ACCC charting new waters with first criminal cartel prosecution
On 18 July 2016, Japanese global shipping giant, Nippon Yusen Kabushiki Kaisha (NYK), pleaded guilty to criminal cartel conduct charges in the Federal Court of Australia.
On its face this involves a watershed moment for the ACCC, being the first successful criminal prosecution for cartel conduct, coming nearly 7 years to the day after the much heralded introduction of criminal sanctions as a powerful deterrent to companies and executives engaging in serious cartel conduct in Australia.
The successful criminal prosecution of cartel conduct clearly involves a level of general deterrence. It signals that the ACCC can enforce the criminal laws and secure the conviction of a major global company. There is also, no doubt, much more to come in this story as the ACCC continues its investigation of other cartel participants.
However it seems that, from this first criminal prosecution, the jury is still out on whether the criminal laws really achieve the government’s stated aim – that is, a significantly greater level of deterrence than already existed under the civil regime.
Increasing the deterrent to cartel conduct
Following this first successful prosecution:
- NYK will not be exposed to any greater financial penalties that would have existed under the civil regime;
- NYK’s guilty plea will not result in any executives being sentenced to gaol (one of the key deterrents highlighted in the push for criminal sanctions); and
- NYK’s guilty plea only adds Australia to the list in circumstances where a foreign-based company has already been found guilty of criminal violations in the US for the same conduct, with one of its executives already extradited from Japan to the US and sentenced to 15 months in prison.
With this existing exposure to criminal consequences in other jurisdictions, no current charges against individuals in Australia, and no greater outcome for Australian consumers than already existed under the civil regime, future cases are necessary before we can assess whether the introduction of criminal sanctions delivers in any real sense on the government’s stated aims.
These future cases may come sooner rather than later if the ACCC’s investigation leads to the Commonwealth Director of Public Prosecutions (CDPP) filing criminal charges against other companies and individuals involved in the cartel (and, for practitioners, it will be very interesting how any admissions associated with NYK’s guilty plea may be used as evidence against other cartel participants).
These future cases are likely to provide a much better basis for assessing any increased deterrent effect of the criminal cartel laws, particularly if the ACCC’s investigation (or other future cases) leads to the prosecution of companies based in Australia, and with the arms of the executives involved in the criminal behaviour more clearly within reach for hand-cuffing.
Convictions are easier when there is a guilty plea and convictions overseas
By securing a guilty plea, the ACCC and CDPP have also successfully stepped around the many and very difficult pitfalls that they are likely to confront in any fully defended criminal proceedings. These pitfalls are no doubt a painful memory for the UK Competition and Markets Authority from their early forays into criminal enforcement.
While NYK’s guilty plea is likely to reflect the strength of the ACCC’s case, this strength is likely to arise at least in part from the investigation undertaken globally and from the existing guilty pleas and convictions in the US. Not all future cases will carry these investigative and court room advantages.
The jury is still out
Historically, the first criminal prosecution for cartel conduct in Australia is significant. But, as to whether it is truly a watershed moment or provides real support for the in-vogue view of increased deterrence – the jury is still out…
Following its investigation into NYK and others in relation to potential cartel conduct involving “the transportation of vehicles, including cars, trucks, and buses, to Australia between July 2009 and September 2012”, the ACCC referred the case to the CDPP for criminal charges under section 44ZZRG of the Competition and Consumer Act 2010 (giving effect to a cartel provision).
With the ACCC’s investigation ongoing, the precise details of the charges are not yet known, but it appears that the parties have agreed a statement of facts setting out matters supporting a finding of price fixing.
Under the Australia’s criminal cartel regime (which runs parallel to the civil regime), there are significant penalties for corporations, with the maximum fine for each criminal cartel offence being the greater of:
- $10 million;
- three times the total benefits that have been obtained and are reasonably attributable to the commission of the offence; and
- if the total value of the benefits cannot be determined,10% of the corporation’s annual turnover connected with Australia.
Penalties for individuals can also include financial penalties and up to 10 years’ imprisonment.
Authorities in other jurisdictions have been busy pursuing NYK and other shipping companies in relation to potential cartel behaviour.
In December 2015, NYK pleaded guilty to criminal charges brought against it by the United States Department of Justice and agreed to pay fines totalling US$59 million for its role in “a conspiracy to fix prices, allocate customers and rig bids of international ocean shipping services for roll-on, roll-off cargo, such as cars and trucks… to and from the United States and elsewhere… from at least February 1997 until at least September 2012”.
In March 2015, DoJ also secured individual criminal prosecution against one of NYK’s Japanese-based employees, Susumu Tanaka, who was extradited to the United States where he will spend 15 months in prison. The prosecution of a second NYK executive, Yoshiyuki Aoki, is continuing.
The DoJ has earlier secured criminal convictions against two other shipping companies, Chilean company SCAV SA in February 2014, and Japan’s Kawasaki Kisen Kaisha Ltd (K-Line) in September 2014. To settle DoJ’s case against them, CSAV and K-Line agreed to pay US$8.9 million and US$67.7 million respectively in fines. On 13 July 2016, Wallenius Wilhelmsen Logistics AS (Wallenius) pleaded guilty and agreed to pay US$98.9 million in fines (subject to court approval).
A further six executives have been charged by the DoJ in respect of their involvement in the criminal cartel, of which three have been sentenced.
In December 2015, China’s National Development and Reform Commission (NDRC) levied fines against seven shipping companies totalling 407 million yuan (approximately US$63 million) for collusion in relation to similar “roll-on roll-off” shipping rates for cars, trucks and construction machinery across five shipping routes, including between China and Europe.
This behaviour contravened China’s Anti-Monopoly Law. However, as there is currently no criminal cartel regime in China, these relate to administrative fines only.
The largest fine imposed by the NDRC was against EUKOR Car Carriers Inc. for 284 million yuan (US$45 million at that time). Other companies to receive fines included K-Line and CSAV, as well as Wallenius, Mitsui O.S.K. Lines Ltd, Eastern Car Liner Ltd and CCNI. The fines imposed against the seven companies were the equivalent of between 4-9% of the companies’ international shipping sales related to China.
As the immunity applicant, NYK fully cooperated with the NDRC investigation and was granted immunity from fines.
In March 2014, the Japan Fair Trade Commission issued administrative fines against NYK, K-Line, Wallenius and Nissan Motor Car Carrier Co., Ltd totalling almost ¥23 billion, of which NYK was fined ¥13 million.
Photo credit: Flickr | kees torn | remixed to B&W