Pecuniary Penalties for Competition Law Infringements in Australia - PowerPoint Presentation

Slide1

Pecuniary Penalties for Competition Law Infringements in Australia

28 March 2018, Melbourne, Australia

Pedro Caro de Sousa

and Sean Ennis

Competition Expert

and Senior Economist

OECDSlide2

Drafting the Report Structure of the Report

Setting Pecuniary Penalties in Australia

Setting Pecuniary Penalties around the World Comparison of Australian fines to hypothetical base penalties elsewhere Recommendations

Overview

2Slide3

Builds on 2016 OECD Global Forum on Competition

‘Sanctions in Antitrust Cases’

Various Steps:

Identify international best practices / comparator Carefully studying Australian RegimeFact-Finding MissionAnalyse the Data and Draft the Report 1. Drafting the Report – The Various Steps

3Slide4

1. Drafting the Report

– Selecting Comparators

4

GoalA good sample

of established competition jurisdictions

, providing a valuable mix of characteristics that

reflect the variety of competition law regimes

across the world and illustrate the

breadth of approaches in different legal systems

. Slide5

Established public enforcement competition regime

Criminal and other individual sanctions for infringementsMedium-sized jurisdiction

Common law jurisdiction

Penalties set by courtsInfringements evaluated by generalist courts

1. Drafting the Report – Australia

5Slide6

1. Drafting the Report

– Selecting Comparators

6

Australia

EU

Germany

Japan

Korea

United

Kingdom

USA

Established

Regime

x

x

x

x

x

x

x

Public Enforcement

x

x

x

x

x

x

x

Common law

x

-

-

-

-

x

x

Individual /

Criminal

Infringement

x

-

x

x

x

x

x

Medium-size

x

-

x

-

x

x

-

Judicially set penalties

x

-

-

-

-

-

x

Generalist courts

x

-

x

x

x

-

xSlide7

Drafting the Report

Structure of the Report

Setting Pecuniary Penalties in Australia

Setting Pecuniary Penalties around the World Comparison of Australian fines to hypothetical base penalties elsewhere Recommendations

Overview

7Slide8

Four Main Sections:

Describing Australian Regime

Describing

Comparator Jurisdictions Comparing Australia and Comparator Jurisdictions Conclusions

and Recommendations

2. Structure of the Report

8Slide9

Drafting the Report

Structure of the Report

Setting Pecuniary Penalties in Australia

Setting Pecuniary Penalties around the World Comparison of Australian fines to hypothetical base penalties elsewhere Recommendations

Overview

9Slide10

3.

Setting Pecuniary Penalties in Australia3.1 Overview3.2 Regulatory Outline

3.3 Legal Principles

3.4 Applicable Criteria3.5 Agreed SettlementsOverview10Slide11

Federal Courts have power to set pecuniary penalties

Accusatorial System (typical of common law)

Can be civil or criminal

Penalties set following a process of ‘instinctive synthesis’Taking into account a large number of aggravating and mitigating criteriaPractical importance of agreed penalties

3. Overview

11Slide12

Section 76 CCA

– key civil penalty provision. The greater of: AUD 10 million (only penalty pre-2007)Three times the gain from the contravention

Where the gain cannot be readily ascertained, 10% of the annual turnover of the body corporate

Section 79 CCA – criminal penalty regime (after 2009)Identical to Section 76 regarding corporations (as per section 44 ZZRF and section 44AZZRG)A maximum 10-year jail sentence, a pecuniary penalty not exceeding 2,000 penalty units for individual offenders, or both

3.2 Regulatory Outline

12Slide13

Object of Civil Penalties

“The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to

deter repetition

by the contravenor and by others who might be tempted to contravene the Act” (French J)Trade Practices Commission v CSR Ltd (1991) ATPR 41–076, para 52“The punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by that offender or others as an acceptable cost of doing business

... those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits

to be made from contravention

.”

Singtel Optus Pty Ltd v ACCC

[2012] FCAFC 20, paras. 62-63, was endorsed by the High Court of Australia in

ACCC v TPG Internet Pty Ltd

[2013] HCA 54, para. 66.

3.2 Regulatory Outline

13Slide14

No clear formula

: instead, there is an extensive process to identify the appropriate penalty which varies from case to case (‘instinctive synthesis’)

Subject to a

number of principles, including: Course of Conduct Principle Totality Principle Parity Principle

Objective: To ensure that final / aggregate sanction is just and appropriate

3.3 Legal Principles

14Slide15

Pecuniary penalties are set according to a number of criteria:

Statutory (s. 76 (1) CCA)

the nature and extent of the act or omission;

any loss or damage suffered as a result of the act or omission; the circumstances in which the act or omission took place; whether the person has previously been found by the courts to have engaged in any similar conduct in related proceedings. 3.4 Applicable Criteria

15Slide16

Pecuniary penalties are set according to a number of criteria:

Statutory (s. 76 (1) CCA)Case law (French criteria)(v)

Size of the contravening company

(vi) Market power of the contravening company(vii) Deliberateness of contravention and its duration; (viii) Involvement of senior management(ix) Corporate culture conducive to compliance, as evidenced by compliance programmes and corrective measures(x) Cooperation with the authorities(xi) Economic effects of the conduct

(xii) Similar conduct in the past (xiii) Whether the conduct was systematic, deliberate or covert;

(xiv) Financial position of the contravening company

3.4 Applicable Criteria

16Slide17

Pecuniary penalties are set according to a number of criteria:

Statutory (s. 76 (1) CCA)French criteriaAdditional factors taken into account in case law

(xv) Expectation of very substantial penalties in other jurisdictions

(xvi) Gain from unlawful conduct(xvii) Penalty submissions by the regulator(xviii) Avoiding the imposition of oppressive penalties3.4 Applicable Criteria

17Slide18

Pecuniary penalties are set according to a number of criteria:

Statutory (s. 76 (1) CCA)French criteriaAdditional factors taken into account in case law

But

some criteria are of doubtful value: (xix) Corporate Group(xx) Punishment(xxi) Insolvency(xxii) Reputation

3.4 Applicable Criteria

18Slide19

Pecuniary penalties are set according to a number of criteria:

Statutory (s. 76 (1) CCA)French criteriaAdditional factors taken into account in case law

Well-established

Less well-established Overriding principle is that the court should weigh all relevant circumstances in the light of criteria and legal principlesAn “instinctive synthesis” of many conflicting considerationsThe opposite of 'two-tiered' or 'sequential' approach, under which the decision-making process is compartmentalised, and particular factors isolated for the purpose of calculating their specific impact on the ultimate sanction

3.4 Applicable Criteria

19Slide20

Setting of penalty is an

exclusive prerogative of the courtsBut ACCC and respondents may jointly submit an

agreed civil penalty

(and other relief) for the courts’ considerationDecision is ultimately for the courtLegal principles frame the courts’ evaluation (Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46)Practical effect is that agreed penalties tend to be accepted

Question: is court satisfied that agreed penalty is appropriate, i.e. does it fall within a

permissible range

?

ACCC submission expected to reflect a

considered, but also pragmatic

, estimation that the

submission is apt to advance the public interest more effectively and efficiently that the continued prosecution

of the claim

If court is persuaded that it is an appropriate penalty, it is

consistent with principle

, and

highly desirable in practice

, for the court to accept the parties’ proposal and impose the agreed penalty

3.5 Agreed Penalties

20Slide21

Drafting the Report

Structure of the Report

Setting Pecuniary Penalties in Australia

Setting Pecuniary Penalties around the World Comparison of Australian fines to hypothetical base penalties elsewhere Recommendations

Overview

21Slide22

4. Setting Pecuniary Penalties Around the World

4.1 Overview4.2 Identifying a Base Fine

4.3 Aggravating and Mitigating Factors

4.4 Final AdjustmentsOverview22Slide23

All jurisdictions have the

ability to impose pecuniary penalties and other penalties

Main goal of pecuniary penalties is

deterrenceAll jurisdictions follow a set methodology, which is publicly availableSet basic penalty, which reflects some measure of

the economic impact of the competition infringement

Apply a

large number of mitigating or aggravating factors

Final adjustments

Immunity and Leniency

4.1 Overview

23Slide24

Two Fundamental Steps

Initial measure – based on measures of

:

illegal gain from the anticompetitive conduct presumed damage to consumersA rate applicable to this initial measure4.2 The Base Penalty

24Slide25

4.2 The Base Penalty- Initial Measure

25

Countries

Initial Measure

European

Union

Value of sales

in the relevant market

Germany

Turnover

from sales connected

with infringement

Japan

Amount of sales or purchases

of goods or services in question

Korea

Turnover

of from the sale of goods or services in specific transaction areas

United

Kingdom

Turnover

in the relevant product and geographic market affected by the infringement

USA

Volume of commerce

in goods or

services

affected by the violationSlide26

4.2 The Base Penalty - Rate

26

Countries

Initial Measure

Maximum Rate

European

Union

Value of sales

30%

Germany

Turnover

10%

Japan

Amount of sales or purchases

1%-10%

Korea

Turnover

0.5%-10%

United

Kingdom

Turnover

30%

USA

Volume of commerce

20%Slide27

4.2 The Base Penalty

– Time Dimension

27

Countries

Initial Measure

How Long

European

Union

Value of sales during

last business year

Infringement

period

Germany

Turnover during

infringement period

Infringement period

Japan

Value of sales

during

infringement period

Three Years

Korea

Turnover

during

infringement period

Infringement period

United

Kingdom

Turnover during

last business year

Infringement period

USA

Volume of commerce

during

infringement period

Infringement periodSlide28

4.3 Aggravating Factors

28

Common

Aggravating Factors

Australia

Leading Role

Nature, extent

and circumstances of the conduct (statutory)

Coercive or Retaliatory Measures

Nature, extent

and circumstances of the conduct (statutory)

Duration

Deliberateness of contravention and its duration (French factors)

Seriousness of conduct

Nature, extent

and circumstances of the conduct (statutory)

High Degree

of Organisation

Whether the conduct was systematic, deliberate or covert

(French factors)

Intentional Conduct

Deliberateness of contravention and its duration (French factors)

Involvement of Senior Management

Involvement of Senior Management

(French factors)

Coercive or Retaliatory Measures

Nature and Extent of the Act (statutory)

Obstruction

-

Recidivism

Statutory and French

factors

Large Size of Firm

Size of the contravening company

(French factors)

Toleration of Criminal Activity

Corporate

Culture (French factors)

Breaching of Order

-Slide29

4.3 Mitigating Factors

29

Common

Aggravating Factors

Australia

Acceptance of Responsibility

Cooperation with the authorities (French

factors)

Compensation of Injured Parties

Loss or damage caused

by conduct (statutory) and

Gains from unlawful conduct (case law)

Co-Operation

with Authorities

Co-Operation with Authorities

(French factors)

Effective Compliance Programme

Corporate culture conducive to compliance (French

factors)

Public Encouragement

-

Negligence

Nature, extent

and circumstances of the conduct (statutory) and

Deliberateness of contravention (French factors)

Minor Role

Nature, extent

and circumstances of the conduct (statutory)

Non-implementation

Nature, extent

and circumstances of the conduct (statutory)

Participation

under Duress

Nature, extent

and circumstances of the conduct (statutory)

Self-Reporting

Corporate culture conducive to compliance (French

factors)

Small Size of Firm

Size of contravening company (French

factors)

Termination of Infringement

Corporate culture conducive to compliance and

Co-operation with authorities(French

factors)

Uncertainty as to Unlawfulness

-Slide30

Goals

Maximum Penalty

To Ensure:

AdequacyDeterrenceMain concern: Company Size4.4 Final Adjustments

30Slide31

4.4The Base Penalty

- Maximum Penalty

31

CountriesInitial Measure

European

Union

10% of total world-wide turnover

during preceding business year

Germany

10% of total world-wide turnover

during preceding business year (5% if negligence)

Japan

N/A

Korea

Cartel:

10% of relevant turnover

Abuse of dominance:

3% of relevant turnover

United

Kingdom

10% of total world-wide turnover

during preceding business year

USA

Greatest of:

USD 100 million

,

twice the pecuniary gains

, or

twice the pecuniary lossSlide32

Drafting the Report

Structure of the Report

Setting Pecuniary Penalties in Australia

Setting Pecuniary Penalties around the World Comparison of Australian Fines to Hypothetical Base Penalties Elsewhere Recommendations

Overview

32Slide33

5. Comparison of Australian fines to hypothetical base penalties elsewhere

5.1 Overview5.2 Method

5.3 Analysis

5.4 Limitations33OverviewSlide34

How compare Australian penalties to those elsewhere?

Absolute size of penalties: not relevantMarket activities affected: relevantIllustrative exerciseApply external methods to calculate pecuniary penalty that would have applied to Australian conductDifficult to apply “instinctive synthesis” methodology to compare penalties that would have been imposed under Australian approach to outside cases

34

5.1 OverviewSlide35

35

5.1 Overview – Size of Jurisdictions

Population (millions)

GDP (billion USD)

Australia

23

1,169

European Union

511.8

20,267

Germany

82.8

4,028

Japan

126.7

5,266

Korea

50.9

1,825

United Kingdom

65.8

2,796

United States

324

18,569Slide36

Focus group: cases not under appeal

Make no judgment about guilt and actionsExamine size of market activityUse this market activity as comparator for producing base fine in each of six examined jurisdictionsCompare the base fine to actual fineAcknowledge limitations

36

5.2 MethodSlide37

Case

Actual Penalty

ACCC v Visy

36 millionACCC v Qantas20 millionACCC v NSK3 million

ACCC v Colgate

18 million

CPP v NYK Commonwealth

25 million (50 million without discount)

37

5.3 AnalysisSlide38

38

5.3 Analysis: Estimated Base Pecuniary Penalty Based on Jurisdiction’s Method

Case

European Union

Germany

Korea

Japan

United Kingdom

United States

ACCC v Visy

1.272 b

<1.06 b

371 m

318 m

1.06 b

1.06 b

ACCC v Qantas

103.3 m

<221 m

31 m

22.1 m

88.6 m

88.6 m

ACCC v NSK

13.9 m

<9.28 m

3.2 m

4.64 m

9.28 m

9.28 m

ACCC v Colgate

117 m

<117 m

27.3 m

39 m

78 m

78 m

CPP v NYK Commonwealth

800 m

<900 m

210 m

300 m

600 m

600 mSlide39

Small number of cases

Ignores difference in determining relevant turnover (e.g., annual turnover multiplied by time of infringement)Some conduct took place before Australia’s 2007 and 2009 reformsAustralian statute of limitations may affect duration and may not be taken into accountInfringing party’s sales or turnover taken from decision, may not have been deeply reviewed and contested, to the extent relevance to pecuniary penalty was limited

39

5.4 LimitationsSlide40

Drafting the Report

Structure of the Report

Setting Pecuniary Penalties in Australia

Setting Pecuniary Penalties around the World Comparison of Australian fines to hypothetical base penalties elsewhere Recommendations

Overview

40Slide41

6.

Recommendations6.1 Quantum6.2 Legal Constraints6.3 Methods for Setting Pecuniary Penalties6.4 Transparency and Predictability

41

OverviewSlide42

Increase awareness of international practices and reasons for these

Focus on deterrence effects during ACCC negotiations and discussionsStudy potential to adopt mechanisms that link penalty to economic size of infringing corporation’s conductStudy ways to ensure size of conduct is main criterion, and not excluded by precedence

42

6.1 QuantumSlide43

Consider ways of ensuring size of benefit or harm becomes a key element of consideration in penalty setting

43

6.2 Legal ConstraintsSlide44

Adopt a structured approach to the setting of penalties

Identify a base pecuniary penalty reflecting the size of the unlawful conduct, e.g. volume of commerce44

6.3 Methods for Setting Pecuniary PenaltiesSlide45

That ACCC submissions on quantum of penalty are those of a specialist regulator

Consider adopting guidelines while respecting separation of powers and independence of judiciaryConsider whether appropriate to reform law to provide method of calculation for penalties for civil pecuniary penalties applicable to economic agents for violation of competition law - and potentially other regulatory infringements

45

6.4 Transparency and PredictabilitySlide46

THANK YOU FOR LISTENING

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Pascal

- 75775 Paris Cedex 16

Tel:

+(33-1) 85 55 64 49

–

Fax: +33 1 45 24 96 95

pedro.carodesousa@oecd.org

||

www.oecd.org

Pedro Caro de Sousa

Competition Expert

Competition Division, Directorate for Financial and Enterprise Affairs

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