New trade practices penalties discussed

In this speech ACCC Commissioner David Smith discusses the proposed new penalties for company directors:

This week’s news that new tougher penalties for anti-competitive conduct will for the first time fully expose company executives to massive fines and legal bills should focus the minds of everyone in Australian business on the need to comply with the Trade Practices Act.

No longer can the cost benefit analysis assume that even if caught, the benefits may outweigh the penalty, and in any case, the company will pick up the tab.

New tougher penalties and indemnity change mean the cost to companies involved will easily outweigh any benefit, and the individuals responsible will face the potential of financial ruin and, in the case of hard core cartels, possibly jail terms as well.

So now, more than ever, a culture of compliance with the Trade Practices Act will not be an optional extra, but an essential element of doing business…

Under the new tougher penalties arising out of the Dawson review, the maximum civil penalties for all anti-competitive conduct for corporations will be the greater of $10 million, three times the value of the gain from the illegal conduct, or (if the gain cannot easily be determined) 10 per cent of annual turnover of the entire corporate group. That last point needs to be stressed – that is 10% of the entire group, even including businesses not directly involved in the illegal activity.

Maximum penalties for individuals will remain at $500,000 – but this will now be a penalty they cannot pass on to shareholders. Directors and senior executives caught engaging in anti-competitive conduct will lose their legal protection and will be forced to pay the fines and their legal costs themselves.

In addition, judges will have the power to ban senior officers implicated in anti-competitive conduct from being a director or a manager of a company.

As the Financial Review noted this week, this puts anti-competitive behaviour like price fixing, misuse of market power and restrictive anti-competitive contracts into the league of serious Corporations Act offences, even before the expected introduction later this year of criminal penalties for hard core cartels.

Those criminal penalties will provide for jail terms for executives involved in hard core cartels of up to five years and fines of up to $220,000. The financial penalties for corporations under the criminal regime will be the same as the much tougher new civil penalties.

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