18/11/2010 - 00:00

Tough penalties for collusion in cartels

18/11/2010 - 00:00

Bookmark

Save articles for future reference.

Cartel conduct such as ‘cover pricing’ hurts consumers and businesses, and those involved face up to 10 years in jail.

ONE business person puts in a friendly call to another saying something along the lines of: ‘I know you don’t want that tender because you’re too busy already. But I also know you need to put in some kind of bid to stay on the panel for work down the track.

‘Listen, bid about $550,000 for this job and I can guarantee you won’t win. Pete from Metro’s on board too. By the way, he tells me you’re keener on that job down south next month, so we’ll both bid high on that and it’s all yours.’

This ‘cover pricing’ is cartel conduct and has been illegal under the Trade Practices Act for more than 30 years. It hurts consumers, businesses and the country’s overall prosperity.

Combating cartels is a high priority for us at the Australian Competition and Consumer Commission. We have taken many companies to court over the years for cartel conduct and continue to do so.

Readers might recall earlier this year that the Federal Court of Australia in Perth handed down its final orders in a case concerning a cartel in the Western Australian air-conditioning industry. The case involved bid rigging and price fixing on projects valued at almost $130 million.

Over the duration of the proceedings, the court imposed $9.2 million in penalties, making the action the largest trade-practices matter run in WA so far. Projects affected included a CSIRO site at Bentley, Belmont Shopping Centre, Rydges Hotel Chiller, and work at the University of WA, Nickol Bay Hospital Chisholm Catholic College and Murdoch University.

The thing to note now is that the law has only got tougher in the time since that cartel was in operation. The parties participating in that cartel were fined. A person participating in a cartel now can be jailed.

The Trade Practices Act prohibits competitors agreeing to do such things as fix prices, allocate customers or territories, limit output, rig bids or otherwise make and carry out arrangements that substantially lessen competition.

And since changes to the law last year, people engaging in those first four particular forms of cartel conduct can be sent to jail for up to 10 years.

So it can be found to be illegal for a businessperson to call up a counterpart and agree, for example, to: leave each other’s customers alone or stay out of each other’s ‘patch’; to charge the same surcharge, for example, for fuel or security costs; or even to both reduce production over the summer slowdown. Where competitors choose to collude rather than compete, a cartel is formed.

The penalties are tough. In addition to a prison sentence for individuals, a business found to have engaged in cartel conduct can be ordered to pay the greater of $10 million, three times the value of the benefit obtained or 10 per cent of the relevant company’s and related companies’ turnover for the year. Individuals can also be fined $220,000 and disqualified from being company directors.

The ACCC has extensive powers to investigate cartels. It may compel any person or company to provide information and may, under a warrant, search the premises of companies and company officers and also may seek phone taps.

The ACCC has a duty to refer all matters that may warrant criminal prosecution to the Commonwealth Director of Public Prosecutions. All cartel cases are now automatically commenced as criminal investigations.

Under its immunity policy, the ACCC agrees not to take civil proceedings against the first cartel participant – an individual or a corporation – to bring a cartel to the ACCC’s attention and to cooperate with the ACCC’s investigation. The DPP will also use the same criteria as the ACCC for considering immunity and have regard to the ACCC’s recommendation.

The ACCC’s immunity policy has been extremely successful in detecting cartels, creating a strong incentive to be the first to break ranks. The message is simple: don’t be beaten in the ‘rush to the confessional’.

We can provide guidance materials on such things as how to detect cartels and limit the opportunities for collusion in tenders and procurement. For example, we have a practical guide for procurement officers with tips such as not penalising businesses for missing a tender round, removing an incentive to put in false bids.

These materials and others are available from our website.

There is rarely a simple indicator of cartel activity but some warning signs might suggest a closer look is in order. For example, signs of possible bid rigging might include the following:

• regular suppliers decline to tender for no obvious reason;

• bidders appear to include unacceptable terms in their tenders deliberately;

• bidders sometimes bid low and sometimes high on what appears to be the same type of supply; and

• the winning firm regularly subcontracts to competitors that submitted higher tenders.

The Trade Practices Act provides mechanisms where businesses can, for example, apply to the ACCC to be authorised to cooperate on such things as common industry standards, or notify the ACCC that they wish to form a buying group to deal with common suppliers.

If you are unclear on where you stand or if you think you or your competitors or other businesses might be crossing the line, get informed advice on your position – and talk to the ACCC.

• Graeme Samuel is chairman of the ACCC.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options