Businesses that make agreements with their competitors to fix prices, rig bids, share markets or restrict outputs are breaking laws and stealing from consumers and businesses by inflating prices, reducing choices and damaging the economy.
The Competition and Consumer Act requires businesses to compete fairly. Most Australian businesses increase their customer base and their profits honestly through:
- continual innovation to improve products or services
- sales and marketing showing the genuine benefits of their products or services
- keeping costs down so they can offer competitive prices.
Businesses struggling to compete fairly and maintain profits may be tempted to deliberately and secretly set up or join a cartel with their competitors.
A cartel exists when businesses agree to act together instead of competing with each other. This agreement is designed to drive up the profits of cartel members while maintaining the illusion of competition.
There are certain forms of anti-competitive conduct that are known as cartel conduct. They include:
- price fixing, when competitors agree on a pricing structure rather than competing against each other
- sharing markets, when competitors agree to divide a market so participants are sheltered from competition
- rigging bids, when suppliers communicate before lodging their bids and agree among themselves who will win and at what price
- controlling the output or limiting the amount of goods and services available to buyers.
Cartels can be local, national or international. Established cartel members know that they are doing the wrong thing and will go to great lengths to avoid getting caught. Some estimates suggest that while a cartel is operating, the price of affected commodities rises by at least 10 per cent. Worldwide, cartels steal billions of dollars every year.
The Competition and Consumer Act not only prohibits cartels under civil law, but makes it a criminal offence for businesses and individuals to participate in a cartel.
Cartels are immoral and illegal because they not only cheat consumers and other businesses, they also restrict healthy economic growth by:
- increasing prices for consumers and businesses through artificially inflating input and capital costs across the supply chain, including the cost of buildings and equipment rent, interest and decreased opportunities over the life of an asset
- reducing innovation and choices by protecting their own inefficient members who no longer have to compete so don’t bother to invest in research and development
- reducing investment by blocking new industry entrants that might invest in opportunities, economic growth and jobs
- locking up resources because they interfere with normal supply and demand forces and can effectively lock out other operators from access to resources and distribution channels
- destroying other businesses by controlling markets and restricting goods and services to the point where honest and well-run companies cannot survive
- destroying consumer confidence in an entire industry sector, including creating negative consumer sentiment towards law-abiding businesses that are not involved in cartel conduct.
- increasing taxes and reducing services by targeting the public sector and extracting extra costs paid for by all consumers through rates and taxes
- decreasing infrastructure by rigging bids in public infrastructure projects which inflates costs and ultimately reduces the public sector capacity to invest in beneficial projects.
Individuals found guilty of cartel conduct could face criminal or civil penalties, including:
- up to 10 years in jail and/or fines of up to $340 000 per criminal cartel offence
- a pecuniary penalty of up to $500 000 per civil contravention.
It is illegal for a corporation to indemnify its officers against legal costs and any financial penalty.
For corporations, the maximum fine or pecuniary penalty for each criminal cartel offence or civil contravention (whichever applies) will be the greater of:
- $10 000 000
- three times the total value of the benefits obtained by one or more persons and that are reasonably attributable to the offence or contravention
- where benefits cannot be fully determined, 10 per cent of the annual turnover of the company (including related corporate bodies) in the preceding 12 months.
Other penalties for cartel civil contraventions or criminal offences include:
- orders disqualifying a person from managing corporations
- community service orders.
The ACCC has extensive powers to investigate cartels and may:
- compel any person or company to provide information about a suspected breach of the law, including providing documents or giving verbal evidence
- seek search warrants from a magistrate and execute these on company offices and the premises of company officers
- notify the Australian Federal Police who in certain circumstances collect evidence using phone taps and other surveillance devices.
The ACCC will refer serious cartel conduct for prosecution wherever possible. The ACCC works closely with the Commonwealth Director of Public Prosecutions (CDPP) in relation to investigations concerning serious cartel conduct.
On 15 August 2014, the ACCC and CDPP signed a Memorandum of Understanding (MOU) regarding serious cartel conduct. The ACCC is responsible for investigating cartel conduct, managing the immunity process and referral of serious cartel conduct to the CDPP for consideration for prosecution. The CDPP is responsible for prosecuting offences against Commonwealth law, including serious cartel offences, in accordance with the Prosecution Policy of the Commonwealth.
As noted in the MOU, the ACCC is more likely to consider conduct it is investigating to be serious cartel conduct if one or more of the following factors apply:
- the conduct was covert
- the conduct caused, or could have caused, large scale or serious economic harm
- the conduct was longstanding or had, or could have had, a significant impact on the market in which the conduct occurred
- the conduct caused, or could have caused, significant detriment to the public, or a class of the public, or caused, or could have caused, significant loss or damage to one or more customers of the alleged participants
- one or more of the alleged participants has previously been found by a court to have participated in, or has admitted to participating in, cartel conduct either criminal or civil
- senior representatives within the relevant corporation(s) were involved in authorising or participating in the conduct
- the Government and thus, taxpayers, were victims of the conduct - even where the value of affected commerce is relatively low
- the conduct involved the obstruction of justice or other collateral crimes committed in connection with the cartel activity.
If you are invited into an arrangement that seems like a cartel, you should seek independent legal advice and notify the ACCC. Remember that if you don’t report suspicious activities to the ACCC, others might choose to break ranks and report your involvement to us.
The ACCC offers a free subscription service designed to help you be aware of the way cartels operate so that you can identify, avoid, and report cartel conduct.
s. 44ZZRA – simplified outline of the criminal offences and civil prohibitions relating to cartel conduct
s. 44ZZRF – criminal offence for making a contract, arrangement or understanding containing a cartel provisions
s. 44ZZRG – criminal offence for giving effect to a contract, arrangement or understanding containing a cartel provision
s. 44ZZRJ – civil prohibition for making a contract, arrangement or understanding containing a cartel provisions
s. 44ZZRK – civil prohibition for giving effect to a contract, arrangement or understanding containing a cartel provision
The ACCC has a policy to provide greater certainty for immunity applicants so we are better able to detect and break up cartels operating in Australia.
- Report evidence of cartel conduct by contacting the ACCC
- If you’re involved in a cartel be the first to apply for immunity from prosecution in exchange for helping us with our investigations, by contacting:
Marcus Bezzi, Executive General Manager,
Enforcement and Compliance Division
Phone: 02 9230 3894 Email: firstname.lastname@example.org