Is the fine condign? First Australian criminal cartel conviction attracts heavy fine and possible double punishment

In the first Australian decision under the criminal cartel provisions in Part IV of the Competition and Consumer Act 2010 (Cth), the Federal Court of Australia has imposed Australia's second highest cartel fine of A$25 million, after allowing a 50% reduction for the respondent's co-operation (Commonwealth DPP v NYKK [2017] FCA 876 (NYK)). Imposing the fine, the trial judge said, "Cartel conduct of the sort engaged in … warrants denunciation and condign punishment."

In this article we will look at three key aspects of the sentencing process in the NYK decision:

• how the fine was calculated: the maximum penalty that could have been imposed was A$100 million but the Court's starting point was at the midpoint of A$50 million, reflecting the covert and serious contravention and the circumstances; 
• the discount for co-operation: the respondent's early plea of guilty, past and future co-operation, and observable contrition were extensive and were factored into a 50% reduction in the fine, leaving A$25 million as the appropriate fine; 
• the fact that NYK was fined in two jurisdictions for the same conduct: while "some weight" was given for fines imposed in other countries for similar and even the same cartel conduct, the trial judge considered that those fines should not be given "significant weight" so as to reduce the fine in Australia. This means that, to a degree, NYK may have been punished twice for the same conduct.

ACCC referral process to DPP

Both civil and criminal cartel matters are investigated by the Australian Competition and Consumer Commission (ACCC). However, a Memorandum of Understanding has been entered into by the ACCC and Commonwealth Director of Public Prosecutions (DPP) under which the ACCC has agreed to refer "serious" cartel conduct to the DPP.

"Serious" cartel conduct is difficult to define but the Memorandum says that covert conduct, conduct causing large scale economic harm, longstanding conduct, conduct which was authorised by senior representatives of a respondent are all examples of what cause cartel conduct to reach the threshold of "serious". NYK was a case of "serious" cartel conduct and so it was prosecuted by the DPP.

Maximum fine possible

NYK pleaded guilty to a single charge of giving effect to a cartel provision in relation to certain shipping routes to Australia. The Commonwealth DPP and the respondent agreed that the benefit derived from the cartel conduct could not be determined but that its annual turnover from supplies connected to Australia was A$1 billion. This meant that the maximum fine able to be imposed on the respondent was 10% or A$100 million.

The trial judge took into account the circumstances, which included the covert and serious nature of the contravention, and determined that the starting point for quantifying the fine was A$50 million. 

It is noteworthy that the maximum fine payable by a respondent for contravening the criminal cartel provisions is effectively the same as the maximum fine payable for breaching the civil cartel provisions. The trial judge noted that "the only difference is that a criminal conviction attracts opprobrium and societal condemnation in a way that the imposition of a civil penalty cannot".

The effect of an early plea, co-operation, and contrition on the cartel penalty

The Commonwealth DPP provided evidence of NYK's co-operation, which included "full, frank and truthful disclosure". The respondent also assisted the DPP by providing evidence on the offending of others involved in similar conduct, which included providing documents and information, and facilitating interviews. The DPP noted that without the respondent's co-operation, various aspects of the cartel may not have been discovered by the ACCC during its investigation.

Taking into account NYK's early plea of guilty, past and future co-operation, and observed contrition and remorse, the Court allowed a discount of 50%, reducing the fine to A$25 million. This is possibly one of the largest discounts for co-operation so far recognised in Australian cartel cases, being similar to the 50% discount allowed to Qantas in 2008 for its co-operation in the air cargo investigation. Without that co-operation, the fine imposed on NYK would have been A$50 million  ?  which would have made it the largest cartel fine in Australian history.

Fines in other countries for the same conduct given little weight

NYK had been investigated and prosecuted in multiple other countries by both administrative regulators and courts with respect to the cartel conduct. These jurisdictions included Japan, United States of America, South Africa, Chile, and China.  In these jurisdictions, fines or pecuniary penalties had been imposed.

The trial judge noted, however, that while these fines and penalties were to be given "some weight", there were "a number of reasons" why they should not be given "significant weight". The trial judge then went on to note that the overseas jurisdictions imposed fines in respect of conduct that occurred in, or in relation to, or otherwise affected, those jurisdictions and not Australia. More controversially, however, the trial judge went on to make the following finding with respect to a fine imposed by the Japanese regulator:

"there is some overlap between the conduct that led to the imposition … part of the Japanese order, and the conduct the subject of the charge in this matter. That is a relevant consideration, because the Court should strive to avoid any element of double punishment. That said, it may be inferred that the administrative penalty imposed by the Japanese regulator was imposed having regard to Japan’s laws and public policy considerations. The Japanese regulator’s primary concerns were unlikely to relate to the impact that the conduct had on Australian related commerce or Australian consumers."

This approach may lead to a form of double punishment as it shows that a company can be fined twice for the same conduct and for the same sales affected by the cartel, that is, by fines imposed in both Japan and Australia. That sends a strong message about the risks in cross border cartel cases.

Second highest penalty awarded in Australia for cartel conduct

The ACCC was quick to point out that the sentence imposed was the "second-highest imposed in ACCC history", which would be assuring to the Commission as it has been advocating for an increase in penalty amounts for some time. 

It is too soon to say whether higher pecuniary penalties will always be awarded under the criminal cartel provisions of the Act. According to the Memorandum of Understanding between the ACCC and DPP, the ACCC only refers cartel matters to the DPP if the conduct is "serious " cartel conduct. However, the line drawn by the ACCC between serious cartel conduct and ordinary cartel conduct is difficult to predict.