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Pursue individuals 'harshly' in cartel cases, ComCom told

Friday 26th July 2019

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The Commerce Commission should pursue cartel prosecutions against individuals “harshly” if it wants to achieve the greatest deterrence using new powers coming into effect in 2021, a visiting regulator says.

Brent Snyder, previously head of criminal enforcement in the antitrust division of the US Department of Justice, says the scale of fines against firms involved in price-fixing or other anti-competitive behaviour is important but not the only deterrent.

Prosecution brings other consequences, including business disruption and reputational harm. But he said New Zealand and Australian regulators should not under-estimate the deterrent value of pursuing charges against individual executives.

He said firms in the US offered to pay much higher penalties if the Department of Justice would drop charges against their executives, something the department refused to do.

“Most importantly, from the way you are heading, is individual liability,” Snyder told delegates at the Competition Matters conference in Auckland yesterday.

“You will get additional deterrence by pursuing individuals and pursuing them harshly.”

Snyder, now chief executive of the Hong Kong Competition Commission, was speaking on a panel discussing whether penalties courts in Australia and New Zealand are handing down for price-fixing and bid-rigging are big enough given the size of companies often involved.

An OECD report last year, commissioned by the Australian Competition and Consumer Commission, found that both the average and maximum penalties awarded in Australia were “significantly” lower than those in other jurisdictions.

On a like-for-like basis, the OECD determined penalties were likely to be 12-times higher than those awarded in Australia.

John Dixon QC said there is a belief that penalties in New Zealand don’t always reflect the scale and resources of the firms being prosecuted, with fines “too big for small companies and too small for big companies.”

Under the Commerce Act, a firm can be fined up to $10 million for each breach, with an individual liable for a fine of up to $500,000. From 2021, an individual could also be liable for up to seven years’ jail.

The biggest fine for anti-competitive behaviour in New Zealand was the $12 million awarded against Telecom in 2011 for charging downstream competitors disproportionately high prices for wholesale access to its network from February 1999 to late 2004.

In 2013, Air New Zealand was ordered to pay $7.5 million for its part fixing fuel and insurance surcharges with other international carriers between 2000 and 2006. It also incurred penalties of A$17 million in Australia and US$35 million in the US.

In the US, penalties are set using a ‘bottom-up’ formula based on the value of trade affected, which is then adjusted up or down based on factors like the duration of the offending, how deliberate it was, and cooperation of the firms during the investigation.

In Australia and New Zealand, the law sets a maximum penalty, with most fines awarded far below that.

Sarah Court, a commissioner with the ACCC, noted that while the Australian legislation gives judges more direction on penalties than their New Zealand counterparts, part of the problem has been with the level of settlement the ACCC has been prepared to accept.

In a notable change, she said Australia’s full Federal Court last year imposed a record A$46 million cartel penalty against car parts maker Yazaki, after the ACCC appealed the A$9 million initially awarded.

Court says the commission is now thinking about how it assesses potential penalties internally in a more structured way, including more information on the size of the company involved and the scale of the benefit gained.

It is also considering developing more public guidelines, which would not bind the courts, but could help improve the transparency of the process.

Former solicitor-general and judge Terence Arnold QC, said the Sentencing Act provides more structure for the criminal penalties the Commerce Commission will have open to it when those powers become effective, whereas the Commerce Act provides little for the setting of financial penalties.

Given those cases tend to be more in the nature of settlements, he said it will be up to the Commerce Commission to develop its own processes to help establish suitable penalties.

“In terms of pecuniary penalties, the real answer actually lies with the Commerce Commission,” he said.

“It is really going to be the Commerce Commission that should have the structure and the guidelines and so on, to take account of the various things that we want any penalty-setting process to take account of.”


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