The Criminalisation of Cartels – Recent amendments to the Trade Practices Act

03 April 2008 Topics: Competition and consumer law

As promised, the Rudd Government has released the exposure draft of the Trade Practices Act (Cartel Conduct and other Measures) Bill 2008. The legislation seeks to outlaw anti-competitive conduct evident in the assembly of cartels. The move to criminalise such arrangements was endorsed in 2003 by the Dawson Review Committee which examined the competition provisions of the Trade Practices Act 1974.

The amendments highlight the importance for all companies and businesses to have a formal trade practices compliance program in place.

The cartel amendments – an outline

Basically, under the new amendments for a corporation to offend the criminal provisions
they must both:

  1. Make or give effect to a contract, arrangement or understanding (‘CAU’) that contains a cartel provision; and
  2. They must do so with the intention of dishonestly obtaining a benefit.

A civil liability is created when a corporation simply fulfils the first element of the criminal offence above, the differentiation is that there is no requirement of dishonesty. The civil and criminal provisions will interact according to the draft Memorandum of Understanding (‘MOU’) between the Australian Competition and Consumer Commission (‘ACCC’) and the Director of Public Prosecution. In the MOU, civil proceedings take a back seat whilst criminal liability is being ascertained. The civil proceedings will be wholly suspended if the
defendant is convicted on a criminal charge.

A cartel provision is created in a CAU when both the purpose/effect and competition provisions are satisfied. The competition condition details the parties who are likely to be in competition in relation to a cartel offence, and the purpose/effect condition relates to the act which lessens the competition.

The Bill states that a cartel provision is a provision in a CAU that relates to price-fixing, restricting outputs in the supply and production chain, allocating customers or geographical locations, bid rigging and some bid consortias. This CAU must be between parties that are, or would otherwise be, in competition with each other.

Penalties

Criminal

  • Individual – five years imprisonment and a find of $220,000; and
  • Corporation
    – fine that is greater than $10 million; or
    – three times the value of the benefit from the cartel; or
    – where the value cannot be determined 10% of the annual turnover.

Civil

  • Individual – $500,000 pecuniary penalty
  • Corporations – as above.

Defences

Defences will now be available in regards to collective bargaining notices, authorisation procedures and in relation to a CAU within related bodies corporate.

The importance of reviewing Trade Practices Compliance Programs

At the moment the best recommendation to current businesses in the Australian area is to verify compliance with the new laws and await their introduction into the legal system. The amendments highlight the importance for all companies and businesses to have a proper and formal trade practices compliance program in place.

With the recent decision of the Federal Court in the Visy/Pratt case hanging over their heads, the Government has swiftly decided to implement a strict regime relating to serious cartel offences. Australia is fast joining the international move toward the ultimate protection of the consumer against corporate controllers. The amendments send a clear message to those who might consider bending to pressure to enter a cartel to remove competition, that the penalty could be imprisonment. The ACCC has been pressing for this custodial penalty for years. Businesses can be certain that, once enacted, it will rigorously urged by the ACCC to be applied by the courts.

If you would like more information on this topic or on trade practices compliance programs, please contact David Grace on (07) 3231 2421.

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