Criminal cartel conduct

Heavy fines on the high seas for criminal cartel conduct

Published On 05/08/2019 | By Taylor Macdonald | Cartels, Enforcement, Litigation

The sea of penalties for criminal cartel conduct is slowly deepening.

On 2 August 2019, the Federal Court imposed the largest ever penalty for criminal cartel conduct under the Competition and Consumer Act 2010 (Cth) (the CCA), fining Kawasaki Kisen Kaisha (K-Line) $34.5 million for giving effect to a long-standing agreement whereby K-Line, and other cartel participants, agreed not to seek to alter their existing market shares of roll-on, roll-off ocean shipping services, or otherwise try to win each other’s existing business (known as the “Respect Agreement”).

This is Australia’s second ever criminal penalty for cartel conduct, with the first fine of $25 million being imposed on Nippon Yusen Kabushiki Kaisha (NYK) on Friday 4 August 2017, in related proceedings. Criminal proceedings were commenced against K-Line and NYK in 2016 (see our previous blog posts here, here and here).

After K-Line waived its right to committal, and a 16-week trial was set down following indictment in the Federal Court concerning 39 separate counts of giving effect to the Respect Agreement, K-Line changed route and agreed to plead guilty to a single “rolled-up” charge. The charge was that between about 24 July 2009 and 6 September 2012, in Japan and elsewhere, K-Line intentionally gave effect to the Respect Agreement, in respect of five shipping routes to Australia for the supply of the shipping services to eleven major vehicle manufacturers, contrary to s 44ZZRG(1) (now s 45AG(1)) of the CCA).

Determining the appropriate sentence in all the circumstances

The court found that the offence committed by K-Line was a very serious offence in all the circumstances and imposed a fine of $34.5 million. In reaching this figure, the court considered a number of factors consistent with the matters set out in s 16A(2) of the Crimes Act 1914 (Cth), which are highlighted below.

The maximum fine available to the court under the CCA was $100 million, which was calculated on the basis of 10% of K-Line’s annual turnover for the relevant period (a fact agreed by K-Line and the prosecution).

The conduct admitted to by K-Line occurred over more than three years (essentially, from 24 July 2009, being the date on which the criminal cartel provisions of the CCA came into effect), although the Court acknowledged that it was relevant to consider that the offence occurred in the context of an extremely longstanding global cartel, with the Respect Agreement being on foot from as early as February 1997.

While there was evidence that K-Line “cheated on” the cartel, this was not considered to be a mitigating factor and did not reduce the seriousness of the offending conduct, given K-Line was considered to have cheated for its own economic benefit (which is common behaviour in a cartel), rather than any altruistic purpose of benefiting the consumer – in this case, the vehicle manufacturers.

Further, the conduct was found to be deliberate, systematic and covert. Senior employees and executives of K-Line engaged in and sanctioned the conduct, despite knowing that there was a real risk of the conduct being anti-competitive and in breach of competition laws. The court considered that their attempts to limit communications with other participants in the cartel was found to be for the purpose of limiting or eliminating possible consequences for junior staff members’ involvement in the conduct, and to avoid detection, rather than an attempt to bring the cartel to an end. This end only came about upon the Japan Fair Trade Commission and US Department of Justice’s dawn raids at K-Line, and other cartelists, offices on 7 September 2012.

General deterrence was a key consideration in the judgment of the court. While the profit or benefit of the conduct could not be quantified, it was inferred that the profit must have been, or perceived to have been, sufficient to outweigh the risk of detection and punishment. The court considered that the penalty for this kind of offending must be sufficiently high, so as not be regarded as an acceptable cost of doing business.

In reaching the appropriate penalty, the court had regard to a number of mitigating factors including: K‑Line’s guilty plea when indicted in the Federal Court, the extent of cooperation with the ACCC, the contrition, remorse and prospects for rehabilitation demonstrated by K-Line, the absence of a prior record of corporate criminal conduct in Australia and the penalties imposed by other competition regulators in foreign jurisdictions in respect of its cartel conduct (albeit for conduct impacting those foreign jurisdictions, not Australia).

Parity with the sentence imposed on NYK

The principle of parity requires that like offenders be treated in a like manner, while also requiring that different sentences be imposed on offenders to reflect their varying degrees of culpability and different circumstances. NYK was sentenced to a fine of $25 million for substantially the same conduct. This figure incorporated a global discount of 50% for NYK’s early plea of guilty, and past and future assistance and cooperation. In summary, the NYK and K-Line sentences compare as follows:

NYK K-Line
Maximum penalty $100 million $100 million
Penalty (without discount) $50 million $48 million
Discount applied 50% (with 10% being for future assistance and cooperation) Just over 28%
Penalty (with discount) $25 million $34.5 million

This comparison highlights the value applied by the ACCC and the courts to cooperation and being the first party to settle.

In reaching its decision, the court considered that the objective criminality and seriousness of the offences committed, and the nature of the offending behaviour engaged in, by K-Line and NYK were slightly different. In particular, K‑Line was a smaller company than NYK was at the time of sentencing. The court accordingly found that a slightly lower starting point of $48 million was appropriate for K-Line.

Unlike NYK, K-Line’s guilty plea was not at the earliest possible opportunity and K-Line’s cooperation was provided ‘reluctantly and somewhat tardily.’ Further, K-Line did not undertake to provide future assistance and cooperation. As a result, it was held that a global discount of just over 28% was appropriate.

Next steps

The imposition of a second criminal cartel penalty is a significant moment for the ACCC and the enforcement of the cartel laws in Australia, with more suggested to come.

The development of sentencing jurisprudence for breaches of the criminal cartel provisions is important for the general deterrence of cartel behaviour, both within and outside Australia, and will inform the decisions of those facing criminal cartel allegations.

 

Image credit: “Russian ship which carried used cars” by tsuda|Flickr is licensed under CC BY-SA 2.0 – remixed to black and white and modified.

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About The Author

is a solicitor in the competition litigation team in the Sydney office of King & Wood Mallesons.

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