Criminal Cartel bill gets green light from Senate Committee

On 26 February, the Senate Economics Committee recommended that the Senate pass the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 ('criminal cartel bill') without amendment. The recommendation to criminalise cartels is welcome but the report is disappointing. Its limited scope and analysis and the errors and inconsistencies it contains leave the overwhelming impression that the Committee was more concerned about ensuring quick passage of the bill than with any attempt to address concerns about its content.

Limited scope and analysis

The Report is limited in scope, addressing only three aspects of the substantial bill.

The first is the distinction between criminal and civil cartel conduct following the removal of the 'dishonesty' element from the original draft bill. Despite concern about what conduct might be considered criminal, the Committee recommended only that the ACCC release guidelines to assist business in understanding the type of behaviour likely to be pursued criminally.

Second, the Committee considered joint venture exemptions which, inexplicably, are narrower for criminal cartels than for existing civil cartels. The Committee observed that some thought the exemption too broad, some thought it too narrow, and that therefore the legislation probably represented an appropriate balance. This flawed 'analysis' suggests the Committee did not adequately understand the exemption.

Third, the Committee considered the scope of ACCC powers, briefly concluding that that any concerns about ACCC powers resulting from the bill were 'overstated'.

Errors and inconsistencies

There are errors and inconsistencies peppered throughout the Report suggesting perfunctory consideration of the merits and complexity of the bill. The following deserve special attention.

1. The statement that 'third line forcing' and 'resale price maintenance' (RPM) are prohibited as 'anti-competitive' in the context of a 'contract, arrangement or understanding' between competitors. In fact, both are prohibited per se, do not require a contract, arrangement or understanding and are generally not (and certainly not required to be) between competitors.

2. The statement that authorisation can be granted for RPM, third line forcing and exclusionary conduct based on a 'test as to whether it has substantially lessened competition in a market'. Wrong again: authorisation for these forms of conduct is determined by whether there is a public benefit justifying that conduct.

3. The statement that the Act's 'anti-overlap provisions' are exceptions to the 'per se' provisions. This is simply wrong.

4. Various statements suggesting any business entering into an agreement restricting supply, even if innocent, will be subject to criminal penalties. First, the agreement must be between competitors and second, adoption of the word 'innocent'; here is misleading; proof that the corporation or individual 'knew or believed that the contract contained the cartel provision'; is required. Genuinely 'innocent' conduct will not be caught – at least no more than for any other criminal behaviour. Disturbingly, the Committee does not appear troubled by the prospect of genuinely 'innocent' conduct being caught; relying on the ACCC to exercise appropriate judgment.

5. The inability of the Committee to articulate a consistent statement about the 'purpose' of the bill.

Where to from here

It has been more than six years since the Dawson Committee recommended criminal penalties for cartel conduct. A working party report to the Government in 2004 was never released publicly and a recent attempt to obtain it through a FOI claim was unsuccessful. The Howard Government never acted on a 2005 pledge to introduce criminal cartel legislation. No detailed response was ever released to the 2008 Discussion Paper on Criminal Penalties for Serious Cartel Conduct.

The drafting of the criminal cartel bill has been shrouded in secrecy, for reasons known only to the governments involved. The Senate Report was the first publicly released government document addressing concerns raised about the bill, and it has failed in all respects.

The scope and complexity of the proposed new law will give rise to uncertainty for some time. Genuine concerns have been ignored, or dismissed, without adequate explanation.

The criminalisation of cartels is desirable. The economic damage they cause is well documented and civil penalties, no matter the size, have failed to provide adequate deterrence. The consequences of criminalisation are serious, with a proposed jail term of up to 10 years for each contravention. It is important that we 'get it right'. Australia has waited many years for criminal cartel penalties; it would be wise to wait a bit longer and permit a full and transparent public consultation and review process before passing such far-reaching legislation.