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Talk of cartels often conjures up images of shadowy mobsters, but if the ACCC has its way, cartel operators could be going the same way as Al Capone: to jail. Stuart Fagg reportsAt present,…

Talk of cartels often conjures up images of shadowy mobsters, but if the ACCC has its way, cartel operators could be going the same way as Al Capone: to jail. Stuart Fagg reports

At present, Australia’s cartel enforcement regime is a civil one and offenders cannot end up behind bars for participating in one. However, recommendations have been made that criminal penalties be introduced for serious cartel activity.

The Dawson inquiry into the competition provisions of the Trade Practices Act 1974 (TPA) in 2003 has been the main driver for those seeking jail sentences. The introduction of such measures in the UK and the US has led to measurable success, and pundits believe it’s only a matter of time before Australia follows suit. The Australian Competition and Consumer Commission (ACCC), which would have to enforce any such law, recently spoke out in favour of criminal proceedings.

“The ACCC has been a strong supporter of this approach,” said Jennifer McNeill, ACCC commissioner.

“We regard hard-core cartel conduct as one of the most damaging forms of anti-competitive behaviour. The gains to cartel participants can be large and the risk of detection is low. Cartel behaviour is in reality a form of theft and little different from classes of corporate crime that already attract criminal sentences.”

According to McNeill, the ACCC’s lobbying for criminal penalties is designed to force companies into TPA compliance. Although almost every company in Australia comes under the watch of the ACCC, compliance with the TPA is sometimes neglected to focus on other compliance issues.

“Although there are many moral businesses and business people, some businesses and business people need an external incentive to comply with the law — a risk benefit that weighs heavily against involvement in unlawful cartels.”

Although financial penalties are already in effect, McNeill said ultimately financial penalties could become another ‘tax on minor misdemeanour’ and the risk of incurring them could become a cost of doing business.

Overseas experience shows, meanwhile, that although substantial financial penalties are available to the courts, they may not be imposed and that penalties will often end up being passed on to the consumer in the form of higher prices.

“Let me give one example,” she said. “It has been estimated that the total value worldwide of the commerce affected by the international vitamin cartel was in the order of $20 billion. Conservative estimates would imply a total gain to the three participants in that cartel of $1 billion to $2 billion. Once the risks of detection are factored into the calculation, the optimal penalty is between $6 billion and $14 billion. Taking into account record penalties imposed worldwide and civil damages the participants have actually paid an amount in the order of $2 billion.”

But there are sticking points. One of the concerns of the Dawson Committee was the difficulty in arriving at a satisfactory definition of ‘serious’ or ‘hardcore’ cartel behaviour in Australia. Additionally, legal experts continue to debate whether the threat of criminal proceedings actually encourages deterrence in terms of corporate laws.

Although the number of cartels operating in Australia is difficult to calculate, ACCC chairman Graeme Samuel said earlier this year that the commission was investigating five major cartels. “I think there’s probably a lot more,” he said. “I think what we’ve got is — cartels thrive on secrecy. The general public don’t know much about them because they thrive on secrecy.”

Stuart Fagg is the editor of Lawyers Weeklys sister publication Risk Management.

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