News Risk Management28 Mar 2018

Australia:Companies may face higher penalties for breaches of competition law

28 Mar 2018

Large firms in Australia could face higher penalties for breaches of the competition law in future. This comes after an Organisation for Economic Co-Operation and Development (OECD) report found that average Australian penalties are significantly lower than those imposed in other comparable OECD jurisdiction.

The OECD report, Pecuniary Penalties for Competition Law Infringements in Australia, compared the penalties for companies which breach competition laws in Australia with the EU, the UK, Germany, Japan, Korea and the USA,

It found that in Australia, both the maximum and average penalties imposed by the Courts for competition law breaches are significantly lower than in the OECD jurisdictions considered, especially for large firms or for long-standing anti-competitive behaviour. The OECD calculated an average Australian penalty based on a sample of cartel cases and estimated penalties would have to be increased by 12.6 times to be comparable with the level of the average penalty in these OECD countries.

The Australian Competition & Consumer Commission (ACCC) issued a statement on Monday, which indicated that it will review its approach to penalties for breaches of the competition law following the report.

“The OECD report provides valuable insight and a vital point for debate and discussion about the future of penalties in the context of competition law enforcement in Australia,” ACCC Chairman Rod Sims said.

The report noted that in most OECD countries, financial penalties are set according to a set methodology which includes sales of the infringing company’s product. In Australia the penalties are determined by the Federal Court following an “instinctive synthesis” of various factors.

However, OECD Economist Dr Sean Ennis noted that this difference does not prevent Australia from imposing substantial and deterrent sanctions for competition law violations. “Clearer guidance on the size of penalties could be useful in Australia to ensure penalties deter and that companies are aware of the likely size of fines,” Dr Ennis said.

“The ACCC has been concerned that penalties in competition cases historically have not been sufficiently high to deter breaches, especially in cases involving large businesses. Whilst the OECD’s report focuses on penalties in competition cases, the ACCC is similarly concerned to ensure that penalties imposed in consumer cases are also high enough to achieve deterrence,” Mr Sims said.

He acknowledged the OECD’s comment that Australia previously may not have given the size of the contravening corporation sufficient weight in penalty submissions to the Court.

The OECD report found the comparative disparity in penalties has the potential to limit the effective deterrence of fines imposed in Australia.

“We need penalties that will be large enough to be noticed by senior management and company boards, and also shareholders,” Mr Sims said.

The report also highlighted that the ACCC does not start its penalty assessment by reference to the company’s turnover or value of commerce affected, which Mr Sims agreed there was merit to consider. If applied, it would mean that firms with larger turnover would generally end up with much higher penalties.

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