'Why me?' Allan Fels scolds ANZ Bank after cartel charges

Australian Financial Review Jun 4 2018 11:00 PM

Patrick Durkin

Former competition head Professor Allan Fels AO has backed the Australian Competition and Consumer Commission's criminal cartel case against ANZ Bank, Deutsche Bank and Citigroup as experts said the banks were likely to argue they didn't know they were allegedly breaching the law.

The Commonwealth Director of Public Prosecutions (CDPP) confirmed on Monday that court attendance notices were issued out of Sydney's Downing Centre Local Court on Friday with the banks and senior staff including ANZ's group treasurer Rick Moscati expected to be served with criminal charges as early as today. The first hearing of the case will be on July 3.

The Australian Financial Review revealed on Monday a recorded video conference call between ANZ and its investment bankers was expected to show the parties negotiating how 25.5 million shares worth $789.2 million, which failed to find buyers during the bank's $2.5 billion capital raising in 2015, would be sold into the market in order to minimise any downside risk to ANZ's share price.

On Monday class action law firm Adley Burstyner said it was investigating the damages that may be available to purchasers of shares affected by the alleged cartel behaviour.

ANZ, Deutsche Bank and Citigroup have said they will vigorously defend the case and financial market players have expressed alarm given they claim such agreements have been common place within underwriting syndicates for decades.

The law applies to everyone

"On the face of it there is nothing unusual about these laws applying to this market," Professor Fels told The Australian Financial Review.

"It is true that the case does not concern consumers as victims but investors, but that has always been an inherent part of the competition law," he said. "This shouldn't be a surprise to competition lawyers, only to complacent bankers," Professor Fels said.

"Very often in cartel cases the party being prosecuted says, 'why me?' The answer is the law applies to everyone.

"It is definitely a technical case and no doubt the lawyers will be searching every nook and cranny to find a technical defence," he said.

Leading cartel experts – who asked not to be named given they expect to be engaged in the case – said a defence to cartel cases is made out if the parties can show the conduct was part of a joint venture. However such a defence is unlikely to be made out here because the conduct occurred before recent changes from the Harmer competition review, which mean such agreement would need to be in writing.

Experts said that consistent with the bank's statements in response to the case, the bankers are likely to argue they were not aware they were agreeing to cartel conduct, but such a defence is likely to only mitigate any penalty rather than defeat the case. Professor Fels also dismissed the banks claims the share sell down was designed to achieve an orderly share market.

"Cartel litigation is littered with unsuccessful claims the behaviour was in the public interest," he said.

Bankers may split

Another aspect to watch is that because each party will be separately represented – and particularly because the individual bankers involved face jail terms of up to 10 years – some or all of those involved may choose to plead guilty and potentially cooperate with the ACCC.

The cartel experts said the ACCC would not have to prove individual victims were hurt by the alleged cartel to prove a breach of the law if they can point to a category of victims - in this case potential buyers of ANZ shares who could have bought the shares more cheaply but for the alleged conduct.

However the experts and one regulator familiar with the case agreed the ACCC had shocked industry players.

"The industry is a bit bewildered. I am a bit surprised given this is almost standard practice ... the disclosure issues are more understandable," they said. ASIC is well advanced in their own investigation about a potential breach of disclosure laws.

"On the other hand the CDPP never brings a prosecution unless it believes there is a reasonable chance of success and it satisfies extensive tests to show the case is in the public interest. I know Rod [Sims] is very keen to have some big scalps," they said.

Professor Fels also pointed to a 1995 case involving a misleading prospectus issued by the NRMA which he said led to the financial industry "going into overdrive to have the ACCC removed from the field" and may have led to a sense of complacency by the banks about the oversight of the ACCC of the financial services sector.

"That may have induced a sense of complacency about the other parts of the competition laws,"  Professor Fels said.