Criminal prosecutions for Cartel Conduct are relatively recent and rare, with the Australian Competition and Consumer Commission (ACCC) now more frequently conducting investigations and commencing prosecutions against companies and individuals.
There has only been to date, one case where an individual was sentenced in respect of Cartel Conduct. In that case, our Principal, Adam Ly, represented the individuals charged with Cartel offences. Sentencing took place in the Federal Court of Australia, in Melbourne.
Mr. Ly, instructing Senior and Junior Counsel, in this landmark case, successfully opposed the imposition of full-time custodial sentence sought by the Commonwealth DPP, instructed by the ACCC.
Our clients were ultimately sentenced to a recognizance release order (immediate release), despite the prosecution strongly seeking immediate full time jail. It was a fantastic result for our clients.
LY Lawyers Pty Ltd represents individuals and corporations in a wide range of corporate crime cases throughout Australia.
As a boutique corporate criminal Law Firm, we are considered as an affordable quality alternative to the big commercial law firms who often represent multi-national corporations in corporate crime cases.
What is a Cartel?
A cartel refers to businesses covertly working together to illegally control the market, restrict goods and services, and ultimately bolster profits, whilst pretending to compete against each other. By doing this, cartels undermine market competition which contributes to a monopolisation of goods and services, artificially elevated prices for consumers, lower quality products and services, and a disadvantage for businesses attempting to compete legally.
Why is Cartel Conduct Illegal?
Cartel conduct is illegal because it cheats the system by undermining competition which keeps prices low. By colluding together, companies can reduce choice, quality and services for customers, charge much more than is fair, whilst simultaneously undermining businesses who are trying to compete in the market fairly. Cartel conduct causes harm to consumers, other businesses, and taxpayers, by artificially hiking up prices for products and services.
ACCC Cartel Investigation Powers
The Australian Competition and Consumer Commission (ACCC) is the institution responsible for regulating, investigating, and enforcing contraventions of the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL). As such, under section 155 of the ACCC guidelines, the ACCC has the power to require a person to provide information, documents, and provide evidence under oath or affirmation. It is also a legal requirement for companies and individuals to comply with the ACCC, with serious penalties for non compliance. Generally the ACCC will obtain most information through cooperation and voluntary means, however they are also able to obtain information through the use of the section 155 (s.155) guidelines which state that non-compliance could result in fines under the CCA not exceeding $22 200 or 2 years imprisonment for individuals, or fines not exceeding $111 000 for companies (ss. 155(5) and 155(6A) of the CCA and s. 4B(3) of the Crimes Act 1914 (Cth)
What is a Criminal Cartel Lawyer?
A criminal cartel lawyer is an attorney who specialises in competition law, and generally has a breadth of experience in anti-competitive cases and possibly a background in criminal or corporate law. A criminal cartel lawyer specialises in defending companies and individuals accused of engaging in criminal cartel conduct which can include single or multiple offences related to the contravening of competition law.
Types of Cartel Conduct
A criminal cartel offence can fall into one of the following types:
- Bid Rigging
- Price Fixing
- Market Sharing
- Output Restrictions
Bid Rigging (Collusive Tendering)
What is Bid Rigging?
Bid rigging, also referred to as collusive tendering, is when businesses secretly collude to determine who will win a tender whilst maintaining the illusion that they are genuinely competing. The reason businesses do this is to drive prices up so the customer ends up overpaying and they can take turns enhancing their profit, whilst also increasing the perceived market value of their company and work. The very definition of bid rigging implies that it is to be competitive, and that it should bring about competitors’ lowest prices in order to win the job, so if the companies competing are working together, they can manipulate this process for their own gain. Bid rigging can negatively affect consumers and customers who have to fork out more money than the should, as well as taxpayers, whose taxes may go towards inflated contracts for public services such as hospitals, public housing, and schools
Bid Rigging Examples
Bid rigging is a serious white collar crime and can carry serious penalties. An example of bid rigging would be if three businesses decided to collude on a job worth a million dollars by all overbidding on the tender to drive the price up so that the winning bid (lowest) was well over the actual price of the job. By working together covertly, they would be able to fleece the customer out of more money than necessary, and take turns doing it to other customers going forward.
Price Fixing
What is Price Fixing?
Price fixing is when two or more businesses collude to determine what price they are going to charge for their goods or services. By refusing to compete, the businesses are no longer incentivised to keep prices low. This means that rather than businesses competing to have the lowest price, quality, and services, colluding businesses ensure that customers are paying a fixed high price no matter which business it is that they go to, which makes it difficult for non-colluding businesses to compete . The market capitalist system used in Australia relies on competition between businesses to ensure that customers receive a fair price. This is why competition law is essential, as it protects consumers and other businesses from suffering at the hands of anti-competitive collusion. Ultimately, price fixing is a form of cheating which intends to gain an illegal edge over competition and make customers pay more than they should.
Horizontal Price Fixing
Horizontal price fixing refers to agreements and collusion made amongst direct business competitors i.e. those on the same supply chain levels (horizontal), whether they be wholesalers, retailers, or producers..
Vertical Price Fixing
Vertical price fixing refers to upstream and downstream collusion between different tiers of the supply chain i.e. manufacturers, wholesalers, and retailers. This will usually involve an agreement to raise, lower, or stabilise prices in a way which may, for example, not allow customers to receive a discount.
Price Fixing Examples
Both horizontal and vertical price fixing agreements are illegal under antitrust and competition laws. While price fixing can happen in different places along the supply chain, it will usually involve manipulation of prices so that consumers ultimately end up paying more for a product or service than they would if things were on an even footing.
An example of horizontal price fixing would be if several retail companies agreed to set all prices of a specific range of beauty products at the same price, thus ensuring that they all generate higher revenue returns than if they were competing against each other by slashing prices and cost-cutting.
An example of vertical price fixing would be if a car manufacturer forced its distributors to adhere to their suggested retail price by threatening to renege on their contract or halt production.
Price Fixing and the ACCC
The Australian Competition and Consumer Commission is the watchdog in charge of regulating anti-competitive conduct. The ACCC will investigate complaints of potential price-fixing, bid rigging, and market sharing, and if necessary, take legal action against businesses. They also have the power to provide exemptions to price fixing for joint ventures and related companies.
Market Sharing
What is Market Sharing?
Market sharing is another type of collusion in which businesses decide not to compete for the same customers, produce the same products or services, or expand into each other’s market to decrease competition and ultimately increase profits. This can involve agreeing not to compete for established customers, produce each other’s products or services, or expand into a competitor’s market. The impact of market sharing restricts competition, forces prices up and keeps them artificially high, and reduces choice on price, quality, and services for consumers. Colluding businesses might differentiate between customers based on demographic information, geographical location, or specific product needs.
Market Sharing vs Market Competitiveness
Market competitiveness is essential to the functioning of the Australian economy because it encourages businesses to produce better quality products, offer better service, and lower prices. It also inspires and incentivises innovation amongst businesses, and highlights the need to create a point of difference from their competitors, thus driving the market forward. Moreover, lower costs driven by market competitiveness contribute to higher purchasing power among consumers which in turn boosts the economy and overall quality of life. Market sharing undermines the competitiveness, and the benefits of it, in almost every way.
Market Sharing Examples
One of the more common examples of market sharing is retailers agreeing to split the market by geographic location i.e. east or west, north or south. This could work by two retailers agreeing to advertise, and market to customers on one side of the town and leave the other side for their “competitor”. This anti-competitive behaviour creates less pressure for these retailers to compete, and ultimately affects consumers and other businesses as it creates less choice, worse service, and higher prices.
Penalties for Individuals and Corporations Involved in Cartel Conduct
Cartel conduct is a criminal offence which carries serious civil or criminal penalties for both individuals and corporations. While each sentence depends on the circumstances of the case, there are blanket penalties within the legislation which can be applied to either individuals or companies.
Individuals
If an individual is found guilty of participating in cartel conduct they can face the following penalties:
- Up to 10 years in jail
- Fines of up to $420,000 per cartel-related offence; or
- A pecuniary penalty of up to $500,000 per civil contravention
Corporations
Corporations found guilty of cartel conduct face maximum fines for each cartel offence or civil contravention that is applicable. Fines will be the greater of the following:
- $10,000,000
- Three times the total value of benefits obtained by conspirators which are attributable to the offence or contravention
- 10% of the annual turnover of the company in the last year
Cartel Conduct Defences
Australia has relatively stringent laws, rules, and regulations regarding corporate cartel conduct, however there are potential defences available to those who have been accused of such conduct such as the joint venture defence.
A joint venture is a business agreement in which multiple parties or companies agree to develop an entity by contributing equity, sharing expenses, revenue, assets. As such, all companies are equally invested in the project and therefore some exceptions can be made in terms of competition conduct.
The criteria surrounding the characterisation of joint ventures are fairly flexible and there are some notable points that have been provided as a guideline by the court:
- Even if the contributions of each party to the venture may commence at a later date, the joint venture defence may still apply before those contributions have begun
- Even if the ideas, assets or skills contributed to the joint venture by a party remain unused, this does not change the nature of the arrangement between the two parties
- The subjective view of each party is not a determining factor, but is relevant and may be taken into consideration
- The main activity of the joint venture does not need not be carried out by all parties
- An alleged cartel cannot be deemed to substantially weaken competition if it can show that its purpose is to contribute to the establishment, viability and success of the joint venture
Requirements to Qualify for the Defence
The requirements to qualify for defence will always vary according to the scenario at hand and the precedents that characterise the particular situation.
In defending criminal charges, the cartel provision must be “for the purposes of a joint venture” and there must be reasonable necessity for undertaking the joint venture. Important to note is that In this scenario, the defendant bears the burden of proof. For civil charges, the joint venture must “not be carried out for the purpose of substantially lessening competition”.
The joint ventures defence exempts certain conduct if the purposes of the cartel provision within the joint venture are:
- for the production and/or supply of goods or services
- carried on jointly by the parties to the contract
- carried on by a body corporate formed by the parties to the contract for the purpose of enabling those parties to carry on the activity by means of their joint control, their ownership of shares in the capital of that body corporate.
What to Do If You Are Involved in Cartel Conduct
If you are involved in, or have been accused of cartel conduct, get in contact with us today.
It’s important to understand that individuals and corporations charged with cartel conduct are always afforded the right of appeal. If an appeal is lodged the case may be re-heard in front of the Full Court at the Federal Court of Australia. Along with the right to appeal against liability, defendants will always have the right to appeal against the penalty imposed.
No matter which step of the legal procedure applies to your business, consulting a legal professional will help you establish the best course of action, as well as contingency plans that provide the optimal alternatives for your particular situation. At LY Lawyers, our team of dedicated solicitors have extensive experience and success in defending a variety of criminal charges. Unlike many other firms, we’re always here for our clients. We understand your urgency and that’s why we’re here to provide 24/7 consultation and support over the phone.
Examples of Australian Cartel Conduct
An example of Australian cartel conduct is the case of Norwegian shipping firm Wallenius Wilhelmsen Ocean As (WWO) who were fined $24 million dollars by the Federal Court of Australia for criminal cartel conduct– the largest criminal fine ordered under the Competition and Consumer Act. This conduct involved a cartel arrangement between WWO and its competitors who agreed upon allocating major vehicle manufacturers to cooperate with, thus artificially distorting competitive freight rates. There are many other cartel conduct case studies available within Australia which range from oil and gas production, to demolition cover pricing, fire protection equipment, and pre-mixed concrete.
Exceptions to Cartel Conduct
Exceptions to elements of cartel conduct such as price fixing do exist in certain scenarios. An example of this leniency would be in the case of joint production, supply of goods and services for agreements of collective acquisition, and agreements between related companies.
For instance, subsection 93AB(1A) states that exceptions can be made for certain conduct if the corporation has given the ACCC a collective bargaining notice which outlines the details of the contract, and arrangement.
It is important to note that some of these exemption laws are complicated and complex. If you believe that you have a viable exemption to cartel conduct, you should seek legal advice from a legal team that is experienced in cartel conduct and competition law.
International Cartel Conduct
Given the pervasive global nature of cartel conduct and regulators’ focus on multinationals, it is important to consider any cross-border issues that may arise when attempting to enforce Australian law. Sometimes multinational corporations engage in cartel conduct which can be problematic to enforce due to cross-border issues and variation of international laws.
Currently, the Competition and Consumer Act limits extraterritorial enforcement of Australian Law regarding cartel conduct based on these characteristics:
- For Businesses: Australian incorporated businesses or business operating within Australia
- For Individuals: Australian citizens or persons normally residing within Australia.
Due to these restrictions on enforcement procedures, 64 countries have come together to form the Cartel Working Group as part of the International Competition Network. The Working Group provides international assistance for instances where cartel conduct must be enforced or indicted.
LY Lawyers and Cartel Offences
At LY Lawyers, we have a proven track record in defending cartel conduct charges, including a successful result within the first sentencing proceedings for cartel offences in Australia.
We pride ourselves on our dedication to fighting hard to protect your rights. Whether you feel as though you have been misidentified for anti-competitive behaviour, or have been a victim of an unjust court decision regarding cartel conduct, we have the legal experience and expertise to help you find a solution that helps put things right.
