Cartel conduct is used by businesses to illegally and criminally get ahead of the competition. Cartel conduct examples are where two competing businesses decide to work together and drive out other competition. These steps increase their revenue and profit. In addition, they make necessary arrangements purely for their benefit, whilst giving off the impression they are still competing businesses. Such practices are highly illegal because cartels can gain control of the market to such an extent that is destroys the competitive market.
Unfortunately, cartel conduct cost the Australian economy billions of dollars every year. This is detrimental to honest and well-managed businesses, and the taxpayers. It also has massive consequences for the consumer because it limits the choice their choice in the industry, which forces consumers to purchase lower quality products and services at a higher price. Thus, cartel conduct is immoral behaviour and is dealt with by the law harshly, imposing heavily criminal charges and penalties if found guilty of conduct conduct.
What is a cartel provision?
Cartel behaviour is counterproductive to the requirement of the Competition and Consumer Act 2010 that obligates businesses fairly compete in the market. This means that businesses must grow their revenue and profit through honest business practices.
Such as practices are:
- innovation and product improvement
- effective genuine marketing and sales strategies
- responsible management of costs and competitive pricing.
Businesses that conduct themselves inconsistently with the purpose of the Act have to infringe on Part IV, Division 1 of the Competition and Consumer Act, which prohibits and criminalises cartel conduct. Cartels are not limited to national jurisdiction. Sophisticated cartels are groups of international entities. The International Competition Network is made up of more than 60 countries that work together to enforce and prosecute cartel matters.
What are the common types of cartel conduct?
Price fixing:
Involves two or more businesses that agree to what prices they charge. This is done for the purpose of not competing with each other. It is not simply just setting prices on particular goods and services. It can also involve complex formulas, where the business fixes the price according to the formula
Rigging bids:
In a tender situation, cartels use the practice of cover bidding. This occurs when all of the business bid on a contract, but regardless of who the winner is they all benefit from securing the contract. To do this, the cartel elect one business to win the tender or bid, and then all of the other businesses retract their offers, therefore suppressing the choice of the contract for the offeror and making the process anti-competitive. Complex cover bidding agreements sometimes have terms and conditions that they know the client not accept, such actions are called non-conforming bids.
Market Sharing:
Cartel businesses agree to divide up the market and not compete for the same customers. Market sharing means one business offers a product and another business not offer that product. This effectively makes one business anti-competitive as it is the only business offering that product. Additionally, businesses may agree upon geographical parameters and agree not to offer products or services in a particular geographical zone.
Some cartel agreements go to extreme lengths to agree on the type of customers that they not offer products and services to particular types of customers. Furthermore, this can be seen as discriminator practices, where customers are unfairly targeted and taken advantage of for the economic gain of the business.
Restricting output:
Restricting output occurs when two or more competing businesses collude to limit, prevent, or inhibit the goods or services, that may be purchased or sold. The sole aim of restricting output is to reduce supply and create scarcity.
Where can cartel risks arise and how to avoid them?
In a Federal Court Case of ACCC v Leahy Petroleum Pty Ltd [2007] FCA 794 contract, arrangement, or understanding to be evident. There must be an existence of either communication, consensus, or commitment.
An important part of successful business practice is making quality decisions on prices, tenders, your target market, and having a competitive attitude. To stay away from cartel practice managers should make decisions about prices independently. When submitting tenders for contracts do not discuss or communicate with the competition about the details of your bid. Make product and target market decisions independently from the input of other companies and avoid all discussions with competitors.
Finally, the most important thing to do is to go after your competition’s customer base using honest and genuine business practices. Using these points protect you from an investigation by the Australia Competition and Consumer Commission or the relevant Public Prosecution Department.
A defence to cartel provisions:
There are limited exceptions to the cartel regime. The following exceptions have broad applications, however, by relying on them it is best to ensure you have performed honest and genuine business practices as discussed above. If you do have to rely on the exceptions you must get legal advice.
- a collective bargaining notice
- an authorisation
- joint ventures
- agreement between related bodies corporate
- collective acquisition of goods or service
- anti-overlap provisions.
Penalties cartel conduct:
There are significant penalties for anti-competitive behaviours under section 79 of the Competition and Consumer Act 2000.
If an individual who attempts or contravenes, aids contravention, conspires to contravene or knowingly contravenes cartel offence provision may face up to 10 years imprisonment, and/or a fine not exceeding 2000 penalty units that are up to $200,000.
For civil matters pecuniary penalty of $500,000 per contravention.
Corporations be punished under the same criminal penalties, this means that directors, executives, and employees who are party to the anti-competitive behaviour face punishment individually. Corporations can indemnify their officers against legal costs or financial penalties as this is prohibited by law.
What to do if you know of cartel conduct in your business:
The Australia Competition and Consumer Commission have an established immunity policy for corporations and individuals, that are involved or know of cartel conduct case . The immunity is available for those who REPORT THE CONDUCT FIRST, and the nature of their involvement. It may protect you from litigation and penalty for assistance in the investigation.
The immunity is only effective if the report about the cartel’s conduct is true. The scope of the immunity is available for past, and present directors, executives, officers and officers that provide a true admission. Corporations’ immunity must involve a sufficient corporate act rather than the admission of a representative which is can be considered an individual matter.
Legal advice
If you require assistance in taking a matter to court, you should seek legal advice. Legal Kitz can assist with ensuring that your matter in court is as time and cost efficient as possible. Click here to book a FREE consultation with one of our highly experienced solicitors today, or contact us at [email protected] or by calling 1300 988 954.