Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

TAX LAWS AMENDMENT (TAXATION OF FINANCIAL ARRANGEMENTS) BILL 2008

The 2008 Taxation of Financial Arrangements (TOFA) Bill introduces a comprehensive framework for the taxation of financial arrangements designed to reduce tax-induced distortions to investment and financing, to facilitate efficient risk management, and to reduce compliance and administration costs.

This bill is the final stage of the TOFA reforms which were first announced in the 1992 Budget and have progressively been implemented with stage 1 legislated in 2001 and stage 2 in 2003. Stages 3 and 4 implemented by this bill were confirmed as important by Ralph Review of Taxation in 1999.

The bill will reduce tax distortions by generally ignoring the capital/revenue distinction and taxing financial arrangements based on economic substance rather than legal form. In order to align the tax treatment of economically similar financial arrangements, taxation on an accruals basis will become the standard treatment for many financial arrangements.

The bill will increase the post-tax efficiency and effectiveness of hedging and facilitate effective and efficient risk management by permitting alignment of character and tax-timing of eligible hedging arrangements.

The bill will reduce the complexity of accruals calculations present in current tax rules on discounted and deferred interest securities, and will reduce compliance and administration costs by permitting close alignment between tax and accounting outcomes on an elective basis. The bill will allow eligible taxpayers to use results from their financial reports for tax purposes.

The TOFA rules will not be applied on a mandatory basis to individual and small business taxpayers, except where significant deferral of income is involved.

The TOFA rules will not be applied on a mandatory basis to individual and small business taxpayers, except where significant deferral of income is involved. The TOFA rules will apply to taxpayers which are Approved Deposit-taking Institutions, securitisation vehicles, or entities that are required to register under the Financial Services (Collection of Data) Act if their aggregated annual turnover is $20 million or more. Superannuation funds and managed investment schemes will apply the rules if the value of their assets is $100 million or more. Other taxpayers will apply the rules if their turnover is $100 million or more, if the value of their assets is $300 million or more, or if the value of their financial assets is $100 million or more. Taxpayers who are not required to apply the TOFA rules may elect to apply the rules.

This is a significant bill which will provide some much needed certainty and coherence to the tax treatment of the taxation of financial arrangements.

The Government has embarked on considerable consultation on these matters over the last 12 months, and there are a number of changes from the legislation the former government introduced just before the last election.

I thank the officers of the Treasury and all the interested parties who have been involved in the consultation.

Because this is a complex area of the law the Government intends to monitor the implementation of this reform of Australia’s financial taxation system and will consider the need for any refinements.

Full details of the measures in this bill are contained in the explanatory memorandum.

TRADE PRACTICES AMENDMENT (CARTEL CONDUCT AND OTHER MEASURES) BILL 2008

Introduction

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 world-wide.

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.

Background

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 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 gaol terms introduced for company executives that 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 past 12 months the Government has undertaken extensive consultation.

On 11 January 2008, 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 round table discussions.

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

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

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

Key amendments in the bill

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 hard-core cartels 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 the 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 protections in section 76B of the Act to encompass the new cartel provisions. For example, where substantially the same conduct comprises both 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 – gaol term, fines and pecuniary penalties

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

Individuals face a maximum gaol 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 gaol term. The maximum gaol term in the draft exposure Bill released in January was five years. However, a 10-year gaol 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 gaol term will also put Australia on par with the United States as having the world’s longest gaol 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 re-supply.

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 on was the application of the telecommunications interception regime 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 provisions 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 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 commitment for the Government’s first year in office. Cartel conduct is theft from consumers. This Government will not tolerate it.

The prospect of a gaol 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 laws 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 into line with the strong anti-cartel 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.

Ordered that further consideration of these bills be adjourned to the first day of the next period of sittings, in accordance with standing order 111.

Ordered that the bills be listed on the Notice Paper as separate orders of the day.