OECD finds Australian competition law penalties are significantly lower

26 March 2018

The ACCC will re-think its approach to penalties for breaches of the competition law after an OECD report found that average Australian penalties are significantly lower than those imposed in other comparable OECD jurisdictions.

The OECD report, Pecuniary Penalties for Competition Law Infringements in Australia, which compared the penalties for companies which breach competition laws in Australia with the EU, the UK, Germany, Japan, Korea and the USA, will be launched during a workshop in Sydney this morning.

It found that in Australia, both the maximum and average penalties imposed by the Courts for competition law breaches are significantly lower than in the OECD jurisdictions considered, especially for large firms or for long-standing anti-competitive behaviour. The OECD calculated an average Australian penalty based on a sample of cartel cases and estimated penalties would have to be increased by 12.6 times to be comparable with the level of the average penalty in these OECD countries.

“The OECD report provides valuable insight and a vital point for debate and discussion about the future of penalties in the context of competition law enforcement in Australia,” ACCC Chairman Rod Sims said.

The OECD report says that in most OECD countries financial penalties are set according to a set methodology which includes sales of the infringing company’s product. In Australia the penalties are determined by the Federal Court following an “instinctive synthesis” of various factors.

OECD Economist Dr Sean Ennis said: “This difference does not prevent Australia from imposing substantial and deterrent sanctions for competition law violations.”

“Clearer guidance on the size of penalties could be useful in Australia to ensure penalties deter and that companies are aware of the likely size of fines,” Dr Ennis said.

“The ACCC has been concerned that penalties in competition cases historically have not been sufficiently high to deter breaches, especially in cases involving large businesses. Whilst the OECD’s report focusses on penalties in competition cases, the ACCC is similarly concerned to ensure that penalties imposed in consumer cases are also high enough to achieve deterrence,” Mr Sims said.

“In particular, we acknowledge the OECD’s comment that in the past we may not have given the size of the contravening corporation sufficient weight in our penalty submissions to the Court.”

The OECD report found the comparative disparity in penalties has the potential to limit the effective deterrence of fines imposed in Australia.

“As I have said before, we do not want breaches of our competition law to be seen as an acceptable cost of doing business. We need penalties that will be large enough to be noticed by senior management and company boards, and also shareholders,” Mr Sims said.

Among its findings, the report highlights that the ACCC does not start its penalty assessment by reference to the company’s turnover or value of commerce affected.

“The ACCC sees merit in considering the relevance of this baseline approach, noting that if it was applied in Australia, it would appear likely that firms with larger turnover would generally end up with much higher penalties.”

“We will reflect carefully on the report, including the OECD’s suggestion to consider developing penalty guidelines, similar to the approach taken by the other OECD jurisdictions.”

Note to editors

A copy of Rod Sim’s speech is available at: OECD’s Pecuniary Penalties for Competition Law Infringements in Australia report.

Background

In Australia, penalties for breaches of competition law, such as cartel conduct, are determined by the courts, whereas in most of OECD other countries considered in the report, the competition regulator initially sets the penalty (although this may be subject to an appeal to a court).

The OECD report, Pecuniary Penalties for Competition Law Infringements in Australia, notes:

“… the current amount of pecuniary penalties [may be] a consequence of initial decisions based on the statutory regime in place before 2007, which set a maximum penalty amount that did not take into account the size of the infringing companies’ conduct – and which adopted relatively low pecuniary penalties by international standards.

Subsequent judgments, even those that were adopted after the law was reformed to allow for larger penalties to be imposed, merely followed precedent when imposing pecuniary penalties which were low by international standards, in accordance with the principle that similar conduct should be treated similarly.

This dynamic was then reinforced by the regulator’s propensity to settle on penalty, agreeing on the quantum of penalty with the infringing company based on existing precedent, and making those submissions to the court for a final determination.”

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53/18
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