ACCC Transformer Cartel bust: Record $35 million penalties

Penalties of $14 million were ordered today against ABB Power Transmission Pty Ltd (in liquidation) and ABB Transmission and Distribution Ltd [the ABB respondents] for their involvement in price-fixing and market-sharing contraventions of the Trade Practices Act 1974 after Justice Arthur Emmett in the Federal Court, Sydney declared their actions unlawful.

The penalties were imposed following a settlement agreement between the Australian Competition and Consumer Commission and the ABB respondents.

The court also imposed penalties totalling $200,000 against the ABB managing director, Mr Douglas Pitt, based on his awareness of the covert and illegal conduct. Three other senior executives received penalties totalling $145,000. This brings the total penalties imposed on company executives involved in the cartels to just over $1 million. 

The penalties handed down today bring to $35,045,000 the total penalties handed down against companies and senior executives involved in the power transformer and distribution transformer cartels. This eclipses the $26 million the court ordered against the companies involved in the animal vitamin cartel case.

The arrangements covered the supply of power transformers and distribution transformers in Australia.

"The size of the penalties indicates the seriousness of the contraventions", Australian Competition and Consumer Commission Chairman, Mr Graeme Samuel, said today. "These breaches were long-running arrangements in significant markets.

"The penalties imposed by the court clearly demonstrates that the court views very seriously when managing directors acquiesce in the conduct of their subordinates and take no positive action to stop the cartel conduct".

Mr Samuel said that it was significant that this investigation began following an anonymous e-mail to the ACCC from a person codenamed 'dibber-dobber'. 

"The ACCC often relies on whistle blowers to identify collusive conduct which by its nature is secret and hard to detect. The ACCC's recently issued Leniency Policy encourages whistle blowers by offering complete immunity to those who involved in the conduct and are first through the door".

The orders were made as part of two important sets of proceedings brought over allegations of an extensive cartel between the principal firms in the industry.

Distribution Transformer Proceedings

The court found that that there was extensive market-sharing and price-fixing cartel conduct in the market for distribution transformers from 1993 until 1999. This market in Australia is estimated to be worth approximately $100,000,000 per annum.

Power Transformer Proceedings

The court found that there was extensive market-sharing and price-fixing cartel conduct in the market for power transformers from late 1993 until the end of 1995.

In both sets of proceedings the court also made other orders including injunctions against the corporations and relevant senior management restraining them from engaging in similar conduct in the future.

The ACCC argued that the level of penalty ordered by the court should reflect a number of factors, including, the seriousness and covert nature of the unlawful conduct, the number of separate contraventions, the amount of commerce affected by the arrangements, the size of the companies and the level of management involved.

"Like in many covert price-fixing conspiracies, these companies and their senior executives from time to time abused the opportunity to meet with their competitors before or after industry association meetings", Mr Samuel said. "Secret meetings to rig the outcomes of multi-million dollar contracts took place in hotel rooms, airport lounges, and even at a private residence in various parts of Australia".

The customers affected by these illegal arrangements included many of the largest electricity transmission and distribution utilities across Australia.

"Although these conspiracies were directed at the tender processes for power and distribution transformers, it is the Australian consumer who has ultimately paid the price.

"Secret collusion is always difficult to get to the bottom of and requires painstaking and lengthy investigation", Mr Samuel said.

In these proceedings each of the ABB companies, Schneider Electric (Australia), Wilson Transformer Company, Alstom Australia and AW Tyree Transformers admitted their involvement in the unlawful conduct and cooperated with the ACCC.

In its submissions to the court the ACCC submitted that the pecuniary penalties imposed by the court would have been much higher if it was not for the substantial cooperation provided by these companies and their management to the ACCC during its investigation and throughout the court proceedings.

As part of the settlement agreement ABB Transmission and Distribution Ltd has agreed to pay the penalty imposed on ABBB Power Transmission Pty Ltd (in liquidation).