The OECD has found that penalties for competition law breaches are ‘significantly lower’ in Australia than in comparable OECD jurisdictions, prompting the nation’s competition regulator to announce it will rethink its approach to competition law enforcement.
The OECD report, Pecuniary Penalties for Competition Law Infringements in Australia(link is external) compared the penalties for companies which breach competition laws in Australia with the EU, the UK, Germany, Japan, Korea and the USA.
It found that in Australia, both the maximum and average penalties imposed by the Courts for competition law breaches are ‘significantly lower’ than in the OECD jurisdictions considered, especially for large firms or for long-standing anti-competitive behaviour.
Noting that this disparity in penalties has the potential to limit the effective deterrence of breaches in Australia, the OECD calculated the average Australian penalty would have to be increased by 12.6 times to be comparable with the level of the average penalty in these OECD countries.
The report also stated that in most OECD countries financial penalties are set according to a set methodology which includes sales of the infringing company’s product. In Australia, however, the penalties are determined by the Federal Court following an “instinctive synthesis” of various factors.
According to OECD Economist Dr Sean Ennis, this difference does not prevent Australia from imposing substantial and deterrent sanctions for competition law violations. He said that clearer guidance on the size of penalties could be useful in Australia to ensure penalties deter and that companies are aware of the likely size of fines.
Rod Sims, the Chairman of the Australian Competition and Consumer Commission (ACCC), said the OECD report offered valuable insights for debate and discussion about the future of competition law penalties in in Australia.
“The ACCC has been concerned that penalties in competition cases historically have not been sufficiently high to deter breaches, especially in cases involving large businesses,” he said.
“As I have said before, we do not want breaches of our competition law to be seen as an acceptable cost of doing business. We need penalties that will be large enough to be noticed by senior management and company boards, and also shareholders.”
Among its findings, the report highlighted that the ACCC does not start its penalty assessment by reference to the company’s turnover or value of commerce affected.
“The ACCC sees merit in considering the relevance of this baseline approach, noting that if it was applied in Australia, it would appear likely that firms with larger turnover would generally end up with much higher penalties.”
“We will reflect carefully on the report, including the OECD’s suggestion to consider developing penalty guidelines, similar to the approach taken by the other OECD jurisdictions.”
In Australia, penalties for breaches of competition law, such as cartel conduct, are determined by the courts, whereas in most of OECD other countries considered in the report, the competition regulator initially sets the penalty (although this may be subject to an appeal to a court).