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A new 16 minute anti-cartel film produced by the Australian Competition and Consumer Commission aims to breaks through widely-held business views around collusion.

Will the ACCC’s foray into film make its mark on cartel behaviour?

Close scrutiny and tough sanctioning of cartel conduct (involving price fixing, market sharing, output reduction and bid rigging by competing businesses) has been a focus of competition law and enforcement across the globe for the last decade.

This focus has seen a growing number of countries criminalise this type of conduct. Criminal treatment is based on the view that cartels represent a widespread and potent threat to competition and hence to domestic and global economic welfare.

The economic rationale for a penalty approach has been accompanied by strong moral rhetoric by enforcement officials, tarnishing cartelists as cheats and thieves.

Australia’s introduction of cartel offences and criminal sanctions in 2009 is consistent with this international trend. At the same time it represents a significant shift in the approach taken to regulating cartel conduct in this country.

The Marker is a new 16 minute anti-cartel film by the ACCC.

The shift is from a relatively benign regime involving civil penalties imposed at relatively low levels, to a heavy-handed one threatening the stigma of conviction and a jail sentence of up to ten years.

The reform was justified principally on the grounds that the threat of criminal sanctions is the most effective way to deter cartel conduct and induce compliance with the law.

Research carried out at the University of Melbourne’s The Cartel Project exposed weaknesses in the key justifications given for cartel criminalisation. It revealed problems with the assumptions that are made about the likely effects of criminalisation on business behaviour both as a deterrence mechanism and as a moral inducement.

The researchers conducted a large scale survey of the Australian public including a group of 567 business people representative of the sector.

Interviews were also done with 25 business people who have been subject previously to civil enforcement proceedings by the ACCC as well as with a range of other stakeholders from the legal profession, the judiciary, consumer movement, academia and the media, as well as from the ACCC itself.

The research found considerable variation in the knowledge by business people that cartel conduct is against the law and a criminal offence. Only 42% of the business people surveyed knew that agreeing prices with competitors was a criminal offence.

Video interview featuring ACCC Chairman Rod Sims, University of Melbourne Associate Professor Caron Beaton-Wells and Qantas CEO Alan Joyce, conducted by the ACCC.

Less than half knew a fine was available as a penalty for this type of behaviour and less than a quarter knew that jail for individuals is available as a sanction.

The extent of business knowledge of criminal sanctions was correlated with the extent to which respondents agreed that cartel conduct should attract such sanctions.

Amongst the general survey population, a large majority agreed cartel conduct should be illegal; however less than half thought it should be a criminal offence and less than a quarter regarded it as sufficiently serious to attract a jail term.

Estimations by the business survey respondents of the likelihood of being caught for cartel conduct, facing enforcement action and being sentenced to jail were fairly low.

What’s more, nearly a third (29%) of the business people responding to the survey thought a hypothetical person would breach the anti-cartel law despite the prospects of criminal sanctions including jail.

When asked about their own likely behaviour, respondents saw themselves as more virtuous than others — only 15% indicated that they would be likely to breach the law where civil penalties applied and only 9% where criminal sanctions applied. Nevertheless, that is still one in 10 who would seriously contemplate engaging in cartel conduct in spite of the risk of a jail term.

Significantly the research also showed that, for small and medium-size enterprise, decisions about whether to collude are not based on the law or its sanctions but on the business person’s view of what is fair and just in the context of their industry, particularly where they are under pressure from larger rivals.

These findings are challenging for the ACCC - the agency that led the campaign for criminal sanctions on the promise that it would supercharge deterrence.

To its credit, the agency has paid attention and is conducting a major awareness-raising campaign. The centrepiece of the campaign is its new film - The Marker – the title invoking the “get out of jail free” card available under the ACCC’s immunity policy.

The ACCC’s educative efforts will have an impact, particularly at the big end of town. Many of the CEOs of Australia’s top companies, to whom the film has been sent, will heed the call of ACCC Chairman Rod Sims to educate their workforces about cartel conduct and its adverse risks and consequences.

The agency’s outreach efforts will be boosted by the publicity that will attend the first criminal case, when it is brought.

However, it is questionable whether the campaign will penetrate the consciousness of the vast majority of Australian business people in small to medium size businesses.

Even if they know about the anti-cartel laws, owners and managers in small-medium size businesses do not tend to see these laws as relevant to their affairs. The white collar characters and skyscraper companies depicted in The Marker may serve to reinforce this impression.

For this sector of the business community, different strategies will be required. Undoubtedly the ACCC will be aware of this. It will also be sensitive to the fact that members of the small business community are more likely to be receptive to ACCC advances on cartels if they perceive the ACCC as protecting their interests in other areas.

People in small-medium size business may not have The Marker at the top of their favourite move list. But they will be watching what the ACCC does in areas such as merger review, misuse of market power and unconscionable conduct (to name a few) where the behaviour of big businesses has a direct and at times devastating impact on the lives of small business people.

The research referred to in the article was conducted by a team of researchers, including Associate Professor Caron Beaton Wells, Monash University’s Professor Christine Parker, Associate Professor Fiona Haines from the University of Melbourne and Professor David Round from the University of South Australia.

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