No individuals have yet been sentenced to imprisonment for cartel conduct in New Zealand, so the Australian Court’s judgment is likely to influence a New Zealand Court if and when that time comes.
The case involved three money remittance businesses (Vina Money, Hong Vina, and Hai Ha) in Victoria and New South Wales. They charged a fee to send money from Australia to Vietnam, and set their own exchanges rate for exchange between Australian Dollars (AUD) and Vietnamese Dong (VND). Between them, they accounted for approximately two-thirds of the market for sending money from Australia to Vietnam, overseeing transactions amounting to approximately AUD2.5 billion over a 5 year period from December 2011-October 2016.
Prior to entering into the cartel, there was a period of intense competition between the three businesses in Footscray, Melbourne, where they each had stores within 500 metres of each other. Their pricing was displayed on signs that made it easy for customers to compare their respective prices and exchange rates, and to choose the cheapest option. The businesses would commonly discount their fees by up to 50%.
At the instigation of a Vietnamese bank that received payments from each of Vina Money, Hong Vina, and Hai Ha, and who had noticed the intense competition between them, the three businesses entered into two anti-competitive arrangements. They agreed to charge customers the same exchange rate for converting AUD to VND, with the rate to be altered from time to time as agreed between the businesses (exchange rate arrangement). The exchange rate arrangement ran for nearly 5 years. They also agreed first to stop offering discounted fees and then to offer the same discounts (fee discount arrangement). The fee discount arrangement ran for up to 6 months.
The individuals charged were directors or employees of Vina Money and Hong Vina. They each pleaded guilty to giving effect to the arrangements. The director of Hai Ha was given immunity from prosecution (as was Hai Ha itself) for co-operating with the prosecution.
The Australian Court made four key observations when determining what sentence to impose for the conduct.
First, cartel conduct involves anti-competitive conduct of a serious nature that should be condemned through the imposition of stern penalties, to deter others. The penalty for cartel conduct must be sufficiently punitive so that it is not regarded as an acceptable cost of doing business.
Second, the fact that cartel conduct has been criminalised indicates that Parliament regards this conduct as attracting social condemnation in a way that a financial penalty cannot satisfy by itself.
Third, while it may not be possible to quantify the consequence of cartel offending on the market, that does not necessarily mean this type of offending is victimless.
Fourth, in addition to the general principles that apply to criminal sentencing (e.g. discounts will be given for early guilty pleas), factors relevant in civil penalty cases for cartel conduct may be relevant. They include the nature and seriousness of the conduct, whether the conduct was deliberate or reckless, whether the conduct was isolated or systemic, the impact or consequence of the conduct on the market or innocent third parties, the benefit derived as a result of the offending, and the subjective circumstances of the offender.
On the facts of this case, the Court held that sentences of imprisonment were justified for each of the individuals. While the particular conduct engaged by the individuals differed in length and intensity, there were certain common strands. The conduct was at the low to moderate end of cartel conduct, but was nevertheless an objectively serious offence. It was committed for financial gain and took place over an extended period of time, to the detriment of customers; while the three businesses were small when compared to other money remittance companies (e.g. major banks), they had two-thirds of the market share by volume. The conduct was also deliberate, repeated, and involved at least some degree of sophistication, planning and cooperation.
In reaching the sentences, the Court also considered various subjective factors such as the individuals’ early guilty pleas, lack of prior convictions, cooperation with investigative authorities, prospects of rehabilitation, evidence of remorse, and the impact the sentence imposed would have on their personal and family situations.
Taking account of all of the relevant factors, the Court imposed:
- a 2 year and 6 month sentence of imprisonment for the director of Vina Money;
- a 2 year and 4 month sentence of imprisonment for an employee of Hong Vina ;
- a 1 year and 7 month sentence of imprisonment for the director of Hong Vina;
- a 9 month sentence of imprisonment on an employee for Vina Money; and
- a fine of AUD$1,000,000 for Vina Money.
Under Australian sentencing law, the Court was required to direct that the individuals be released either immediately or after a specified period of time on “good behaviour”, unless the Court exercises its discretion not to do so. In this case, despite the fact that the prosecution argued for immediate imprisonment for some individuals, the Court released each individual on condition of good behaviour for periods of 1.5 years or 3 years (similar to a suspended sentence). There is no such provision under New Zealand law.
The prohibition on cartel conduct under Australian law is materially similar to the prohibition under New Zealand law. As in Australia, it is a criminal offence in New Zealand to intentionally enter into or give effect to a cartel provision (i.e. a provision that has the purpose, effect, or likely effect of price fixing, restricting output, or market allocating).
This case is likely to be considered by a New Zealand court if and when an individual is charged with cartel conduct in New Zealand, and the prosecution seeks a term of imprisonment. It highlights that substantial periods of imprisonment may be imposed for cartel conduct (the maximum sentence is 7 years), and conversely that it may be possible to obtain immunity from prosecution by co-operating at the earliest opportunity with the investigation and prosecution.
If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual Bell Gully adviser.