Jail sentences in Australia's cartel prosecutions are key to deterrence effect

For Australia’s criminal-cartel law to work, someone needs to go to jail. Whether a price-fixer or a bid-rigger is sentenced to a day in prison or the full 10 years available under the 2009 legislation doesn’t matter — for the deterrent effect to kick in, a cartelist needs to face penalties that can’t be shrugged off in an annual-report footnote.

This theory, embraced by local competition lawyers, is why 2021 was a year of disappointment for the criminal-cartel campaign of the Australian Competition & Consumer Commission, or ACCC.

In June, the first criminal prosecution of an Australian company for price-fixing since the early 1900s failed, with a jury clearing assistive-technology retailer Country Care and two individuals of all charges. In August, federal prosecutors were forced to end their pursuit of a labor organization, the Construction Forestry Maritime Mining Energy Union, and a senior official, as the case unraveled.

Then there has been the slow burn of the Citigroup-Deutsche Bank prosecution in Sydney, which has revealed significant shortcomings in the ACCC’s investigation of disputed communications among underwriters of a 2015 ANZ share placement worth A$2.5 billion ($1.79 billion).

In November, Federal Court of Australia Judge Michael Wigney described the prosecution as a “complete schemozzle” — suggesting that prosecutors relying on the ACCC’s investigation are facing an uphill battle once a jury is impaneled and the trial kicks off later this year.

None of this would come as a surprise to international observers. The complexity of criminal-cartel prosecutions and the often-startling immunity deals offered to the first cartelist to flip are difficult for juries to digest; in Canada, the UK and the US, criminal prosecutions often fail.

But there are some signs that 2022 will be kinder to the ACCC’s criminal-cartel enforcement agenda.

This week, three men facing criminal-cartel charges relating to agreements among Vietnamese-community money-exchange companies entered guilty pleas in the Federal Court. In October, the former export manager of pharmaceutical company Alkaloids of Australia, Christopher Joyce, became the first-ever Australian to plead guilty to a criminal-cartel offence before a local court.

These successes can be tallied up alongside the A$24 million fine imposed on global shipping line Wallenius Wilhelmsen Ocean in 2021 for its role in an international cartel. Another two shipping lines, K Line and Nippon Yusen Kabushiki Kaisha, have also been fined under Australia’s 2009 criminal-cartel legislation — although no individuals had been charged.

Another relevant success for the ACCC was the December 2020 guilty plea by BlueScope Steel’s former sales chief Jason Ellis in an obstruction-of-justice criminal prosecution. Although Ellis avoided jail time, his conviction sent a clear message that the ACCC was prepared to refer to federal prosecutors any attempt to deceive its investigators during cartel investigations.

But will convictions secured with guilty pleas be enough to establish the credibility of the ACCC in the investigation of criminal cartels? Some leading Australian competition lawyers believe they won’t; that anything short of a successful prosecution in front of a jury could leave the impression that the ACCC has yet to get a handle on how to manage criminal offenses.

This means that the real test for the ACCC will be whether the Commonwealth Director of Public Prosecutions, Australia’s federal prosecutor, can use ACCC criminal investigations to win, in front of a jury, and secure jail time for the charged individuals.

As a result, the prosecution of Citigroup and Deutsche Bank, along with the four senior executives still facing charges over their share-placement dealings, is shaping up as the one that prosecutors must win if the ACCC’s criminal-cartel enforcement campaign is to remain credible.

Unfortunately for the Australian regulator, it will be fighting this do-or-die legal battle with one hand tied behind its back.

The overwriters

Two years of hearings in both the Federal Court and a Sydney local court have revealed that the ACCC’s initial foray into conducting criminal investigations was troubled. The practice of “overwriting” — updating witness statements without keeping a record of the originals — and the failure to secure audio recordings of witness statements have cast a shadow over the ACCC’s ability to carry out criminal investigations.

The ACCC has since reviewed its cartel-investigation processes and created an internal cartels unit to manage the agency’s probes — suggesting that its files will be in order when future prosecutions percolate through the system. But for now, the Citigroup-Deutsche Bank prosecution has left the ACCC frozen in a time when it was working out how to approach the new criminal offenses.

The banking prosecution is also likely to highlight the role that money can play in criminal-cartel prosecutions. Citi, Deutsche and the executives associated with the lenders have had the resources to fund prolonged administrative and preliminary hearings, allowing them to pick apart the prosecutor’s case and the ACCC’s documents.

But this option wasn’t available to Alkaloids of Australia or Vina Money Transfer, let alone for the individuals associated with their cases. In the Vina prosecution, which centers on a Sydney-based money lender, some of those charged had sought public funding for their defense; others have relied on suburban law firms with no experience in competition law.

A lack of funding has been linked to the accused individuals’ decision to seek an early resolution to the cartel prosecution, with three of the co-accused pleading guilty this week. In a court hearing today, prosecutors demanded a jail sentence for the three men, but suggested they wouldn’t appeal that the court had made an error of law if it hands down a non-custodial sentence.

However, some more charitable competition lawyers believe that the guilty-plea sentences will be more than a Pyrrhic victory for the ACCC. Even a short time in jail for convicted cartelists will enable ACCC Chairman Rod Sims to bang the drum, warning colluding businesses that the prospect of someone winding up behind bars is real.

There are even those who say that a defeat in the Citigroup-Deutsche Bank prosecution won’t be fatal for the ACCC’s criminal-cartel campaign. They argue that this could merely be signaling that Australia is moving toward an American model, in which criminal offenses are reserved for relatively small companies run by unsophisticated actors without the resources to take on a federal agency.

As long as the ACCC is succeeding in extracting guilty pleas from some legally straightforward “rats and mice prosecutions,” the criminal-cartel offenses will offer something of a deterrent.

Change at the helm

It’s against this backdrop that Gina Cass-Gottlieb, who will take over as ACCC chair on March 21, will need to apply her strong understanding of cartel lawsuits and prosecution (she has represented JP Morgan, the immunity witness in the banking trial).

Some observers expect that Cass-Gottlieb, seen as a black-letter lawyer, may be more selective — and more strategic — in the cases she decides to hand over to prosecutors for criminal charges.

The Country Care and Citigroup-Deutsche Bank prosecutions have been damaging for the ACCC, not least because its officials have been hauled onto the witness stand and challenged over their investigation processes and witnesses applying for immunity. By contrast, civil-cartel lawsuits allow the ACCC to keep those processes out of the public gaze.

These tactical considerations are prompting speculation that once a cartelist has been sentenced to jail time and the deterrence effect has been achieved, the ACCC may take its foot off the criminal-investigation pedal and focus on the winnable, civil cases instead