rigging bids so that cartel members can rotate winning jobs at inflated rates
controlling the output or limiting the amount of goods and services available to buyers so they have no choice but to pay higher prices.
Cartels can be local, national or international. At the international level, a cartel might affect multi-million dollar-industries—such as occurred in the animal vitamins and feed supplement industry. This raises costs which get passed down through the supply chain and increase your living costs.
Members of established cartels know that they are doing the wrong thing and will go to great lengths to avoid getting caught. It is estimated 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.
Cartel conduct is a criminal offence
Laws passed in 2009 allow for new civil cartel prohibitions and, for the first time, a criminal cartel offence.
The civil cartel prohibition and the criminal cartel offence are centred upon the existence of a cartel provision within a contract, arrangement or understanding (CAU).
The definition of ‘cartel provision’ includes four varieties of cartel conduct:
price fixing
output restrictions
allocating customers, suppliers or territories
bid-rigging.
The definition of cartel provision also requires at least two of the parties to the cartel agreement to be businesses who are, or are likely to be, in competition with each other for the supply of goods or services.
A company will have contravened the civil prohibition if it makes, or even attempts to make, a CAU containing a cartel provision with its competitor, or if it gives effect to a CAU containing a cartel provision. Proceedings may also be taken against an individual where they are knowingly concerned in the cartel conduct.
The element that distinguishes the criminal cartel offence from the civil prohibition is the need to establish certain fault elements under the Criminal Code. An overview of the application of those fault elements is provided below.
Making a CAU containing a cartel provision
It will be necessary to establish that an individual or corporation intended to enter into a contract, arrangement or understanding and that she/he or it knew or believed the CAU contained a cartel provision.
Giving effect to a cartel provision
It will be necessary to establish that an individual or corporation knew or believed a CAU contained a cartel provision and that she, he or it intended to give effect to that cartel provision.
Penalties for individuals
Imprisonment of up to 10 years and/or fines of up to $220 000 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.
Penalties 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 corporate penalties for cartel civil contraventions or criminal offences include:
injunctions
orders disqualifying a person from managing corporations
community service orders.
Why are cartels illegal?
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.
Cartel agreements are immoral and illegal because they stop competition, inflate prices and reduce choices for consumers and other suppliers. By doing this, cartels not only cheat consumers and other businesses, they restrict healthy economic growth.
ACCC cartel investigation powers
The ACCC has extensive powers to investigate cartels and may compel any person or company to provide information about a suspected breach of the Competition and Consumer Act, including documentary or oral evidence, so long as there is reason to believe they are capable of doing so.
The ACCC may also seek search warrants from a magistrate and execute these on company offices and the premises of company officers.
If the ACCC becomes aware of ongoing cartel conduct that could warrant a criminal prosecution, it may notify the Australian Federal Police, which may in certain circumstances collect evidence using phone taps and other surveillance devices.
How will the ACCC approach investigations into cartel conduct?
The ACCC has released guidelines for how it will approach:
investigations of alleged cartel arrangements under the civil and criminal provisions in the Competition and Consumer Act
decisions relating to referral of matters for possible criminal prosecution.
We encourage you to read the attachments and other ACCC publications listed below.
