The logic behind Australian regulator's unpredictable criminal-cartel probes

When word got out last week that Norwegian shipping line Wallenius Wilhelmsen Ocean had been added to a growing list of companies on the receiving end of criminal-cartel prosecutions in Australia, there was some surprise among the country’s competition-law practitioners.

It wasn’t so much the announcement of another criminal prosecution that caught observers unawares — Australia’s competition watchdog has made no secret of its expectation that federal prosecutors would launch three more criminal-cartel court actions by the end of the year.

What was unexpected was that the shipping sector would again come under fire, some three years since the start of the prosecution of two Japanese shipping lines — a prosecution that had ushered in a new era of criminal-cartel offenses under Australia’s 2009 legislation.

The Wallenius Wilhelmsen prosecution felt like an act of regulatory nostalgia. It came a mere three weeks after the final Japanese shipping prosecution had been tidily wrapped up with a record fine of A$34.5 million (23.26 million today) imposed on Kawasaki Kisen Kaisha, or K-Line, for its role in a 2011 cartel.

A lot has changed since 2016, when prosecutors decided to pursue K-Line and Nippon Yusen Kabushiki Kaisha, or NYK. Back then, the Australian Competition & Consumer Commission, or ACCC, was still working out how best to manage criminal prosecutions and shipping lines were the easiest targets around.  

That’s because the shipping cartels had already been established in other jurisdictions and the companies involved appeared ready to plead guilty. It was low-hanging fruit, perfect for a competition regulator gearing up to take on the greater legal burden of undertaking criminal-cartel investigations.

Since then, the ACCC has lifted its game and has developed the in-house capability to manage more complex probes. More recent prosecutions have involved charges against both companies and individuals, as well as difficult immunity deals and, in two cases, the involvement of federal police investigators.

Why would the ACCC return to an international shipping-line investigation after so long? And why would the federal prosecutor, the Commonwealth Director of Public Prosecutions, or CDPP, want to bring this case to the Federal Court of Australia?

One answer, according to those familiar with how the ACCC operates, is that the understanding gained from investigating the two Japanese shipping-line cartels left the regulator with the firepower to go after other alleged participants in the same cartel — namely, Wallenius Wilhelmsen Ocean, or WWO.

But other observers say that what appears to be a scattergun approach to criminal-cartel prosecutions is simply how the ACCC rolls, with no over-arching strategy about what cases to investigate, no industry-by-industry approach. The watchdog merely hands a case over to the CDPP when it feels it can win.

The ACCC will simply take action where it sees harm, one senior competition lawyer told MLex.

As for the often-repeated theory that the institutional-placement prosecution launched against ANZ, Citigroup and Deutsche Bank last year represented a high-water mark, with future prosecutions likely to target only small- to medium-sized businesses, some lawyers remain skeptical.

In fact, one school of thought suggests that the ACCC has been emboldened by the Royal Commission, the recent independent inquiry into Australia’s banking, pension-fund and financial-services industry, which uncovered widespread misconduct.

There are those who believe that, in the wake of the Royal Commission, it’s now likely that the ACCC will be on the lookout for another, headline prosecution involving a major lender.

Method to the madness

While the ACCC hasn’t approached its criminal-cartel investigations under the 2009 laws on an industry-by-industry basis, observers say there is some evidence of knowledge gleaned from one probe filtering into others.

Last week’s announcement by the CDPP of its prosecution of WWO, formerly known as Wallenius Wilhelmsen Logistics, suggests the knowledge gained in the K-Line and NYK prosecutions has simply been redeployed — although the reason for the three-year delay is still unknown.

Today’s news from the Federal Court of Australia, suggesting that WWO is set to plead guilty to criminal-cartel charges, suggests that this prosecution will prove to be a slam-dunk for the ACCC, built around already acquired evidence.

It also suggests companies have cottoned on to the fact that a guilty plea, and one made at the earliest stage in a case, will bring a smaller penalty — as was the case with both NYK and K-Line. 

Other, seemingly unrelated investigations also present common threads, including a readiness on the part of the ACCC to reach out to other agencies, while keeping one eye firmly focused on international developments.

The probe that prompted the prosecution in Australia’s capital Canberra of the country’s leading construction and mining union, the CFMMEU, along with one of its senior officials, relied on the assistance of the Australian Federal Police, or AFP.

Although that criminal-cartel prosecution is in its early stages and the trial won’t start until May 2020, the investigation into allegations the union attempted to induce suppliers to enter into illegal agreements piggy-backed on the AFP’s role as mandated by a 2015 inquiry into union corruption.

The AFP was also involved in investigating the Vietnamese-Australian foreign-exchange operator Vina Money Transfer, which is now facing a criminal-cartel prosecution in a lower court in the southeastern Australian state of Victoria.

Probes into the financial-services industry may also be relying on work carried out by the ACCC’s Financial Services Unit, a 12-member team established by the regulator in 2017. This growing expertise could suggest there’s more enforcement directed at the banking and money-exchange industries to come.

With the Country Care prosecution — the first to target an Australian company and the first involving criminal-cartel charges laid against individuals — most observers agree that the case will be used to test the ACCC’s relationship with the CDPP and the viability of the prosecutor’s immunity deals.

“We’re seeing criminal lawyers saying that what has been going on with immunity applications in cartel cases are practices that are foreign and unusual compared to the usual practices of the CDPP,” a senior lawyer working in this area told MLex.

Yet, on the plus side for the ACCC, the Country Care prosecution appears to have fine-tuned its working relationship with the federal prosecutors. This is arguably an important development: In Canada, which has a similar enforcement regime, differences between regulator and prosecutors ultimately sunk a number of criminal-cartel cases.

The videogame model

Another close observer says that one way to gain insight into the regulator’s modus operandi on criminal-cartel probes is to review the ACCC’s recent work on consumer affairs.

Take the example of the ACCC’s action against Electronic Arts, or EA, a video game maker, back in 2015, the observer says. The regulator found that the world’s third-largest publisher of video games was likely to have misled consumers about their rights to refunds under Australian consumer law.

That prompted the ACCC to research the industry and take action, prompting EA to provide the regulator with a court-enforceable undertaking to stop it making further representations that may be in breach of consumer laws.

But as the ACCC was reviewing the industry to pursue EA, it started to probe the company’s competitors and found similar problems. In 2016, the Federal Court of Australia accepted the ACCC’s argument that Valve, the owner of game-distribution network Steam, had made false representations on refunds.

Then, three years later — in May 2019 — the ACCC launched court proceedings against Sony Interactive Entertainment Network Europe on precisely the same consumer-law violations alleged in the case against EA.

“Why did they go after Sony? — because it was easy pickings,” a lawyer told MLex. “They know the industry and then — bang! Away they go. What’s more, once they find one problem in the industry, then they’ll find other problems.”

The EA videogame enforcement proves that the ACCC can build up its industry knowledge over years and choose the time that best suits it to pounce. And this, most observers agree, is what would have happened behind the scenes with the WWO prosecution.

“There was a lot of crap going on with shipping overseas and the ACCC would have tapped into that,” a close observer told MLex. “And they would have built on whatever they had got from the previous prosecutions.”