ANZ's time-consuming, lower-court strategy points to cartel-prosecution flaws

Lawyers for former Australia & New Zealand Banking Group executive Rick Moscati will find out on Friday which documents they'll be able to use to prepare their defense in a landmark criminal-cartel case against ANZ, Citigroup Global Markets and Deutsche Bank Australia, as well as six former employees at the banks. The decision on document access was confirmed by a local court in Sydney this week.

But even as the case against the banks inches closer to graduating from the Downing Centre Local Court to the Federal Court of Australia — the obvious destination for a prosecution under federal legislation — the delayed progress has become noteworthy.

The hold-up could undermine 2018 legal updates designed to speed up serious-crime cases such as the one ANZ is caught up in. The ongoing obstacles that have hindered the case may also bolster calls for criminal-cartel cases to be filed directly to the Federal Court.

If this were to occur, it would mark a significant development in the way Australian prosecutors manage criminal-cartel cases.

There's no denying the local-court leg of the criminal-cartel case against ANZ, Citigroup and Deutsche Bank has been drawn out. The matter first landed at the local court in June 2018 and has been mired in document delays ever since, with protracted cross-examination hearings slowing down matters further at the end of last year.

The case centers on a 2015 institutional-share placement involving ANZ, which saw ANZ engage Citigroup, Deutsche Bank and JP Morgan as underwriters for the capital-raising exercise.

ANZ issued 80 million shares worth A$2.5 billion ($1.7 billion today). Australia's competition watchdog, responsible for investigating the case, has alleged that when market interest in the offering proved low, banks entered into an agreement with the underwriters to withhold shares from the market — an agreement that amounted to illegal cartel conduct.

Oddly, though, if Australia's federal prosecutor had brought its case against the banks and their executives just two months earlier, the lower-tier court hearings could have had a very different outcome — one that prosecutors may not have welcomed.

Until April 2018, committal hearings for serious crimes in the Australian state of New South Wales, of which Sydney is the capital, gave the accused a chance to stop the case against them making its way to the Federal Court. This could be done by convincing local-court judges that prosecutors lacked adequate evidence to warrant committing the case to a Federal Court trial.

The state government ended this process in 2018, changing the local-court section of indictable offenses from a committal hearing to a process of "charge certification and case conferencing."

Under the new system, defendants cannot test the strength of the case against them but can use the hearings to thoroughly prepare their defense. The prosecution uses the hearings to decide which charges it will proceed with in the Federal Court.

The changes were designed to improve the efficiency of the local courts, enabling them to undertake a triage service rather than making do-or-die decisions about the case's future. But policymakers hadn't bet on the legal teams for top banks being a part of the new process.

Elizabeth Sarofim, a Sydney-based partner of law firm Dentons, says the protracted complexity that has manifested itself in the local court on the ANZ matter suggests the decision to abolish the old committal process has had "very little impact on reducing delays and increasing productivity when moving complex cartel cases through the local court to the Federal Court for trial."

"These are large underwriters and senior individual bankers who are facing the prospect of a criminal record and, in the case of the executives, imprisonment," she says. "It was always going to be the case that the accused would challenge the charges at all stages, including the first step of charge certification in the Local Court."

Lawyers for the banks and their former executives have delayed the case by "strategically ventilating as many applications for access to witnesses and documents earlier rather than later so that they are in a better position to prepare their defense when the matter is ultimately tried in the Federal Court," Sarofim says.

— Immunity attacks —

A big part of the banks' lower-court strategy has been to undermine the immunity deal that appears to lie at the heart of the investigation carried out by the Australian Competition & Consumer Commission, or ACCC.

A fourth bank involved in the 2015 share placement — JP Morgan— is understood to have blown the whistle on the matter in pursuit of immunity. The ACCC's approach on this isn't surprising — the watchdog leans heavily on such deals in cartel prosecutions.

The decision to attack the credibility of immunity witnesses first appeared in another ongoing criminal-cartel case against mobility-aid retailer Country Care — the first against an Australian company under the country's 2009 criminal-cartel offenses.

In that case, which moved swiftly through a lower court in the state of Victoria, defense lawyers set their sights on what they saw as the weakness of immunity deals offered by prosecutors, arguing that any evidence provided by "immunized" witnesses was tainted.

In the Country Care case, the issue of immunity was alluded to in the Melbourne Magistrates Court, but purely to pave the way for what is likely to be the real challenge to the immunity deals before a jury in the Federal Court later this year.

But in the ANZ case in Sydney, the banks' legal strategy has been to question immunity deals in parallel with other questions that appear designed to bring into question the very foundation of the prosecution. More than a dress rehearsal, this prosecution is being fought in earnest before a local criminal court.

— Local-court clashes —

The banks' strategy will aim to bring two, key items under scrutiny when the matter is before the Federal Court.

First: what happened on an August 2015 phone call between the banks' executives? Did they collude in their actions, deciding to act together on that call, or did they all join that call already knowing their individual plans to hold onto their shares, independently of the other banks' actions?

Second: how did the ACCC and, later, the Australian Securities and Investments Commission, the financial regulator, examine and assemble evidence in the investigation that later sparked a prosecution by the Commonwealth Director of Public Prosecutions, or CDPP?

This second matter is expected to prolong the case when it is heard in the higher court, following a playbook already seen at the local-court level. This could delay the prosecution's move to the Federal Court, where it will ultimately end up, even further.

By the time the matter gets to the Federal Court, the two judges most likely to deal with the case are no strangers to cartel cases. Michael Wigney has overseen all three criminal-cartel cases relating to an international shipping cartel; Robert Bromwich, who was head of the CDPP before joining the Federal Court, is now presiding over the Country Care case in Melbourne.

Wigney has already questioned the utility of the local-court leg of criminal-cartel cases, asking whether cartel conduct sits more comfortably in the Federal Court's remit. And it's likely that those involved in the most recent local-court process, lawyers for both the banks and prosecution and, perhaps, even Judge Giles, may share Wigney's views.

— Delay upon delay —

Since taking on the case in December, Giles has complained that she's struggling to corral the matter through the local court and that the prosecutor keeps ballooning out of control. She's only just holding on "by [her] fingernails."

Giles' struggle to contain the case could reflect the fact that the banks' defense strategy is working — they're trying to wear down the legitimacy and credibility of the prosecution's case before the matter even gets to the Federal Court.

If lawyers for ANZ are successful in obtaining documents from the market regulator, they're likely to then question whether the regulator faced inappropriate demands from the ACCC to shield JP Morgan from liability in an ongoing, parallel lawsuit against ANZ over claims it failed to inform the market of its arrangements with the underwriters.

The success of lawyers' defense tactics will become clearer when Giles rules on document access this week and after further cross-examination hearings from Feb. 10. A blanket refusal of access to documents would suggest Giles is losing patience with the banks' lower-court offensive.

Once the hearings wrap up, the prosecution's days in the local court will be numbered. But that doesn't mean the waiting will be over. It's expected to take around a year to find Federal Court availability and allow the accused time to prepare their defense after local-court hearings are finished.

That's why Friday's ruling will be about more than just access to documents; it will be an indication of how many bumps could be left in the long road to the Federal Court.