Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

Today I introduce the government’s bill to criminalise serious cartel conduct.

Competition is the primary means of ensuring that consumers get the best product or service for the lowest price possible. Competition enhances Australia’s welfare generally, because the efficiencies it creates lead to improved productivity and ultimately increased standards of living.

Cartels are widely condemned as the most egregious forms of anticompetitive behaviour. At its heart, a cartel is an agreement between competitors not to compete. Cartel conduct harms consumers, businesses and the economy by increasing prices, reducing choice and distorting innovation processes.

The total annual cost of such conduct is difficult to quantify because the effects are dispersed and it is by its nature secretive, but it is likely to exceed many millions of dollars to the Australian economy each year, and many billions worldwide.

This bill makes much needed changes to the Trade Practices Act 1974 and will operate to deter cartel conduct by widening the range of regulatory responses available. Furthermore, it will bring Australia into line with its major trading partners and developed nations. In the international context, 15 OECD members, including the United States, Canada and the United Kingdom, have criminal sanctions for cartel conduct.

The bill has its origin in the 2003 Review of the Competition Provisions of the Trade Practices Act, chaired by Sir Daryl Dawson. The Dawson review recognised growing international experience showing that criminal sanctions are effective in deterring serious cartel conduct. It recommended the introduction of criminal penalties in Australia.

However, the Dawson review also considered that a number of issues needed to be resolved before such penalties could be introduced. Principally, these issues concerned the definition of a criminal offence, and the implementation of an effective leniency or immunity policy in the Australian context.

In the lead-up to the 2007 federal election, Labor committed to introducing legislation to implement the Dawson review’s recommendation. The former Treasurer, the member for Higgins, had committed to introducing this important reform but later reneged on his promise. In fact, the former government ignored 15 separate warnings from the ACCC on the need for reforms that would see jail terms introduced for company executives who are involved in cartel conduct. On the other hand, we were strongly supportive of the need for this legislation while in opposition, and remain so in government.

Although the Dawson review presented a strong case for the introduction of criminal sanctions, I considered that such a significant reform warranted close engagement with stakeholders. As a result, over the last 12 months the government has undertaken extensive consultation.

On 11 January this year, I released an exposure draft bill for consultation, as well as a discussion paper and a draft memorandum of understanding between the Australian Competition and Consumer Commission and the Commonwealth Director of Public Prosecutions. The discussion paper sought views on the proposed criminal and civil prohibitions, and on investigative tools such as telephone interception applicable to the proposed offences.

Further, following that period of public consultation, I held a number of consultations with trade practices and criminal law experts.

I wish to thank all those who gave their advice during the consultation process in written submissions or direct involvement in roundtable discussions.

I particularly thank Professor Bob Baxt, Brent Fisse, Russell Miller, Roger Featherston, Ross Ray, David Martino, Norman O’Bryan, Philip Williams, David Neal and Mark Dreyfus QC MP and, of course, the ACCC and Treasury.

Special thanks to Phil Warren from the Antitrust Division of the US Department of Justice and Phil Collins from the United Kingdom’s Office of Fair Trading for their insights into dealing with cartels in their own jurisdictions and their discussions with me.

The government has also considered the results of that consultation, and today introduces legislation to deliver on its election commitment.

I turn now to the key amendments in the bill.

Cartel provisions

The bill provides a definition of the term ‘cartel provision’ that will apply under the new criminal and civil prohibitions. In summary, a provision of a contract, arrangement or understanding can be a cartel provision if it concerns: price fixing, sharing or allocating a customer base, restricting supply or rigging a tender process. If at least two parties involved are or are likely to be in competition with each other then there may be a breach of the new provisions.

This definition of cartel provision is drawn from the OECD’s 1998 Recommendation of the Council concerning Effective Action Against Hard Core Cartels. The recommendation condemned hardcorecartels as the most serious violations of competition law. The recommendation called on OECD members to ensure that their laws adequately prohibit such cartels, and for them to provide effective sanctions, enforcement procedures and investigative tools to combat cartels.

Offences and civil penalties

The bill provides that a corporation commits an indictable offence if it makes, or gives effect to, an agreement that contains a cartel provision. The prosecution will be required to prove that the corporation knew or believed that the agreement contained a cartel provision.

Individuals can be liable for a contravention of the new offence in one of two ways. They can be an accessory to the commission of an offence, under the accessorial liability framework in the Trade Practices Act. They can also be held directly liable for the offences, as provided for in the schedule to this act. These scheduled offences mirror those in the act, and are applied as the law of each state and territory through application legislation in those jurisdictions.

The ACCC will be responsible for investigating suspected breaches of the criminal cartel offences, while the Commonwealth Director of Public Prosecutions will be responsible for their prosecution. A memorandum of understanding between the ACCC and the DPP will detail the responsibilities of each agency in the criminal investigation and prosecution of serious cartel conduct cases.

The bill also provides parallel civil penalties for cartel conduct. This will enable cartel enforcement to be carried out in a targeted way, with more serious and egregious examples of cartel conduct warranting consideration for criminal prosecution. In addition, the prohibitions enable actions for damages by private parties, under the existing mechanisms provided for under the Trade Practices Act that apply to other breaches of part IV of the act.

To address concerns regarding double jeopardy arising from the parallel criminal and civil schemes, a number of statutory bars to proceedings have been included. This has been done by extending the existing provisions in section 76B of the act to encompass the new cartel provisions. For example, where substantially the same conduct comprises a civil contravention and an offence, the court will be prevented from making a pecuniary penalty order if the person has already been convicted of an offence.

Penalties—jail term, fines and pecuniary penalties

The maximum penalties that will apply for a breach of the government’s provisions will be substantial. This reflects the government’s view of the serious harm caused to Australian consumers, businesses and markets by hardcore cartel conduct.

Individuals face a maximum jail term on conviction of 10 years, and a fine of 2,000 penalty units—or $220,000. For corporations, the maximum fine will be the greater of $10 million, or three times the value of the benefit obtained as a result of committing the offence. Where that benefit cannot be determined, the maximum fine will be 10 per cent of the corporation’s annual turnover.

The government gave extensive consideration to the appropriate jail term. The maximum jail term in the draft exposure bill released in January was five years. However, a 10-year jail term better reflects the seriousness of the crime. A maximum 10-year prison sentence already exists for directors who wilfully defraud or deceive a body corporate, or for directors who fraudulently appropriate the property of a body corporate. The proposed 10-year jail term will also put Australia on par with the United States as having the world’s longest jail terms for this serious crime.

Under the civil penalty provisions, there will be a maximum $500,000 penalty for individuals, and a penalty consistent with the maximum criminal fine for corporations.

Exceptions

The Trade Practices Act currently provides a number of exemptions and defences to the prohibitions against anticompetitive behaviour.

Similarly, the bill provides for specific exceptions to the new prohibitions. These fall into six categories:

• conduct notified under the collective bargaining regime in the act;
• contracts containing cartel provisions subject to the notification provisions or a grant of authorisation;
• contracts, arrangements or understandings between related bodies corporate;
• joint ventures contained in contracts;
• anti-overlap exceptions; and
• the price of goods or services collectively acquired, and the joint advertising of the price for resupply.

The exceptions are intended to ensure that the prohibitions do not prevent legitimate business activities that are beneficial to the economy or in the public interest.

Enforcement

One issue the government consulted widely on was the application of telecommunications interception regimes to the new offences. Cartels pose particular problems for enforcement agencies, because they often involve multiple parties operating in secret, with limited documentary evidence and enhanced reliance on oral communication. In these circumstances the discovery and proof of a cartel can be difficult, with regulators often taking on proceedings without the benefit of direct evidence of cartel conduct.

After consideration of the issues involved, the government decided that applying the telecommunications interception regime was appropriate. In addition to the benefits this will provide for the detection and prosecution of illegal cartel conduct, the use of telecommunications interception powers can be a means of finding evidence of the ‘directing minds’ behind corporate criminal behaviour.

Accordingly, the bill makes amendments to the Telecommunications (Interception and Access) Act 1979 to enable the ACCC to seek to use intercepted material in relation to cartel investigations. The bill will also provide that a breach of the proposed cartel offences will fall under the Commonwealth legislation dealing with the proceeds of crime.

Further, the bill makes amendments to ensure that the search, seizure and information gathering powers of the Trade Practices Act are better aligned with equivalent provisions in the Crimes Act.

Additional measures

Other arrangements supplement the cartel conduct measures contained in this bill. These include giving the Federal Court jurisdiction, together with the state and territory supreme courts, to deal with the new offences. This will be the first time the Federal Court has been given indictable criminal jurisdiction, recognising the expertise the Federal Court has developed in dealing with cartel conduct as a result of hearing civil cases under the existing provisions of the Trade Practices Act. I note that the proposed amendments to the Federal Court of Australia Act 1976 and other legislation will provide the necessary processes and practices for the Federal Court to hear jury trials for the indictable offences established by this bill.

As previously mentioned, the Director of Public Prosecutions and the ACCC will enter into a formal, publicly available memorandum of understanding to establish procedures for the investigation of the cartel offence, and the circumstances in which the ACCC will refer a case to the DPP for prosecution.

Existing leniency arrangements will be updated. The ACCC’s immunity policy will govern leniency for the civil prohibitions. An annexure to the prosecution policy of the Commonwealth will provide that immunity from criminal prosecution can be granted to cartel whistleblowers at an early stage in the investigation, in accordance with the criteria in the ACCC’s immunity policy.

Conclusion

The introduction of this bill fulfils a key election commitment for the government’s first year in office. Cartel conduct is theft from consumers, and the government will not tolerate it.

The prospect of a jail term for committing a cartel offence sends a clear message. Such a penalty has an immediate deterrent effect for businesses, which might otherwise dismiss fines imposed for a breach of competition law as a mere cost of doing business.

In troubling economic times, as competitors may contemplate engaging in risky behaviour in order to score a financial gain, the need for tough sanctions is even more important.

This legislation brings Australia in line with the strong anticartel stance taken by our major trading partners. The government is committed to keeping Australia’s competition laws relevant, effective and responsive to the need of Australian business and consumers. To meet this commitment, the government will continue to examine issues as they arise, to ensure that the new laws operate in an effective manner within the Australian context, and will do so in the same consultative and open manner as we have done so up until now.

I commend this very important significant bill to the House.

Debate (on motion by Mrs May) adjourned.