Country Care criminal-cartel prosecution could offer a road map for ANZ defense

13 March 2019 10:45am

11 March 2019. By James Panichi.

Australia’s foray into a brave, new world of criminal-cartel enforcement began here — in a snug Melbourne court with faulty air conditioning. This is where a steady flow of often resentful regional and suburban small-business owners wearing slacks and open-necked shirts reached the witness stand.

One key witness fumbled with his bag to mute a phone alarm. “It goes off every two hours,” he told the Melbourne Magistrates’ Court. “It’s to remind me to drink water.” At one stage, it got so muggy that Judge Charlie Rozencwajg told lawyers they should feel free to take off their jackets.

To an outside observer, this committal hearing of the Country Care Group may have appeared uneventful— even pedestrian. Yet the issues teased out over the past week have much wider implications than the alleged cartel among retailers of mobility aids for the elderly and the injured.

This is the first prosecution of an Australian company under the 2009 criminal-cartel legislation and the first time individuals have faced charges. But more importantly, this is setting a precedent for how federal prosecutors go about offering immunity deals for alleged whistleblowers in a cartel case.

This last point has become important. How and why federal prosecutors came to offer two men immunity deals and the relationship between prosecutors and the country’s competition watchdog in granting that immunity is where the interest lies. Country Care is a dress rehearsal for what lies ahead.  

In Sydney, the Australian New Zealand Banking Group, the country’s second-largest bank, and international lenders Citigroup and Deutsche Bank, along with a total of six senior managers, are lawyered up and ready to fight the criminal-cartel charges brought against them by prosecutors.

Any suggestion that prosecutors’ use of immunity deals didn’t take place on firm ground — and that’s exactly what Country Care defense lawyers are suggesting — will cast a shadow over the entire ANZ case. Any fissures between prosecutors and the competition regulator will also receive scrutiny.

How do we know? Because all the documentation in the ANZ case mentions a third underwriter — JP Morgan. Yet, unlike ANZ, Citigroup and Deutsche Bank, JP Morgan and its managers are nowhere to be found on the federal prosecutors’ charge sheet. The US investment bank has dodged a bullet.

Yet we know from documentation presented to the Federal Court of Australia in a related but separate civil lawsuit that prosecutors dispose of recordings of key meetings among the alleged cartelists. Someone was in the room when it happened; the likelihood of a whistleblower emerging is high.

If the surprisingly well-resourced Country Care defense team were to establish a weakness — even a flaw — in how the Commonwealth Director of Public Prosecutions granted immunity to key witnesses, the defense in the ANZ case would reap the benefits. The two cases are already intertwined.

Race to report

Country Care isn’t the first prosecution under Australia’s 2009 criminal-cartel legislation and the ANZ one isn’t the second.

In August 2017, Japanese company Nippon Yusen Kabushiki Kaisha received a $A25 million fine for its role in a shipping cartel. In April 2018, Kawasaki Kisen Kaisha entered a guilty plea over its role in the same cartel and has yet to be sentenced.

A key difference between the Country Care prosecution and the two earlier cases is that both Japanese shipping companies cooperated with authorities by the time they found themselves on the pointy end of criminal charges. This was a global cartel; no Australian immunity deals were offered or required.

In the Country Care case, things were different. Last week we found out that the case was brought to the attention of the Australian Competition & Consumer Commission, or ACCC, the agency that investigates cartels, by an alleged participant — a Sydney-based businessman named Andrew Cuddihy.

It was revealed in court that Cuddihy contacted the ACCC and, according to correspondence revealed by the defense team, he expressed an immediate interest in obtaining what’s known as a “first-in marker” — the first step towards the granting of immunity.

The same occurred for another key witness, Anthony Christmas, a retailer of mobility aids from Melbourne. Christmas’ role remains unclear at present — court documents have yet to be released to the media. But we know that the witness also asked the ACCC about obtaining immunity.

Both men were ultimately granted a first-in marker — although, conceptually, it appears unusual to describe two, unrelated witnesses as both being “first.” Cuddihy alerted the ACCC to the alleged cartel; Christmas promptly agreed to cooperate with the watchdog when approached by investigators.

That the ACCC would grant immunity to these witnesses isn’t surprising. But the defense’s cross-examination appeared to be probing how those deals were then embraced by federal prosecutors, the CDPP. This placed the immunity arrangement between the ACCC and the CDPP at center stage.

Under an agreement tweaked last year, the federal prosecutor will exercise “an independent discretion” when considering immunity candidates put forward by the regulator. If satisfied, it will grant a “letter of comfort” offering immunity.

That the CDPP would grant both Cuddihy and Christmas a letter of comfort wasn’t surprising. What matters to the Country Care defense team, representing both the company and Managing Director Robert Hogan, is that the ACCC’s “first-in” approach is totally new to the CDPP. It’s untested.

‘Uncharted waters’

In an exchange with Judge Charlie Rozencwajg, defense lawyer Dean Jordan said that the CDPP had “adopted a special procedure only in relation to competition matters.” This, the lawyer said, raised issues of the credibility of the “immunized” witnesses that would be tested when the prosecution goes to trial.

“We are in uncharted waters,” Jordan told the court, adding that the CDPP’s approach to the granting of immunity “could create a distortion of the process” that could lead to unreliable witnesses.

During the cross-examination of Christmas, the judge said that he didn’t understand why the defense’s concerns with the CDPP’s approach would lead them to challenge the witness’s immunity itself, which is what Jordan appeared to be doing.  

“I’m a bit puzzled,” Rozencwajg said, suggesting that the immunity was now a fait accompli. “He’s been offered immunity; he’s been granted immunity...Let’s say the CDPP has departed from normal criminal practice — I can’t imagine that would undermine his immunity situation.”

Jordan responded that he wasn’t challenging the validity of the immunity itself. However, the witnesses’ sense of urgency in asking for a letter of comfort may have affected their reliability as a witness.  

If these exchanges are a prelude to how the case will play out once it has been referred to the Federal Court ― and Rozencwajg has made it clear that a referral will be imminent once hearings wrap up on Wednesday — then the CDPP should brace for some serious scrutiny.  

These are, indeed, uncharted waters. The CDPP hasn’t dealt with cartel cases like this before. The prosecutors’ decision to embrace the ACCC’s first-in marker approach is, indeed, unlike its practice in other prosecutions, where the case for immunity is teased out during the trial, not locked in before it.

If the defense demonstrates that this approach to granting immunity compromises the credibility of witnesses, it will have earned anyone facing a criminal-cartel charge in Australia in coming years a new line of attack. Success in this case could force both the CDPP and the ACCC back to the drawing board.

ABA 2019