2018 compliance and enforcement priorities address

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Good afternoon ladies and gentlemen, and my thanks to CEDA for again hosting this annual event.

It’s a pleasure to see so many familiar faces, and have the opportunity to announce our priorities for the year ahead.

It is also a chance to reflect on 2017, a significant year in competition law and policy.

In so many ways for me this annual speech formally announces the beginning of another working year.

As we all know, wages growth has been modest since the global financial crisis while prices, especially of essential services such as electricity and gas, have risen significantly.

The financial pressure on many households is significant.

It goes without saying, but is worth repeating, that competition is good for consumers by reducing prices, and also by increasing productivity which can increase real wages.

The link between competition policy and productivity growth particularly is well established. One of the most important examples followed the introduction of the Hilmer reforms of the 1990s which boosted productivity growth significantly.

Today I will address three topics:

• First, some reflections on 2017.
• Second, I will outline some of the challenges we face.
• Third, I will formally launch the ACCC’s enforcement and compliance priorities for 2018.

Reflecting on 2017, a significant year in competition law and policy

I think we all know that 2017 was a landmark year in competition in many ways. I will here briefly mention the obvious highlights.

Harper

The standout in 2017 was passage of the Competition and Consumer Amendment (Competition Policy Review) Bill on 18 October, and the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 on 25 August.

These two bills brought the Competition Policy Review (aka, the Harper Review) to a very successful conclusion.

As you all know, the Harper legislation contains a broad range of amendments to the Competition and Consumer Act (CCA) in relation to cartels, price signalling and concerted practices, exclusionary provisions, third line forcing, resale price maintenance, merger and non-merger authorisations, notifications and access.

These amendments potentially rank as the most significant changes to our competition laws since the introduction of the Trade Practices Act in 1974.

Most significantly, they position the ACCC better to protect competition and consumer interests in a time of unprecedented technological change.

Cartel prosecutions

2017 also saw just the second criminal cartel prosecution in Australia for cartel conduct – more than 100 years after the first, the Coal Vend case in 1908.

This marks a significant step forward in the ACCC's investigations and approach to this form of corporate misconduct.

Last year's conviction of NYK, a Japanese shipping company, together with the $25 million fine imposed by the Federal Court, also indicates the seriousness with which the Courts view collusion of this kind.

Justice Wigney of the Federal Court explained the importance of the case in very direct language when he gave judgment:

Cartel conduct of the sort engaged in by NYK warrants denunciation and condign punishment. It is inimical and destructive of the competition that underpins Australia’s free market economy¹

Our second criminal prosecution, a case involving K-Line, a Japanese shipping line, is before the Federal Court. This matter is listed for trial in Sydney later this year.

On the civil side, one of the largest and longest cartel investigations has been our air cargo case.

A significant milestone was reached last year in the High Court ruling unanimously in favour of the ACCC to conclude that Air New Zealand and Garuda Indonesia were engaged in this long-standing international cartel.

These airlines ran a number of highly technical arguments as to why they should not be subject to Australia's competition laws.

However, these arguments were soundly rejected and we welcome the pragmatic approach taken by the High Court in determining the matter.

In particular, in rejecting the airlines' arguments that the contracts in question had been executed outside Australia, Chief Justice Kiefel and Justices Bell and Keane noted that:

… a practical focus on the issue is required because the [Act] operates upon those engaged in commerce. The airlines were actively engaged in attempting to capture the demand for services emanating from shippers in Australia as an integral part of their business.²

This judgment, from Australia's highest court, puts beyond doubt that companies whose conduct has impacts in Australia are subject to enforcement of our competition laws.

It is therefore of great significance to the ACCC's enforcement work and to the economy more broadly.

Australian Consumer Law

There is now momentum towards greater penalties for breaches of Australian Consumer Law (ACL).

In its final report on the ACL Review, Consumer Affairs Australia and New Zealand (CAANZ) recommended penalties for a breach of the ACL be raised from $1.1 million for companies to the greater of $10 million, three times the value of the benefit received, or where the benefit cannot be calculated, 10 per cent of annual turnover in the preceding 12 months.

Penalties against individuals under the ACL are also proposed to be increased from $220,000 to $500,000.

Just last week the bill³ was introduced to the Parliament by Minister Sukkar and, if passed, will align the maximum penalties under the ACL with the maximum penalties under the competition provisions of the CCA.

This is consistent with a Productivity Commission recommendation into Consumer Law Enforcement and Administration.

This is a profound change that will change corporate behaviour significantly.

The case for tougher penalties has been strong.

Currently, the maximum penalties for breaches of the ACL are, for corporations, approximately one-tenth of the lowest maximum penalty for breaches of the Competition Law.

There is no good reason for this difference. We have seen cases where consumer law breaches have led to very substantial harm to many consumers.

The message needs to be sent that this must stop.

Australia needs a proactive competition advocate

The ACCC is the national competition champion. We cannot, however, be the competition champion if we are only reactive.

Equally, we cannot be the competition champion if we don’t fully understand some of the complex markets we work in.

Market studies give us the capacity to investigate how markets are really working and to develop a deep understanding of the commercial realities of those markets.

Last year the Government gave us five Inquires to add to our already expanding market study portfolio. We are now engaged in more sectors in a focused way than ever before, including:

• Communications
• Dairy
• Motor vehicles
• Commercial construction
• Gas
• Electricity
• Northern Queensland insurance
• Banking and Financial services, and
• The Digital Platforms Inquiry.

We report on our findings, and usually make recommendations, either to industry participants or to Government, which may result in regulatory change.

Sometimes we make referrals within the ACCC to our enforcement teams.

It is important to note that market studies are almost always the beginning of our work in a market, not the end.

They provide us with essential knowledge, they put an industry on notice, and they provide a framework for future action.

Some key challenges

We have many challenges as we approach 2018.

Harper in action

This year is the first full year that the Harper Reforms will be law, and their introduction has coincided with an education and awareness campaign for business.

The reforms to section 46 (the misuse of market power provision) and the introduction of ‘concerted practices’ have been in force since November last year.

We have already established a specialised unit known as the SLC (Substantial Lessening of Competition) Unit, to focus on investigations that could give rise to cases that use the new laws.

The SLC Unit also has a broader mandate to enhance our investigation of competition cases and look afresh at the way we handle such investigations.

It is managed by a former Executive from our Mergers branch, Cameron McKean, and he brings his competition analytical skills to a team containing a great deal of investigation experience. We are in the early stages of some important investigations and are looking forward to making announcements later in the year about them.

We understand the importance of our case selection given the bizarre debate prior to the passing of these laws.

Cartels

Achieving effective deterrence was the reason that Parliament decided in 2009 to criminalise cartels. This sent the strong message that collusion between competitors to fix prices and markets is particularly egregious and deserving of criminal sanctions.

We enforce compliance with the law. We do that using enforcement action to obtain sanctions against businesses and business people who have broken the law.

We rely on the strong message that our cases send to deter future misconduct and encourage compliance among all businesses.

In order to be effective, sanctions and potential sanctions must be seen as much more than just a ‘cost of doing business’.

This can only be done when fines or penalties are imposed that well exceed the potential gains of any contravening conduct.

It must also be done by holding individual officers and directors of companies personally accountable for their conduct and imposing sanctions on them.

The Country Care case which we commenced in last week (15 February 2018) is a good example of this.

Following an investigation by the ACCC, criminal charges have been laid against The Country Care Group Pty Ltd, its Managing Director, Robert Hogan, and a former employee, Cameron Harrison.

The charges relate to alleged cartel conduct involving assistive technology products used in rehabilitation and aged care, including beds and mattresses, wheelchairs and walking frames.

This is the first criminal prosecution of an Australian corporation under the criminal cartel provisions of the Competition and Consumer Act.

Significantly, it is also the first time that individuals have been prosecuted under the criminal cartel provisions in Australia.

The charges are listed for mention before the Magistrates’ Court of Victoria in Mildura on 14 March 2018, so I won’t comment further.

Suffice to say, we have invested substantial resources in developing our capacity to investigate criminal cartel cases and are proud of our specialist Cartel Branch.

We have five current referrals with the CDPP and a portfolio of investigations at an advanced stage.

As well as enhancing our investigation processes for criminal cases, our Cartel Branch has built very good working relationships with the Australian Federal Police and the Commonwealth Director of Public Prosecutions.

They have also developed close working relationships with our international counterparts, including those in our region, North America and Europe.

This gives us enormous assistance in pursuing international cartels which target Australia or cause harm to Australian businesses or consumers.

We will be making announcements about the outcomes of a number of our cartel investigations progressively throughout the year.

Bigger penalties for big businesses

We have seen penalties in different competition law cases that have barely distinguished between the size of the contravening businesses.

For example, Cabcharge was penalised with a total penalty of $14 million for three contraventions of section 46 whereas Visa Worldwide Pte Ltd, part of the Visa international credit card business that has global turnover that is many, many times larger than that of Cabcharge, ended up with an $18 million sanction for contravening section 47.

We believe this does not adequately send a message of deterrence to the much larger businesses that end up paying proportionately much smaller penalties than small and medium sized businesses.

We are looking forward to the launch of a report by the OECD at the end of March on Australian sanctions for antitrust. We anticipate that it will compare Australia’s approach in this area with that in other developed competition law jurisdictions.

Put simply: large businesses should bear penalties which are commensurate to their size, in order to achieve specific and general deterrence. Making this happen is a huge priority and challenge for the ACCC in 2018.

The net economy

The most significant change to all our lives is the prevalence of the net economy.

To meet the demands of the net economy and capture the greatest economic benefit, the competition and consumer principles we champion need to be adopted in these new technology frontiers.

Let me give examples of why, and what we are doing to make that so.

Communications Market Study

The Communications Market Study commenced in September 2016 and is now nearing completion. We are aiming to release the final report around Easter.

The study responds to the significant changes occurring in the communications sector, including technological change and product innovation, as well as the major structural changes flowing from the NBN deployment.

Our draft report in October 2017 found that there is strong price competition between the major service providers despite considerable concentration in both fixed and mobile retail markets.

There were, however, areas for attention, and the draft report put forward a number of proposed findings, recommendations and actions for change.

Feedback on the draft has suggested, though, that we should give further consideration to which areas of the sector require regulatory attention, and which do not.

We have taken this on board and look forward to sharing our conclusions in the final report.

Consumer data

The government has recognised that access to consumer data is a critical competition and consumer issue which the ACCC is well placed to protect. In the Fact Sheet accompanying the Treasurer's speech on 9 February on Open Banking the following was said.

As part of its response to the Productivity Commission’s report Inquiry into Data Availability and Use the Government has committed to a dual-regulator model, including the ACCC as the lead regulator, with strong support from the Office of the Australian Information Commissioner.⁴

This is a hugely important pro competition and pro consumer innovation.

At the heart of the proposals is giving consumers access to the data that is held about them by business, including the ability to direct that such data be copied and provided to a third party.

International experience, especially in banking, has shown that giving consumers access to their data – known as the ‘right to data’ – increases competition as it gives consumers more scope to compare competing offers, make more informed choices and move their business.

Data portability increases competition, particularly for more complex products and services, and creates scope for businesses to make more tailored offerings, including to innovate new or different products that better meet their needs.

The recently released report on Open Banking from Treasury⁵ describes how it would apply in banking.

Most importantly, this review sets the blueprint for other sectors, and the government has announced that the consumer data right will apply initially in the banking, telecommunications and energy sectors.

The review of consumer data is, at its heart, a competition and consumer reform, and placing it within a competition and consumer framework will help make a shift to data being seen as an asset rather than a liability.

While very much delivering competition benefits, we also agree with the report that trust and confidence in the system are essential to its success, and that safeguards to protect privacy and security, and to ensure accountability, are essential.

Digital platforms inquiry

Finally, in December 2017 the government directed the ACCC to undertake an 18-month inquiry into digital platforms. This is a fundamentally important inquiry.

The inquiry is examining the impact of search engines, social media, and other internet aggregators on competition in markets for media and advertising services.

The inquiry will have particular regard to the supply of news and journalistic content, and the implications for media content creators, advertisers and consumers.

Concerns about the influence of digital platforms have become prominent in recent years, on very many fronts, and this inquiry is likely the first of its kind to explore broadly the competition and consumer implications.

A key question will be how much consumers know about the amount and use of the data about them that is collected and sold by the digital platforms.

As this inquiry is at the direction of the government, the ACCC has the option to compel information from relevant companies using Part VIIA of the CCA.

We are currently in the early stages, and formal consultation via an Issues Paper will start at the end of February 2018. A preliminary report is due by 3 December 2018 and a final report by 3 June 2019.

Energy

Turning to much more immediate issues, as I have repeatedly said Australia faces an energy affordability crisis. This has upended one of Australia’s core sources of competitive advantages, and caused significant consumer harm.

It must be fixed.

Through our Retail Electricity Pricing Inquiry, and our Gas Inquiry, we are solely focused on affordability.

With both Inquiries we face an enormous challenge. We are well aware that Australia needs solutions.

We will do all we can to provide them.

Priorities in 2018

As is now our custom, today it is my pleasure to formally launch the ACCC’s Enforcement and Compliance priorities for 2018.

I do not intend here to mention them all; I am sure you will all read the formal document carefully.

To reinforce my earlier comments about the Harper legislation, misuse of market power and concerted practices will be key ACCC enforcement priorities in 2018. As you would expect, the ACCC fought hard for these provisions and we will be using them.

Small business can expect us to continue our work in relation to Unfair Contracts Terms business-to-business.

In 2017 we took a number of actions in relation to unfair contract terms; these are essentially contracts in which terms are substantially and unfairly weighted to the benefit of one party and cannot be negotiated. Where a court finds these terms to be unfair, they are declared void and are unenforceable.

These unfair contracts relate to small business contracts demonstrating our interest in matters that involve substantial small business detriment. Pursing such matters will continue to be a priority in 2018.

Ensuring small business receives the protections of industry codes, with a focus on Franchising Code of Conduct issues involving large or national franchisors, will also remain a priority in 2018.

I noted earlier that our market studies are the start of a process, not the end. We don’t write reports to then leave them in a drawer. New car retailing proves that.

In 2018 the consumer issues we identified in 2017’s New Car Retailing Industry market study, including responses by retailers and manufacturers to consumer guarantee claims, will be progressed. We will give effect to our recommendations from the report about greater guidance and will continue to take action against traders where their approach is inconsistent with the law.

We will also seek to progress all the other recommendations, particularly in relation to the information given to independent repairers.

Consumer issues in the provision of broadband services, including addressing misleading speed claims and statements made during the transition to the NBN, have become one of the ACCC’s most prominent issues in the past two years and highlights the importance of both our consumer and competition focus.

The first report of the ACCC’s Measuring Broadband Australia program will be released shortly, and our commitment to truth in advertising related to broadband speeds is making it easier for Australians to choose a service provider.

You have seen a number of ACCC enforcement actions in 2017 and can expect further interventions this year.

This work should be seen as part of a suite of work the ACCC is taking in the net economy, and includes competition and consumer issues concerning the use of digital platforms, algorithms and consumer data, some of which I outlined earlier.

Another essential service that became a focus last year was energy which I have already referred to. The ACCC’s retail electricity pricing inquiry report and the ACCC’s wholesale gas inquiry have given us, and the wider community, a far stronger understanding of the issues and pressures around rising energy prices.

Armed with the clear findings on the causes of the problem, the ACCC will now focus on making recommendations that will improve electricity affordability across the National Electricity Market.

We will provide recommendations for reform in our final report, which will be provided to the Treasurer at the end of June 2018.

As the economy-wide competition regulator, the ACCC has always had responsibility for tackling anticompetitive conduct in the financial services sector. Our late 2016 actions against ANZ and Macquarie Bank illustrate this.

In the 2017/18 Budget, the government gave us additional resources to set up a dedicated Financial Services Unit.

In addition to examining anticompetitive conduct, the FSU will proactively identify competition issues in the sector and conduct market studies.

Importantly, the ACCC is due to release its interim report into residential mortgage pricing shortly. As directed by the Treasurer, a key focus will be on transparency, particularly how the major banks balance the interests of consumers and shareholders in making their interest rate decisions.

Our final report will be released after June 2018, following which we will transition to our market studies work, focussing on general competition issues. As was always envisaged, the PC’s draft report has identified many issues that we will consider further.

Consumer guarantees involving large or national traders avoiding or misrepresenting consumer guarantee rights will be a focus in 2018. This is a perennial issue for the ACCC but it seems a case of two steps forward and one back each time we prioritise it.

Consistent with our enforcement and compliance model, this year we will return our focus to large national traders for whom we will have a low tolerance when they mislead consumers as to their rights or set up practices and procedures that fail to deliver consumers the protection they are entitled to. We will work with other stakeholders to empower consumers so that they can assert their rights with whomever they deal.

Consumer agencies around the world are currently tackling the largest recall I can remember: Takata airbags.

It is estimated that worldwide around 100 million cars are affected by the defective Takata airbags and around 3.6 million are in Australia. Further, we estimate there are around 25,000 cars on Australian roads which still contain the most dangerous types of faulty airbags, called ‘alpha’ airbags.

Due to the potential for serious injury or death, we have established a dedicated team to handle the recall and resolve the issue as quickly as possible.

This year the ACCC will continue doing market studies and inquiries to enhance our knowledge of competition and consumer law issues in agricultural supply chains. Our work in this area will involve:

• completing the Dairy Inquiry (report to Treasurer due 30 April), and
• continuing to advocate for improved transparency and competition in the cattle and beef industry, following our market study of that sector.

Enforcing the CCA and ACL in agricultural industries continues to be a priority. This year our focus is on enforcing the recently revised horticulture code and continuing our investigations of UCTs, among various other competition and consumer law investigations.

The ACCC’s Commercial Construction Unit continues its role in examining competition and related issues in the construction industry.

Over the last 12 months the CCU has met with a wide range of participants in the commercial construction sector, and will continue its engagement and advocacy.

The CCU has assessed a number of matters that we have identified through proactive work or that industry members have raised with us, including allegations of cartel conduct, other types of potentially anticompetitive arrangements, undue coercion, unconscionable conduct and unfair contract terms.

In addition to its investigations and the assessment of new issues that come to our attention, in 2018 the CCU is likely to see the conclusion of a number of its investigations, including through enforcement action.

Almost all that I have mentioned today relates to the ACCC’s activities in Australia, as would be expected. However, the ACCC also has an important role as a competition and consumer advocate throughout the region.

As such, in 2018 the ACCC will continue to prioritise our work with international counterparts.

Just as we benefit from collaboration with many competition agencies across the globe, so too do we extend a helping hand to less-established agencies.

Since 2014, the ACCC has managed the Competition Law Implementation Program (also known as ‘CLIP’) using aid funds targeting implementation of the ASEAN-Australian New Zealand Free Trade Agreement (AANZFTA).

This is a demand-driven program of practical assistance delivered by competition enforcers for competition enforcers. CLIP aims to help our ASEAN colleagues develop the capability to effectively implement their own competition laws.

We were delighted to receive confirmation last week that a further A$2.6 million in funding has been approved to extend CLIP until December 2019.

This brings the total investment in CLIP to date to a formidable A$7.7 million.

CLIP assistance has reached an audience of well over 1000 people and the CLIP alumna network is growing thick and fast, on both sides of the equator!

Progress introducing competition law has been significant in ASEAN nations.

When CLIP started in 2014, five of 10 ASEAN member states had a national competition law; now nine out of 10 do.

CLIP has supported ASEAN competition officials to make significant progress toward competition law implementation including through the creation of new agencies, advocacy for law reform, and promoting an awareness of competition and its benefits.

The next phase of CLIP will be focused on supporting our regional colleagues to build practical expertise and knowledge to enforce their laws, through activities that will develop individual and institutional capacity. Usually this involves ACCC staff travelling to these countries to share their skills and experience.

With a number of relatively young competition enforcers working hard to establish a track record, demand for assistance under CLIP is as strong as ever, and as the region’s economies become further integrated, the more cooperation we have, the more Australian consumers will benefit from growing regional capacity.

Conclusion

Ladies and gentlemen, 2018 will be an exciting and full year.

We are looking forward to it.

I trust you all are as well.

Thank you for your time today.