.  For corporations, penalties remain at up to $10 million or 10% of the annual Australian group turnover per offence.
  2. No ‘dishonesty’ test.  The element of ‘dishonesty’ was one of the major criticisms of the first draft Bill released earlier this year.  It was widely believed that the requirement of prosecutors to prove that a corporation or individual had acted “with the intention of dishonestly obtaining a benefit” (as the draft then read) would make this element difficult to establish, and thus undermine the Bill’s objective. 

    This requirement has now been replaced with a requirement of ‘knowledge and belief’.  The Commonwealth Criminal Code provides that a person will have ‘knowledge’ of a circumstance or result if they are aware that it exists, or will exist in the ordinary course of events.  The insertion of ‘knowledge or belief’ removes the requirement for jurors to morally adjudicate the behaviour of corporations and individuals.  Whilst it remains to be seen how effective the ‘knowledge and belief’ element will be in practice, it should make criminal prosecutions under the new legislation easier.
  3. Extension of joint venture defence.  The application of the TPA to joint ventures and partnerships between competitors has always been difficult.  Often those arrangements are pro-competitive.  For example, two competitors might combine resources to establish production or distribution facilities that would not be viable for either competitor alone.  It would be normal for those competitors to agree to support the new joint venture and not compete with it.  A question has often arisen as to whether such restraints are caught by the TPA cartel provisions.  The TPA currently addresses this by providing specific joint venture defences.

    The initial draft Cartel Conduct Bill contained joint venture exemptions for the new civil prohibitions, but not for the criminal prohibitions.  The new draft Bill includes joint venture exemptions for both.
  4. Revised purpose element.  Under the initial draft Cartel Conduct Bill, a provision of a CAU could be a market sharing or boycott provision if it had an anti‑competitive effect, even if this effect were not intended.  The new Bill has been amended to require an anti-competitive purpose.

Are there still problems?

The Cartel Conduct Bill does more than introduce jail terms for cartel conduct - it largely rewrites the civil competition prohibitions in the TPA.  The new provisions are wider than the current provisions.  For example, the prohibition on price fixing will now extend to downstream resale by customers, and the new market sharing prohibitions are broader in many ways than the current prohibitions. 

Unfortunately, the new provisions are also complex and, some cases, convoluted.  For example, any joint venture that involves competitors will now need to be considered against the existing civil ‘market sharing’ prohibitions, the new civil prohibitions and the new criminal provisions.  Each set of provisions also has a separate set of joint venture defences that will need to be worked through.  The result will be greater complexity and uncertainty.

In addition, questions still remain about how the ACCC’s immunity policy will work under the new regime.  Currently, a party to a cartel can obtain immunity from prosecution by the ACCC if it is first to expose the cartel and cooperates fully.  This is perhaps the ACCC’s greatest tool in fighting cartels.  For example, this is how the ACCC became aware of Visy’s price fixing arrangements with Amcor.  The Commonwealth DPP, which will prosecute the criminal provisions, has no equivalent policy to protect whistleblowers from going to jail.  Until this is issue fixed, the new criminal provisions may prevent whistleblowers from coming forward and in fact make it harder for the ACCC to fight cartels.

Next steps

Before becoming law, these new provisions need to be approved by each of the six State governments (as they will affect the scheduled version of Part IV of the TPA known as the Competition Code).  The Bill may also require support of the opposition in the Senate.  Both of these, however, look likely. 

If passed, the new provisions are broad and complex and potentially affect all arrangements with competitors.  Arrangements that are legal today may be illegal next year due to small, but potentially important differences in wording.  All companies should therefore take the following steps:

  1. Review and refresh compliance programs - staff need to be aware of the new rules.
  2. Existing arrangements with competitors should be reviewed to ensure they do not fall foul of the new provisions.
  3. Where arrangements may be caught by the new rules, they may need to be amended or relevant immunity sought from the ACCC.

 

Author: Richard Westmoreland