First successful prosecution under Australian criminal cartel conduct provisions

In brief

Nippon Yusen Kabushiki Kaisha has been fined $25 million in the first criminal cartel conduct prosecution commenced in Australia. The case provides the first guidance on how a court will determine penalties under the criminal cartel laws, including any discount available for 'cooperating' defendants. Partner Jacqueline Downes and Senior Associate Lisa Lucak report.

First criminal cartel fine

For the first time in Australia, a company has been charged and fined under the criminal cartel conduct provisions that were introduced in 2009. Global shipping company Nippon Yusen Kabushiki Kaisha (NYK) was ordered to pay a fine of $25 million after pleading guilty to allegations of criminal cartel conduct by the Commonwealth Department of Public Prosecutions (CDPP) following an investigation and referral from the ACCC. The alleged criminal cartel conduct occurred in connection with the transportation of imported vehicles, including cars, trucks, and buses, into Australia between July 2009 and September 2012 and involved claims of bid rigging, price-fixing and customer allocation. NYK has also faced charges in other jurisdictions, including the US.

The maximum penalty that NYK could have incurred was $100 million, being 10 per cent of its annual turnover in connection with Australia in the 12 months prior to the commencement of the offence. In determining the fine, the Federal Court considered that pecuniary penalties imposed in comparable civil cartel cases were of minimal assistance in deciding the appropriate penalty in this criminal case. The judge took into account the general severity of cartel conduct and desirability of ensuring deterrence in the first criminal cartel conduct case. The judge also considered the fact that the conduct had occurred over three years and that NYK had profited from its conduct.

However, the fine of $25 million incorporated a significant discount of 50 per cent for, in particular, NYK's early guilty plea, level of contrition, present cooperation and assurances of future assistance with related investigations. NYK's future cooperation specifically accounted for 10% ($5 million) of the discount. The judge noted that NYK had shown a high degree of contrition in addition to its early guilty plea and cooperation with authorities, including in replacing relevant senior management, establishing substantial compliance systems and procedures, and a comprehensive change in corporate culture in respect of anti-competitive practices. The CDPP made no submission about the appropriateness of the $20 million to $25 million penalty range suggested by NYK.

Other criminal cartel prosecutions and investigations

On 2 November 2016, the CDPP laid charges against another alleged participant in the cartel, Kawasaki Kisen Kaisha (K-Line), also a Japanese shipping company. The ACCC has indicated that its investigation in relation to other alleged cartel participants is continuing.

What this means for you

The ACCC has previously publicly stated that it is trying to lay the platform for a continuing stream of criminal cartel prosecutions.¹ The ACCC continues to enforce the cartel provisions as a priority area and has indicated that it has a number of investigations currently on foot. In particular, the ACCC has indicated that it is treating all current and new investigations as potential criminal cartels, and will consider a range of factors when ultimately deciding whether to refer the matter to the CDPP to prosecute – including the seriousness of the conduct, economic harm and consumer detriment. The ACCC is likely to more readily refer criminal cartel matters to the CDPP following the decision, as it sets a precedent that will encourage parties to settle rather than contest allegations involving criminal cartel conduct. This is because the Court has demonstrated its willingness to impose penalties based on the maximum of 10% of turnover, but also to provide a generous discount for an early guilty plea and cooperation (50 per cent). Businesses should watch these developments carefully as the consequences of non-compliance are significant.