Australia’s first criminal cartel conviction: NYK fined $25 million

On 3 August 2017 Nippon Yusen Kabushiki Kaisha (NYK) was fined $25 million in the first ever criminal cartel prosecution commenced in Australia. Cartel conduct became criminal under Australian competition law in 2009. This is the second highest monetary penalty for cartel conduct in Australia. The decision of the Federal Court in this case outlines how the Court will determine penalties for criminal cartel conduct including discounts available for early cooperation and the little assistance offered by penalties in civil cartel cases.

What this means for your business

Detection and prosecution of cartel conduct remains the highest priority area for the ACCC.

The ACCC has indicated that after 8 years of no criminal cartel cases, its criminal cartel team is ready and active with several briefs sent to the CDPP. Given the life changing consequences for individuals found to have engaged in criminal cartel conduct (imprisonment) and the push for significantly greater monetary fines for companies, compliance with competition laws has never before been so important.

Summary of facts

Following an investigation by the Australian Competition and Consumer Commission (ACCC), in 2016 the Commonwealth Director of Public Prosecutions (CDPP) charged NYK with giving effect to cartel provisions in contravention of the criminal cartel provisions in Competition and Consumer Act 2010 (Cth). NYK has been subject to and fined in several other related cartel claims in other jurisdictions.

From at least February 1997, NYK had entered into an arrangement with other global vehicle shipping companies whereby the general effect of the arrangement was that the parties would not seek to alter their existing market shares of cargo from manufacturers or otherwise try to win existing business from each other. Three separate cartel provisions charges relating to fixing freight rates, bid rigging and customer allocation were brought against NYK and the cartel involved six different shipping routes for motor vehicles to Australia.

The conduct was uncovered in 2012 following dawn raids conducted by Japanese and US competition authorities on NYK and a number of other shipping companies. 

The offending conduct as charged occurred over a three year period during which 69,348 new vehicles were imported into Australia through contracts entered into as a result of bids affected by the conduct.

Why criminal and not civil?

The ACCC will refer serious cartel conduct for criminal prosecution by the CDPP generally where one or more of the following factors apply:

• the conduct was covert;
• the conduct could have caused serious economic harm;
• the conduct was longstanding or could have had a significant impact on the market;
• the conduct caused significant detriment to the public or significant loss or damage to one or more customers of the alleged participants;
• one or more of the alleged participants has previously participated in cartel conduct in breach of the law;
• senior representatives within the relevant corporation(s) were involved in the conduct.

Maximum penalties for criminal cartel conduct

There are significant penalties for corporations and individuals who are found to have engaged in a criminal cartel offence. For corporations, the maximum fine for each criminal cartel offence will be the greater of:

• $10 million;
• three times the total benefits that have been obtained and are reasonably attributable to the commission of the offence;
• if the total value of the benefits cannot be determined, 10% of the corporation’s annual turnover connected with Australia.

Individuals found guilty of criminal cartel conduct can face penalties of up to 10 years’ imprisonment and/or fines of up to $420,000 per criminal cartel offence.

In this case, by way of agreed facts in relation to the annual turnover of NYK during the relevant period, the maximum penalty that NYK could have incurred was determined to be $100 million, being 10% of its annual turnover in connection with Australia in the 12 months prior to the commencement of the offence.

Consideration of criminal penalty

In determining the appropriate fine, the Federal Court noted that penalties imposed in ‘comparable’ civil penalty cases “are of little if any assistance to the determination of the appropriate sentence in this matter”. Whilst useful, the Court considered that the use of comparable civil penalty cases must be approached with caution noting in particular that civil penalties focus on deterrence by way of promoting public interest in compliance and not punishment whereas criminal penalties import notions of retribution and rehabilitation.

The Court also took into account a number of factors when considering the penalty to impose including the:

1. general severity of the conduct including the expansive nature of the arrangements;
2. fact that the conduct spanned over a period of 3 years;
3. covert, deliberate and systematic nature of NYK’s conduct in circumstances where those involved were aware or ought to have been aware that their conduct were in contravention of competition laws;
4. involvement of senior managers including the sanctioning of prohibited conduct by senior executives;
5. fact that NYK had profited from its conduct; and
6. general deterrence factor – being a “weighty consideration” in offences which are difficult to detect and investigate.

However, the fine of $25 million incorporated a significant discount of 50% including for:

1. NYK’s very early guilty plea and its timely, full, frank and expeditious cooperation with the ACCC;
2. demonstrating that it had rehabilitated itself (or demonstrated excellent prospects of rehabilitation) including a change in its corporate culture of compliance, renouncing its wrongdoing and establishing structures, system and programs to prevent reoffending;
3. the lack of prior corporate criminal conduct; and
4. NYK’s agreement to cooperate with law enforcement agencies in proceedings relating to the alleged offences committed by others (which accounted for 10% of the 50% discount). 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).