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Tuesday, 10 February 2009
Page: 788

Mr BUTLER (8:02 PM) —I rise to speak in support of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008. Cartels are the white-collar version of organised crime. Essentially they represent companies colluding to squeeze undue profit from their customers and other businesses by market sharing, bid rigging, restricting output and fixing prices. Whilst their covert nature makes it difficult to determine their true impact, it is estimated that cartel behaviour causes prices to rise by 10 per cent on average, costing billions of dollars across the globe. Cartel conduct is theft, and this legislation is long overdue.

Due to the need for secrecy and containment, cartels tend to arise in industries with few competitors. Our small markets and concentrated industries make us in Australia particularly susceptible. Cartel conduct can come in many guises. For example, three major companies in our freight industry were eventually fined $11 million for a price fixing and market sharing scam that lasted for 20 years. One aspect of the deal involved customers having their freight deliberately lost or damaged if they shifted companies from the one they had been secretly allocated. It is vital that Australia is armed with strong legislation to tackle this scourge.

Globalisation has ensured that borders do not contain or constrain cartels, and we must have a global response both with the sharing of information and the enacting of tough legislation. An international vitamin cartel operating in the 1990s was estimated to have affected about US$20 billion worth of business globally. Criminal prosecutions were brought in a number of countries. In Australia in 2006, criminal proceedings were not an option but an indication of the cartel’s damaging effect was the class action brought against three multinational pharmaceutical companies for animal vitamin price-fixing being settled for $30.5 million.

We are now in a global economic and financial crisis on a scale not seen since the Great Depression. Whilst this government will do all it can to shield our country from the effects of recession, our economy does not operate in a bubble. Both internationally and locally the pressure for profits is increasing and likewise the temptation to boost those profits through cartel behaviour. Deceptive practices that raise costs for consumers and other businesses are always reprehensible, but to distort the market through artificial prices at a time of economic vulnerability is particularly dangerous. Living costs are increased by inflated prices and small businesses are strangled. On a broader scale, anticompetitive behaviour encourages a sluggish attitude to business. Captive profits reduce the drive for efficiency and innovation, leading to decreased international competitiveness and stifled growth. It is vital that we act now by sending out a clear message to business that cartels will not be tolerated, investigative powers will be effective, and penalties will be harsh. This bill, long overdue, will do just that.

In 1998, the OECD issued recommendations to all member countries for effective action against hardcore, or what we term serious, cartels. Recognising the need for concerted international action to halt and deter what the OECD called ‘the most egregious violations of competition law’, it was recommended that member countries ensure that their laws provide, in particular, effective sanctions and adequate enforcement procedures. When he was the ACCC Chairman back in 2002, Professor Allan Fels proposed introducing jail terms for serious cartel conduct. Cartels are created and maintained by the actions of individuals. These are not legitimate actions on behalf of shareholders. This is unlawful behaviour with direct personal gain in the form of increased bonuses, salaries and influence lurking behind fraudulently obtained corporate profits.

Restricting cartel prosecution to the civil arena means that penalties are limited to the financial. Corporations can find ways to restore the money levied on their executives in fines, damages or costs. What they cannot do is find ways to restore their liberty. For deterrence to be effective, the punishment must be meaningful. Australia’s biggest detected cartel case so far provides a good illustration. Between 2000 and 2005 two major companies in the cardboard industry were estimated to have overcharged businesses by around $700 million. In 2007, the company that did not blow the whistle attracted individual and corporate penalties of around $40 million. The company admitted that it would cover the fine levied on the CEO; the other individual fined was the billionaire owner.

In January 2003 the OECD recommended criminal sanctions if they were consistent with the nation’s social and legal norms. In Australia an individual can be jailed for welfare fraud or tax evasion, yet the scale of their theft is minuscule when compared to that perpetrated by a serious cartel. Jail sentences already exist for other white-collar crimes. It is entirely consistent with our social and legal norms—to use the terms of the OECD recommendation—to apply criminal sanctions to those who steal through manipulation of the market.

In 2003 the Dawson review of competition provisions in the Trade Practices Act added its weight to the calls of the ACCC and the OECD. It recognised that growing international experience showed that criminal sanctions provided effective deterrence for serious cartel conduct and recommended their introduction in Australia.

In 2005 the then Treasurer, the member for Higgins, finally announced that the Howard government would introduce criminal penalties for serious cartel conduct. This announcement proved as sincere as the promise of no GST. Despite 15 separate warnings from the ACCC, despite repeated calls from the OECD, despite our responsibilities as an OECD member state, despite other nations toughening their legislation and despite the need to protect Australians from this extortionate practice, the coalition failed to act.

Now, a decade on from the initial OECD recommendations, there can be no more excuses for dragging our feet on this important reform. Cartel conduct is notoriously difficult to detect and successfully prosecute. Strong deterrent measures, combined with effective powers for investigation, are vital to give the clearest possible message to the international business community, as well as our own business community, that Australia will not tolerate cartel activity.

In line with the ALP’s election commitments, we released a draft bill in January last year. The amendments in this bill reflect an extensive consultation process with industry experts and the consideration of international best practice. Persons involved in serious cartel conduct will now face both criminal charges and civil sanctions, with protections against double jeopardy incorporated into the Trade Practices Act.

In recognition of the need for strong deterrence, and in concert with US practice, this bill doubles the proposed maximum jail term to 10 years for serious cartel conduct. We already have the same jail term for the protection of body corporates against fraud, deceit and the fraudulent appropriation of property by their employees. Consumers and other businesses deserve no less.

Unlike our predecessors, we believe it is a contradiction in terms to claim that an individual who engages in serious cartel conduct can also be a good citizen. This is exactly the sort of message that actively encourages cartel conduct. The outward respectability of those who engage in cartel conduct should never be an excuse to whitewash unlawful activity predicated on greed and deceit.

One of the strongest weapons that enforcers of anti-cartel laws can use is whistleblower knowledge. This bill provides for protection of cartel information provided by whistleblowers as well as immunity, with some clear provisos, from civil and criminal prosecution for the first active member of a cartel to come forward. Those who hesitate stand to lose much more than their reputation, and expectations are that the strength of this legislation will bring an early rush of confessions.

A memorandum of understanding between the Department of Public Prosecutions and the ACCC provides clarity for whistleblowers by ensuring a uniform approach to immunity and leniency between the civil and criminal provisions.

This bill improves enforcement measures by removing the requirement that an offender acted dishonestly. The Dawson review had expressed concern that proving dishonesty beyond a reasonable doubt to a jury was so difficult that it would weaken enforcement. The ordinary criminal fault elements of intention, knowledge or belief will apply instead. This is in line with international best practice. The only other jurisdiction that uses the dishonesty defence is the UK, and its own experts cite that as a reason for its poor conviction rates.

Another key enforcement measure introduced by this bill is enforcers having the power to use, amongst their tools, telecommunications interception for detecting possible breaches of the law and identifying the main players. The 10-year jail term brings the cartel offences within the threshold for the use of such powers.

This bill does not endanger legitimate business operations. Joint ventures are protected. It clarifies what constitutes a cartel provision within a contract, arrangement or understanding and requires the satisfaction of two alternative tests, as well as threshold requirements for a requisite level of competition.

Serious cartel conduct is an unfortunate reality in our market and one that costs consumers, other businesses and our market economy heavily. In tough financial times, the incentive to engage in this form of theft is even higher than usual and we must not delay in implementing this long overdue legislation. I strongly commend the bill to the House.