CN08 - Australian banking cartel case abandoned by the prosecution - where to from here
01 March 2022
The Commonwealth Director of Public Prosecutions ("CDPP") has sensationally walked away from the highest profile criminal case in the financial services sector in recent memory after three and a half years of vigorous court battles. The prosecution's case had been mired in allegations of serious defects in the investigation conducted by the Australian Competition and Consumer Commission ("ACCC").
Key takeaways
- The CDPP has abandoned the high profile banking cartel prosecution only months before the case was due to be tried before a jury.
- While the CDPP is not required to provide reasons for its decision, the accused had repeatedly raised questions regarding deficiencies in the criminal investigation that preceded the laying of criminal charges.
- The collapse of this prosecution should not alter the prevailing practice of financial services firms operating in Australia carefully assessing whether proposed collaborative arrangements potentially give rise to cartel risk and, if so, appropriately managing that risk.
After pursuing three multinational banks and six individuals for over three and a half years for alleged criminal cartel conduct, the CDPP dropped all charges on 11 February 2022.
The CDPP first laid criminal charges in June 2018 against ANZ Bank, Citigroup, Deutsche Bank and six executives, alleging cartel conduct with respect to the underwriting of a failed share placement in 2015 – a step that, understandably, sent shockwaves through the financial services sector in Australia. JP Morgan was granted immunity from prosecution by the CDPP for earlier reporting the conduct to, and cooperating with, the ACCC under its cartel immunity policy.
The case was due to be heard and determined by a jury in June 2022.
The CDPP had earlier abandoned all charges against ANZ Bank and two executives, and significantly reduced the scope of its case against the remaining accused by dropping a suite of charges.
Why did the CDPP abandon its case?
The brief media release issued by the CDPP stated only that the charges were being dropped because there were no longer reasonable prospects of convicting the accused following a detailed review of the evidence and receipt of submissions from solicitors for the accused. The CDPP is under no obligation to give detailed reasons for dropping the charges and neither the accused nor the general public should expect to receive any further explanation.
In the lead up to the CDPP's decision to drop the charges, the accused had raised important questions regarding alleged deficiencies in the criminal investigation conducted by the ACCC and material legal defects in the formal indictment documents prepared by the CDPP. In fact, the accused had, for some time, been foreshadowing that they would apply to permanently stay the proceedings based on alleged procedural defects in the ACCC's investigation and evidence.
The accused were also seeking to end the proceedings on the basis that the cartel offences do not apply, as a matter of law, to the supply of publicly listed shares. The determination of this application by the Court may have provided some clearer guidance regarding the application of competition laws in financial markets but the Court will now not be required to determine this fundamental issue.
Legal risks of collaborating in financial services transactions are unchanged
The dropping of these charges ahead of trial, and before any substantive issues were determined by the Court, unfortunately leaves financial services markets with little further clarity about the application of competition laws in complex capital markets transactions. Importantly, it does not establish any legal precedent regarding the legality of the specific conduct in the case or the application of competition law to financial services transactions more generally.
Accordingly, financial services firms must continue to be vigilant in the management of competition law risk moving forward. Firms considering engaging in collaborative practices – whether that be across equity capital markets, debt capital markets, or syndicating lending arrangements – should continue to carefully assess whether proposed arrangements potentially give rise to cartel risk and, if so, how best to manage that risk. In this respect, the joint venture exception to cartel conduct remains fundamental in managing cartel risk in Australia.
Enforcement risk for the financial services sector remains a real possibility
The ACCC's media release following the CDPP's abandonment of the case stated that the ACCC investigated this matter and referred it to the CDPP because the ACCC considered the conduct to constitute a cartel and stood to damage competition and the Australian economy. The decision to ultimately drop this case, it said, was an independent prosecutorial decision of the CDPP and not the ACCC.
Outgoing ACCC Chair Rod Sims has reportedly commenced an internal review into the case to identify lessons that the ACCC could learn moving forward. The ACCC's investigative procedures have substantially improved over the past several years, at least in part due to the deficiencies in their previous practices that this case exposed. It is unlikely that the serious procedural errors that were allegedly made in this case will be made again. That, of course, will be of little comfort to the individuals and banks involved in this failed prosecution.
Mr Sims' tenure as ACCC Chair comes to an end in March this year. It remains to be seen whether his successor – former external competition counsel Gina Cass-Gottlieb – will continue the ACCC's intense scrutiny of the financial services sector.
Importantly, the ACCC's cartel immunity policy remains an effective enforcement tool for the ACCC – and a significant incentive for participants in the financial services sector.
With thanks to Andrew McClenahan and Ben Hartsuyker of Ashurst for their contributions.
