SUBJECTS: Cartels, deposit guarantee, market-linked investments
LEON BYNER:
Just going back in history: in the 1930s Depression, there was a massive increase in cartel activity and it took a long time to undo cartels; and there are those who say, it is timely that we send strong signals to cartels.
So let's find out what these signals are and, in reality, what we can expect from them. Let's talk to the Assistant Treasurer Chris Bowen. Chris thanks for joining us today.
CHRIS BOWEN:
It's a pleasure Leon, as always.
BYNER:
How is these new penalties - which are, for example, stiffer gaol terms - going to cause people to rush to a confessional an almost in a religious experience and say, yes we've been price-fixing. Because let's face it, a lot of this stuff is done in a way that's very hard to prove.
BOWEN:
It is difficult to prove Leon, and that's why we have increased the ACCC's powers. Let me just deal with the penalties: we need a very important deterrent, as up until now it's been a financial consideration for businesses - 'if we run a cartel, we stand to make a lot of money, sure we might get caught and have to pay a fine, but we stand to make a lot of money so it's worth the risk'.
It's important that we have a different deterrent in place, and that's a prison term. So we've announced 10 years gaol terms for serious cartel conduct.
That will mean that Australia's equally the highest in the world; equal with the United States. Other countries have 3-5 years; Australia will join the United States with a 10 year gaol term. There's a lot of evidence that cartels run around the world stop at the borders of the United States; and when they've been asked by United States investigators, why didn't you run a cartel in the United States, they say a 10 year gaol term is too much of a deterrent. So it's important that we send that message. Most OECD nations have gaol terms for cartels, we haven't had it, and it's important that we do send that message and it's important that we do join the ranks of those nations who have a serious deterrent for cartel conduct; because it is ripping-off consumers: it's corporate theft.
BYNER:
Okay, well, how is that going to convert to a situation where there's far more transparency? Where the kind of price-fixing we're talking about - through cartels - can actually be seen and taken for what it is?
BOWEN:
Well, as I say, the ACCC will be given substantially increased powers. They'll now be able to conduct telephone-taps when they're investigating these cases - something they haven't been able to do up until now - and that's been a problem for them in gaining the necessary evidence. You need to have the evidence that Party A spoke to Party B and agreed to enter into an arrangement to fix a price, or to break up the market between themselves. So you need Company A talking to Company B saying, look let's not worry about cutting each other's throats here, why don't we all have a nice cosy arrangement, we can all make a bit more money; we'll bid for this job, you bid for that job; and we'll all agree that our price for this good is X and we won't really worry about competition.
That's hard evidence to get, that's why telephone-tapping powers are appropriate. The ACCC will have the power to ask the Federal Police to conduct a telephone-tap. They'll need to go to a judicial officer or a judge to get approval, as they do at the moment. Then the ACCC will be able to investigate the complaint.
The ACCC does receive a reasonably high number of allegations about cartel conduct but they are difficult to prove.
BYNER:
Alright, so as a result, how will we notice this stiffer legal deterrent? Would fuel be cheaper? Would packaging or freighting be cheaper? How might we see these new, tough laws? I mean, what will they deliver?
BOWEN:
Well I hope that the message goes out that you don't run a cartel, and therefore, that we won't need to prosecute anybody. I hope nobody goes to prison.
BYNER:
Explain what a cartel is, by the way.
BOWEN:
Well a cartel is - very simply Leon - one business talking to another, saying, 'let's enter into a cosy arrangement; we don't need to compete against each other, we don't' need to fight for consumers' business, we can just divide it up between each other; so let's come to a deal'.
Now whether that's saying, you take this suburb and I'll take that suburb and we'll just charge what we like, and I won't come in and compete against you; or, here's the price that we want to charge, why don't you charge exactly the same price and we'll both get good business and we won't try and undercut each other.
Now that, as I say, is white-collar theft in my view: it's ripping-off consumers. It's also unfair, Leon, to those businesses doing the right thing. You've got businesses out there trying to compete and if they are dealing against a cartel, it's very unfair to them. So it's about doing the right thing by consumers and by those businesses.
BYNER:
Alright. It sounds like something's happening here and yet Graeme Samuel, today, says that it is unlikely that he will secure a criminal conviction for cartel activity before his term expires in 2011.
BOWEN:
Well of course, this won't become the law until it's passed by Parliament and I imagine the Senate will want to examine it fairly closely; and I don't have a problem with that, because it's a very serious and major reform.
I hope it gets passed quickly, but of course, these things won't be criminal until that law passes and then the allegation will have to come to the ACCC, and the ACCC will have to investigate it and make the case in the courts. So there's not going to be a prosecution overnight, Graeme's got 3 years - a little less now - of his term to run, so what he's saying is don't expect a prosecution overnight.
The ACCC's been calling for this for a long time. The ACCC asked the previous government on 15 occasions to criminalise cartel conduct and that didn't happen.
BYNER:
Yep.
BOWEN:
It was recommended by Sir Daryl Dawson, a former High Court Judge in 2003, and it didn't happen.
BYNER:
Yep.
BOWEN:
So it is happening a lot later than I would've liked but it is happening now.
BYNER:
Alright. Now, could I just get you to put on your Assistant Treasurer cap and ask you about this financial meltdown? Now, we've got - I think according to numbers today - about 250,000 people who've got investments with non-banking institutions, which are quite safe, but they can't get at their money, other than to get the interest which they would normally accrue in the month or two weeks or whatever.
What is the Federal Government doing to try and fix this deadlock?
BOWEN:
Well, a couple of important points here Leon: first, around the world we're seeing a flight to certainty. So you're seeing people saying, well, I was happy to take these risks before but now I just want a nice, certain, safe bank deposit. That's happening around the world; it was happening in Australia before the Australian Government guaranteed our banks, it's happened since then of course as well, but it was starting to happen before then. So we are seeing that around the world.
Now that has meant that some of our, as you say, non-banking institutions in Australia have had substantial withdrawals. Now in most cases, as you say, the income flow has remained. So people still get their payments, but they're not able to redeem their funds. Now for some people that's a problem: if they were planning to withdraw their funds and shortly - to buy a house or something else; for other people it's not such a problem because they weren't planning to withdraw it. They're concerned about it - naturally they're concerned about it; but it's not as if they wanted the money out tomorrow anyway.
Now what we can't do, and what we haven't done, is to say, well we'll guarantee all investments. We've said we'll guarantee bank and non-bank institutions deposits - where they're regulated by APRA - because that's appropriate: that APRA, on behalf of the Australian Government, regulates those banks and other financial institutions, and makes sure that they're sound.
We can't open up the floodgates and say, well we don't care who you invest with, we'll guarantee it. Most of these investments, as you say, are very safe but there are steps that we are looking at, and we're in discussions with those institutions - the Government and regulatory institutions had a meeting with them yesterday; they'll continue to meet and discuss the situation. But it's not as simple as saying, we'll just guarantee everything and…
BYNER:
I guess what people want to know is, is there likelihood in the very near future, that this deadlock can be unravelled?
BOWEN:
Well, of course everyone would like to see that; and if there is a way that it can happen, it will happen. We are dealing with very turbulent times around the world. It will come as no revelation that we are dealing with an unprecedented situation and we're seeing this flight to certainty around the world.
So finance ministers and treasurers around the world are dealing with these very new set of arrangements, and Australia has dealt with them as well as - if not better than - any other country in the world.
BYNER:
Chris Bowen, thanks for joining us.