Illegal cartel conduct leads to massive fines and criminal sentences for CEOs
A cumulative fine of $33.5 million and criminal convictions and fines imposed on the CEOs have been recently handed down by the Federal Court following criminal cartel conduct.
Bingo Industries Pty Ltd (Bingo) and its competitors Aussie Skips Bin Services Pty Ltd and Aussie Skips Recycling Pty Ltd (together, Aussie Skips) engaged in price fixing in respect of the provision of waste processing services in Sydney and the supply of skip bins. Daniel Tartak, the former CEO and managing director of Bingo (Mr Tartak) and Emmanuel Roussakis, former CEO of Aussie Skips (Mr Roussakis) also pleaded guilty and were convicted and sentenced.
The $30 million fine imposed on Bingo is the second largest fine for criminal cartel offences under the Competition and Consumer Act 2010 (Cth) (the Act). A fine of $3.5 million was imposed on Aussie Skips for criminal cartel offences under the Act.
Cartel Conduct
It is illegal for businesses to agree to act together in a cartel, instead of competing with each other. Price fixing is a type of cartel conduct and is prohibited under sections 45AF and 45AG of the Act. Price fixing involves competitors arriving at an understanding or agreement whereby they fix, maintain, or increase the price of their products and/or services. The benefit for competitors is that consumers have little option in the market to seek out a more affordable product or service, forcing consumers to purchase the product or service at the inflated, fixed or maintained price.
Other types of cartel conduct include:
sharing markets (competitors dividing markets between themselves so they don’t have to compete),
rigging bids (when competitors discuss and agree amongst themselves who should win a tender and at what price) and
controlling output (when competitors agree to limit the amount or type of goods and services available).
Cartel conduct suppresses competition, results in increased prices and is strictly prohibited under the Act.
Individuals who attempt to contravene, aid, abet, counsel, procure or induce a corporation to contravene a cartel offence provision, conspire with others to do so, or are knowingly concerned in a contravention, can be sentenced to up to 10 years’ imprisonment or fined up to $626,000 per criminal cartel offence, or both. The maximum pecuniary penalty for civil contraventions of the cartel prohibitions by individuals is $2,500,000.
A corporation found guilty of committing a cartel conduct offence may be punishable by a fine of up to the greater of:
$50 million;
three times the value of the total benefit obtained which can be reasonably attributed to the offence; or
30% of the corporation's adjusted annual turnover during the 12-month period ending at the end of the month in which the offence occurred.
Bingo and Aussie Skips
In 2019 Bingo and Aussie Skips (assisted by Mr Tartak and Mr Roussakis) reached an arrangement to fix and increase their respective prices for certain waste services. Mr Tartak and Mr Roussakis met at a café, at Mr Tartak's request, and then engaged in a series of WhatsApp messages to make the arrangements.
In delivering his judgment, Justice Wigney stated that price-fixing arrangements between Bingo and Aussie Skips:
“had the effect of suppressing and distorting price competition… The markets for collections services and processing services in that region (Sydney) were large and lucrative. The effect… was that some consumers of collections services and processing services in that region were likely to have paid more for those services than they otherwise would have."
Penalties
The Federal Court imposed the following penalties:
fines totalling $30 million against Bingo;
two terms of imprisonment of 18 months each for Mr Tartak, to be served concurrently over two years as an intensive corrections order in the community, fines totalling $100,000 and disqualification from managing corporations for 5 years;
fines totalling $3,500,000 against Aussie Skips; and
imprisonment of 18 months for Mr Roussakis to be served as an intensive corrections order in the community, a fine of $75,000 and disqualification from managing corporations for 5 years.
This is a strong reminder that cartel conduct, including price fixing, is a serious offence. Ignorance of the law is no defence. The penalties were significantly reduced in this case due to early guilty pleas.
Caution for Purchasers when Acquiring a Business
In August of 2021, Macquarie Infrastructure and Real Assets (MIRA) purchased 100% of the shares in Bingo. The criminal cartel conduct occurred between May 2019 and August 2019, with the ACCC's investigation beginning in June 2019. Mr Tartak and Bingo were charged in August 2022.
Notably, it was Bingo who received the $30 million fine.
When purchasing a business, particularly by way of purchasing the shares in a company, purchasers are urged to exercise caution when conducting their due diligence.
Whilst a purchaser may be protected by contractual warranties or promises made by the seller in the sale agreement (Seller Warranties), these Seller Warranties are often hard to enforce and warranty claims are often subject to limitations, such as monetary caps. The reputational damage to the acquired business following a serious investigation or criminal conduct also needs to be considered. In this case, MIRA knew of the investigation against Bingo and Mr Tartak when it purchased Bingo and presumably put safeguards in place in the sale and purchase agreement to protect itself.
If you would like assistance with any competition law issues or business sales and acquisitions, please contact Gena Kawaguchi or Simon Griesz of our office.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.
contact
Gena Kawaguchi
Partner
E glk@bwslawyers.com.au
P 02 9394 1075
Simon griesz
Partner
E swg@bwslawyers.com.au
P 02 9394 1082