THE
DESIRABILITY OF CRIMINAL PENALTIES FOR BREACHES OF
PART IV OF THE TRADE PRACTICES ACT
Julie Clarke
and Mirko Bagaric*
Published
version: Clarke, J. & Bagaric, M. ‘The Desirability of Criminal Penalties
for Breaches of Part IV of the Trade Practices Act’ (2003) 31(3) Australian
Business Law Review 192-209
1 INTRODUCTION
There has been a significant push recently to
introduce criminal sanctions, and in particular jail terms, for breaches of the
competition laws contained in Part IV of the Trade Practices Act 1974 (Cth) (the TPA). This push has led the
committee reviewing the competition provisions of the TPA (the Dawson
Committee) to recommend that criminal penalties be introduced for individuals
and corporations found to have engaged in hard core cartelisation.[1]
The two main reasons publicly advanced for the
proposed changes are
(i) that it would put
Australia in line with other countries - such as the United States;[2] and
(ii) criminal sanctions
would discourage breaches of the Act.[3]
There are, however, weaknesses in both these
arguments. The mere fact that other jurisdictions have certain regulatory
models says nothing about the desirability of such models - the other
jurisdictions may simply have missed the mark.[4] Otherwise an equally strong
argument could be made for re-introducing the death penalty and, if we take our
cue from places other than the United States, for outlawing free speech. Reform
(as opposed to simply change - which quite often is regressive) is hardly
likely to arise from reflexively copying standards and laws operating in other
jurisdictions. As a minimum, (progressive) reform can only occur following a
thorough independent assessment of the likely benefits of the proposal. The
deterrence argument is potentially flawed because it assumes that providing the Australian Competition and Consumer
Commission (‘ACCC’) and the courts with a big stick will in fact encourage
compliance with the TPA. While there is intuitive appeal to this argument it is
certainly not axiomatic that bigger penalties leads to greater compliance with
the law.
The purpose of this paper is to look behind the
rhetoric that has consumed the debate concerning the desirability of imposing
criminal sanctions for contraventions of Part IV of the TPA and examine whether
there are sound reasons for the proposal.
Three possible reasons for introducing criminal
sanctions in this area are examined. The first is the extension-analogy
argument – or the argument for consistency. The argument is that, because the
criminal law presently criminalizes similar types of conduct to that which is
prohibited under Part IV the law should be expanded to include these breaches.
Other, less harmful, conduct is criminalized so consistency and for fairness
anti-competitive conduct should not be exempt from such classification. This
adopts the extension-analogy approach, which underpins most legal change. This
is considered in section three of the paper. This argument, on balance, favours the introduction of
criminal sanctions. There are certainly far less serious harms that are
prohibited by the criminal law. However, ultimately, this type of approach is
not persuasive. This is because the terms of reference are too blinkered. It
assumes that (i) there is a coherent distinction between criminal and
non-criminal wrongs; and (ii) that this distinction is sound. In section four
of the paper both of these proposals are refuted.
The second argument is that anti-competitive conduct
is of the type that should be
subjected to the criminal laws.[5] This requires an analysis
of the justification for the criminal law. This is a complex inquiry, because
it focuses on what activities the criminal law should regulate, not the straight-forward descriptive question
(which is at the heart of the first reason) of what it in fact does regulate. This inquiry is
non-conclusive for the simple reason that there is no secure justificatory
rationale which underpins the criminal law.[6]
The third reason that can be advanced for meting out
harsher punishment to those who breach the Part IV is that it will encourage
greater compliance with the Act. As is noted above, this assumes that there is
a connection between the size of the stick and observance of a law. Whether
this is actually the case is examined in section five.
Prior to considering the relevant arguments a brief
overview of the existing enforcement regime for cartelisation in Australia
(including the Dawson Committee’s recommendations for reform) is provided. For comparative purposes, we then outline
the regimes in the United Kingdom and the United States.[7]
2 EXISTING ENFORCEMENT REGIME
2.1
Australia
Australian competition law
is currently governed by a system of civil penalties with no opportunity for
criminal punishment of either the corporation involved or the individuals
responsible for the prohibited activity. The civil pecuniary penalties
available for such breaches are, however, extremely high; in the case of
corporations penalties of up to $10m are available and, for individuals
involved in the contravention, penalties of up to $500,000 may be awarded for
each offence.[8] Nevertheless s 78 of the
TPA makes clear that criminal proceedings do not lie against a person by reason
only of contravening a provision of Part IV.[9]
This is in contrast to the
way the TPA deals with contraventions of the consumer protection provisions.
For example, Part VC of the TPA criminalizes such conduct as false or
misleading representations,[10] bait advertising,[11] referral selling[12] and pyramid selling.[13]
On 9 June 2001 the Chairman
of the Australian Competition and Consumer Commission (‘ACCC’), Professor Allan
Fels called for the introduction of criminal sanctions for ‘hard core breaches
of Part IV’ including ‘the most serious, flagrant and profitable acts of
collusion such as price fixing, market sharing and bid rigging’.[14] The penalties proposed
included the possibility of ‘imprisonment for executives who engage in these
highly profitable, hard core breaches of Part IV’.[15]
One year later the ACCC’s proposal for criminalizing certain forms of anti-competitive conduct was formalized in their submission to the Trade Practices Inquiry, chaired by Sir Daryl Dawson (The Dawson Review).[16] In that submission the ACCC proposed the introduction of criminal penalties for corporations and executives found to have engaged in hard-core cartel conduct[17] to operate in conjunction with the existing civil penalty regime.[18] Broadly, this would prohibit agreements to fix prices, limit output, share markets and rig bids. [19]
The Commission also proposed
certain legislative ‘safeguards’ to ‘ensure that criminal sanctions are not
applied inappropriately’.[20] These would include
applying the criminal sanctions only to conduct carried out ‘by, or in, large
corporations’[21] – so as to exclude small
business, trade unions and farmers[22] - and ensuring that the
offences be tried by a judge and jury with a requirement that the jury verdict
be unanimous before a conviction is made.[23]
The ACCC proposed that, upon
conviction, a maximum custodial sentence of 7 years[24] should apply for
individuals and, for corporations, a fine ‘at the same maximum level that would
apply if the contravention were civil’ could be imposed.[25]
The report of the Dawson
Committee was handed to the Treasurer in January 2003 and released to the
public on 16 April 2003. The Committee
recommended the introduction of criminal penalties, including imprisonment, for
hard-core cartel behaviour.[26] The Commonwealth Government has accepted ‘in principle’ that
criminal penalties may provide a more effective deterrent than civil penalties,[27] and has indicated it will
set up a working party to resolve some of the implementation problems
identified by the Dawson Committee.[28]
In addition to recommending
the introduction of criminal penalties, the Dawson Committee recommended that
the maximum pecuniary penalty for corporations be increased,[29] that the Court be given the
power to exclude an individual involved in a contravention from being ‘a
director of a corporation or being involved in its management’[30] and that corporations be
prohibited from indemnifying its ‘officers, employees or agents’ for pecuniary
penalties they might receive.[31] The Commonwealth Government has agreed to address these issues.[32]
2.2 United States
The United States has, since the introduction of the Sherman Act in 1890, criminalized anti-competitive conduct. Specifically, section 1 of the Sherman Act prohibits any agreement that restrains trade. While all such agreements are potentially subject to criminal penalties, in practice the Department of Justice (‘DOJ’) criminally prosecutes hard core cartel conduct where it can be shown that the corporation and/or individual involved ‘has acted with “specific intent” to restrain trade’.[33] Criminal intent to restrain trade can be presumed when clearly illegal conduct, such as price fixing and bid-rigging, is involved.[34] Criminal sanctions apply to both corporations and individuals involved in the contraventions. Individuals may be liable for a maximum penalty of 3 years imprisonment and a fine of up to $350,000.[35] Corporations are liable for criminal penalties of up to $10 million per offence. In the case of both individuals and corporations the fine may be increased to the higher of either twice the pecuniary gain enjoyed by the defendant or twice the gross loss to victims of the conduct.[36] This has facilitated very large fines for antitrust breaches, including a fine of $500 million[37] against F. Hoffmann-La Roche for it’s role in the international vitamin cartel.[38] In relation to individual penalties this legislation enabled the DOJ to impose a $7.5 million fine combined with a one year term of imprisonment on former Sotheby’s auction house chairman, Alfred Taubman, for his long-term involvement in illegal price fixing activities.[39] More recently, Melvyn Merberg, former executive of food distributor Jitney Ltd was sentenced to serve ‘a record 63 months in prison’ after pleading guilty to participating in four separate bid rigging schemes.[40]
2.3 United Kingdom
Until recently the United Kingdom had no
legislation criminalizing breaches of their competition laws. This changed on 7
November 2002 when the Enterprise Act 2002
received Royal Assent.[41] The Enterprise
Act provides specifically for criminalisation of certain forms of dishonest anti-competitive conduct. It
provides that a defendant will be convicted if, targeting the United Kingdom,
‘he “dishonestly” agrees with one or more persons to make or implement, or to
cause to be made or implemented’,[42] a horizontal agreement to:
§ Directly or indirectly fix the price of goods or services;
§ Limit or prevent supply or production of goods or supply of services;
§ Allocate customers or markets; or
§ Rig contract bids.[43]
This is a separate prohibition which does not
depend upon a breach of the existing laws. Under the new laws individuals
convicted of an offence may be sentenced up to 5 years in jail and subjected to
an unlimited criminal fine.[44] Corporations are not subjected to criminal
prosecution.
The substantive provisions of the Enterprise Act 2002 will come into
operation on 20 June 2003.[45]
Consequently, it is not possible at this stage to gauge how effective
the new criminal regime will be in practice.[46]
3 EXTENSION- ANALOGY ARGUMENT
If one adopts existing criminal law practice as a
starting point it is not difficult to make out a tenable argument in favour of
extending the criminal law to Part IV of the Act. The criminal law prohibits a
wide variety of conduct from murder and rape to flying a kite,[47] the annoyance of others[48] and not wearing a helmet
when riding a pushbike. Further, in terms of the precise conduct proscribed by
Part IV of the TPA it is not difficult to identify similarities with existing
conduct which is dealt with by way of criminal sanctions.
The purpose of Part IV is explained by Deane J in Refrigerated Express Lines (Australia) Pty
Ltd v Australian Meat and Livestock Corporation:[49]
Part IV is headed `Restrictive Trade Practices'. The general purpose and scope of the Part can be described by saying that it contains provisions which proscribe and regulate agreements and conduct which are aimed at procuring and maintaining competition in trade and commerce.[50]
The substantive provisions of Part IV seek to
achieve this purpose by regulating or prohibiting certain forms of conduct,
including the making or giving effect to anti-competitive agreements (including
those that constitute boycotts or price fixing), exclusive dealing, resale
price maintenance, taking advantage of market power and entering into mergers
which result in a substantial lessening of competition.
These forms of conduct are not intrinsically wrong. Unlike conduct such as murder, assault, rape and theft, they do not inflict direct harm on another person. Indeed it has been observed that ‘victims’ of cartel offences are often not aware that that harmful conduct has taken place.[51] However, there seems to be little question that the conduct proscribed by Part IV is harmful to the community.[52] Quite simply, it leads to consumers paying more for goods and services and, in this way, unfairly deprives consumers of property – in the form of money.
A sound argument can be made that price fixing and
other forms of cartelisation cause at least as much harm as other forms of
financial crimes. Whether someone pick-pockets two dollars from an agent or
tricks the agent into giving him or her two extra dollars or is able to make
the agent pay two dollars more for his or her phone bill as a result of total
market dominance in the telephone provider industry would not seem to make a
difference to the agent – either way the agent is two dollars worse off. In
fact, a single act of price fixing probably causes far more cumulative harm
than a burglary or theft.[53] It has been observed that:
It is not unusual for anti-competitive violations to involve far greater sums than those that may be taken by thieves or fraudsters, and the violations can have a far greater impact upon the welfare of society. …’[54]
Cartels … enrich participants at
the expense of consumers. They injure consumers by raising prices above the
competitive level and reducing output. Cartels can be very harmful across wide
areas of an economy by artificially creating market power and leads to
inefficient and wasteful allocation of resources … They are blatant frauds on
consumers.[55]
More broadly, it is certainly not unusual for the
criminal law to prohibit conduct that causes either indirect harm to others or,
in some cases, no harm whatsoever. Offences such as drug trafficking and
escaping from custody being examples of the former; indecent conduct and drunkenness
of the latter.
Criminalisation of cartel conduct would, therefore, go someway to addressing claims that the current criminal law regime benefits those capable of more complex and sophisticated theft or fraud by treating their conduct as forgivable by way of civil pecuniary penalties while other less sophisticated (and less financially devastating) criminals may find themselves behind bars or at least facing criminal conviction and its associated stigma.[56] It would also bring hard-core cartelisation in line with other comparable (or even less harmful) white collar crimes and would also recognise it as at least as morally reprehensible as other forms of financial crime.
Apart from the deterrence argument it is this fact
that this has been pressed most extensively by Prof Allan Fels in his push for
the introduction of criminal sanctions.
Hard-core collusion is morally reprehensible. It is a form of theft and little different from other white collar crimes (including insider trading and obtaining a benefit by deception) that already attract criminal sentences[57]
The above has dealt with the “harm” aspect of
cartelisation - or the ‘actus reus’ component of a criminal offence.[58] The other paradigm
ingredient of a criminal offence is the mens
rea.[59] The Australian Laws Reform
Commission (ALRC) has recently noted that
… the concept of criminality involves the notion of individual culpability and having a criminal intent for one’s actions.[60]
The requirement of a mental element is considered a hallmark of our criminal justice system. It is an overarching principle of criminal law that doing a forbidden act should not of itself render a person guilty of a crime: it must also be shown that the person had a guilty mind.’[61]
Traditionally the mens rea comes in two different forms, intention and recklessness.[62] Statutory offences also
recognise less culpable states in the form of negligence as being sufficient to
ground some offences.[63] The requirement of
subjective wrongdoing has been further eroded by the concepts of strict
liability[64] and absolute liability.[65]
Thus, especially because of the watering down of the
mens rea element for many offences,
the absence of subjective wrongdoing is not a foundation for resisting a move
to make criminal the behaviour proscribed in Part IV.
In any event, while the ACCC initially recommended
that dishonest intent should not form
a necessary element of an offence of hard core cartelisation in Australia,[66] the elements they have
suggested for such an offence all contain either intent or recklessness to
satisfy a ‘fault element’. For example, the ACCC proposed that a corporation be
guilty of an offence if
it enters into
an agreement (contract, arrangement or understanding) or gives effect to a
provision of an agreement (etc.), that is intended to, or has the effect of, or
which, if it operated as was intended, would have the effect of, price fixing
(etc.) of goods or services.[67]
According to the ACCC, this particular prohibition
would require either a subjective intent to fix prices or recklessness as to
whether it would.[68]
Consequently, if consistency with prevailing criminal law doctrine and
practice is used as the guiding determinant there is ample scope for extending
the reach of the criminal law to Part IV – or at least to hard core cartelisation
as proposed by the ACCC. However, this does not constitute a strong argument in
favour of doing so. This stems from the fact, as is discussed in the following
section, the criminal law is devoid of a overarching justification and the
threshold for making an activity criminal is so low that equally strong
argument can be made for criminalizing most activities which involve some
degree of harm, risk or non-conformist behaviour.[69] Consistent with present practice one could use
the extension-analogy approach to justify the criminal prohibition of a large
amount of trifling conduct. For example, it could be just as persuasively
argued that it should be a criminal offence to be late for work - this is
certainly no more harmful than parking one's car too long at a parking meter.
Such absurd examples underline much of what is wrong with the criminal law general and more particularly the limits of the analogy-extension argument. Such an approach overlooks the fact that prevailing criminal law standards may well be wrong, ie not supportable by a unifying doctrinal rationale. Thus to adopt them as a starting position would be to perpetuate existing errors. The doctrinal rationale for the criminal law is examined in the following section.
4 CRIMINALITY
FROM THE PERSPECTIVE OF THE OBJECTIVE OF THE CRIMINAL LAW
4.1 The need for justification of the
criminal law
As a matter of principle, there should be an
underlying theory which unifies and justifies the criminal law. Moreover, the
stigmatisation and punishment that are consequent upon a finding of guilt for a
criminal offence require a moral justification. Not all practices or types of
behaviour call for a moral justification. We do not need to justify playing
sport, visiting friends or dancing. However, as Ashworth correctly notes, the
criminal law is `society's strongest form of official punishment and censure.'[70] It is the precursor to
sentencing, which is the area of law where the State acts in its most coercive
and intrusive manner. Whereas all other areas of law (such as contract and
tort) are concerned with `simply' regulating the transfer and adjustment of
monetary sums,[71] sentencing involves the
intentional infliction of some type of harm and hence infringes upon an
important concern or interest, such as one's liberty or reputation. As such, it
is not dissimilar to activities such as slavery and euthanasia.[72] It is a `fundamental
ethical principle that we may not inflict pain or disgrace upon another without
adequate justification'.[73] This point is also noted by
Ashworth:
As a type of law, the technique of [the criminal law] is condemnatory and it authorizes the infliction of state punishment. To criminalize a certain kind of conduct is to declare that it should not be done, to institute a threat of punishment in order to supply a pragmatic reason for not doing it, and to censure those who nevertheless do it. The use of state power calls for a justification.[74]
In order for an act to be deserving of blame and the
deliberate infliction of punishment it must breach some type of norm or
standard.[75] The strongest type of
prohibitions in our community are embodied in moral norms[76] - by definition, morality
is the ultimate set of principles by which we should live and consists of the
principles which dictate how serious conflict should be resolved.[77] Thus, one might expect to
find at least a loose connection between the criminal law and morality. If this
was the case, the answer to present discussion would readily follow. It would
`simply' involve identification of the relevant moral theory or standard which
underpins the criminal law and testing whether the conduct proscribed by Part
IV is a species of the conduct falling within the general principle. This
solution, however, does not present itself. This is because as the law
currently stands it is not tenable to urge that a general moral theory
underpins the criminal law. Even a cursory glance over the criminal law statute
books shows that only a very small portion of criminal offences seek to protect
individual rights or interest; at the least of the sort that might concern a
general moral theory.[78]
Certainly many traditional common law criminal
offences protect important recognisable rights and interests; namely the right
to physical (including sexual) integrity and the right to own property.
However, the criminal law has grown almost exponentially in the past few
decades and offences aimed at securing the rights of others constitute an ever
decreasing portion of the criminal law. For example, in Victoria each year only
about five thousand offences are dealt with in the Higher Courts (the County
Court and the Supreme Courts).[79] These are the most serious
offences and relate to matters such as armed robbery and sexual offences. A
further approximately 300,000 offences are dealt with in the Magistrates'
Courts.[80] The offences dealt with at
this level relate to a hotchpotch of behaviour. They range from burglary and
assault to travelling on a train without a ticket and playing games to the
annoyance of another. It is difficult to generalise about the nature of the
offences dealt with at this level. For example, in terms of the twenty most
common offences about half relate to behaviour which infringes the rights of
another (for example, theft, burglary, and unlawful assault) whereas the other
half are comprised of victimless offences, such as using a drug of dependence,
refusing to furnish a return, being drunk in a public place and unlicensed
driving.
However, the offences dealt with in the Magistrates'
and Higher Courts only scratch the surface in terms of the number of total
criminal offences charged each year. In fact, about 85 per cent of criminal
offences never reach the door of a court. Instead they are dealt with on the
spot - by means of an infringement notice. The ratio of matters dealt with on
the spot to that determined by the courts exceeds 7:1.[81] Most of these offences are
simply regulatory in nature, aimed at controlling and deterring certain
behaviour. They are typically victimless strict liability offences. For example
in 1990/91 the top ten infringement notices which were sent to court for
enforcement were exceeding the speed limit over 15km/h and less than 30 km/h;
leaving a vehicle in a no standing area; speeding less than 15 km/h over the
limit; leaving a vehicle a longer than period fixed; leaving a vehicle at an
expired meter; not wearing a seat belt; leaving a vehicle in a carriageway;
parking within nine metres of an intersection; travelling without a ticket; and
leaving a vehicle in a no parking area.[82]
All of these offences constitute paradigm instances
of regulatory offences, which do not seek to protect any recognisable right. It
follows that it is no longer tenable to suggest that there is connection
between the criminal law and contemporary moral discourse - the weight of
numbers is simply crushing. It would seem that the only rationale for
criminalizing such conduct is that it is presumed to be an effective practical
means of controlling and regulating the relevant conduct.
The criminal
law is a relatively cheap, convenient, and swift means of reinforcing a system
of regulation. Economic considerations and reasons of expediency are treated as
outweighing any argument that the criminal law should be reserved for the most
antisocial form of behaviour.[83]
It could be argued that on the spot offences are in
effect a separate category of offence and hence need not be accounted for or
taken into consideration in developing a general theory of the criminal law.
Unlike the case with traditional criminal offences, the disposition of on the
spot offences does not necessarily involve the courts. On the spot matters are
dealt with by means of an infringement notice which sets out the nature and the
circumstances of the offence and the prescribed penalty - which is always a
fixed monetary amount. In rare circumstances the penalty can also include a
licence order and a conviction. Payment of the fine within the prescribed
period (normally 28 days) effectively ends the matter - so long as the fine is
paid there is no need for court involvement.[84]
However, the process for dealing with regulatory
offences is not different in nature
to that utilised in the case of traditional criminal offences.[85] Rather, the difference is
only of degree, brought upon by the need to dispense with such matters in a
manner which is within the level of economic spending that the community is
willing to tolerate. This is evident from the fact that all of the offences
which can be dealt with by way of infringement notice can also be dealt with through
the courts and there is no requirement that the body which can issue an
infringement notice must proceed in that fashion. Even where a notice is
issued, at the election of either party, the infringement notice can be revoked
and the matter is then brought before a court. Further, even though the
infringement notices prescribe a fixed monetary sum, where the matter is
determined by a court the maximum penalty is not limited to the nominal amount
in the notice, but rather by the maximum penalty for that offence. Finally,
recipients of infringement notices who do not have the matter dealt with by a
court risk being subject to the harsh criminal sanctions - seizure of assets or
imprisonment - where they default in paying the fine. In every meaningful respect
on the spot offences are genuine criminal offences: they are prosecuted by the
state and make the offender liable to criminal sanctions. It is therefore
unjustifiable to dismiss them as being irrelevant in an analysis of the nature
of criminal law.
It could be contended that the justification for the
criminal law lies, not in the fact that is concerned with the protection of
discrete rights and interests, but rather than it seeks to prevent generally
harmful conduct. Once again this argument is not sound. The harm that is caused
by breaches of the civil law is no less than violations of many criminal laws.
The purchaser who fails to honour a contract for the sale of land; the
solicitor who gives incorrect legal advice; the builder who is six months late
completing a home; the doctor who fails to diagnose an illness; the plumber who
arrives an hour late to fix the broken pipe; the storeowner who fails to mop up
a spill in his or her shop; the taxidriver who as a result of a wrong turn gets
his or her passenger late to the airport; the telecommunications company that
disconnects the wrong telephone line; and the energy company that fails to
prevent a power blackout; are all guilty of conduct which actually, or in all
likelihood, causes a far greater amount of unhappiness than occurs as a result
of a failure to register one's dog; driving at 70 km/h in a 60km/h zone; flying
a kite which annoys another;[86] or parking too long at a
parking meter.
In the end, the decision to make an activity a
criminal offence is devoid of a justificatory principle - the criminal law is a
set of disparate rules which are devoid of a unifying thread. By and large,
most criminal offences are no worse than civil wrongs. The decision whether to
make an activity a criminal offence appears to be no more sophisticated than
tossing a coin.[87] Thus no mileage is to be
gained by surveying the present criminal law and attempting to extract a common
thread which can be applied to the problem at hand.
4.2 What is an appropriate justification for
criminalizing conduct?
The absence of an existing justificatory threat does
not prevent one hypothesising about what the thread should be. In this regard,
the principle of proportionality would seem to be cardinal. In its crudest and
most persuasive form, the principle of proportionality is the view that the
punishment should equal the crime. The proportionality principle has a strong
foundation in sentencing law, and (probably because of its intuitive appeal)
also transcends many other areas of the law. As Fox notes, the notion that the
response must be commensurate to the harm caused, or sought to be prevented, is
at the core of the criminal defences of self-defence and provocation. It is
also at the foundation of civil law damages for injury or death, which aim to
compensate for the actual loss suffered, and equitable remedies, which are
proportional to the detriment sought to be avoided.[88]
In sentencing law, the principle essentially prescribes that the punishment should fit the crime. It operates to ‘restrain excessive, arbitrary and capricious punishment’[89] by requiring that punishment must not exceed the gravity of the offence, even where it seems certain that the offender will immediately re-offend.
The principle is also
particularly relevant concerning the decision whether to make conduct a
criminal offence. As is noted above, the criminal law is the strongest form of
pain that we as a society inflict on our fellow citizens. It then follows that
such treatment should be reserved for the most serious wrongs - where
seriousness is assessed against the criteria of the level of harm caused to
others.
This requires some awareness of the interests that
are essential to human flourishing. Andrew von Hirsch and Nils Jareborg,[90] in the context of evaluating
criminal offence seriousness, have developed a `living standard’ criterion
which measures the importance that relevant interests have for a person’s
standard of living. In this regard they have proposed that the most important
interests to human flourishing, in descending order of importance, are physical
integrity; material support and amenity
(ranging from nutrition and shelter to various luxuries); freedom from
humiliating or degrading treatment; and privacy and autonomy.[91]
If we adopt this formulae as being even
approximately accurate[92] then it would seem that
there is a relatively firm foundation for criminalizing conduct prohibited by
Part IV (in particular hard core cartels) - higher prices for consumers
interferes with their capacity to fully enjoy the material amenities of life.
However, it is important to acknowledge that this
conclusion is tentative. To shore up this argument it must be established (beyond the cursory comments
above) that the soundest justification for the criminal law is to prohibit
seriously harmful conduct. This requires a thorough analysis of the objectives
of the criminal law and the goals that are attainable through a process of
criminalisation.[93] While this is beyond the
scope of this paper, at least one of the areas for future meaningful research
in this area has been identified.
5 DETERRENCE ARGUMENT
The main argument in favour of harsher penalties for
those who breach Part IV of the TPA is that it will deter offenders from
engaging in the prohibited conduct.[94]
There are two broad forms of deterrence. Specific
deterrence aims to discourage crime by punishing offenders for their
transgressions and thereby convincing them that ‘crime does not pay’. General
deterrence seeks to dissuade potential offenders from engaging in unlawful
conduct by illustrating the unsavoury consequences of offending. There have
been a considerable number of studies conducted, observations noted and
arguments made concerning the efficacy of punishment to deter offenders. It is
not possible in a paper of this size to summarise the respective arguments and,
in any event, this would be tedious. Instead we note the conclusions that one
of us has previously reached (based upon a consideration of relevant empirical
evidence) about the efficacy of punishment to deter offenders.[95]
5.1 Specific Deterrence
It is inordinately difficult
to obtain information regarding the effectiveness of sanctions in deterring
offenders from committing offences at the expiry of a sanction. Offenders may
not re-offend for numerous reasons, apart from the fear of being subject to
more punishment. The offending may have been a ‘one-off’ in any event; a
suitable opportunity may not again present itself or rehabilitation may have
occurred.[96]
However, the available evidence supports the view
that severe punishment (namely imprisonment), generally, does not deter
offenders: the recidivism rate of offenders does not vary significantly,
regardless of the form of punishment or treatment to which they are subjected.[97] Thus, there is no empirical
evidence to suggest that meting out harsher penalties to those who breach Part
IV will reduce the likelihood of those who recidivate in this area. This,
however, was not the chief deterrence argument suggested in favour of harsher
penalties. The main deterrence rationale that was offered concerned the notion
of general deterrence.
5.2 General Deterrence
When analysing the evidence
concerning the efficacy of punishment to achieve general deterrence, there are
broadly two different levels of inquiry. Marginal deterrence concerns whether
there is a direct correlation between the severity of the sanction and the
prevalence of an offence. Absolute deterrence relates to the threshold question
of whether there is any connection between criminal sanctions and criminal
conduct.
It is intuitively appealing
to suggest that the threat of harsher penalties will lead to greater
compliance. Underpinning this sentiment is rational choice theory of offending,
which has gained some prominence over the past two decades or so.[98] On this account, offenders
are not viewed as agents who simply respond to adverse social situations and
psychological needs. Rather, so theory goes, offenders (or at least many of
them) are active-decision makers who factor a large number of variables into
the decision whether or not to commit an offence. This includes the precise
means of committing the offence (including appropriate targets) and a risk
assessment of the engaging in the offending conduct.
For the vast majority of crime, the available evidence does not support this picture. Instead, it seems that most offenders commit crimes in response to situational factors such as opportunities and transient motives. Where this is so, there is no firm evidence that increasing penalty levels result in a reduction in crime.[99]
However, to the extent that
marginal deterrence does work, it is in the context of offences where the
offender has the time, inclination and resources to do a cost-benefit analysis
– white collar crime being the paradigm case in point.[100] In such cases, for a
penalty to provide an effective deterrent the expected gain from the
contravention must exceed the gain from the violation.[101] The current penalty regime
in Australia, combined with the small risk of detection, does not meet this
requirement:[102]
‘The fact that the same companies and one individual involved in price-fixing in ACCC v Pioneer Concrete (Qld) Pty Ltd had engaged in the same conduct before suggests that pecuniary penalties alone are not having a deterrent effect.
The principal defect under the current regime is that it does not give sufficient emphasis to the role played by the individual in relation to price-fixing and collusive tendering. The message that needs to be conveyed is that from an individual manager’s point of view, price-fixing and collusive tendering do not pay. They cost. And the cost is so high that the conduct is not worth contemplating.’[103]
The question then becomes,
what level of penalty is required in order for individuals to consider the cost
so high as to be ‘not worth contemplating’? There have been a number of studies
undertaken on optimal penalties in white collar crimes and it is beyond the
scope of this paper to go into them in any detail. The most significant finding
coming from these studies is that, for fines against corporations or
individuals to be high enough to provide an effective deterrent, they would
need to be ‘impossibly or unacceptably high’.[104] For example, Wils has
observed:
‘The expected fine is that imposed if the violation is detected and punished, multiplied by the probability of detection and punishment. The gain, which the firm obtains from the violation, divided by the probability of being fined, thus constitutes a floor below which fines will generally not deter.’ [footnotes omitted][105]
‘In the United States, the figure of 10% of the selling price appears to be widely accepted as an estimate of the average price increase from price-fixing. … Assuming [the cartel] lasts 5 years [the gain from a price cartel] would be in the order of 50% of the annual turnover in the products concerned. However, … the price increase caused by the cartel will depress demand … Assuming … profits of 5% of turnover, the gain from the price cartel lasting 5 years would be in the order of 25% of the annual turnover in the products concerned … . [The estimated] probability of a successful government prosecution of a price-fixing conspiracy in the United States [is], at most, between 13 and 17 percent. …
Assuming a 10% price increase, and a resulting increase in profits of 5% of turnover, a 5-year duration and a 16% probability of detection and punishment, the floor below which fines will generally not deter price-fixing would be in the order of 150% of the annual turnover in the products concerned by the violations.’ [footnotes omitted][106]
Based on an assessment of
current fine levels in the United States and the European Union Wils went on to
conclude that current finds were approximately 10 times lower than that
required to effectively deter cartel behaviour.
The answer cannot, however,
simply be to increase fines imposed on a corporation to the optimal level.
While it may be possible to determine, at least approximately, an ‘optimal
penalty’ for deterrence in theory, in practice such a financial penalty is not
likely to prove effective. This is because the financial penalty required to
meet the optimal level would often exceed the corporation’s ability to pay
(reducing deterrence value).[107] In addition, even if it
could pay the cost would be borne by the wrong people; namely shareholders,
creditors and, ultimately, consumers.[108]
Similarly, in relation to
individuals, a financial penalty (in particular a civil one), is unlikely to
provide effective deterrence. First, as is the case for corporations, the
individual may be ‘judgement-proof’ – unable to ‘pay the minimum financial
penalty required for effective deterrence’.[109] Second, even if an
individual could pay the fine imposed, there is an additional problem of
indemnification – it is relatively easy for the corporation to indemnify, at
least indirectly, an executive or employee that has been financially penalised
for anti-competitive conduct.[110] In the same vein, research
has shown that most individuals who have admitted or have been held to have
engaged in price fixing conduct retain their existing employment – of find
other equivalent, or more rewarding, employment elsewhere.[111]
Because financial penalties
alone cannot provide effective deterrence to white-collar corporate criminals,
alternative penalties need to be considered if deterrence is to be achieved.
One possibility is imprisonment.[112]
A conventional risk-benefit
analysis breaks down when the possibility of imprisonment or other criminal
sanctions are introduced. It is difficult to impose a dollar amount on the loss
of freedom or the stigma[113] associated with serving
time in prison or receiving a criminal conviction.[114] In the case of senior
businessmen, the threat of imprisonment is likely to prove particularly potent.
As Liman has observed:
For the purse snatcher, a term in the penitentiary may be little more unsettling than basic training in the army. To the businessman, however, prison is the inferno, and conventional risk-reward analysis breaks down when the risk is jail. The threat of imprisonment, therefore, remains the most meaningful deterrent to antitrust violations.[115]
As a result, unlike most traditional crimes that may result from any number of possibly motives, it would appear that in the case of purely financial crimes, at least at a corporate level, there is a case for achieving more effective deterrence by increasing the amount, or changing the nature, of the existing penalty. In particular, it is likely that the threat of criminal sanction, in the form of a fine and/or prison term are more likely to prove an effective deterrent against contraventions of Part IV of the TPA than any amount of pecuniary penalty.
Regardless of the conclusion one reaches about marginal deterrence, the evidence relating to absol