Approach and methodology
The approach to the Cartel Project has three inter-locking components:
- Understanding the social, economic and political impetus and justification for cartel criminalisation in Australia, and deriving lessons about the nature and process of regulatory reform generally.
- Testing the likely impact of cartel criminalisation on business behaviour in Australia and eliciting insights for the use of criminal sanctions in regulation generally.
- Comparing the experience with cartel criminalisation in the US and UK and thereby enriching conclusions about the impetus for criminalisation in Australia, as well as informing the practical implementation of the criminal regime.
Component 1: The Impetus and Justification for Cartel Criminalisation in Australia
This component of the research investigate's the influence of national and international actors on historical and contemporary social, economic and political perceptions of serious cartel conduct and its criminalisation in Australia. The researchers are identifing and examining the contradictory and contested justifications for serious cartel conduct criminalisation, and investigating how and why relevant actors have appealed to these justifications in different contexts for different purposes.
The researchers are drawing on researcher Haines' recent ARC funded research into the ways in which economic, social and political context affects the perceptions of risk that drive regulatory reform, and also researcher Beaton-Wells' preliminary assessment of the levels of support by key stakeholders for criminalisation in Australia. Building on this work the researchers are analysing three main dimensions of risk posed by serious cartel conduct: the technical or economic risk of harm to competition caused by such conduct; the 'socio-cultural' risk of harm to a society's 'moral order' through what has been said to be the dishonest character of serious cartel conduct; and the political risk of not responding to the international movement for criminalisation and national impulses towards greater punitiveness.
Within this framework the researchers are investigating the extent to which public and business opinion support the 'official' justifications for cartel criminalisation, and seek to understand the capacity of various actors to affect each others' perceptions of the economic, 'moral' and political risks posed by serious cartel conduct. They are also investigating the ways in which Australian policy-makers are responding to the challenge of taking a strong enough stance on cartels while dealing with the tensions caused by business concerns about commercial realities, regulatory 'over-deterrence' and the over-zealousness of a strong, independent regulator.
Component 2: The Likely Effects of Cartel Criminalisation on Compliance and Enforcement
Regulatory scholarship provides two major theoretical explanations for compliance with the law: fear of sanctions (deterrence) or positive commitment to compliance. Both theories have been used to justify why criminal penalties above and beyond civil financial penalties, are necessary and appropriate to prevent serious cartel conduct. The Cartel Project is to critically examine, empirically test, and predict what impact the criminalisation is likely to have on the behaviour of individual executives and businesses in Australia using hypotheses based on each of these theories.
The Project is seeking to ascertain the likely deterrence impact of criminal sanctions for serious cartel conduct by testing the perceptions of business people as to the likelihood and costs of being caught and criminally sanctioned and how such perceptions differ according to personal, organisational and industry factors in different situations, as well as testing the extent to which business people even turn their minds to such possibilities when engaging in serious cartel conduct.
The Project sets out to test whether criminalisation will influence behaviour by educating business people and the wider community as to the undesirability of such conduct, and developing or strengthening positive commitment to compliance. It investigates to what extent different groups of people already perceive serious cartel conduct as something that should be treated as criminal, and what impact this is likely to have on compliance.
A third, normative theory, responsive regulation says that people can be motivated by both rationally calculative thinking (deterrence) and normative commitments, and that the design and enforcement of regulation must activate both motivations at the same time to promote compliance. Acquiring criminal enforcement capacity in relation to serious cartel conduct will change the tools available to the ACCC and therefore how it is able to influence behaviour. The Project aims to investigate how the ACCC will change its overall enforcement style and strategy, and draw conclusions about how the ACCC should use its new powers to achieve greater compliance over the long-term.
Component 3: Comparative Overseas Experience
The researchers are aiming to deepen the insights into the impetus for and assist in maximising the effectiveness of cartel criminalisation in Australia by examining and drawing comparisons in relation to the policy, design, administration and enforcement of serious cartel conduct regulation in the UK and US. This component of the research involves identifying the different options available and their different likely effects on compliance in terms of the scope and elements of the offence, investigatory powers, operation of immunity policy, relationship between regulatory and prosecutorial agencies, management of dual civil and criminal systems, mode of trial, presentation of evidence, and sentencing.
The US has been chosen because of its extensive history in the enforcement of a criminal regime against cartels and the leadership role it has played in 'converting' other governments and competition agencies to criminalisation. It has a legal system and culture that is distinct in several significant ways from Australia, including a strong tradition of regarding antitrust behaviour as delinquent. Comparison with the US therefore raises issues of 'transplantation' that are critical to assessment of the successful implementation and likely effectiveness of the Australian law.
The UK has been chosen because of its similarities to Australia in terms of legal system, economy, political structure and social profile generally, and the substantive content and system of adjudication in competition law specifically. There are, however, differences from Australia in the forces and process involved in the UK decision to criminalise, which will be explored. It is the only country to have incorporated the requirement for an intention of dishonesty in its cartel offence, an approach that was proposed by the Australian government but criticised by commentators and subsequently abandoned.
The findings of this component of the research will be useful to more general debates concerning the globalisation of law and legal styles and the global economic and political transformations underpinning such developments. There are questions as to whether developments in cartel enforcement over the last decade represent successful exportation of the American model ('Americanisation'), internationalisation/harmonisation of legal policy and regulatory method, or an apparent convergence that in fact masks enduring and resilient national differences in legal culture and policy.
The researchers are using four research methods that complement and support each other across all three components of the research: documentary analysis, in-depth qualitative interviews, quantitative surveys, and workshops.
Analysis of a wide range of primary and secondary documentary sources lay's the groundwork for the researchers' investigation of the impetus and justification for criminalisation in Australia, enforcement practices and impact in Australia, and the comparative experience with both criminalisation and enforcement practice in the US and UK.
In order to identify the impetus and justification for criminalisation, the researchers are reviewing documents in all four countries reflecting the views in relation to cartel criminalisation of the relevant regulatory authorities (eg in speeches and submissions); governments and other political parties (eg in parliamentary debate and media comment); the business sector (eg in submissions to government inquiries and media comment); the general public (eg in opinion polls); the media (eg in editorial opinion pieces); the academy and the profession (eg, in journal articles and conference papers); and the judiciary (in both judgments and extra-curial publications).
To facilitate comparisons between the legal regimes of the four jurisdictions, the researchers are examining the relevant legislation, extrinsic materials (for example, Parliamentary inquiries and law reform reports) and case law to understand the law governing cartel regulation and how it is interpreted and applied by the courts in each country.
The researchers are also identifying enforcement policy and practice in each of the four countries through analysis of regulatory and prosecution agencies' documentation as well as reported cases. A database of penalties imposed in cartel cases in Australia since 1974 compiled for the purposes of previous empirical research by researchers Beaton-Wells and Round is being updated, extended, and compared with similar databases in other countries.
After completing documentary analyses in each of the four countries, the researchers will conduct in-depth interviews tofurther investigate and clarify the role played by different actors in influencing policy and practice in relation to serious cartel conduct criminalisation in each country, and to identify enforcement practice and policy in each country. The researchers will conduct interviews with:
- Senior ACCC staff and their counterparts in the US and UK in order to understand their perspective on the rationale for criminalisation, the impact on the regulator's role of the perceived attitudes of other stakeholders, the approach taken to enforcement under both civil and criminal regimes, and whether and how enforcement is anticipated to affect business behaviour, including the important role of immunity policy under a criminal regime.
- Members of each of the government (including key politicians and bureaucrats), the judiciary, independent prosecution agencies (where relevant), other regulatory agencies (eg ASIC; ATO), the business sector, the academy, the profession, and the media in each of the four countries.
In addition, with particular relevance to the objective of determining the effects of criminalisation on business behaviour, the researchers will be seeking to interview at least one individual who has been involved in each Australian cartel prosecution as a respondent or representative of a business respondent (whether or not they had penalties imposed on them personally) since 2004. Preparation for these interviews will include a detailed review of documents from court files and other sources in relation to each case. The interviews will be designed to elicit the interviewee's motivations for engaging in the conduct at the time, whether and how they calculated the costs and gains of non-compliance, whether they saw themselves as acting against societal and business norms, what might have stopped them, and what difference the prospect of criminal sanctions would have made to them.
This will update and substantially extend researcher Parker's previous interviews with individual and business respondents in four cartel cases between 1992 and 2004. There have already been 20 cases since then, and it is planned that the researchers will locate and interview at least 25 individuals by the end of the project. Since the conduct will have already been the subject of finalised enforcement proceedings, interviewees should be able to talk in depth about the conduct without fear of further action.
Two surveys will be conducted - a phone survey of a random national sample of the general public, and a self-completion survey (available on-line or in paper form) of a random sample of senior operational officers in Australian businesses sourced from a commercially available list.
Both groups will be asked a series of questions designed to find out what they know about serious cartel conduct and their views as to how it should be regulated and punished, particularly the appropriateness of criminal penalties. The survey will be designed as much as possible to be comparable with Stephan's 2007 survey of UK public opinion on price-fixing, and will be sensitive to the challenges in eliciting views on the morality or 'seriousness' of conduct such as fraud, particularly where, as here, there is public awareness and understanding of the nature and effects of serious cartel conduct is likely to be limited.
The business persons' survey will include an additional element made up of a combination of questions and factorial vignettes aimed at testing business peoples' perceptions of deterrence in relation to sanctions of imprisonment, the moral stigma associated with criminal investigation and prosecution, and the impact of the ACCC's immunity policy that encourages whistle-blowing by cartel participants, compared with motivations for compliance and non-compliance, and other factors that are likely to affect compliance. This survey will build on and refine researcher Parker's previous survey research on large Australian business perceptions of compliance and deterrence and on Simpson's 2002 well-regarded deterrence research.
The researchers will hold a workshop in 2011 in order to test and develop the research findings through discussion with academics, practitioners, regulators and others from Australia and overseas.