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Focus: Competition Law – December 2008

Further developments in the criminal cartel regime

In brief: There have been several Australian developments during the past week in relation to the criminalisation of cartel conduct. As Partner Wendy Peter and Articled Clerk Tim Maxwell report, the ACCC, Commonwealth DPP and Federal Government have each taken action.

How does it affect you?

  • The joint ACCC and Commonwealth DPP Memorandum of Understanding specifies the responsibilities of each body respectively, establishing a standard of cooperation and channels of communication, including a commitment to consult at an early stage of any investigation on evidentiary matters.
  • The new immunity policies on cartel conduct provide for coordination between the ACCC and Commonwealth DPP in relation to applications for immunity from both civil and criminal cartel prosecutions, and for the application of the same criteria by both bodies.
  • The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 introduced into Parliament last week resolves concerns in relation to the previous draft bill, which inadvertently extended cartel offences to some common commercial conduct such as vertical supply arrangements.

Background – criminalisation of cartels

On 1 December, the Australian Competition and Consumer Commission (the ACCC) and Commonwealth Director of Public Prosecutions (the CDPP) released a final Memorandum of Understanding (the MoU) and their respective immunity policies, which will operate once legislation to criminalise cartels comes into effect. Also, on 3 December, the Federal Government introduced into Parliament the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (the Cartel Bill) to criminalise cartel conduct.

As summarised in Allens Focus: Competition Law – October 2008, when enacted, the Cartel Bill 2008 will introduce two new criminal, and two new civil, cartel offences. The 'final' draft Cartel Bill released in October led to widespread concerns because it failed to incorporate a number of 'anti-overlap' provisions that exempt some conduct from the existing cartel offences of price fixing and exclusionary arrangements.

At the time of the Cartel Bill's release in October, the final ACCC/CDPP MoU and the new immunity policies were not available; consequently there was a lack of clarity about exactly how the immunity regime would operate in relation to both civil and criminal proceedings once the Trade Practices Act 1974 was amended to include criminal cartel offences.

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Investigation and prosecution

The MoU outlines the way in which the ACCC and CDPP will work together on cartel investigations and prosecutions. The ACCC will conduct investigations into cartel conduct, gather evidence, and refer cases of serious cartel conduct to the CDPP for prosecution. The CDPP will determine whether a prosecution will be commenced, and will conduct the prosecution.

The ACCC has indicated that it will attempt to decide whether to pursue a criminal or civil offence at the earliest possible stage in an investigation. If there is any uncertainty, the ACCC will investigate to a criminal standard to ensure evidence gathered will satisfy the CDPP, should criminal prosecution be warranted.

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Civil or criminal proceedings

The ACCC will consult the CDPP when considering whether to refer a case for prosecution, and will generally refer only 'serious' cartel conduct. The ACCC's assessment of whether cartel conduct is 'serious' will be guided by whether it is of the type that can cause large scale or serious economic harm. In making this assessment, the ACCC will consider whether:

  • the conduct is longstanding, its impact on the relevant market, and whether it caused serious public detriment, or serious loss or damage to customers;
  • any member of the cartel has previously been found by a civil or criminal court, or admitted, to have engaged in cartel behaviour;
  • the value of the commerce affected by the cartel is greater than $1 million in a 12-month period; and
  • the value of any bid or series of bids alleged to have been rigged exceeds $1 million in a 12-month period.

When deciding whether to prosecute a case referred by the ACCC, the CDPP will consider:

  • the impact of the cartel on the market;
  • the scale of detriment caused to consumers or the public; and
  • whether any of the cartel members have previously been found by a civil or criminal court, or admitted, to have engaged in cartel behaviour.

The MoU recognises that some matters may warrant both civil and criminal proceedings. In these circumstances, the ACCC and CDPP have agreed to coordinate efforts to ensure that the conduct of civil proceedings does not adversely affect a related criminal investigation or prosecution. This appears to reflect the views of the Minister, who has previously indicated that civil proceedings will be adjourned while criminal proceedings are on foot. However, since the ACCC has the option of pursuing civil proceedings later, this raises the prospect that a corporation or individual could successfully defend a criminal prosecution in respect of alleged cartel conduct, only to then have to defend civil proceedings brought by the ACCC in respect of the same conduct.

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Immunity for cartel participants

The ACCC's current immunity policy in relation to cartel conduct under the existing provisions of the Trade Practices Act is broadly accepted as an effective tool in the detection of cartels, which are by their nature secretive, therefore difficult to discover and investigate. The ACCC provides immunity to the first cartel participant to report cartel conduct to the ACCC and cooperate with the ACCC's investigation and prosecution of other cartel participants.

There had been a concern that, with the introduction of criminal cartel offences to be prosecuted by the CDPP, there would be potential for the ACCC and CDPP to apply different criteria and to take a different approach to the granting of immunity to cartel participants, possibly resulting in different outcomes under the civil and criminal regimes.

Under the new immunity policies released by the ACCC and the CDPP, the ACCC will coordinate immunity applications in respect of cartel offences. The ACCC will receive all requests for immunity from both civil and criminal proceedings, and is responsible for managing all immunity applications.

In the case of civil cartel offences, the ACCC will decide, on the basis of its immunity criteria, whether to grant immunity. If the matter also concerns criminal investigation or prosecution, the ACCC will consult with the CDPP in relation to the management of, and whether to accede to, a request for immunity from civil proceedings. If the ACCC is satisfied that its criteria for immunity have been met in relation to a criminal cartel offence, it may recommend that the CDPP grant immunity. The CDPP will independently assess the immunity request on the basis of material provided by the ACCC. If the CDPP is also satisfied that the immunity criteria are met, the request will be granted and an undertaking given to the applicant, in writing, that the CDPP will not prosecute the applicant for the relevant cartel conduct.

The criteria considered by the ACCC and CDPP in relation to immunity applications are whether the applicant:

  • is, or was, a party to a cartel or is, or was, a director, officer or employee of a corporation that was a party to a cartel;
  • admits that their conduct in respect of the cartel may constitute a contravention of the TPA;
  • is the first to apply for immunity in respect of the cartel;
  • provides full cooperation to the ACCC during the investigation period;
  • is not the clear leader, and has not coerced others to participate in the cartel;
  • has either ceased involvement in the cartel or indicates to the ACCC that they will cease their involvement in the cartel;
  • undertakes to the ACCC to provide full disclosure and cooperation;
  • (for corporate applicants only) that the corporation's admissions are a truly corporate act; and
  • at the time the ACCC receives the application, the ACCC has not received written legal advice that it has sufficient evidence to commence proceedings in relation to at least one contravention of the TPA arising from the conduct in respect of the cartel.

A cartel participant who is cooperating with the ACCC but does not satisfy the immunity criteria may still request immunity from criminal prosecution. In these circumstances, the CDPP will assess the request according to the Prosecution Policy of the Commonwealth (the prosecution policy), not the proposed Annexure for Immunity from Prosecution in Serious Cartel Offences. Under the prosecution policy, the CDPP will only give an undertaking not to prosecute as a last resort. The following conditions must be satisfied if immunity is to be granted:

  • the evidence that the participant can give is considered necessary to secure the conviction of the defendant, and that evidence is not available from other sources; and
  • the participant can reasonably be regarded as significantly less culpable than the defendant.

Information that is provided when requesting immunity may be used in civil proceedings and/or criminal prosecutions, and may be shared with the CDPP. The ACCC states that information will be received on the basis that it will not be used by the ACCC as evidence in proceedings against the applicant in respect of the relevant cartel. However, if immunity is withdrawn because of failure to satisfy the requirements of immunity (such as providing ongoing full disclosure and testimony against other cartel participants), the information provided when requesting immunity may be used against the applicant in criminal proceedings for obstruction under section 155(5) of the TPA; or prosecution for contravening the Commonwealth Criminal Code.

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The new Cartel Bill

The new Cartel Bill introduces new criminal and civil cartel offences which relate to making or giving effect to a provision in a contract, arrangement or understanding between competitors that fixes prices, shares markets, rigs bids or controls output. The distinction between criminal and civil offences centres on whether there is a 'fault element' of knowledge or belief. This fault element is not required in order to establish a civil cartel offence.

The earlier draft of the Cartel Bill did not replicate provisions that are in place to exempt certain conduct from the operation of the existing prohibitions in relation to price fixing and exclusionary arrangements. This oversight had led to concerns that some common conduct, including some types of vertical supply restrictions, collective acquisitions, setting maximum prices, dual-listed company arrangements and provisions in share or business purchase agreements might be within the ambit of the new cartel offences.

Following publicity about these concerns, the Cartel Bill has been amended to deal with these issues. Existing exceptions for this conduct have now been replicated in relation to both the civil and criminal cartel offences.

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Conclusion

The amendments to the Cartel Bill correct an oversight in the drafting of the new civil and criminal cartel laws. Together with the MoU and new ACCC and CDPP immunity policies, the overall package to introduce criminal cartel offences to Australia is now ready to be implemented in the new year.

With the new criminal cartel offences likely to come into effect in early 2009, now is the time to ensure that compliance programs and training are in place and effective.

Corporations should also be aware of the immunity provisions of the new legislation. As immunity is given to the first cartel participant to approach the ACCC, this means that if possible cartel conduct is uncovered by a corporation, a rapid decision must be made to apply for immunity.

For further information, please contact:

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