Capturing the criminality of hard core cartels: the Australian proposal.

• Jurisdiction: Australia
• Date: 01 December 2007
• Author: Beaton-Wells, Caron

[This article reviews the proposal to make serious cartel conduct a criminal offence in Australia. It analyses the extent to which the proposal captures the criminality of the conduct to which it will apply; in particular; its culpability, harmfulness and moral wrongfulness. Two key assumptions underpin this analysis. First, criminalisation makes the morality of serious cartel activity a relevant consideration in the design and application of the new law Secondly, recognition of the moral dimension will enhance the prospects of the criminal regime securing the support necessary for its effective enforcement It should also boost the regime's deterrence value by facilitating internalisation of relevant moral norms in the business community. The article concludes that there is still much work to be done in refining and even rethinking aspects of the new offence to ensure that it properly reflects the criminal nature of hard core cartels.]

CONTENTS I Introduction II Background III Culpability IV Harmfulness V Wrongfulness VI Conclusion A Culpability B Harmfulness C Wrongfulness I INTRODUCTION

It is proposed in Australia to criminalise serious forms of business cartel activity, namely price-fixing, market-sharing, output restriction, and bid-rigging. (1) This proposal was announced by the former Treasurer in 2005 (2) and was supported by the then opposition Labor party, (3) recently elected to government. Shortly after the election, Labor officials indicated that criminalising legislation would be introduced within 12 months. (4) In so legislating, Australia will join a worldwide movement towards tougher regulation of cartels and, in particular, the imposition of criminal sanctions. (5) Collusive practices have been regulated by competition law in many countries for some time. Outside of North America, this regulation has largely been of an administrative and civil character. (6) In the last decade though, there has been a global burgeoning of the use of criminal law in dealing with business cartels. (7) The US has led the criminalisation movement where, since the late 1990s. competition authorities have made it their top priority to prosecute and imprison participants in international cartels affecting the US economy. (8) The movement has also had the support of international organisations, such as the Organisation for Economic Co-Operation and Development ('OECD') which has taken a strong anti-cartel stance, exhorting members to ensure that their competition laws effectively deter so-called 'hard core' cartel activity. (9)

An important aspect of the debate surrounding cartel criminalisation concerns the justification of criminal penalties on moral grounds. More specifically, there is the question as to how, at the level of legislative prescription, the offence of cartel conduct may be designed so as to capture explicitly or implicitly the moral reprehensibility generally associated with criminal behaviour. As has been observed in relation to the European experience, the real challenge for jurisdictions new to cartel criminalisation is to establish a concept of 'antitrust delinquency', similar to that which exists in the US. (10) Recognising this challenge, it has been noted in the Australian context by the Trade Practices Act Review Committee ('Dawson Committee') that there is substantial difficulty in 'defining the requisite degree of criminality to justify the imposition of criminal sanctions'. (11)

This difficulty is aggravated by the potential for resistance in Australian competition law circles to the idea that morality may become a relevant consideration in an area of regulation dominated by law and economics. (12) Such resistance has been displayed even in the US, where cartels have attracted criminal sanctions for over a century. (13) Generally speaking, in the US, antitrust enforcers, policy-makers and scholars have circumvented the morality of antitrust crimes. (14) This reflects the influence of the Chicago School of economic thought, according to which antitrust analysis is concerned primarily with economic efficiency, and normative concepts such as morality are thereby excluded. (15)

The introduction of morality as a relevant dimension in competition regulation is complicated further by longstanding concerns held by some criminal law theorists over the attachment of criminal consequences to white-collar or regulatory offences. (16) Their concerns stem from the argument that the offending conduct in such contexts is in effect morally neutral or at least, morally ambiguous. (17) A range of factors is seen as responsible for this perception. (18) In the case of economic activity, however, the moral conundrum has been attributed fundamentally to the conflict between criminalisation and 'the national ethos', an ethos that produces 'the values that the man of business himself holds, as well as the attitude of the public toward him and his activities.' (19) Characterising criminalisation of such conduct as 'both unjust and counterproductive', these critics argue that 'it unfairly brands defendants as criminals, weakens the moral authority of the sanction, and ultimately renders the penalty ineffective.' (20)

However, the charge of regulatory over-criminalisation has not gone unanswered. Two major counter-arguments have emerged. The first is that the over-criminalisation critique fails to recognise or give sufficient weight to the interactive and reciprocal nature of the relationship between the criminal law and public morality. Thus, the criminal law is said to play an important educative and socialising role, informing and shaping society's perceptions of moral standards--'the public learns what is blameworthy in large part from what is punished.' (21) Secondly, a significant challenge has been mounted to the notion that white-collar or regulatory offences are morally neutral. In particular, the influential work of legal and moral philosopher Stuart Green provides a tripartite framework for identifying and mapping the moral content of such activity. (22) Under this framework, criminality has three distinct, albeit interrelated, elements: culpability, harmfulness and moral wrongfulness. Green does not assert that any or all of these elements are either sufficient or necessary conditions for criminalisation. However, he does suggest that the absence of any of the three at least might cast doubt on the criminal status of the conduct in question and, in particular, he argues that it is not a proper use of the criminal law to sanction harms that are not also wrongful. (23)

The most elusive and, perhaps for that reason, most contested of these elements--moral wrongfulness--is best understood, Green argues, in terms of everyday moral norms, such as cheating, deception or stealing. (24) His central thesis is that, rather than considering wrongfulness in terms of a violation of another person's rights (the traditional approach), (25) it should be considered in terms of 'a collection of everyday, but nevertheless powerful moral norms.' (26) It is the very everydayness of such norms that, according to Green, helps explain the difficulties encountered in distinguishing between white-collar crime and lawful, even if aggressive, kinds of behaviour. (27) Green draws on these norms as a means of exploring the immorality of conduct that critics of regulatory criminalisation traditionally have regarded as devoid of moral content. His framework is thus of substantial assistance in tackling the moral debate surrounding the criminalisation of cartels and, in particular, in identifying the source(s) of moral wrongfulness in such activity.

This article reviews the Australian proposal for a criminal cartel offence and analyses the extent to which it captures the criminality, as defined by Green's framework, of the conduct to which it will apply. The analysis is timely given the recent high profile action of the Australian Competition and Consumer Commission ('ACCC') against the Visy group of companies and their owner, Richard Pratt, for price-fixing in the corrugated fibreboard packaging industry, resulting in record-level penalties and renewing the push for criminal sanctions for this type of conduct. (28) The relevance of the analysis is based on two significant assumptions. First, it is assumed that criminalisation makes the morality of serious cartel activity a relevant consideration in the design and application of the new law. (29) This follows from the relationship between moral standards in society and criminal law; as Professor John Collins Coffee Jr has observed, there is a 'close linkage between the criminal law and behaviour deemed morally culpable by the general community.' (30) A criminal conviction 'carries with it an ineradicable connotation of moral condemnation'; indeed, it is the 'judgement of community condemnation' that is the defining attribute of the criminal law. (31) Secondly, it is assumed that recognising the moral dimension of the new cartel law will have significant practical effects. In particular, it will shore up public, political and institutional support for the regime, each of which will be necessary for its effective enforcement. (32) It should also boost the deterrence value of the criminal regime by facilitating the internalisation of relevant moral norms in members of the business community, (33) and thereby securing long-term compliance with the law. (34)

Proceeding on the basis of these assumptions and using Green's framework, the article assesses whether the Australian proposal for cartel criminalisation is likely to catch only that conduct which is sufficiently culpable, harmful and wrongful to warrant criminal sanction. In particular, the article examines the way in which the proposed offence, in terms of both its design and the policy for its enforcement, differs in each of these elements from the civil prohibitions that currently (and will continue to) apply to cartel...