Which of the following best describes an insurance company that has been formed under the laws

• It’s illegal for businesses to agree to act together in a cartel instead of competing.
• Cartels cheat consumers and other businesses. They restrict healthy economic growth, drive up prices and reduce innovation and investment.
• Cartels attempt to increase members’ profits while maintaining the illusion of competition.
• There are 4 forms of cartel activity: price fixing, sharing markets, rigging bids and controlling output.
• Individuals and businesses involved in a cartel risk heavy criminal and civil penalties, including jail terms.
• Anyone can report cartel activity to the ACCC.

What the ACCC does

• We educate businesses about illegal cartel activity.
• We take reports about cartels and have extensive cartel investigation powers.
• We take civil court action against businesses involved in cartels and refer serious cartel conduct for criminal prosecution.

What the ACCC can't do

• We cannot provide legal advice.

A cartel exists when businesses agree to act together instead of competing with each other.

Cartels cheat consumers and other businesses. They restrict healthy economic growth, drive up prices and reduce innovation and investment.

A cartel:

• is made up of independent businesses
• attempts to increase members’ profits while maintaining the illusion of competition
• can involve businesses of any size, from small, local businesses to large corporations
• can be local, national or international.

Cartel conduct is illegal and is strictly prohibited. The laws about cartel conduct are in the Competition and Consumer Act 2010, which applies to all corporations in Australia, as well as individuals involved in the conduct.

If the businesses acting together are owned by the same company, this is not a cartel.

There are 4 types of cartel activity.

Cartel activity is when 2 or more competitors agree to:

• fix prices - when competitors agree on pricing instead of competing against each other
• market share - when competitors agree to divide a market between themselves so they don’t have to compete
• control output - when competitors agree to limit the amount or type of goods and services available
• rig bids - when suppliers discuss and agree among themselves who should win a tender, and at what price.

Price fixing

Price fixing happens when competitors agree on pricing instead of competing against each other. The agreement or understanding can be about:

• prices for selling or buying goods or services
• minimum prices
• a formula for pricing or discounting goods and services
• rebates, allowances or credit terms.

Price fixing agreements may be formal or informal. They may be written, verbal, or just a signal, like a ‘wink and a nod’.

Signs of possible price fixing include:

• tenders or quotes are all much higher than expected
• all suppliers raise prices at the same time and by more than what seems reasonable or can be explained by changes in the cost of inputs
• prices submitted are much higher than previous tenders for similar products or services
• prices drop markedly after a new supplier tenders. This may indicate that the existing suppliers have been colluding and the new supplier has forced them to compete.

Sometimes, businesses independently change their prices to match their competitors’ prices.

This can create price changes that may look like price fixing. However, this is unlikely to be illegal as long as each business is making independent decisions about its prices.

A group of local builders decides to start meeting regularly at the pub. At their first meeting, they agree to increase their hourly rates to a certain amount for a trial period.

This is price fixing.

Market sharing

Market sharing happens when competitors agree to divide a market between themselves so they don’t have to compete. They may agree to:

• avoid producing each others’ goods or services
• serve different geographical areas
• divide contracts by value
• assign customers to each competitor, with an understanding not to win each other’s customers.

Bid rigging

Bid rigging, also known as collusive tendering, happens when suppliers discuss and agree among themselves who should win a tender, and at what price.

They may decide to take turns at winning tenders, giving each cartel member an agreed share of business. They may agree on a reward for the losing businesses, such as a guaranteed subcontracting role or a compensation payment.

To make sure that the agreed bidder wins, other cartel members may:

• not bid at all
• bid above an agreed amount
• include terms and conditions that they know the client won’t accept
• withdraw a winning bid.

Signs of possible bid rigging include:

• regular suppliers decline to tender, for no obvious reason
• bidders include unacceptable terms in their tenders
• bidders sometimes bid low and sometimes bid high on the same type of product or service
• the winning firm regularly subcontracts to competitors that submitted higher bids
• one firm of professional advisers represents several of the businesses submitting tenders.

Four foreign companies that supply rubber hosing agree to create a committee to allocate contracts in Australia. Each company appoints a member to the committee, which coordinates bidding and quoting. To hide its activity, the cartel uses codes, such as referring to the chosen winner as the ‘champion’.

This is bid rigging and market sharing. Even though the cartel is made up of foreign companies meeting overseas, it can be prosecuted in Australia.

Controlling output

Output restrictions happen when competitors agree to limit the amount or type of goods and services available. They do this to increase prices or stop them falling.

Businesses can independently reduce their output in response to demand, but it is illegal for competitors to agree to restrict output.

Businesses should take care to protect themselves from cartel activity among suppliers.

Businesses should also be careful not to be drawn into a cartel.

• Avoid speaking to your competitors about customers and pricing, including bids for projects.
• Never agree or even try to agree with a competing business on the prices you or they will charge or what discounts will be offered including in tenders or quotes for jobs.
• Never limit the goods or services you or they supply or allocate customers or geographic areas.
• If you are approached by another competing business to discuss arrangements about pricing, customers or bidding, don’t get involved and report it to the ACCC.

If you are invited into an arrangement that seems like a cartel, seek independent legal advice. You should also report any suspicious activity to the ACCC.

Don’t be a target. Read our Cartel detection and deterrence guide for procurement professionals.

Cartel activity is prohibited under the law. It is prohibited as a civil breach. It is also a criminal offence for individuals and for businesses.

Penalties for individuals

Individuals involved in a cartel can face:

• jail of up to 10 years
• fines of up to $440,000 for each criminal cartel offence
• penalties of up to $500,000 for each civil contravention
• injunctions to stop the conduct
• orders barring them from managing corporations in future
• community service orders.

It is illegal for a corporation to protect its officers against loss, or to compensate or pay their legal costs or any financial penalty.

Penalties for corporations

For corporations, the maximum fine or penalty for each criminal cartel offence or civil contravention is the greater of:

• $10,000,000
• three times the total value of the benefits gained through the cartel activity
• 10% of the annual turnover of the company (including related corporate bodies) in the previous 12 months.

The ACCC has extensive powers to investigate cartels. We can:

• compel a person or company to provide information about a suspected breach of the law. This includes providing documents and giving verbal evidence
• seek a warrant to search company offices and the homes of company officers
• partner with the Australian Federal Police, which can collect evidence using phone taps and other surveillance devices.

If you’re involved in a cartel and you are the first to report the cartel to the ACCC and cooperate with our investigations, you may be eligible for immunity from civil proceedings and criminal prosecution.

To apply for immunity, contact the ACCC Immunity Hotline: Phone: 02 9230 3894

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