In December 2005, the Australian Competition and Consumer Com-mission ("ACCC”) commenced proceedings in the Federal Court of Australia against a manufacturer of cardboard products, alleging that it had engaged in cartel behaviour in the corrugated fibreboard container market in Australia, by entering into anti-competitive arrangements with its principle competitor. The competitor and its former senior executives have received conditional indemnity from legal proceedings under the ACCC’s 2003 Leniency Policy (which since then has been replaced by the 2005 Immunity Policy).
The commencement of these proceedings follows several years of crackdowns by the ACCC on cartel behaviour. It is essential that Australian companies are aware of what cartel behaviour is, so that they are able to identify such behaviour within their own organisations or markets and take advantage of the ACCC’s Immunity Policy.
What is a Cartel?
Section 45(2) of the Trade Practices Act (Cth) ("the TPA”) prohibits contracts, arrangements or understandings which:
- have the purpose, effect or likely effect of substantially lessening competition, or
- contain an exclusionary provision.
An exclusionary provision is defined in section 4D of the TPA as a provision that has the purpose of preventing, restricting, or limiting dealings with particular persons by all or any of the parties to the arrangement, where the parties to the arrangement are actual or potential competitors.
Consequently companies must not enter into arrangements with their competitors, or potential competitors, which involve:
- price fixing
- bid rigging
- collusive tendering, or
- market sharing.
A cartel is a group of two or more companies who are competitors or potential competitors, who do enter into such arrangements.
Some examples of cartel behaviour are:
Price Fixing
- Agreeing with a competitor or potential competitor that you will both sell the same goods at a particular price. A recent example was the ACCC’s successful prosecution of a manufacturer of flour, where a former divisional chief executive of the manufacturer phoned a competitor seeking to fix the wholesale price of flour. The competitor did not agree, but the manufacturer was still penalised $1.5million.
- Another example involved a manufacturer of bricks; where they agreed in phone calls and meetings with their competitors simultaneously to lift the price of bricks by 3 per cent and set a floor price for tender pricing for major builders. The manufacturer was penalised $1 million.
Bid Rigging/Collusive Tendering
- Agreeing with a competitor or potential competitor that you will both answer a request for tender at particular prices (or the same price). For example, the ACCC successfully prosecuted a power transformer cartel where companies fixed the tender price of power transformers through secret meetings that took place in hotel rooms, airport lounges and private homes across Australia. The companies and senior officers involved were penalised a total of $35 million.
- Agreeing with a competitor that one of you will not answer a request for tender.
- Agreeing with a competitor or potential competitor that you will submit a higher price than them so that they can win the tender.
- Agreeing with a competitor or potential competitor that you will submit a tender with terms which you know will be unacceptable to the tendering body.
- Agreeing to take turns with a competitor in being the lowest tenderer.
- Agreeing with competitors that one of you will refrain from producing the other’s products.
- Agreeing with competitors that one of you will refrain from selling in the other’s territory.
- Agreeing with competitors that one of you will not sell or try to sell to the other’s customers.
- Agreeing with competitors that one of you will not enter into a market in which the other is a potential or actual rival.
What is the Penalty for participating in a cartel?
Currently under the TPA, companies involved in cartel behaviour can be fined up to $10 million per contravention, and their executives can be fined up to $500,000 per contravention. The ACCC may also seek injunctions banning repeat conduct and/or requiring the person involved to undertake compliance training or put in place compliance systems; or damages for those who have suffered loss by reason of unlawful conduct.
However, the recent Dawson Inquiry, which reviewed the competition provisions of the TPA, accepted an ACCC recommendation that criminal penalties should also be introduced for cartel behaviour, and this has subsequently been adopted by the Australian government, who announced in February 2005 that it would seek to amend the TPA to introduce criminal penalties for cartel conduct. Once this amendment is made, executives of companies who engage in cartel conduct may face criminal charges, including jail sentences.
The ACCC Immunity Policy - What should you do if you become aware that your company, or individuals within your company have engaged in cartel behaviour?
If you become aware that your company, or individuals within your company have engaged in cartel behaviour, you should seek advice as quickly as possible about approaching the ACCC, to take advantage of the ACCC Immunity Policy.
The ACCC Immunity Policy was introduced in September 2005, replacing the earlier ACCC Leniency Policy.
The ACCC Immunity Policy provides that if a company involved in cartel behaviour reports the behaviour to the ACCC, and is the first member of the cartel to do so, it will receive full immunity from prosecution. The policy:
- Applies to large and small businesses and to individuals, who have engaged in cartel conduct affecting Australian markets.
- Does not apply to cartel ringleaders or cartel members who have coerced others into participating in the cartel.
- Allows a company to apply for immunity in writing or by telephone.
- Allows a person to ring the ACCC on a hypothetical basis and ask whether immunity would be available for cartel conduct in a certain industry.
- Allows a company or person to ‘place a marker’. This means that you can inform the ACCC that your company has been involved in a cartel but do not yet have complete evidence to provide details of the cartel. The ACCC will allow you to ‘mark’ that your company is the ‘first in the door’ and ‘reserve immunity’, and give you a reasonable period to conduct an internal investigation. During that period, no other party involved in the cartel will be given immunity if they approach the ACCC. However, at the end of the period your company will be required to report fully on the cartel conduct. If it does not do so, and the ACCC refuses an extension of the marker, it will lapse and another cartel participant can gain immunity from the ACCC.
- Allows that once a company is granted conditional immunity, all current and former directors, officers and employees of the corporation who admit their involvement in conduct of the corporation in respect of the cartel and provide full disclosure and cooperation to the ACCC, will be eligible for conditional immunity in the same form as the corporation.
- Allows an individual to apply for immunity under the ACCC’s immunity policy and to place a marker.
In order to qualify for conditional immunity, the company reporting the cartel to the ACCC must:
- be or have been a party to the cartel; and
- admit that its conduct in respect of the cartel may constitute a contravention of the TPA; and
- be the first to apply for immunity in respect of the cartel; and
- not have coerced others to participate in the cartel and not have been the clear leader in the cartel; and
- have ceased its involvement in the cartel or indicate to the ACCC that it intends to cease its involvement in the cartel; and
- ensure that the corporation’s admissions are a truly corporate act (as opposed to isolated confessions of individual representatives).
Also, at the time that the company applies for immunity, the ACCC must not have received written legal advice that it has sufficient evidence to commence proceedings in relation to at least one contravention of the TPA arising from the conduct in respect of the cartel.
If these conditions are satisfied, the company will be entitled to automatic conditional immunity.
The company must fully cooperate with the ACCC on a frank, timely and continuous basis. It will be up to the company to ensure that it does everything necessary to obtain information and evidence available to them, at their own cost. This may include engaging forensic IT experts to analyse electronic records; reviewing telephone records; and having executives travel from overseas to give statements.
The company must also not disclose to anyone that it has applied for immunity, without first informing the ACCC.
If the applicant does fully co-operate with the ACCC, the ACCC will grant the applicant final immunity after the resolution of any ACCC court proceedings against cartel participants (or possibly earlier in certain circumstances).
Conclusion
A number of the examples of cartel behaviour referred to in this article were brought to the attention of the ACCC by companies involved in cartels who wished to take advantage of the leniency policy. For example, in the manufacturer of bricks example, the parent company of its competitor, approached the ACCC and by so doing escaped financial penalty while its co-conspirator was given a $1million fine. Similarly, in the the recent cardboard manufacturer prosecution, the competitor of the cardboard manufacturer has been given conditional immunity because it satisfied the conditions for immunity, and was ‘first in the door’ to the ACCC.
The ACCC has demonstrated its commitment to pursuing cartels not only through the institution of proceedings, but through the setting up of a special department to deal with cartels.
Companies should bear the provisions of section 45 in mind whenever they are dealing with competitors or potential competitors, and seek advice as soon as they become aware of cartel behaviour.
For more information please contact:
| Michael Daniel,
Partner
Phone: + 61 2 8266 6858
Send email
|
| Sophie Cockayne,
Senior Associate
Phone: + 61 2 8266 6642
Send email |
