ACCC plan for fines worth hundreds of millions of dollars

The Australian 12:00am April 23, 2018

Richard Gluyas

The competition watchdog is set to spearhead a public campaign for “massively” higher penalties to deter corporate wrongdoing, particularly for misconduct and egregious behaviour in the financial services sector.

ACCC chairman Rod Sims, who received funding in last year’s budget for a permanent team to investigate competition in the ­financial system, flagged that part of the campaign would be court submissions for penalties in the hundreds of millions of dollars in a group of cases now at an advanced stage of investigation.

The Australian Competition & Consumer Commission chief said he was concerned by last week’s reports in the financial services royal commission’s second round of hearings on the $4.6 billion-a-year financial advice industry.

However, it was an attempt by current and former bankers to ­deflect the blame for misconduct to pressure by investors to ­increase profits that set him thinking about the best way to rebalance the risk equation. “We need to have massively higher penalties — 10-15 times higher than they are — that grab the attention of company boards and senior management so penalties are no longer merely seen as a cost of doing business,” he told The Australian.

“By the banks’ own admissions, incentives matter here. It’s clear to me the banks are saying we have to do these (bad or illegal) things because the financial consequences of not doing them are too high, and that means the penalties are not large enough to ensure the focus is on real competition for the benefit of the customer.”

Last Thursday, after the royal commission heard evidence that the finance sector had charged fees to dead people and AMP had misled ASIC 20 times, Treasurer Scott Morrison announced companies could face maximum fines of $210 million or be stripped of 10 per cent of their turnover.

The reforms would be part of a new civil and criminal penalties regime under the Corporations Act administered by the consumer regulator, the Australian ­Securities & Investments Commission.

The penalties regime for the Competition and Consumer Act, administered by the ACCC, was updated in 2007, with the new framework also enabling fines of up to 10 per cent of turnover.

However, to invoke the higher penalties, the misconduct has to occur post-2007, and there are also technical legal hurdles that have to be cleared.

In November 2007, the ACCC secured a $36m penalty against the late Richard Pratt’s Visy group for price fixing in the cardboard box industry. While this was a ­record, an equivalent settlement for cartel behaviour in Europe or the US would have been many multiples of that figure — in the hundreds of millions of dollars.

A report last month by the OECD found average Australian penalties are significantly lower than comparable jurisdictions, ­especially for large firms or for longstanding anti-competitive behaviour. Based on a sample of ­cartel cases, the report found penalties would have to be increased 12.6 times to match the average penalty in OECD countries.

Even the judge in the 2014 unconscionable conduct case brought by the ACCC against Coles over its dealings with suppliers complained that the available penalties were too light.

The biggest challenge, Mr Sims said, was to change the mindset of the courts and the legal profession so the concept of a much more punitive penalty regime was ­accepted, Mr Sims said.

“The law is about precedent, and the penalties which have formed the precedent were often imposed at a time when the maximum penalty was $10m per breach,” he said. “So we have to have a huge change in mindset.”

Part of that change would occur as a result of current cases under investigation by the ACCC. Mr Sims said some of those investigations are at an “advanced” stage. If court proceedings were filed and the ACCC emerged ­victorious, it would then be in a position to make submissions on an appropriate penalty in the hundreds of millions of dollars, instead of tens of millions of dollars.

“I’d like to think we’re not too far away from doing that,” Mr Sims said. “I believe we’re close to turning the corner and we’ll see penalties in the hundreds of millions of dollars.”

While the ACCC boss declined to name the bankers who had prompted his determination to change the mindset on penalties, former National Australia Bank chairman Michael Chaney said earlier this month that a trade-off between behaviour and profits had led to governance breakdowns.

Mr Chaney said if a chief executive had been “constrained” as ­recently as five to eight years ago because they were unsure about the products they were selling, there would have been no growth in earnings or even a reversal.

Mr Sims said he often heard corporate leaders complain about market pressure to grow profits. “It doesn’t surprise me when they say inappropriate behaviour is sometimes necessary otherwise the share price may fall,’’ he said.