Australia Charges Investment Banks With Alleged Cartel Activity

Australia's anti-cartel laws have come to global attention with the country's competition watchdog lodging criminal charges for alleged cartel behavior against two global investment banks, in a move one expert called "almost unique."

Deutsche Bank AG and Citigroup Inc denied wrongdoing, with the latter saying the regulator was effectively criminalizing practices long seen as the norm in the financial industry.

Banking expert Andrew Grant at the University of Sydney Business School said the move was "almost unique" in Australian corporate history and indicated prosecutors had a high level of confidence in their case.

The charges, which can carry hefty fines and 10-year prison terms, could lead to changes in the way institutional capital raisings are handled, and do further damage to the reputation of Australian lenders already mired in scandal.

WHAT HAPPENED?

The Australian Competition and Consumer Commission (ACCC) on Friday said federal prosecutors would charge Australia and New Zealand Banking Group Ltd (ANZ), Deutsche and Citi. Criminal charges were also laid against several current and former senior executives at the three banks.

The Commission said the charges involve alleged cartel arrangements related to trading ANZ stock after an ANZ institutional share placement underwritten by Deutsche and Citi in August 2015.

ANZ, Deutsche and Citi said they expect to be charged and denied wrongdoing. JPMorgan Chase & Co, which also acted as underwriter, has not been charged and declined to comment.

WAS THE ANNOUNCEMENT A SURPRISE?

The ACCC has been working toward a significant criminal prosecution over cartel behavior for a number of years. In February, Chairman Rod Sims in a speech said the Commission had five referrals with Australian prosecutors and a portfolio of investigations that were at an advanced stage.

The surprise was the ACCC had been looking at investment banks. Most other Commission investigations into cartels have looked at trade in goods. The first cartel prosecution in modern Australian history was in 2017 involving collusion among Japanese vehicle shippers from 2009 through 2012.

Prior to that, the only other cartel criminal prosecution in Australia took place in 1908 and involved coal miners.

ARE AUSTRALIA'S CARTEL LAWS SO DIFFERENT FROM ELSEWHERE?

No, not really, said Stephen Corones, emeritus professor of law at Queensland University of Technology.

"I don't think it is true to say that Australia's cartel laws are stricter than those of the U.S. and the EU. All three jurisdictions impose criminal sanctions and jail terms of up to 10 years for cartel offences," Corones said.

However, the power to push for charges is newer in Australia as cartel conduct was only criminalized in 2009. Since then, the Commission has built a team of investigators with the intention of taking tougher action.

In addition, recommendations from a Competition Policy Review panel were passed into law in 2017 which, Sims said, "position the ACCC better to protect competition and consumer interests in a time of unprecedented technological change".

HAS THE COMMISSION INCREASED POLICING OF CARTELS?

Yes it has, said Christopher Hewitt, consultant counsel at Moulis Legal.

"While there is no major difference between Australian rules around cartels and those in other jurisdictions, the ACCC has shown in the last few years that it is much more willing to use the powers it has and push for higher fines and criminal charges," Hewitt said.

In April, for example, the Federal Court of Australia raised a fine imposed on airline booking agency Flight Centre Travel Group Ltd by 14 percent to A$12.5 million ($9.54 million), after the Commission appealed against the initial fine which it said was "inadequate to achieve a strong deterrence".

"I don't see any let up in this," said Hewitt. "And with the ongoing Royal Commission (into financial sector misconduct), the pressure to take action against banks is even greater."