CUSTODIAL SANCTIONS FOR CARTEL OFFENCES An Appropriate Sanction

CUSTODIAL SANCTIONS FOR CARTEL OFFENCES: An Appropriate Sanction for Australia? 15/03/2018 Terry Calvani Adelaide— 18 October 2009

My new best friend Vincent of Cleland 2

2003— ACCC invites Office of Fair Trading & Irish Competition Authority to discuss the Dawson Report with officials of the Treasury. Australia House London Aldwych, The Strand 3

The Dawson Report Waiting for Godot ? 4

CUSTODIAL SANCTIONS FOR CARTEL OFFENCES: An Appropriate Sanction in Australia? by Terry Calvani & Torello H. Calvani Introduction. † Brazil, Canada, Estonia, Ireland, Israel, Korea, Japan, Russia, the United States, the United Kingdom and now Australia criminalize price-fixing. [1] The laws of each provide for custodial sentences as an appropriate sanction. What lessons can Australian judges, enforcement officials, lawyers and their clients draw from the experiences of these other jurisdictions? We seek to explore those issues here. Of Counsel, Freshfields Bruckhaus Deringer LLP US. Formerly Member (of Board of Directors holding the criminal cartel portfolio), The Competition Authority of Ireland (2002 -05); Commissioner of the United States Federal Trade Commission (1983 -2000). Associate, O’Melveny & Myers LLP. † The views expressed are those of the authors and do not necessarily reflect those of their firms. The authors wish to thank Peter Toy of the Australian Competition and Consumer Commission and Wouter Wills of the European Commission for their thoughtful comments. We also appreciate the comments of James B. Musgrove (Canadian law), Amadeu Ribeiro Carvalhaes and Barbara Rosenberg (Brazilian law), Akinori Uesugi and Kaori Yamada (Japanese law), Hoil Yoon (Korean law), Alexander Viktorov and Elena Terentieva (Russian law). We also thank Carolyn Galbreath and David Mc. Fadden of the Irish Competition Authority (Irish law) and Simon Williams of the U. K. Office of Fair Trading (U. K. law) for their comments. The senior author previously published articles on the Irish experience with cartel sanctions. This article’s discussion of deterrence draws on that work. See Cartel Penalties & Damages in Ireland: Criminalisation and the Case for Custodial Sentences in Criminalization of Competition Law Enforcement: Economic & Legal Implications for the EU Member States 270 (Cseres et al eds. 2006) and Enforcement of Cartel Law in Ireland, Annual Proceedings of the Fordham Corporate Law Institute 1 (Hawk ed. 2004). [1] Under U. S. case law, the terms “price-fixing, ” “cartel behaviour” and the like refer to that set of competition offences generally grouped under the heading of “hard-core” violations and include price-fixing itself, bid-rigging, and the allocation of markets whether by geography, customer or product. By “price, ” we refer to the net price. Thus an agreement among sellers on credit terms or “free” delivery would be included. b 5

TODAY’S AGENDA 1. Custodial sanctions as a deterrent. 2. Enactment is only the beginning. 3. Lessons learned from Ireland. 4. Discussion. 6

Cartel Remedies How can we optimally deter price fixing? 7

Cartel Remedies Preference for fines— n Costs to society— n Fines add to the exchequer n Custody takes from the exchequer n Preference for liberty— 8

CARTEL REMEDIES 1. The empirical evidence, while not robust, suggests that custodial sentences are necessary. 9

Our stock of knowledge-n We know a lot about the substantive law and the underlying economics because these subjects have been studied by a great many people for a great many years. Law Library 10

Thinking seriously about deterrence-As long as we get to keep some of the money, price fixing is a good idea. 11

Thinking seriously about deterrence-n So, shouldn’t we obtain optimal deterrence if the price fixer gives back what he or she took in the form of either fines or compensatory damages? 12

Thinking seriously about deterrence-But this assumes we catch them all-n Unfortunately, cartel authorities catch only a small percentage of price -fixers. n Indeed, the evidence suggests that a majority get away. The Cartel Police at work 13

Thinking seriously about deterrence-- n The penalty must be adjusted by the probability of detection, prosecution and punishment. An Introduction to the Principles of Morals and Legislation. JEREMY BENTHAM 1748 -1832 14

Wouter Wils of the European Commission-Studies show-n Price increase of 10%; more recent estimate at 20%; n Profitability of 5%; more recent estimate at 10%; n Duration of 5 years; and n Probability of detection of 16%; more recent estimate at 33%. If this is correct, then— Monetary penalties would have to be much higher than at present, and at such a level that receivership would often result. 15

European Commission Directorate General – Competition Neelie Kroes Comssioner Philip Lowe Director-General “Historic fines in the Vitamins Cases demonstrate the Commission’s serious commitment to fighting cartels. ” 16

CARTEL REMEDIES 1. The empirical evidence, while not robust, suggests that custodial sentences are necessary. 2. The agency issue: humans, not corporations, fix prices. 17

CARTEL REMEDIES 1. The empirical evidence, while not robust, suggests that custodial sentences are necessary. 2. The agency issue: humans, not corporations, fix prices. 3. Anecdotal “evidence: defence counsel, prosecutors and recent US cases. 18

TODAY’S AGENDA 1. Custodial sanctions as a deterrent. 2. Enactment is only the beginning. 19

Jurisdictions with custodial sentences — 20

CANADIAN COMPETITION COMMISSIONER n The Canadian statute was enacted in 1989. n Canadian criminal enforcement record— n Custodial sentence imposed & served-- 1 where violence was central to the conduct. 21

Competition Act 2002— n n Dáil Éireann Crimes on indictment are tried in the circuit courts. Except that murder, rape, treason and price-fixing are tried in the Central Criminal Court (branch of the High Court of Ireland). n Term of 5 years imprisonment for price fixing. 22

An tÚdarás Iomaíochta CASES ON INDICTMENT n 16 companies convicted on pleas of guilty. n 14 individuals convicted on pleas of guilty. n 1 individual convicted on a jury verdict. n 0 persons committed to custodial sentence. 23

Jurisdictions with custodial sentences — 24

United States § 1 Sherman Act, 15 U. S. C. § 1 Trusts, etc. , in restraint of trade illegal; penalty Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10, 000 if a corporation, or, if any other person, $350, 000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. n Fines: there is no maximum fine. n Custodial sentences: maximum of ten years imprisonment. 25

Sentences: Average Length (mos. )— 26

SANCTIONS n “In the last fiscal year, defendants in [antitrust] prosecutions received more than 31, 391 days of jail time—a record high— with convicted individuals receiving sentences averaging almost 31 months. Belinda Barnett, Sr. Counsel to Dep. Ass't Atty Gen. , Dec. 2007. And this was before the penalties were increased! 27

Jurisdictions with custodial sentences — 28

TODAY’S AGENDA 1. Custodial sanctions as a deterrent. 2. Enactment is only the beginning. 3. Lessons learned from Ireland. 29

Unsolicited advice: Lessons from my tenure in Ireland— n Select early cases well; don’t debase the currency. n Staff cartel cases appropriately. n Keep your eye on the deterrence ball. n Piggyback where possible. 30

Joint plea agreements: UK/US Coordination n Marine hose individuals - three UK nationals arrested in the US n US – Sherman Act § 1 (max 10 yrs, $1 million fine) n UK – Enterprise Act of 2002 (max 5 yrs) "This investigation has not only netted record-setting jail sentences but has involved unprecedented coordination with the United Kingdom" - Thomas Barnett, Assistant Attorney General, Antitrust Division. "Cartels are not limited to national boundaries, and our coordinated work with the European Commission and the US Department of Justice illustrates our determination to investigate international and national cartels alike. " - John Fingleton, OFT Chief Executive. 31

Joint plea agreements v n Marine hose individuals – longest sentences ever foreign nationals — Peter Whittle (30 months, $100, 000); (£ 649, 636) — Bryan Allison (24 months, $100, 000) — David Brammar (20 months, $175, 000) (£ 366, 354) 32

TODAY’S AGENDA 1. Custodial sanctions as a deterrent. 2. Enactment is only the beginning. 3. Lessons learned from Ireland. 4. Discussion. 33