Cartel offences in Australia: The crime of anti-competitive conduct
<p>Japanese shipping company Kawasaki Kisen Kaisha Ltd – also known as K-Line – was fined $34.5 million over cartel conduct in the Federal Court <a href="https://www.accc.gov.au/media-release/k-line-convicted-of-criminal-cartel-conduct-and-fined-345-million">in August of 2019 </a>. K-Line admitted to engaging in anti-competitive conduct with other shipping companies between July 2009 and September 2012, which amounted to criminal offence under Australian law.</p>
<p>A <a href="https://www.accc.gov.au/system/files/Cartel%20conduct%20how%20it%20affects%20your%20business.pdf">cartel exists</a> when two or more businesses illegally agree to work together, instead of competing.</p>
<p>Such conduct allows those involved to control and restrict how a market operates, which in turn, drives up profit margins for the companies, whilst maintaining the illusion of competition.</p>
<p>The cartel that K-Line was involved in had been operating since <a href="https://www.accc.gov.au/media-release/k-line-convicted-of-criminal-cartel-conduct-and-fined-345-million">at least February 1997</a>. The companies involved were found to be fixing prices on the transportation of vehicles, such as cars, trucks and buses, being shipped to Australia from the US, Asia and Europe.</p>
<p>“Cartel conduct, such as that engaged in by K-Line,” <a href="https://www.accc.gov.au/media-release/k-line-convicted-of-criminal-cartel-conduct-and-fined-345-million">said</a> Australian Consumer and Competition Commission (ACCC) chair Rod Sims, “not only cheats consumers and other businesses through inflated prices and costs, but also restricts healthy economic growth and discourages innovation.”</p>
<p>The Commonwealth Director of Public Prosecutions (CDPP) laid the charges <a href="https://www.accc.gov.au/media-release/criminal-cartel-charges-laid-against-k-line">in November 2016</a>. K-Line ultimately pleaded guilty <a href="https://www.accc.gov.au/media-release/second-shipping-company-pleads-guilty-to-criminal-cartel-conduct">in April last year</a>. And on <a href="https://www.accc.gov.au/media-release/k-line-convicted-of-criminal-cartel-conduct-and-fined-345-million">2 August this year</a>, the Federal Court ordered the largest ever criminal fine imposed under the Competition and Consumer Act 2010 (Cth) (the CC Act).</p>
<p><strong>Federal Court proceedings</strong></p>
<p>K-Line was charged with <a href="https://incompetition.com.au/2019/08/heavy-fines-on-the-high-seas-for-criminal-cartel-conduct/">39 counts</a> of giving effect to a cartel provision, contrary to <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s45ag.html">section 45AG</a> of the CC Act. The Japanese company subsequently agreed to plead guilty to a single merged (or ‘rolled up’) charge under the section.</p>
<p>The maximum penalty for the offence is a fine not exceeding the greater of three options. The first is a $10 million fine. The second is the total value of the benefits gained by the conduct. And the third is 10 percent of the firm’s earnings over the 12 months prior to committing the offence.</p>
<p>In the case of K-Line, the third option applied. This meant that the maximum penalty was $100 million. The court held that the company should be fined $48 million. However, due to its early guilty plea, a 28 percent discount was allowed, which brought the fine down to $34.5 million.</p>
<p>Federal Court Justice Michael Wigney <a href="https://www.accc.gov.au/media-release/k-line-convicted-of-criminal-cartel-conduct-and-fined-345-million">said that</a> the penalty “should send a powerful message” that “anti-competitive conduct will not be tolerated and will be dealt with harshly”, when it comes before the court.</p>
<p><strong>Cartel conduct</strong></p>
<p>The ACCC is an independent federal government authority charged with protecting consumer rights, ensuring business obligations and preventing illegal anti-competitive behaviour, which includes investigating cartel activities.</p>
<p>The anti-competitive actions of cartels are known as cartel conduct. This includes price fixing, dividing up markets so each participant is shielded from competition, rigging bids and controlling output of or limiting the goods and services available to consumers.</p>
<p>The commission states <a href="https://www.accc.gov.au/business/anti-competitive-behaviour/cartels#report-a-cartel-apply-for-immunity">on its website</a> that cartels are not only “illegal and immoral” because they “cheat consumers”, but as well, they “restrict healthy economic growth” through outcomes, such as artificially increasing prices, reducing innovation, increasing taxes and destroying other businesses.</p>
<p>Under its investigative powers, the ACCC can compel individuals and companies to provide information regarding any suspect behaviour, it can seek warrants from a magistrate, which can be executed at a company’s premises, and it can notify the AFP about any cartel conduct.</p>
<p>On 15 August 2014, the ACCC and the CDPP signed a memorandum of understanding regarding cartel conduct, which sees the commission in charge of investigating serious misconduct and referring it onto to the CDPP for prosecution considerations.</p>
<p><strong>Further cartel offences</strong></p>
<p>Under the CC Act, along with section 45AG, there’s another criminal cartel offence contained in <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s45af.html">section 45AF</a>, which involves a corporation making a contract or agreement that contains a cartel provision as part of it. The same penalties apply as under 45AG.</p>
<p><a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s45aj.html">Section 45AJ</a> of the CC Act makes it a civil offence for a corporation to make a contract containing a cartel provision, while <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s45ak.html">section 45AK</a> makes is a civil offence for a corporation to give effect to a cartel provision.</p>
<p><a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s79.html">Section 79</a> of the CC Act provides that an individual who contravenes, or attempts to contravene, the <a href="https://nswcourts.com.au/articles/proving-criminal-charges-main-and-alternative-charges/">criminal offences</a>under sections 45AF and 45AG has committed a crime. And such a person can be sentenced to up to 10 years imprisonment or fined $420,000.</p>
<p>The ACCC makes clear that it’s “illegal for a corporation to indemnify its officers against legal costs and any financial penalties”.</p>
<p><strong>The Harper reforms</strong></p>
<p>The K-Line conviction follows that of another corporation involved in the same cartel. On 3 August 2017, Nippon Yusen Kabushiki Kaisha (NYK) <a href="https://www.accc.gov.au/media-release/nyk-convicted-of-criminal-cartel-conduct-and-fined-25-million">was convicted</a> and fined $25 million over its cartel conduct. And there are investigations continuing into other alleged cartel members.</p>
<p>The NYK conviction marked the first successful prosecution under the new cartel criminal provisions of the CC Act, which came in as part of the <a href="https://www.australiancompetitionlaw.org/hottopics/harperreforms.html">2017 Harper reforms</a>. These were recommended in the <a href="http://competitionpolicyreview.gov.au/files/2015/03/Competition-policy-review-report_online.pdf">March 2015 Competition Policy Review report</a>.</p>
<p>Two pieces of legislation were passed in parliament in late 2017, which amended the CC Act. The reforms simplified local cartel laws in ways that included narrowing jurisdictional reach, extending the provisions to apply to acquisitions of goods and services and increasing the standard of proof.</p>
<p><strong>Ongoing prosecutions</strong></p>
<p>And the third prosecution under the new laws is now underway. On 23 August, the CDPP <a href="https://www.accc.gov.au/media-release/global-shipping-company-wallenius-wilhelmsen-charged-with-criminal-cartel-conduct">laid charges</a> related to alleged cartel conduct in the NSW District Registry of the Federal Court against Norwegian-based global shipping company Wallenius Wilhelmsen Ocean.</p>
<p>The charges relate to the shipping of vehicles to Australia over the period June 2011 to July 2012. This matter has already been investigated and prosecuted in a number of other jurisdictions around the globe, including the United States.</p>
<p>ACCC chair Sims <a href="https://www.accc.gov.au/media-release/global-shipping-company-wallenius-wilhelmsen-charged-with-criminal-cartel-conduct">explained in a recent statement</a> that “this is the third prosecution involving an international shipping company engaging in alleged cartel conduct where criminal charges have been laid under the Competition and Consumer Act”.</p>
<p>The commission declined to comment further on the case, as it is currently before the courts. And the first mention of the matter was set to be made last Thursday.</p>
<p><em>Written by Paul Gregoire. Republished with permission of </em><a href="https://www.sydneycriminallawyers.com.au/blog/cartel-offences-in-australia-the-crime-of-anti-competitive-conduct/"><em>Sydney Criminal Lawyers.</em></a></p>
