Aims and background

Regulators and policy-makers in Australia now see serious cartel conduct as a 'cancer on our economy' equivalent to the criminal theft of millions of dollars in each case. Serious cartel conduct is taken to refer to four collusive practices between competitors - price fixing, market sharing, output restriction and bid rigging. In the last five years criminalisation of serious cartel conduct has become bipartisan policy in Australia. This represents a massive shift in approach to regulatory enforcement, from civil financial penalties to criminal sanctions including jail. The research carried out in the Cartel Project will generate an interdisciplinary (legal, economic and sociological) empirically-based perspective on:

• The impetus and justification for the shift in policy to cartel criminalisation in Australia, including the interplay of domestic and international forces.
• The likely effects of cartel criminalisation in changing business behaviour in Australia and the approach taken to enforcement.
• The comparative experience in relation to the policy, implementation and enforcement of cartel criminalisation in the United States and United Kingdom.

The researchers will use these empirical analyses to draw conclusions and make recommendations as to how a criminal regime for serious cartel conduct may be most effectively implemented and enforced. They will also use cartel criminalisation as a case study to derive broader theoretical insights into the nature and process of regulatory reform, and how criminal sanctions affect business compliance motivations and behaviours in general.

The official justifications for cartel criminalisation in Australia can be distilled into three basic propositions:

• Criminal penalties, particularly jail time, are the most effective deterrent to would-be cartellists.
• By analogy with other 'white collar' offences, serious cartel conduct is inherently 'criminal' and hence warrants the sanctions, educative impact and stigma of the criminal law.
• Australia lags behind in the international movement towards criminalisation and, in particular, behind its major trading partners that already have criminal penalties for serious cartel conduct.

This research will investigate and test each of these propositions with a view to better understanding the reasons for and purposes of criminalisation and contributing to its effective implementation both in Australia and abroad.

In relation to deterrence, regulation theory and empirical research demonstrate that calculations about the costs and benefits of compliance and non-compliance with the law are influenced by a complex range of factors beyond the risk of enforcement action by an official government enforcement agency and the prospect of any formal legal penalty. There is in fact no simple linear relationship in which objectively harsher penalties, such as imprisonment, necessarily lead to increased compliance or socially optimal deterrence. In economics too there is a debate about the effectiveness of different measures (principally fines vs imprisonment) in producing 'optimal' deterrence.

In relation to its criminality, there is no reliable empirical evidence of Australian public opinion on cartel behaviour and whether it is seen as comparable to other criminal offences such as theft or fraud. Since cartel conduct, like many other types of business misconduct, hitherto has not been treated as a crime, there in fact may be no social consensus as to its moral characterisation, and whether to criminalise it. There is recent empirical evidence from the UK suggesting that members of the public do not instinctively regard price fixing as dishonest. On the other hand there is evidence of a shift in Western democracies towards greater punitiveness generally, and specifically in relation to corporate misconduct.

In relation to overseas experience, there has been a global movement towards tougher sanctions for serious cartel conduct including criminal penalties, led by US (and increasingly also by EC) antitrust authorities and supported by international organisations such as the OECD, since the late 1990s. However, several countries outside of the US that have legislated for criminal penalties for serious cartel conduct are encountering legal, practical and cultural difficulties in enforcement. There are also countries that have either examined criminalisation in-depth and decided not to criminalise, or even decriminalised in recent years.

In light of this, the proposed research represents an important and timely study of crucial facets of serious cartel conduct criminalisation yet to be explored in depth in Australia and other countries new to or still contemplating a criminal regime.