Making Cartels Criminal

By Associate Professor Caron Beaton-Wells

On 16 June 2009, the Australian Parliament passed long-awaited laws making agreements between competitors 'not to compete' a criminal offence. 

Previously, such agreements have been treated as civil contraventions only. The threat of a jail sentence, up to ten years maximum, is promised by the government to make individual executives think twice about engaging in fixing prices, dividing markets, restricting output and rigging bids. 

This type of conduct is seen as highly damaging to the economy, costing consumers millions of dollars, hurting businesses that seek to compete fairly and honestly and stifling innovation generally.

The Australian decision to criminalise so-called 'hard-core' cartel activity is consistent with a world-wide trend towards tougher anti-cartel law and enforcement. There is now a strong international consensus, at least on the part of regulators and politicians, that civil fines are insufficient to deter cartel activity and that the most potent form of individual accountability, a spell at Her Majesty's pleasure, is required.

"The threat of a jail sentence is promised by the government to make individual executives think twice about engaging in fixing prices."

But there are serious questions about the scope of the new Australian law and how it will be enforced by the competition watchdog, the Australian Competition and Consumer Commission, and the Director of Public Prosecutions. Blatant secretive agreements imposing substantial overcharges of the kind seen recently between Visy and Amcor are at one end of the scale. This cardboard box cartel was subject to record penalties of $38 million and attracted considerable public comment. It was followed by the arguably even more high-profile allegations against former Visy Chairman Richard Pratt for alleged obstruction of the ACCC's investigation. Those  charges  were dropped on the eve of Pratt's death, prompting some to question the propriety of the ACCC's handling of the case.

Even less obvious is how the law should respond to public deals involving joint buying or sharing of facilities of the kind seen between Patrick and its rival P&O. The ACCC settled its case against these companies with a penalty that, for companies of this size and bearing the maximum

fine of $10 million per contravention, represents a mere slap on the wrist ($1.9 million). Significantly, the media was divided on the outcome some representing it as a win for the ACCC and others as a cave-in. The division further reflects the controversial nature of the subject and is a portent of the type of critical scrutiny likely to accompany criminal trials in the future.

In collaboration with leading Sydney criminal law scholar Brent Fisse, my research focuses on the design of the new cartel legislation and the policy and mechanisms for its enforcement. The government has undergone an intensive consultation process on these issues over the last two years and its proposals have attracted substantial criticism. 

Several of the criticisms made by commentators have been addressed but numerous complex issues remain. In our view, these issues raise fundamental questions about the assumptions and practices underpinning competition regulation generally in Australia. The output of our work will be a book on cartel regulation in Australia, to be published by Cambridge University Press in 2010. The research for the work has been assisted by a Faculty Grant from the Law School. It will be the first book dedicated to this subject in Australia and is likely to have a significant domestic and international audience. Many of the issues are relevant to other jurisdictions contemplating or recently having introduced criminalisation.

My research is not limited, however, to a legal analysis of the new regime. Criminalisation represents a major development in business regulation generally with potential ramifications for the use of the criminal law to influence other types of business misconduct. Thus, I am also leading an interdisciplinary team in a three-year project funded by the Australian Research Council, examining a range of other aspects of cartel criminalisation and its broader significance.

Together  with Associate  Professor Christine Parker in the Arts Faculty (Compliance Law) and Fiona Haines (Criminology) from the University  of Melbourne and David Round (Economics) from the University of South Australia, the project is exploring the sociological significance of criminalisation, its likely effects on business attitudes and behaviour and the implications for enforcement policy and practice. The ARC contribution to the project is worth

$340,000 and involves a substantial component of teaching relief. It has enabled the employment of a research assistant for four days a week to assist with the extensive literature review as well as administration of the research activities.

The project will include interviews with business people and other stakeholders as well as a survey of public opinion, and there will be comparisons drawn with the experience in the US, the UK and Sweden. A roundtable with UK scholars will be held in Oxford in November 2009 while I am a Visiting Fellow at the Oxford Centre for Competition Law and Policy and St John's College. The papers from the roundtable, as well as several additional contributions solicited from scholars in Australia, the US and Europe, will be published in a book by Hart Publishing in 2010.

Associate Professor Caron Beaton-Wells (LLB (Hons) 1994, LLM (CW) 1998, PhD 2002) is the Director of Studies, Competition Law at the Melbourne Law School.

This article originally appeared in MLS News, Issue 2, September 2009.