The box cartel

So Richard Pratt’s company, Visy, was fined $36m yesterday for anti-competitive behaviour.  The fine is more than double the previous penalty for price-fixing offences handed down by the court.  Sounds big doesn’t it, but when you consider that the losses from the cartel behaviour between Visy and its supposed arch-rival Amcor over the four years they agreed to fix the prices of cardboard boxes have been put at $300 million to $700 million, its not much more than a drop in the ocean.

The chairman of the Australian Competition and Consumer Commission, Graeme Samuel, called for cartel participants to face criminal sanctions and possible jail penalties.   Individuals guilty of destructive cartel behaviour could face jail in the United States, Canada, France, Germany and eight other OECD countries.  So why not Australia?  I’m sure its been talked about before here, but obviously there’s not the political appetite to be sending major league business people to jail.  (Despite Treasurer Peter Costello in February 2005 indicating he would amend the law so that breaches attracted up to five years’ jail but “the Government hasn’t yet got around to introducing criminalisation”, according to the judge).

According to Mr Samuel:

“Cartels are theft, usually by well-dressed thieves,” Mr Samuel said.

“Nothing concentrates the mind of an executive contemplating creating or participating in a cartel more than the prospect of a criminal conviction and a stretch in jail.”

Exactly.  The fine, at 5-10% of the benefits to the cartel partners, is just a cost of doing business for them, not much more significant than a parking ticket.  The starting point for the fines should have been 100% of the benefits to the criminal parties, then with punitive elements added …. maybe $1 billion as a starting point?  Perhaps a whole bunch of civil suits by customers of Visy and Amcor might see them paying out amounts more in line with the amounts they stole from consumers of their products.

The judge got stuck into Mr Pratt, fairly seriously.  He rejected Mr Pratt’s excuses for the cartel behaviour as being “a John le Carre defence”. And he questioned the extent of Mr Pratt’s contrition, saying it “probably has a substantial element of regret at being found out”.   Also:

“There cannot be any doubt that Mr Pratt also knew that the cartel, to which he gave his approval, and in which he has admitted to being knowingly concerned, was seriously unlawful,” the judge found.

Whats the odds now with this case having a penalty amounting to a slap on the wrist for Visy, that when the government finally does act to impose criminal penalties, it won’t be any big end of town people that end up being the first to go to jail ….it’ll be Joe Blow from No-Name Corporation, certainly not a big Liberal Party benefactor like Richard Pratt.