Tuesday, May 17, 2011

Julie Clarke Comments on Blog Symposium - Criminalising Cartels: Critical Studies of an International Regulatory Movement

Posted by Julie Clarke

Selling the case for criminalisation of cartels

As an advocate for the introduction of criminal penalties in Australia I read this new collection with great interest and was not disappointed.  It addressed a wide range of themes, first providing historical and cultural perspectives on criminal cartel enforcement in a number of jurisdictions and then pursing identifying themes relating to cartel criminalisation.  For regulators, policy makers and anyone else interested in this field it will prove an invaluable resource. 

I have chosen to highlight two themes: deterrence and enforcement.


One of the collection’s key themes was whether criminalisation of cartels could be justified on the basis that it improved deterrence.  Competition authorities, in particular, frequently claim that the availability of criminal remedies can overcome the problem of under-deterrence.  Civil penalties alone, it is said, cannot achieve optimal deterrence because of the height of the potential gains and the (estimated) small risk of detection.  By contrast, the potential for imprisonment changes the equation because of the inability for any rational cost-benefit analysis to attribute a price to the loss of freedom and to the stigma attached to incarceration.

A number of chapters challenged these assumptions, including most notably the chapters by Christine Parker and Maurice Stucke.  Although the possibility of imprisonment acting as an increased deterrence in some cases was not seriously challenged, attention was drawn to the lack of empirical evidence to demonstrate the effect of criminal penalties on deterrence more generally. The suggestion that business people always engage in a cost-benefit analysis was also disputed (in this respect Stucke usefully identifies as range of relevant dispositional and situational factors) and, even in cases of rational self-interested cartelists, their ability to conduct an accurate analysis was questioned (for example, the likelihood of detection may be easily under or over-estimated). 

Anyone who started reading the collection convinced that criminal penalties would achieve optimal deterrence should prepare to have their conviction shaken.  That is not to say the deterrence argument lacks merit; simply that the extent of criminalisation’s deterrent effects should be viewed with healthy scepticism.

Enforcement: selling the case for cartels

Despite the foregoing, I remain of the view that effective criminal enforcement of cartel conduct is likely to enhance general deterrence and that it is appropriate to criminalise cartels because of the nature of the harm they cause.  Consequently, I was particularly interested in discussion regarding the effective enforcement of criminal cartel laws.

The likelihood of deterrence through criminal prohibition is clearly dependent on effective enforcement which in turn requires broad community support.  The level of public support for the ‘criminality’ of the conduct is likely to influence politicians, sentencing judges, prosecutors and, of course, jurors deciding the fate of the accused. 

A number of chapters address this to some degree.  However, it is addressed most directly by Andreas Stephan, who focuses on the role of media in garnishing public support (ch 17).  While emphasising the need for public support, Stephan observes that, at least outside North America, there is no great ‘tradition of pursuing corporate crime’ (381) and so normative attitudes to corporate misconduct must change for any new corporate criminal regime to prove effective.

It is acknowledged that merely criminalising cartel conduct will not change normative attitudes (at least not quickly). In this respect Stephan observes that cartel laws ‘have been criminalised explicitly to signal the damaging nature of cartel practices, to corporations and members of the public’ (at 381). However, he (and others) recognise that the increase in regulatory crimes and over-criminalisation generally have diminished the power of the criminal law to stigmatise and change societal norms in the way it once might have done (p 384).  Thus, for example, while legislators (at least in Australia) invoke the criminal law to penalise motorists for parking violations, few would regard such motorists as criminals.  Rebecca Williams (ch 13) also addresses this issue, critiquing the ‘top down’ (rather than ‘bottom up’) approach to cartel criminalisation – that is, hoping criminalisation will change societal norms rather than criminalising cartel conduct as a result of public perceptions about its moral delinquency.

Attempts to stigmatise conduct through the level of penalty are also unlikely to be successful given the lack of parity among many offences.  It may also, as Stucke claims, have the reverse consequence because ‘judges and juries will likely reject optimal deterrence theory when jail sentences appear excessive relative to the crime’s moral nature’ (p 288).  As Low and Halladay observe (ch 4), by imposing a maximum jail term of 14 years for cartel conduct in Canada, Parliament has now effectively equated that conduct with that of aggravated assault and torture.  It is unlikely the public – even educated as to the economic harm of cartel conduct – would view it as on par with crimes that inflict high levels of physical and mental harm.

Rather than hope that the mere act of criminalisation will affect normative change, Stephan observes that the media, properly utilised, can play an important role in securing public support for criminalisation of cartel conduct though ‘education and information dissemination’.  The key problem he identifies with this approach is that the media lacks the inclination to report on cartel conduct because it is not ‘naturally newsworthy’ (p 394) - it ‘lacks the “brimstone smell” of muggings and burglaries’ (p 386).

Other problems include lack of public understanding (including media understanding) of the wrongfulness of cartel conduct, the indirect nature of harm caused (as Stucke observes, people generally view indirect harm as less problematic than direct harm, even where the indirect harm is far greater) and the difficulty and delay in identifying the extent of loss and identity of victims.  Perhaps even more significantly, the perpetrators do not ‘look like criminals’ and are often of high social standing.  Although this can assist with the newsworthiness of an enforcement action, it can also distort media coverage and public perception of the conduct.  This was spectacularly demonstrated in Australia when, following an admission of cartel conduct in what was described by the (civil) sentencing judge, Justice Heerey, as the ‘most serious cartel case to come before the Court in the 30 plus years in which price fixing has been prohibited by statute’, Richard Pratt received significant public support and even praise from Australia’s Prime Minister and the Premier of his home state for, among other things, his extensive philanthropic activities. 

Stephan is not, however, a defeatist and suggests there remains scope for the media to positively influence public norms about cartel conduct.  His advice to authorities with new cartel laws is salient and simple (in theory): they have ‘a responsibility to choose [their] early criminal prosecutions carefully so as to maximise their impact, instilling acceptance of enforcement and ultimately encouraging a culture of compliance’ (p 394).  He points to UK examples as an example of how not to approach early criminal enforcement. In Australia we are still waiting for our first criminal prosecution of cartel conduct; we can only open that our enforcers heed this advice.



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