Australian Competition and Consumer Commission (ACCC)

• The Competition and Consumer Act prohibit cartel by ensuring that businesses does not engage in the following conduct:

1. Price fixing;
2. Sharing markets;
3. Rigging bids; and
4. Controlling the output of goods and services.

• Cartel may be local, national or international and many go into great lengths to avoid detection due to greater profits by as much as 10% and is a billion dollar industry.
• Cartels are illegal because:

1. It increases the prices for consumers;
2. Reduces innovation and choices;
3. Blocks new industry entrants;
4. Interferes with normal supply;
5. Destroys other businesses;
6. Destroys consumer confidence;
7. Increases taxes while reducing services; and
8. Decreases infrastructure in the public sector.

• Possible penalties include: criminal or civil penalties for individuals; and fines for corporations for each criminal cartel offence. It may also include: injunctions; disqualification to manage corporations; and community service orders.
• Any person involved may seek immunity by assisting the ACCC with the investigation. The ACCC is equipped with investigative powers to compel any person or company; seek search warrants; and notify the Australian Federal Police to conduct phone taps and surveillance. It is also endowed with referral power for possible institution of criminal prosecution where the conduct is serious, working closely with the Commonwealth Director of Public Prosecutions (CDPP) who signed a Memorandum of Understanding (MOU) on serious cartel conduct and is responsible in prosecuting offenses against the Commonwealth.
• A conduct is serious if one or more factors are present:

1. Covert conduct;
2. Caused serious economic harm;
3. Longstanding;
4. Caused significant detriment to the public;
5. Repeat offence of at least one of the participants;
6. Involvement of a senior corporation representative;
7. The victims are the taxpayers and the government; and
8. It involves obstruction of justice.

Bank rate rigging spreads as ANZ, Macquarie hauled into court over Malaysian ringgit cartel

• Both ANZ and Macquarie Bank were charged with the Federal Court due to attempted manipulation of the benchmark rate of the Malaysian ringgit (MYR). ANZ admitted 10 instances of cartel conduct and was fined $9m and contribute to ACCC’s costs while Macquarie is facing a $6m penalty and costs due to its regular contact with ANZ traders to fix the MYR rate.
• The ACCC alleged that traders of both bank engaged in cartel conduct in attempting to influence the daily rates used for currency trading dating back as early as 2011. A Macquarie trader regularly contacted through private online chatrooms traders from ANZ and other Singaporean banks about submission of daily benchmark rate for MYR.
• Both attempted to make arrangements with other banks to make high or low submissions to the Association of Banks in Singapore (ABS) in fixing the rate although Macquarie is not authorized to do so. They were pursued by the ACCC through the cartel provisions to send a message to the senior manager of other banks.  The ACCC has estimated the turnover in Australia in 2011 on forward contracts for the manipulation of MYR at $9 to $10b.
• The ABS benchmark rates are reference for settling on-deliverable forward contracts (NDFs), and since they are not widely traded outside Singapore, the rates must be set by panel banks submitting their views on appropriate daily rate.
• ANZ dismissed the three erring employees and its chief risk officer Nigel Williams stated that banks has an obligation to ensure its staff comply with the law at all time.  The rate rigging incident is similar to a number of cases the Australian Securities and Investment Commission (ASIC) is pursuing against NAB, ANZ, and Westpac regarding the Australia’s bank bill swap reference rate (BBSW) rigging in 2012.

ANZ settles interest rate rigging case just before trial begins

• A last-minute settlement was reached by ANZ with ASIC just before the trial set by the Federal Court. ASIC alleged that ANZ, Westpac and NAB engaged in market manipulation an unconscionable conduct rigging the BBSW in which ANZ was accused of breaking the law on 44 occasions from 2010 – 2012 in order to maximise its profit.
• One of the most important interest rate in the Australian economy is the BBSW as it provides a benchmark for setting commercial and personal loan rates. Maximum penalty for the contravention of the Corporation Act is $1m per offence and ASIC sought for the imposition of fines and declaration that said banks broke the law and engaged in unconscionable conduct as well as ordering the ANZ staff involved to undergo a comprehensive compliance program.
• The settlement between ASIC and ANZ is an “in-principle” agreement and details are currently being negotiated in which the bank is reported to pay $50m. Hearing has been stayed by the Federal Court and if the case against Westpac and NAB prosper, the hearing is set to last for 6 weeks. Despite this, ANZ shares rose .36 % to $30.70.

ACCC v ANZ Banking Group Limited [2016] FCA 1516

• ANZ and Macquarie Bank attempted to contravene s 44ZZRJ of the Competition and Consumer Act 2010 (Cth) by making an arrangement containing a cartel provision. They engaged in a foreign exchange forward contracts which is an agreement to exchange USD and MYR at a future date using a forward rate agreed in advance.
• The foreign exchange forward contracts is settled by calculating the difference between the agreed forward rate and the settlement rate, as the MYR is not freely traded outside Malaysia, its settlement rate is arrived through a benchmark reference by a panel of banks supposed to reflect the exchange rates believed in good faith which is subjective and susceptible to collusion.
• Discussions were made by ANZ’s traders with other submitting banks to fix the forward contracts with competitors and therefore violated cartel provisions. The ACCC commenced proceedings against both of their contraventions of s 44ZZRJ ordering payment of fines at $10m with the maximum penalty for ANZ at $100m and $80m for Macquarie, settled on the provision that both banks admit liability.
• The Court is not bound to impose the penalties as its statutory task was merely to order the same. The High Court stated that when settlement is agreed between the parties, it must be within the “permissible range” with the test of appropriateness being whether the ACCC was too pragmatic in compromising the claim.  The Court is convinced that the agreed penalty is appropriate.

Market Manipulation – Incentives and Enforcement

• Section 1041A of the Corporations Act prohibits the participation of a person that is likely to have an effect of creating an artificial price for trading in financial products. An artificial price is to be distinguished from the national genuine price in the market.
• In several court decisions, the prohibition extends to transactions not involving the genuine forces of supply and demand. A contravention of the section however should not be established merely because the sale or purchase of financial products leads to a change in the price in the market.
• Section 1041B prohibits the doing or omission if the same is likely to affect creating a false or misleading appearance of active trading and market price for trading in a given jurisdiction.
• ASIC provides more visibility of enforcement activity and outcome showing relatively few actions showing market manipulation which is less common on insider trading. This turn out a concealed assumption to the extent of conduct warranting said actions.
• Price manipulation is a common form of market manipulation or enforcement activity with straightforward incentives such as stability of market shares prices and favourable investor perception.
• More complex incentives for manipulation can also be identified although less commonly reported. A long line of criminal prosecution cases for alleged trade-based price manipulation are readily available in case law.
• ASIC if warranted ensures exhaustion of administrative remedies prior to resorting to civil or criminal prosecutions and can even accept enforceable undertakings under s 93AA of the ASIC Act 2001 (Cth) arising from an alleged breach of insider trading or market misconduct provisions.

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