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15 Nov 2011

Cartel penalties go beyond borders

by Joanne Daniels, Fred Prickett

New laws making cartel conduct a criminal offence in Australia have been the focus of significant media attention over the past few months. Corporate Australia is now on notice that as of July 24, if they risk engaging in cartel conduct not only will they face heavy penalties, they may end up in jail for up to 10 years.

But executives who think the long arm of the law ends at Australia's borders should think again. For the first time, Australians who engage in cartel conduct in countries where cartel conduct is a criminal offence now face the prospect of extradition. It is a risk that is real.

Since May 1999, more than 30 foreign nationals from countries including France, Germany, Japan, Korea, Norway, the Netherlands, Sweden, Switzerland and the UK have served or are serving prison sentences in the US for participating in or for obstructing an investigation of an international cartel.

Previously, an Australian could not be extradited under the Extradition Act 1988 (Cth) to face criminal prosecution for cartel conduct in overseas countries. This is because extradition is not possible unless the relevant offence is a criminal offence in Australia and in the country seeking extradition. This is known as the "dual criminality" requirement. This requirement is now satisfied in the case of cartels.

International competition enforcement authorities are also showing an increasing willingness to co-operate to ensure their country's respective laws are upheld and wrongdoers brought to justice.

This co-operation was recently highlighted by the prosecution of three UK executives – Peter Whittle, David Brammar and Bryan Allison – in relation to a cartel involving marine hoses used to transfer oil from tankers to storage facilities. Allison was the managing director and Brammar the sales director of marine hose manufacturer Dunlop Oil and Marine.

Whittle was a consultant engaged to co-ordinate their global price-fixing activities. The three, along with five other foreign executives, were arrested in the US following a covert operation involving the US Department of Justice and the UK Office of Fair Trading.

After pleading guilty in the US, the three were returned to the UK to face court as part of a plea agreement. They again pleaded guilty and were sentenced to terms of imprisonment of between 21/2 and three years.

In another recent case, the former chief executive of Morgan Crucible, Ian Norris, was charged in Pennsylvania with conspiring to fix the price of carbon in the 1990s.

Although Norris escaped extradition to the US on those charges – because price fixing was not a criminal offence in the UK at the relevant time – the UK High Court determined that the extradition should go ahead on additional charges of obstructing justice during the investigation.

There is no doubt that July 24 marks a line in the sand for cartel conduct involving Australians. There is now a greater risk of cartel behaviour being uncovered, and those involved prosecuted, both in Australia and any overseas country where the conduct breaches that country's cartel laws and with which Australia has an extradition treaty.

Cartels may mean business, but so does the law.

This was written by Joanne Daniels and Fred Prickett and was first published in Australian Financial Review on 4 Sep 2009

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.