The recent abandonment of the Australian Competition and Consumer Commission's (ACCC) high-profile criminal cartel prosecution regarding the underwriting of a share issue raises some very important questions – about:
- the appropriateness of seeking to apply criminal consequences in relation to complex commercial collaborations;
- the ability of competition regulators to appropriately manage criminal procedure; and
- the human and mental health impact of regulators pursuing criminal action in relation to highly technical allegations (and where the defendants have often been of the view that they were acting in accordance with industry practice).
On 1 June 2018 the ACCC announced that criminal cartel charges had been laid by the Commonwealth Director of Public Prosecutions (CDPP) against Citigroup, Deutsche Bank, and ANZ, and several of their senior executives.
The charges alleged cartel arrangements relating to trading in ANZ shares held by Deutsche Bank, JP Morgan and Citigroup, following an ANZ institutional share placement in August 2015. The specific allegation was that Citibank, Deutsche Bank and JP Morgan discussed how they might each dispose of the shortfall, with respect to both timing and volumes of that disposal. The case was brought to the ACCC's attention through JP Morgan reporting the conduct to the ACCC, and receiving immunity from prosecution (hence JP Morgan, and its individuals, not facing charges).
The decision to file criminal proceedings was immediately subject to criticism with, for example, Citi's head of corporate affairs stating at the time: "This is a highly technical area and if the ACCC believes there are matters to address, these should be clarified by law or regulation or consultation… Citi and its employees acted with integrity and without any bad intent in fulfilling the obligations of this underwriting agreement”.
Nonetheless, the ACCC and CDPP continued with the prosecution, despite ongoing criticisms of the case and the procedure, with the presiding judge at one point describing the case as a "complete shemozzle".
That was until 11 February 2022, when the CDPP withdrew all charges on the basis that it was unlikely to secure convictions, advising the defendants that there would be no further action.
The criticisms of the ACCC/CDPP process
In addition to facing criticism for moving immediately to a criminal prosecution in relation to conduct that some regarded as ordinary market practice, throughout the case, the ACCC and CDPP faced repeated criticism for procedural inadequacies, including:
failing to keep records of 50-plus days of witness interviews with JP Morgan bankers;
omitting potentially exculpatory material from witness statements;
pre-populating draft witness statements with prompts for witnesses to choose from; and
filing indictments that made it very difficult for the defendants to understand the case against them.
These issues serve as a reminder that a regulator's traditional approach to investigation and enforcement in the civil context is not readily transferable into criminal investigations and prosecutions. The standards are much higher in the criminal context. This will, in particular, be a stark reminder for the New Zealand Commerce Commission (NZCC) given, as of April 2021, cartel conduct is also a criminal offence in New Zealand (and it is yet to advance the first criminal cartel prosecution in New Zealand).
The appropriateness of criminal consequences for cartel conduct
The case also re-raises questions about whether it is appropriate for cartel conduct, which often involves highly technical allegations, to be subject to criminal sanctions.
Those are long-standing questions. For example, when the introduction of criminal sanctions for cartel conduct was being considered in New Zealand, Russell McVeagh consistently submitted that we did not consider it was an appropriate policy response, and that efforts would be better spent educating the business community. For example, we submitted in September 2012:
"Antitrust prohibitions on cartel conduct, which are inevitably offences framed by combined considerations of legal and economic concepts, are inherently complex and not well understood by the general business community in New Zealand… It is trite that conduct should only attract significant criminal sanctions if society considers that conduct to be harmful or morally wrong. If the Commission's survey of the construction sector is a proxy for small business's perception and understanding of the Commerce Act, this is a significant concern for the proposed reform. This demonstrates that greater deterrence could be achieved through better education and publicity on the cartel prohibitions, rather than the introduction of greater sanctions".
Those same concerns have been borne out through this experience in Australia, with presiding judge Justice Wigney likening Australia's complex criminal cartel prohibitions as akin to a "cryptic crossword":
"The offence provisions, when read with the extensive definitions of the terms used in them, are prolix, convoluted and labyrinthine. When coupled with the general principles of criminal responsibility […] the complexity of the offences is multiplied. By the time the maze of provisions is worked through, it is very easy to lose sight of exactly what conduct the offence provisions are intended to bring to account and punish."
This case also demonstrates the complexity of seeking to apply these provisions in an industry as complex and nuanced as equity capital markets, which have their own labyrinth of regulation. In particular, given the ACCC is not a specialist financial market regulator, its decision to pursue criminal proceedings as a test case in an industry where legitimate competitor collaboration through syndication is not only commonplace but essential for well-functioning capital markets appears, from the outside, to be questionable. Furthermore, in circumstances where individuals were acting consistently with what they regareded as established market norms and in the best interests of customers, one would think that seeking to explore educative or civil enforcement options first would be a more appropriate enforcement response than immediately moving to taking a criminal test case.
The human cost
The fallout from this case is also a stark reminder that regulators must never lose sight of the human toll that their investigative and enforcement decisions impose on individuals particularly on their mental health. Ultimately regulators exist to improve the welfare of society, and the welfare of individual citizens should not be disregarded in a single-minded focus on potential technical foot-faults, in the absence of any morally culpable or dishonest intent. In particular, the human cost in this case of more than five and half years of investigations and prosecutions has been significant, and can be best summed up in the words of some of the individual defendants:
- "While obviously welcoming the CDPP decision to drop these baseless criminal charges, I will never get back the last four years of my life. It has had an enormous impact on me, my business career and my family, and I struggle to understand why I have been put through this ordeal".
- "It is grossly unjust that it took this long to reach this conclusion. Moreover, there has been no acknowledgement from those pursuing these proceedings as to the huge mental health and financial strain on the individuals and families. There are many significant lessons to be learned regarding the operation of orderly financial markets and the investigatory and committal processes. Most notably, however, in a developed and fair society, innocent individuals should never be exposed to a process for more than five years for justice to be achieved."
One would hope that as society becomes more enlightened in relation to mental health, such factors also increasingly feature as part of regulators' enforcement decisions – both in terms of fulfilling their mandate to act in the public interest and to discharge their own obligations under health and safety legislation.
Appropriately, given both the human and financial cost of five and half years of investigations and prosecutions, the ACCC has announced that it will instigate an internal review into this case to consider "lessons" that can be learned:
"We do need to enter into a lot of reflection on this one ... and learn lessons and we most certainly will, we do always when cases don’t go as expected… There’s no doubt this case went on for too long ... certainly, there will be lessons to be learnt" – Rod Simms, ACCC Chair
It is hoped that those lessons can be shared with other regulators, to achieve best practice on enforcement decisions in the public interest and the long-term benefit of consumers.
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