The Australian Competition and Consumer Commission will tomorrow call for criminal sanctions, including imprisonment as a penalty for hard-core cases of collusion. This would apply to the most serious and profitable acts of collusion such as price fixing, bid-rigging and market-sharing
The ACCC says that in the worst cases they are deliberate, secret acts of dishonesty, which indirectly impact on consumers and small business through over-charging. Price-gouging seriously impairs the operation of free markets which are intended to operate in the interests of the public.
Such a move would bring Australia into line with a number of its major trading partners including the United States, Canada, Japan and South Korea that regularly impose criminal sanctions for collusion.
The call will be made when ACCC Chairman, Professor Allan Fels, addresses the Australian Law Reform Commission conference, Penalties: Policy, Principles & Practice in Government Regulation, in Sydney*.
The ACCC's call for stronger sanctions would not apply to small business or trade unions - it would be aimed at major business engaging in practices such as price-fixing or market sharing.
"The relative leniency of Australia's penalty regime leaves us exposed to enormous risks in the global economy", Professor Fels says. "Because Australian markets are comparatively small by international standards and tend to be characterised by high levels of concentration, they are particularly vulnerable to the detrimental effects of hard core cartels. It is crucial to the future integrity of Australian markets that these multinational firms, which operate in major foreign markets with much tougher penalties, do not come to see Australia as being soft on serious hard core collusion and anti-competitive conduct".
If the ACCC is to effectively deter and properly punish this sort of behaviour in the future, it must follow the lead of several of our major trading partners and consider imprisonment as an additional sanction for executives who engage in these highly profitable, hard core breaches of the restrictive trade practices part of the Act, specifically, conduct that is caught by sections 45A (contracts, arrangements or understandings in relation to prices) and 4D (exclusionary provisions).
Professor Fels says the vast majority of Australian businesspeople have nothing to fear from a stronger law, as the vast majority is not engaged in anti-competitive behaviour. Moreover, it is not proposed that the criminal sanctions would apply across the board to all breaches of the Trade Practices Act but just to defined acts of collusion.
In fact, for the most part, the Trade Practices Act works well and it is not suggested that the present system be radically altered. It is just that it has a weakness for extreme collusive behaviour and the possibility of imprisonment would have a more powerful deterrent effect than fines as other countries have found.
He believes there are troubling signs of an increase in hard core collusive activity internationally (and locally) which will not be deterred by anything other than true criminal sanctions, including imprisonment.
"When one considers the large and quick potential gains to be made from cartels, the current maximum penalties are not sufficient to deter deliberate, determined hard-core collusive activity by large, profitable multi-national companies.
"With a rise in international cartels, Australian executives of powerful multi-national corporations, should be given the clear message that their participation in hard-core collusive activity would see them facing the same serious criminal consequences as in the US, Japan, Canada or South Korea, that is, imprisonment. Also, the current maximum penalty of $10 million could be reviewed with an alternative provision for a 10 per cent penalty on turnover, as is the case overseas".
Professor Fels says Australia must continue to review and revise its civil penalties to ensure they remain a relevant and effective deterrent in the global economy.
"We must also look again at the application of civil penalties to Part V [consumer protection]. The consumer protection part of the Act has curiously almost the reverse position and problems of the competition part of the Act. Breaches of consumer protection provisions do not attract the kinds of civil penalties that currently apply in the restrictive trade practices part. It is possible to get criminal penalties in the form of fines (but not jail sentences) for Part V offences. However, the arguments that justified the application of civil penalties to Part IV [restrictive trade practices] are equally compelling in relation to Part V. The Commission sees case after case where companies have breached Part V through a failure of compliance that is so serious and widespread that it cries out for a pecuniary penalty, but still does not amount to the type of conduct that would justify criminal action. As with Part IV, civil penalties for contraventions of Part V will ensure that would-be offenders are deterred, victims are compensated and justice is done promptly, effectively and at the lowest possible cost to the taxpayer.
"Earlier this week I also called for serious consideration be given to the introduction of pecuniary penalties for unconscionable conduct [Part IVA]. The prohibition on unconscionable conduct is no longer a novel concept in Australian law. Contraventions of Part IVA do not happen by accident. They arise when very powerful corporations take advantage of a consumer or a small business in circumstances where they know, or should know, better. The result is usually a severe detriment to the weak party. In the most severe cases, or where corporations repeatedly offend, civil pecuniary penalties are an appropriate and necessary sanction to enforce compliance and, above all, provide a clear and visible deterrent. Behavioural change may not be achieved across the board without such sanctions".