ACCC launches leniency policy to expose hard core cartels in Australia
The Australian Competition and Consumer Commission today issued a leniency policy aimed at exposing and stopping secret corporate cartels operating in Australia.
The policy will come into force as of 9 a.m. on Monday 30 June 2003.
The policy encourages corporations and their executives to reveal the most serious and collusive contraventions of competition law such as price-fixing, bid-rigging and market sharing.
"The policy makes corporate lawbreakers and their executives an offer they should not refuse - cease the illegal conduct and report it to the ACCC in return for a clear, transparent and certain offer of leniency", ACCC Chairman, Professor Allan Fels, said today.
“But there is an important catch. The policy only applies to the first cooperative company or executive to come forward. The others will be exposed, investigated and where the evidence permits, brought before the courts.
"The corporate lawbreakers must now ask themselves – 'can I really trust my competitors?'".
The key principles of the policy are:
where the ACCC is unaware of a cartel, the first person (company or individual) to come forward will receive an offer of conditional 'immunity' from ACCC-instituted court proceedings
where the ACCC is aware of a cartel but has insufficient evidence to institute court proceedings, the first person (company or individual) to come forward will receive an offer of conditional 'immunity' from pecuniary penalty.
The policy was prepared with reference to leniency policies that have been successfully used internationally to break cartels such as in the United Kingdom, the United States of America, Canada and the European Commission. The ACCC has introduced the policy following an extensive period of public consultation on a draft version that was released in July last year. It will now operate in conjunction with the existing ACCC cooperation policy in enforcement matters.
"Hard core cartels are the very worst violations of competition law. They always hurt consumers and businesses by artificially inflating the price of goods and services. They also act like a dead weight upon the economy by preventing innovation, reducing the competitiveness of Australian industries, limiting employment opportunities and stunting economic growth.
"For this reason, detecting, stopping and deterring the domestic and international hard core cartels that operate covertly in Australia continues to be one of the very top priorities for the ACCC. In recent years the ACCC has successfully broken major cartels in industries such as vitamins, concrete, freight, fire protection, transformers and many others.* In these cases the ACCC has brought numerous executives and their companies before the courts, where they have faced multi-million dollar penalties.
"The ACCC's very important enforcement work to crack cartels will continue".
Under the existing civil penalty regime corporations involved in cartels face pecuniary penalties of up to $10 million per contravention, whilst their executives face penalties of up to $500,000 per contravention. The recent review of the competition provisions of the Trade Practices Act 1974 (Dawson Review) concluded that criminal sanctions, including the possibility of jail terms for executives and bigger fines, should be introduced to deter the most serious hard core cartels. It also concluded that an effective leniency policy would be a potent means of uncovering cartel behaviour.
"The ACCC supports these conclusions of the Dawson Review. However, it is important to note that this leniency policy will only apply to the existing civil penalty regime. If the law is ultimately reformed to introduce criminal sanctions for hard-core cartels, the ACCC will need to reconsider this policy in light of those changes. The ACCC will liaise with the DPP and Commonwealth Attorney-General regarding a leniency policy for any criminal offences for hard-core cartels.
"The ACCC will conduct a review of the value of this leniency policy at an appropriate time in the future".
Examples of serious cartels in Australia and enforcement action
The transformer cartels
These cartels involved price fixing and bid rigging in the market for power and distribution transformers and involved the main manufacturers and suppliers in both markets. The cartels came to ACCC attention through the actions of a whistleblower identifying him/herself as "Dibber-Dobber". The collusion that has been admitted in the power transformer market ended in late 1995 and was orchestrated in an extensive series of covert meetings and phone conversations designed to manipulate the market. Similar collusive conduct has been admitted in the distribution transformer market, but this conduct did not cease until early 1999. Penalties against some of the companies and their most senior executives have totalled more than $20 million to date, while court action continues against some other companies and executives.
The animal vitamin cartel
In this international cartel three pharmaceutical companies fixed the price for animal vitamins A and E, which are used primarily in animal feeds. The Australian arrangements started in 1994 and continued until 1998. The participants admitted collusion and cooperated with the ACCC after being exposed by the US Department of Justice through its leniency policy. Corporate penalties of $26 million were imposed in Australia, whilst other competition enforcement agencies around the world also prosecuted the offenders in their jurisdictions.
The express freight cartel
Three of Australia’s major express freight companies and their senior executives were ordered to pay penalties in excess of $11 million for their involvement in price fixing and market sharing arrangements. The conduct ran for approximately 20 years. Among other things, the participants agreed not to approach each other's customers.
Some former employees of cartel participants were given indemnity in return for their cooperation and giving evidence on oath against the companies and senior executives.
The pre-mixed concrete cartel
The cartel involved price fixing and market sharing in the pre-mixed concrete market in south-east Queensland from 1989 until 1994. The participants had regular meetings and phone conversations to fix prices, agree on market shares and agree not to compete on specified major projects. The participants even engaged an accountant to monitor market shares and promote compliance with the conspiracy. Total penalties of $21.68 million were imposed on the companies and on nine executives.
The cartel came to the Trade Practices Commission's attention through a whistleblower. A grant of leniency against one of the executives helped the TPC break open the cartel against all others.
The fire protection cartel
This cartel ran in Queensland for about 10 years until 1997. The ACCC filed proceedings against 56 companies and individuals who were participants in the fire alarm and fire sprinkler installation industry in Brisbane. The participants referred to the regular meetings that agreed on prices to be tendered for projects as ‘the Coffee Club’.
The Queensland foam cartel
Three companies were involved, over a period of about 10 years from the mid 1980s, in a price fixing and market sharing agreement in the industrial flexible polyurethane foam market. The agreement developed between the managers of the three companies who met regularly for lunch. The court imposed penalties totaling approximately the $3.5 million.
Tasmanian frozen food cartel
The Federal Court imposed penalties of approximately $1.5 million on four companies and seven executives who together held 80–90 per cent of the Tasmania market for the supply of frozen food to catering businesses. The collusion began in 1991 and continued until the ACCC commenced investigations in 1996.
Another freight cartel
In 1998 the Full Federal Court imposed penalties of $2.6 million against a company for attempting to enter into a price fixing arrangement in the freight industry in 1994 and 1995. The company was attempting to rig the market at the same time its parent company was negotiating a penalty of many millions of dollars to propose with the ACCC to the Court for similar conduct.
An attempted price-fix of biscuits
In May 2000 a company was penalised $900 000 for attempted price fixing in relation to biscuit products in Tasmania. The court recognised that the penalty and the compliance program introduced after an earlier breach had failed to prevent the second offence. This offence was instigated by a senior level manager and occurred only days after the company had been penalised $1.25 million for several price fixing and resale price maintenance incidents in Victoria.
A cartel in scrap metal
In June 2000 the Federal Court penalised a company $2 million for twice attempting to reach a market sharing agreement with a competitor in South Australia. On the second occasion, a company executive threatened to 'destroy' the competitor's business if the competitor approached any of its customers. This threat was made less than one year after the Federal Court had imposed a penalty upon the company and two of its employees for engaging in price fixing in Victoria.
A cartel for fittings and valves for ductile iron cement lined pipe
A total of about $4.08 million in penalties, compensation and costs was imposed on four companies for their role in price fixing, tender rigging and market sharing in the supply of fittings and valves for use with ductile iron cement lined pipe. Customers of two companies were reimbursed $1.23 million as part of the resolution of this matter.
