Detailed plans for jail sentences for big business for collusion for the most serious contraventions of the competition provisions of the Trade Practices Act 1974 and for better protection for small business from monopolists were made public today in the Australian Competition and Consumer Commission submission to the Trade Practices Act Review.
The ACCC's key recommendations are:
- the introduction of criminal sanctions as in many other countries, including jail for up to seven years, for the most serious breaches of the competition provisions of the Act, i.e. 'hard-core cartels' by big business
- the improvement of the effectiveness of the mis-use of market power provisions of the Act by incorporating an 'effects test' to supplement the existing purpose test. Such a test would allow courts to consider as they do in most other countries if particular conduct had the purpose or effect of damaging competition
- the introduction of a notification process for small business collective bargaining, modelled on the current notification process for exclusive dealing
- no change to the already effective merger provisions and processes for merger review.
"The major changes proposed would bring Australia into line with other countries", ACCC Chairman, Professor Allan Fels, said today. "It would make the Act serve the public interest better.
"The ACCC does not believe there is a need for any significant change to its informal clearance process for merger assessment nor the merger law itself".
The ACCC has identified key substantive reforms to the competition section of the Act to achieve a more effective, fair, timely and accessible framework for competition law. Nevertheless, the ACCC will itself study all submissions to the inquiry. If there are ways of improving the operation of the Act, they should be considered.
"The current law has played an important role in maintaining competition in the Australian economy, ensuring lower prices and higher quality goods and services for all Australians. This review provides the opportunity to re-shape the Act to assist Australian business to better compete in the global economy.
"Australia, once a leader in trade practices law, is now lagging behind. Many of our larger companies want to operate in the global environment; Australia's competition laws lag behind other countries on several important aspects".
The ACCC proposes that, at the discretion of the court, individual executives and employees of Australia's largest businesses would face jail sentences of up to seven years if the courts found them to have been personally involved in anti-competitive behaviour such as collusion. As well the maximum penalties would be lifted from the current $10 million for a corporation to include penalties of up to three times the value of any commercial gain from collusion or, if it cannot be estimated, 10 per cent of the corporation's turnover.
"The ACCC suggests that only large companies which satisfied two of the following three criteria should be liable for criminal penalties:
- gross revenue in excess of $100 million
- gross asset value in excess of $30 million
- more than 100 employees.
"The fear of possible jail sentences is a far more effective deterrent for big business than fines. An enforcement regime based purely on civil remedies is inappropriate having regard to the nature and effects of hard-core collusion".
"Hardcore collusion is morally reprehensible and abhorrent to the vast majority of business people as well as the public. It is a form of theft, comparable to fraud and little different from classes of corporate crime that already attract criminal sentences.
Professor Fels said the proposed introduction of criminal sanctions would apply only to larger corporations where there was greater scope for highly profitable collusion. Such provisions already exist overseas, such as in the United States.
"The ACCC believes it should be a criminal offence for high level companies to collude with their competitors to fix prices, rig bids and allocate markets. Individual executives and employees personally involved in breaking the law would be liable, upon conviction, for jail sentences.
"The new criminal sanctions would operate concurrently with existing sanctions and would allow the Director of Public Prosecutions and the ACCC the option to tailor the remedy sought from a court according to the gravity of the offending conduct.
"There would be many safeguards. As with all criminal law, these cases would be tried before a judge and jury, with the requirement for a unanimous verdict, and proof beyond reasonable doubt".
Small business, including the rural professional sectors, and unions would not be liable for criminal sanctions.
Mis-use of market power (section 46)
The ACCC proposes to bring Australia's anti-monopoly laws into line with North America and Europe by making it unlawful for powerful firms to take advantage of their power illegitimately if the effect is to damage competition.
"Presently, Australia, unlike most countries, limits the prohibition to behaviour that can be proven in a Court to have the purpose of lessening competition", Professor Fels said. "Limiting the law to cases where purpose can be shown is the wrong principle and is adopted in few countries. If illegitimate anti-competitive behaviour by business has the effect of seriously and permanently damaging competition it should be prohibited as in other countries.
"The ACCC is also concerned that cases under this part of the law generally have been decided over five years or more from the date of the alleged offence.
"Only lawyers, not competition, win from that", Professor Fels said. "The ACCC proposes that there be 'cease and desist' orders of the kind available in most countries to enable it to temporarily stop damage to competition by big business anti competitive behaviour.
"The ACCC argues that the inclusion of an 'effects test' will bring the mis-use of market power provision into balance with the rest of the competition provisions of the Act, since they all contain an effects test, and better serve the Act's objective.
"From experience, the ACCC believes the section as currently drafted misses conduct with significant harm to the competitive processes where powerful firms take advantage of market power. The ACCC believes that section 46 currently contains significant safeguards to protect legitimate competitive conduct. The High Court has made its view clear that section 46 is about protecting competition and the interests of consumers. This will not be changed by the introduction of an effects test.
"The introduction of the effects test would bring the section into line with similar law in overseas, including the US and Europe.
"The existence of the effects test is not an issue in these countries, but has attracted virulent opposition from big Australian businesses which make the unwarranted claim that the amendment would threaten competition. In fact, it would strengthen it and give legitimate protection to smaller businesses.
"The ACCC is concerned about the significant length of time between alleged anti-competitive conduct and final legal resolution. Cases tend to take many years. If the aim of the law is to protect competition, verdicts that occur years after the behaviour may not achieve that goal. The ACCC's preferred approach to this problem is the introduction of 'cease and desist' orders, similar to those available to regulatory bodies overseas. Such orders would help protect competitors, including new entrants, from damage whilst other legal processes to deal with the matter permanently are under way. The use of 'interim injunctions' is too difficult in many situations.
"The ACCC sees a need for addressing small business concerns about collective bargaining and related concerns with the authorisation process.
"The ACCC's proposal is for a notification process that would be faster, less expensive and simple than the current method. It would be restricted to small business dealing with large businesses where it can be established such businesses have substantial market power, similar to the notification process for exclusive dealing".
The ACCC does not see the need for a significant change to the merger law or the informal clearance process for merger assessment.
"Merger statistics show that while the number of mergers examined has been steadily rising, the number of mergers initially opposed is very small – averaging between four and five per cent. Of these, many have been resolved through the use of court-enforceable undertakings. In effect, less than two per cent of mergers have been opposed between 1999-2000 and 2000-2001. The ACCC has a reasonably quick turnaround on merger matters and its time frames compare favourably with other OECD countries.
"The ACCC is unaware of any compelling arguments requiring a major overhaul of the current arrangements and is therefore not making any recommendations for change".
The ACCC submission provides a detailed outline of its procedures, decision-making processes and areas of accountability.
"The ACCC strongly believes that the existing legal framework and processes are appropriately balanced and that it conducts its activities in an open, fair and accountable manner. Such accountability includes courts, tribunals, Parliament and the Commonwealth Ombudsman.
"The ACCC accepts there is strong public interest in the dissemination of information about cases involving breaches of the Act and that publicity in itself plays a major role in compliance with the law.
"The media plays a critical role in the ensuring transparency and accountability of the courts and the ACCC and results in a high scrutiny of the ACCC's own processes.
"The ACCC has in place processes that ensure adequate protection of reputation where appropriate. Its approach has been endorsed in the courts".
Its basic approach is:
- once a case has been decided by a court, it is publicised
- where a case is launched, the ACCC announces the allegations. Courts have long endorsed this practice as desirable
- if a matter is already being investigated, the ACCC does not disclose this fact, save in exceptional circumstances. Currently there are more than 200 investigations which have not been made public. Thus, allegations of trial by media where the ACCC is investigating a matter have no basis. Occasionally, however, our investigation becomes known of publicly because a complainant goes to the media, or sometimes a Minister refers a matter to the ACCC.
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