Australian competition authorities last month commenced their first ever criminal prosecution for cartel conduct, a warning to multinational companies carrying on business in Australia that antitrust risks are increasing.
Australia’s antitrust law provisions are governed by the Competition and Consumer Act (CCA). The law is predominately comprised of civil prohibitions, with the exception of cartel conduct, in which criminal sanctions may apply. Even though criminal cartel offenses have been on the books in Australia since 2009, they have never been applied—until now.
On July 14, the Commonwealth Director of Public Prosecutions (CDPP), the agency that prosecutes criminal cases, brought criminal charges against Nippon Yusen Kabushiki Kaisha (NYK) after the Japanese global shipping giant pled guilty to engaging in cartel conduct, following an investigation by the Australian Competition and Consumer Commission (ACCC), the country’s competition authority.
“This is the first criminal charge laid against a corporation under the criminal cartel provisions of the Competition and Consumer Act,” ACCC Chairman Rod Sims said in a statement. Sims indicated, however, that it would not be the regulator’s last, noting that it has “around 20 cartel investigations under way at any one time.”
Compliance officers at companies carrying on business in Australia should be on high alert, given that no industry is immune from cartel enforcement activity. Specifically, the ACCC will continue to focus on cartel conduct, anti-competitive conduct and practices, and misuse of market power.
“Detecting and deterring cartel conduct continues to be a major focus for the ACCC, not to mention our international counterparts,” Sims said in remarks before the Committee for Economic Development of Australia in February.
In Australia, for a criminal sanction to stick in a cartel case, the individual or company must know or believe it is engaging in cartel activity. Establishing criminal liability also requires the court to be satisfied “beyond reasonable doubt” of the defendant’s guilt, compared to the less stringent “balance of probabilities” standard for civil violations.
“This is the first criminal charge laid against a corporation under the criminal cartel provisions of the Competition and Consumer Act.”
Rod Sims, Chairman, Australian Competition and Consumer Commission
In the ACCC’s watershed criminal cartel prosecution, NYK was charged with participating in cartel activity with other global shipping companies between July 2009 and September 2012 by fixing prices in connection with the transportation of vehicles on shipping routes between Japan and Australia.
A sentencing hearing will now take place, at which time the Federal Court of Australia will determine how severe of a penalty to impose. In Australia, penalties for participating in any anti-competitive activity may only be imposed by a court, and those penalties can be significant.
For a company, the maximum civil fine or penalty, per violation, is the greater of AU$10 million (US$7.2 million) or three times the value of the benefit that the company and any related corporate bodies obtained by the violation, or—if the court cannot determine the value of the benefit—10 percent of global annual turnover in the year the conduct took place. Only turnover in relation to goods or services supplied in Australia will be relevant to calculating annual turnover.
Fines or penalties for individuals are also substantial. Individuals may face up to 10 years imprisonment, a fine of AU$340,000 (US$245,531), or both, for criminal violations. The maximum civil penalty for individuals is AU$500,000 (US$361,075). In NYK’s case, however, it doesn’t appear that any individuals will be charged.
“The criminal prosecution of NYK serves as an important reminder of the serious penalties for cartel conduct affecting Australian markets,” says Mark McCowan, a partner in the Melbourne office at Corrs Chambers Westgarth. “NYK’s guilty plea and the success of the prosecution also adds credibility to the ACCC’s criminal enforcement regime.”
The NYK criminal prosecution followed previous investigation and enforcement actions commenced by enforcement authorities overseas—a strong sign that the ACCC works closely with overseas agencies.
In 2014, the U.S. Department of Justice announced that NYK agreed to a $59.4 million criminal fine related to the price-fixing scheme. In March 2015, an NYK employee pled guilty and was sentenced to 15 months in prison for his involvement in that price-fixing case, the Justice Department announced.
In another enforcement action, the Japanese Fair Trade Commission in 2014 issued a cease-and-desist order against NYK for participating in the price-fixing activity and fined the company 13 billion yen.
AVOIDING CARTEL CONDUCT
Below, Michael Corrigan, a partner at law firm Clayton Utz, and Matthew Evans, a senior lawyer in the firm's competition practice, provide the following key messages on avoiding cartel conduct.
Make all pricing decisions independently of competitors;
If you must hold meetings with competitors, do so strictly in accordance with an agenda that is pre-approved by the compliance officer in your company and keep discussions to the point. Do not encourage or engage in discussions about the general difficulty of doing business, the unreasonableness of consumers or other competitors, or behaviour by competitors;
Keep proper records of all contact with competitors;
Be aware that discussing pricing, customers and markets, or levels of production and supply in informal meetings can also mean you are breaking the law;
Leave immediately if discussions arise that could be anti-competitive and make it clear at the time that your business does not want to be involved. Report the incident immediately to your compliance officer;
Seek legal advice before entering into any agreement with a competitor;
Be aware that any agreement with a competitor regarding price and conditions of supply, or levels of production and supply, even if unspoken, is considered a criminal cartel offence;
Be aware that any agreement with a competitor not to compete for certain customers or in a particular product or geographic area, even if unspoken, is considered a criminal cartel offence;
Be aware that agreeing with competitors to submit pre-arranged bids or tenders, agreeing not to submit a bid or tender or agreeing to withdraw a bid or tender, is considered a criminal cartel offence.
Source: Compliance Week
Importantly, global cooperation among regulators isn’t limited to just antitrust activity. The Australian federal police said they are collaborating with U.K. and U.S. investigators, for example, in the Unaoil investigation.
“The single most important factor in minimizing the risk of antitrust compliance problems is fostering a culture of compliance—led from the very top of the organization—in which all employees understand the corporation’s expectations and their responsibilities and feel confident raising concerns,” McCowan says.
Patrick Gay, a competition partner in the Sydney office at law firm Herbert Smith Freehills, reiterates that message. “A culture that encourages people to ask questions and bring matters to the internal compliance team is often more valuable than sophisticated systems,” he says. “That being said, we encourage clients to take a systemic approach to identify the geographic locations, processes, and individuals at higher levels of compliance risk and extend additional resources in those areas.”
Antitrust experts also recommend that companies conduct regular antitrust compliance training. “As antitrust law is complex and not intuitive, having tailored training and communications to different levels of management and staff is an important risk mitigation activity,” says Sylvia Ng, director at PwC Australia, who specializes in antitrust and competition law. “Companies can also engage consultants to assist with a risk assessment of its business units to help ensure systems and checks are in place to prevent or mitigate cartel conduct.”
Like many other jurisdictions, the ACCC has a whistleblower program that encourages companies and individuals to self-report potential cartel violations and enables them to secure immunity if they provide evidence to enable the ACCC to take enforcement action against other cartel participants. Thus, antitrust experts recommend that companies implement reporting mechanisms, including an independent ombudsperson.
The occasional rotation of employees is another best practice. “In high-risk industries, businesses may also implement precautions, such as rotating employees through sales teams and industry association roles and conducting audits of tender responses and pricing activity,” McCowan says.
“When a company uncovers evidence that it might have been involved in cartel activity, it needs to form a view, as quickly and as quietly as possible, as to the likelihood that it has been involved in cartel activity and the extent of that activity,” McCowan says. That view will then inform a decision as to whether the company should apply for an “immunity marker” to reserve its place in the immunity queue and in which jurisdictions leniency needs to be sought, he says.
Similar to the United States, Australia has a leniency program that offers full immunity to the first individual or company that blows the whistle on cartel activity, provided that the ACCC has not yet received written legal advice that it has reasonable grounds to institute proceedings. “Seek legal advice immediately to determine whether the company should apply for immunity,” Ng says.
Companies also should understand the ramification of that decision. “Seeking immunity involves real costs,” say Wayne Leach and Peta Stevenson, both partners in the competition law group at law firm King & Wood Mallesons in Sydney. “The ACCC requires significant and ongoing cooperation.”
As demonstrated by the NYK enforcement action, the ACCC cooperates closely with regulators in other jurisdictions. “Companies need to consider these matters carefully before deciding whether or not to seek immunity in Australia,” Leach and Stevenson say.
“Only after legal advice has been sought and a decision has been made about immunity should the company consider steps to extricate itself from, and manage the other consequences of, the potentially unlawful activity,” McCowan says.
“Decisions about seeking immunity may need to be made fairly quickly and, sometimes, without perfect information,” Gay says. “Having an existing plan on how to approach an internal investigation and having a relationship with external advisers who can assist is important.”