Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Link to this | Hansard source

I rise to speak on behalf of the coalition on the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008. I think it is interesting to first take a look at what this legislation is aiming to address, which of course is cartels. A cartel is an anticompetitive arrangement between two or more businesses. In its simplest form, it is an agreement between competitors not to compete. Cartels disadvantage consumers because they reduce their choices and ultimately lead to higher prices. Here in Australia we are of course not immune to cartel operations. In recent years we have seen the application of civil penalties for cartels, most notably with the Visy case in Victoria, which related to alleged price-fixing behaviour. This case has been described as the most serious cartel case to have been ventilated in our country.

The mere existence of previous cartel operations indicates clearly that the penalties available have not been adequate in deterring serious cartel activity. Not only does our recent history indicate the existence of cartels but also in Australia we have some of the globe’s greatest concentrations of ownership, and this creates an environment that is potentially more conducive to the creation of cartels. A prime example of this is the retail sector—particularly in groceries, alcohol and hardware sales—which has been the focus of much debate about this sort of activity. Top of mind, of course, is the duopoly of Woolworths and Coles, who have cornered over 70 per cent of the Australian grocery market. While I hasten to say I am not suggesting for one moment that Coles and Woolies are running a cartel, this example indicates how close to home concentrations of ownership are for the Australian consumer and why it is important that we have vigilant laws that serve to deter the creation of cartels and ensure consumer protection.

The legislation before us this evening in the Senate gets tougher on hardcore or serious cartel conduct by the application of criminal sanctions in order to deter and detect criminal cartel conduct. It proposes to make it a criminal offence if a corporation makes or gives effect to a cartel provision—that is, conduct which can be described as price-fixing, restricting outputs in the production or supply chain, allocating customers, suppliers or territories, or bid rigging. The maximum penalties for offences under the new legislation will be, for an individual, a maximum jail term of 10 years imprisonment and a fine of $220,000 and, for a corporation, a fine that is the greater of $10 million and three times the value of the cartel.

When the coalition were in government we had identified the risks to the consumer that so-called hardcore cartels present. The need for tougher penalties, such as those described just now, was a key recommendation of the 2003 Dawson review of the Trade Practices Act. In supporting the passage of this bill through the Senate this evening, I am reinforcing, however, the coalition’s renewed commitment to the prevention and deterrence of serious cartel conduct in the future. We believe that the penalties will be a sufficient deterrent to businesses but, most particularly, will deter individuals.

It is important that this legislation is brought into effect, not only for the benefit of domestic consumers but also for Australia’s international relations and trade. Consistent legislation between different countries and trading partners in particular is important in a globalised world where businesses and cartels operate across various jurisdictions. The new legislation will ensure that Australia meets the OECD’s 1998 guidelines, which recommend that member nations ensure that their competition laws halt and deter hardcore cartels. It will also bring us into line with over 15 OECD nations, including the United States, Canada and the United Kingdom. These countries already have similar sanctions in place.

Having referred briefly to the reasons why we in the coalition believe this legislation is warranted, I would now like to mention the legislation itself. The recent Senate Standing Committee on Economics inquiry into this bill highlighted some concerns regarding the nature of the legislation we are considering. The first major concern identified is the lack of a definition of and mechanisms to distinguish criminal cartel conduct. Essentially the bill does not establish the exact point at which an activity goes beyond a civil cartel offence, dealing with anticompetitive conduct, and becomes a criminal cartel offence deserving of a jail term.

My concern here is that this creates uncertainty. How will the ACCC, the regulatory body responsible for identifying this activity, decide which matters will proceed to criminal prosecution and which will only be dealt with as a civil penalty? At what point does one identify that coordinated activity is actually hardcore cartel activity? There is a risk that even ordinary commercial transactions could be captured under the bill’s criminal offences, and this is a matter of some significance.

The Senate committee report has identified this weakness in the legislation as drafted, indicating that while the bill states:

... that a criminal cartel must have both a ‘physical’ and ‘fault’ element ... the physical element of a criminal cartel provision is not explained. The prosecutor therefore has only broad guideposts as to whether to treat an activity as a criminal, as opposed to a civil, offence. ... the bill thereby creates uncertainty as to which matters would proceed to criminal prosecution and which would only be dealt a civil penalty.

I believe we will need to agree that, while this situation is far from ideal, a simple approach to defining what is criminal and what is civil for these particular circumstances may never be resolved because so much will depend on the facts and circumstances of the particular situation at hand. In fact, the ACCC has foreshadowed these concerns, stating that ‘whether a particular conduct should be treated as criminal or civil will depend on the particular circumstances of the conduct’ under investigation.

The second concern identified in the report is the nature of the joint venture defence. There are two arguments focused on this area of concern. Some critics claim the defence is too narrow and will limit legitimate business activities. This means commercial arrangements and conduct that are not currently prohibited under the Trade Practices Act might be inadvertently captured as cartel conduct. On the other hand, some who have looked carefully at this believe that the joint venture defence is too broad and would allow illegitimate cartel conduct to go unpunished. This means the joint venture defence will provide a shield for illegitimate cartel conduct.

The Senate report examines these issues in great detail, describing all manner of existing joint business arrangements and potential joint ventures and how they will be affected by the proposed legislation. While it aims to address each of these individual concerns, as a whole the mere existence of this number of concerns and different situations between businesses that are in some form of joint venture indicates how difficult it will be to identify and prosecute criminal cartel conduct in the future, particularly in relation to those parties that participate in joint venture agreements or that operate with coordinated activity. The only clarity that I have been able to glean from this is that consistent application of the legislation threatens to be murky. It is most likely that once again this part of the cartel investigation will be best settled based on the facts of each particular case.

The third concern is the level of discretion and potentially the extra workload that will be incumbent upon the ACCC who, as I mentioned earlier, have been given responsibility for determining which alleged cartel activities to pursue criminally and to forward information on to the Commonwealth Director of Public Prosecutions. The ACCC has emphasised that the bill provides persons with the capacity to seek authorisation from them if they wish to engage in coordinated activity without legally binding agreements and in circumstances not involving joint production or supply. While this measure allows for those who might engage in activity that is coordinated but not a cartel, it highlights that the bill’s joint venture defences would shift a heavy burden onto the ACCC to conduct an authorisation process for all joint ventures not formed through a contract and not engaged in activities relating to the production and supply of goods and services.

The Senate committee report has also addressed these concerns, indicating that the claim that the bill would give the ACCC too much discretion in determining the pursuit of criminal cartel cases is overstated. The ACCC currently exercises discretion on a range of trade practice related matters which require it to investigate activities and to assess possible breaches of the act based on all the relevant circumstances. Because this bill has been a long time in the making—or at least the consideration of the issues has had a very long gestation—I have taken the time to highlight these three concerns as they all point to the fact that, in the first instance, the success of this bill in bringing criminal cartel activity as a matter of law will be subject to interpretation and action taken by the ACCC. As pointed out in the Senate committee report:

... Treasury emphasised the importance of giving the ACCC flexibility to investigate a matter on civil grounds, but with the option of going down the criminal path where appropriate.

The bill certainly provides this flexibility. The question is whether it provides too much to the point where the business community and the public at large could not be sure what will and what should guide the ACCC in pursuing criminal cartel investigations. In this instance, I welcome the Senate committee’s recommendation that, following the passage of this bill, the ACCC publish guidelines on what is and is not acceptable activity in relation to cartels. I believe that is very important. This requirement should help to address the concerns I have just indicated. It is a recommendation that I think is very germane to the consideration of this bill.

Perhaps of greatest concern is whether we have achieved the right balance—we hear a lot about getting the balance right. Again, I refer to the committee report, which states:

The bill’s undisputed strength is in establishing criminal offences and penalties for cartel conduct and providing the regulator with the flexibility needed to successfully prosecute such cases. Its weakness is this flexibility creates a level of uncertainty.

Clarity and certainty is vital if proposed legislation is to be an effective deterrent against cartel activity—indeed any activity to be the subject of legislation. Without deterring day-to-day business activity there is obvious concern that the bill in its current format is struggling in some areas to meet those requirements. However, trying to get the balance right, the other side to this argument which I believe should prevail and guide us is that this is such a complex area that it can only be investigated and addressed as the law develops on a case-by-case basis.

So, while I think it is fair to say that the legislation might be somewhat woolly, it is a situation that I think requires us to look at the bigger picture. We would not want to see this legislation delayed, particularly as the inherent nature of the many different permutations that can arise between two businesses operating together, or indeed in competition with one another, is such that it could be almost impossible to be able to nail down or define with precision and exact rulings what can be defined as criminal behaviour.

Whilst I certainly have misgivings as to some of the provisions in this legislation that we have under consideration, I do think that as a matter of principle it is important that the opposition signify our support for the bill and also indicate that we hold the view that a hard line must be taken against cartel conduct. Cartel behaviour is nothing less than theft from the Australian consumer. I think this bill has the potential to even the ledger. It is another step to ensure consumers get the best product or service for the best price. Given that cartels may operate across jurisdictions, it is also important and indeed advantageous that the Australian laws are harmonised with those of other major economies. However, such is the nature of the legislation that its successful implementation is very much a work in progress and it will only be established as individual cases come forward and the law is applied. I think it is very important that we all carefully monitor how this law is applied. Under those circumstances, I commend the bill to the Senate.

Dana Wortley (SA, Australian Labor Party) Share this | Link to this | Hansard source

I rise to make a contribution to the debate on the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008. This bill delivers on the Prime Minister’s election commitment to the protection of Australian consumers and it represents a long overdue and very specific legislative response to the criminal complexion of cartel behaviours. There are two types of cartel behaviour. A cartel may be broadly defined as an anticompetitive arrangement between two or more businesses. Such arrangements have the purpose, effect or likely effect of substantially lessening competition. Alternatively, the arrangement is identified as anticompetitive by way of an exclusionary provision or provisions. These are provisions in an agreement that prevent, restrict or limit the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of person by any of the parties to the arrangement where those parties are potential competitors or actual competitors.

We have all become familiar with anticompetitive arrangements, particularly price-fixing, in recent years due to their exposure and discussion in the media, and I welcome the shining of the light of scrutiny on such secretive and dishonest dealings. Such agreements are to the detriment of all businesses and all consumers. There are of course gradations in cartel conduct. In 1998 the OECD adopted the definition of hardcore cartel conduct as:

An anti-competitive agreement, anti-competitive concerted practice or anti-competitive arrangement by competitors to fix prices, make rigged bids or collusive tenders, establish output restrictions or quotas or share and divide markets by allocating customers, suppliers, territories or lines of commerce.

This definition still applies within the OECD and it is hardcore cartel conduct—we call it serious cartel conduct—that we are here to discuss today in the context of the Trade Practices Act.

The Trade Practices Act was introduced, I am proud to say, by the Whitlam government in 1974. Its intention was then and continues to be the safeguarding and enhancement of Australia’s welfare through the promotion of competition, fair trading and consumer protection. The act encompasses just about all market transactions between suppliers, wholesalers, retailers and consumers and between competitors. It captures anticompetitive conduct, unfair and unconscionable practices, mergers and acquisitions, product safety and labelling, prices, and industry regulation. It remains an outstanding piece of legislation and a tribute to the government that saw its passage through the parliament—that is, and I say it again, the Whitlam Labor government.

After 35 years in operation the act requires amendment to reflect movements and developments in technologies, business practices, markets and economies both locally and globally. The current part IV of the act does not specifically mention the term cartel. It does refer to anticompetitive conduct being conduct which is per se, of itself, regarded as anticompetitive. Such conduct, which includes price-fixing and resale price maintenance, is prohibited because it is so likely to be detrimental to economic welfare. Part IV also prohibits other conduct subject to a competition test. So item 2 of schedule 1 of the bill inserts a new definition, that of cartel provision.

Additionally, part IV in its present form does not incorporate criminal sanctions for cartel conduct. Such a state of affairs is unsatisfactory and cannot continue. Indeed, its remediation is long overdue. It was back in April 2003, more than six years ago, that the Trade Practices Act review committee released its review of competition provisions of the Trade Practices Act. This is often referred to as the Dawson report, as the review committee was chaired by eminent jurist Sir Daryl Dawson. The committee and its chair really did not mince words. They did not resile from their responsibilities. They stated, in accordance with an ACCC recommendation:

… there should be criminal sanctions for serious cartel behaviour. … a satisfactory definition of serious cartel behaviour needs to be developed and there needs to be a workable method of combining a clear and certain leniency policy with a criminal regime.

Despite a reasonable amount of sound and fury, the former government’s response to the Dawson report essentially signified nothing. No legislative action was taken. Why this is so is open to speculation, but perhaps I will leave that to others. However, it has been left up to Labor to do the decent thing, and that is what we intend to do.

The purpose of establishing criminal penalties for dishonest collusive conduct of the types I have outlined is threefold. The first is to provide an effective deterrent to engaging in the conduct—a deterrent of more immediate personal effect than the civil remedies now available. As the then Assistant Treasurer recently remarked in the other place:

The … bill includes a maximum 10-year jail term for individuals who partake in cartel conduct. The possibility of criminal sanctions for company executives will increase the deterrent effect for businesses that may otherwise rationalise corporate fines for cartel conduct as the cost of doing such business.

After all, it is difficult to estimate a dollar value for the loss of liberty and the shame that accompanies a criminal conviction and a jail sentence. As the highly respected Professor Allan Fels said, ‘The law must not be blind to the colour of the collar.’ The second purpose of criminal penalties in this context is to make sure that there is fairness and consistency with other types of corporate and economic crime that also attract criminal sanctions—for example, tax evasion and insider trading. The third and final purpose for the establishment of criminal penalties is that such a move will bring Australia into line with international best practice. The United States has had recourse to criminal penalties for cartel conduct since the passage of the Sherman Antitrust Act 1890 and it has strengthened its maximum prison term from three to 10 years. In 2003, the UK introduced criminal penalties that could result in an unlimited fine to an individual and/or up to five years in jail. Many other countries—among them Ireland, Germany, Japan, France, Israel and Canada—also provide for fines and imprisonment for crimes of this nature.

I will not go into exhaustive detail about the content of this bill. There are, however, some key features and provisions which are worthy of specific mention. The dishonesty element will be removed and the fault elements under the Criminal Code, being intention, knowledge or belief, will be applied to offences. A parallel system of civil prohibitions will be introduced to deal with serious cartel behaviours. This scheme will comprise the same elements as the criminal offences, but the latter will require proof beyond reasonable doubt. If parallel criminal and civil prosecutions ensue, the civil proceedings will be adjourned until the criminal proceedings are determined and, if the defendant is convicted, the civil proceedings will be discontinued.

The legal tests used to determine whether a provision qualifies as a cartel provision, as defined, have changed. The Telecommunications Interception and Access Act 1979 will be amended to allow the use of telecommunications intercepts in investigations. A joint venture defence will apply in civil and criminal actions if the parties to an agreement are or will be carrying on a joint venture and the cartel provision goes to the purpose of that joint venture. A maximum 10-year term of imprisonment and/or a fine of $220,000 for individuals will be established and augmented by the strengthening of sanctions for corporations. The protection of whistleblowers will be ensured and the offer of immunity to the first eligible cartel member to expose an arrangement will be available. In such cases, the ACCC will manage the immunity in consultation with the DPP. These measures are to be applauded.

Anticompetitive behaviours are abhorrent. They are morally reprehensible. The community rejects them. Our government will deal with them decisively. It is in the light of these strictures that I commend the provisions of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill here this evening.

Nick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank Senators Coonan and Wortley for taking part in the debate on the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008. It was a very useful background of some of the cartel conduct in trade practices history.

For over a decade, the Organisation for Economic Cooperation and Development has recognised that hardcore cartels are one of the most serious and harmful forms of anticompetitive conduct. In 1998 the OECD recommended that members ensure that their competition laws halt and deter hardcore cartels. In 2005 the OECD proposed that countries should consider introducing and imposing sanctions against individuals, including criminal sanctions. The introduction of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 into the parliament demonstrates this government’s commitment to preventing and deterring serious cartel conduct. The bill brings Australia into line with over 15 OECD nations that provide criminal sanctions for such conduct. The government has listened carefully to the concerns of interested parties in developing the legislation. While the bill is modelled on international proposals, the elements it contains will ensure its effective operation within the Australian context. The government will monitor its operation to ensure that it meets its objectives.

On 4 December 2008, the bill was referred to the Senate Standing Committee on Economics for inquiry and report. The committee produced its report on 26 February 2009. The committee as a whole recommended that the bill be passed by the Senate. I note that the government has moved additional minor amendments to clarify the meaning of ‘contract’ under the bill. The committee also recommended that, following passage of the bill, the ACCC issue guidelines on those factors that are, in all the circumstances, most likely to lead it to refer a matter to the DPP as a possible criminal offence. I note that the ACCC is awaiting the passage of this legislation to enable it to provide such guidance. I thank members of the committee for their efforts in reporting on this important piece of legislation. In particular, I want to refer to class competition orders, a matter raised by a Senator Xenophon in the minority report. I can state for the record that we are happy to consider this on a future occasion.

The bill demonstrates the government’s ongoing commitment to strengthening laws promoting competition. Strong, lawful competition is a key means of ensuring that consumers get the best product or service for the lowest price possible. The bill delivers on our commitment to move legislation to criminalise serious cartel conduct. The bill delivers for business, consumers and the economy because the sanctions it introduces will meaningfully deter such conduct.

Question agreed to.

Bill read a second time.