Criminal cartel investment pays off

5 August 2017

For the first time in over 100 years in Australia, a cartelist was convicted, sentenced and fined for a breach of the criminal law yesterday. Despite NYK pleading guilty and cooperating with the prosecution, the $25 million fine is the second largest ever imposed under the Competition and Consumer Act (2010).

Speaking at the Law Council of Australia Competition and Consumer Committee Workshop in Melbourne, Chairman Rod Sims said the verdict vindicates the increased dedicated resources the ACCC has allocated over the past three years to cartel investigations.

“We have built a substantial team of specialist criminal cartel investigators. This has been a huge investment by the ACCC. We now have a strong capacity to conduct careful and thorough criminal investigations,” Mr Sims said.

“As a consequence, we have provided briefs of evidence to the Commonwealth Director of Public Prosecutions (CDPP) on a number of cartel-related matters. We look forward to the CDPP assessing and determining whether there is a basis for commencing prosecutions against any of the parties we have identified.”

“To put all this another way, our criminal cartel machine is now built, and running at its appropriate capacity. You will now see its continuing output.”

Mr Sims also took the opportunity to outline a new more intensive information-gathering approach which the ACCC will now adopt when reviewing the very small number of merger proposals it receives each year which are contentious.  Mr Sims noted that in the past six years, the public review of mergers has become increasingly more complex and contentious.

The new approach is in response to a number of cases in the Australian Competition Tribunal and the Federal Court in which contentious mergers have been allowed to proceed.

However this is not a recent trend; significantly, there have been no mergers blocked by the Tribunal or the Federal Court for at least the last 20 years.

“Mergers that present significant and clear competition concerns are more likely to be resolved either by the parties negotiating a remedy or making the decision to abandon the transaction. In the last financial year, there were two mergers cleared subject to remedies and eight were withdrawn following the ACCC releasing a statement of issues. It is the more marginal cases that present the greatest challenge for the ACCC and the ones that are most likely to end up being litigated,” Mr Sims said.

“Criticisms directed to the ACCC’s approach in these cases were that we were being too theoretical and lacking in commercial reality. In these cases, we considered that the merged entity would have the ability and incentive post acquisition to raise prices and lower service, and that therefore they would act rationally. It is clear, however, that our current approach to merger review and litigation preparation is not resulting in adequately probative and persuasive evidence for the Tribunal or Federal Court. We have heard the message.”

In response, the ACCC will gather substantially more evidence for future Tribunal applications or Court proceedings.

“More information from the merger parties will assist ACCC decision making as we have more information revealed through more documents and data. This will result in an increase in the number of s155 notices, involving examinations under oath and significant document requests,” Mr Sims said.

‘s155 notices’ refer to section 155 of the Competition and Consumer Act 2010. Notices are used by the ACCC to gather information, documents and evidence about potential contraventions of the law and to assist with specific ACCC decisions, such as merger deliberations.

“This can be expected to increase the burden on the merger parties and the ACCC. In most cases, however, we expect to consult with the merger parties prior to issuing notices, to ensure that we get the evidence we need from the most probative sources in the most efficient way possible,” Mr Sims said.

“While I don’t think we are yet heading towards formal notices that are as broad-reaching as the US Department of Justice requests, which typically involve the production of millions of documents and access to nearly all relevant data the merger parties have, our new approach is a change from past practice.”

“It is also important to emphasise that issuing s155 notices is not an indication the ACCC will oppose the matter. Indeed, often the response to the notices will provide the evidence that gives the Commissioners the confidence that there are not significant competition issues,” Mr Sims said.

“The other significant impact will be on timing. It takes time to consult on and issue notices, for parties to respond and for us to review the materials. I think you will now see some lengthening of our timelines on contentious mergers, but we will continue to have regard to commercial timing pressures. By comparison with overseas regulators the ACCC has traditionally been very quick to assess mergers. So even with an extension to our timelines arising from greater use of s155 notices it is unlikely that our timelines will approach those overseas.”

ACCC Chairman Rod Sims’s address to the Law Council Annual General Meeting can be read at Law Council of Australia.

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