27 October 2008

Rudd Government to Introduce Legislation Criminalising Cartels

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs today announced a package of measures providing criminal sanctions for serious cartel conduct.

After lengthy consultation with businesses, academics and the community at large the Government is today releasing the final cartels bill.

“Together with the United States the 10‑year jail term puts Australia at the forefront in fighting illegal cartels,” Mr Bowen said

“Cartel conduct harms consumers, businesses and the economy; that is, by companies fixing prices or reducing choice or distorting the ordinary processes of competition.

“The final bill includes a maximum 10‑year jail term for individuals who partake in cartel conduct.

“We have always said that a jail term for cartel offences sends a clear message – price fixing is theft from consumers and won’t be tolerated in this country.

“The Government is seeking the support of the State and Territory Governments before it introduces the bill to parliament later this year.”

The possibility of criminal sanctions for company executives will increase the deterrent effect for businesses that may otherwise rationalise corporate fines for cartel conduct as the ‘cost’ of doing such business.

The Federal Government’s legislation will also enable telephone interception powers to be used as an investigatory tool in relation to the criminal offences.

“Criminalising cartels, at long last, brings this country into line with the United States, Canada and the United Kingdom who have had similar sanctions in place for some time now,” Mr Bowen said.

The Government will consult separately on the most appropriate way to implement the ACCC’s recommendation in its Petrol Prices Report on the term ‘understanding’ with respect to alleged cartel matters.

This will fulfil the Government’s pre election commitment to introduce criminal sanctions for cartel conduct into the Parliament during 2008.

The final bill proposed for introduction can be viewed at www.treasury.gov.au.

27 October 2008

Key Elements of Cartel Legislation

Elements of the Criminal Offences

The final bill makes it an offence for a corporation to make or give effect to a contract, arrangement or understanding between competitors that contains a provision to fix prices, restrict outputs, divide or share markets, or rig bids.

The Government has decided that the offences should no longer include the words ‘with the intention of dishonestly obtaining a benefit’, and instead apply fault elements under the Criminal Code (intention, and knowledge or belief) to the offences.

This will ensure that the burden of proof is high enough to catch only really serious offenders but also ensures the fault element is not used as an escape clause in the law. 

Criminal Penalties

The Government has decided to increase the maximum jail term from 5 to 10 years to send a clear message about cartel conduct.  The maximum penalties for the offences are:

  • for an individual – a maximum term of imprisonment of 10 years and/or a maximum fine of $220,000; and
  • for a corporation – a fine that is the greater of $10 million or three times the value of the benefit from the cartel, or where the value cannot be determined, 10 per cent of annual turnover.

The penalty for individuals brings Australia into line with penalties in the United States.

Parallel Civil Prohibitions

With the removal of the dishonesty element from the criminal offences, the Government will introduce a parallel scheme of civil prohibitions on serious cartel conduct that contain the same elements as the new criminal offences.

The differentiating factors are that the criminal offences require proof of the elements of the offence beyond reasonable doubt, and that certain ‘fault’ elements are automatically applied under the Commonwealth Criminal Code.

As parallel criminal and civil prohibitions could give rise to double jeopardy concerns, the Government will also enable civil proceedings to be postponed until criminal proceedings are completed.  If the defendant is convicted, the civil proceedings would be terminated.

Cartel Provisions

The Government has changed the tests that apply in determining whether a provision of a contract, arrangement or understanding qualifies as a cartel provision and is prohibited.

For a breach comprising price fixing, the test now provides that the provision must have had the purpose, effect or likely effect, of directly or indirectly fixing prices.

For a breach comprising other forms of serious cartel conduct (output restrictions, market sharing and bid rigging), the test now provides that the provision must have had the purpose of directly or indirectly restricting outputs, sharing markets or rigging bids.

These amendments bring the tests in line with tests that apply under the existing civil prohibitions in the Trade Practices Act 1974 upon which the new cartel prohibitions have been modelled.

Telephone Interception Powers

Cartels are generally covert arrangements.  Discovery and proof of the existence of a cartel is more difficult than other forms of corporate misconduct, justifying such powers to penetrate the cloak of secrecy.

The Government has therefore decided to amend the Telecommunications (Interception and Access) Act 1979 to enable telecommunications interception powers to be used in addition to other available tools to investigate breaches of the cartel offence.

Increasing the penalty for individuals to a 10‑year jail term brings the cartel offences within the threshold requirements for accessing such powers.

Joint Venture Defence

The bill provides a defence to criminal and civil actions if:

  1. the parties to the contract are, or will be, carrying on a joint venture for the production or supply of goods or services; and
  2. the cartel provision is for the purposes of that joint venture.

Consultation Process

Consultation on the Bill included an exposure draft which earlier this year received over 30 submissions from business groups, law firms, academics as well as submissions from both the Trade Practices Committee and Criminal Law Committee of the Law Council of Australia.

After submissions were received the Government held two round table discussions with Australia’s leading Trade Practices and Criminal Law experts before finalising the cartel bill.