Introduction
The scholarly literature on enforcement suggests that enforcement often fails to improve compliance because it insufficiently deters. The “deterrence trap” means that penalties for noncompliance will either not be big enough to deter rational misconduct, or they will be so large that they exceed the capacity of firms to pay, thereby damaging innocent employees and creditors (Reference CoffeeCoffee 1981; see also Reference BraithwaiteJ. Braithwaite 2002:108). Moreover, there is a low probability of detection and successful enforcement action for most business offenses, making the perception of deterrence even less potent. Scholarly evidence and regulatory best practice suggest that regulators should generally use mixes of regulatory styles or strategies to improve compliance, rather than relying on deterrence alone (e.g., Reference Gunningham and GraboskyGunningham & Grabosky 1998; Reference Gunningham and JohnstoneGunningham & Johnstone 1999; Reference MayMay 2005; Reference Winter and MayWinter & May 2001; Reference SimpsonSimpson 2002; Reference SparrowSparrow 2000). The leading theory for explaining and prescribing that mix is responsive regulation (Reference Ayres and BraithwaiteAyres & Braithwaite 1992; Reference BraithwaiteJ. Braithwaite 2002). It proposes that enforcement strategies tend to be, and should be, arranged in a regulatory pyramid, with more cooperative strategies deployed at the base of the pyramid and progressively more punitive approaches utilized if and when more cooperative strategies fail. The objective is that firms and individuals will comply, even without enforcement action, through internalization and institutionalization of compliance norms, informal pressure, and the indirect threat of the “benign big gun” at the top of the pyramid. This article argues, however, that these strategies too will lead regulators into a trap—the “compliance trap”—that can only be resolved with political support.
Simple deterrence will often fail to produce compliance commitment because it does not directly address business perceptions of the morality of regulated behavior—it merely puts a price on noncompliance, and the ability of that price to deter misconduct will depend on the operation of the deterrence trap. Responsive regulation, by contrast, seeks to build moral commitment to compliance with the law. This article shows that a regulator can overcome the deterrence trap with the skillful use of responsive regulatory techniques that “leverage” the deterrence impact of its enforcement (and settlement) strategies with moral judgments and public interest considerations (such as failing to settle early if public interest conditions are not met, or using publicity to underline the social unacceptability of the conduct). But this leads it into the compliance trap.
As this article shows, business offenders and onlookers are likely to interpret morally leveraged deterrence as unfair or stigmatizing, and business perceptions of regulator unfairness are likely to have a negative influence on long-term compliance with the law and cooperation with the regulator (Reference BraithwaiteV. Braithwaite et al. 1994; Reference Braithwaite and BraithwaiteV. Braithwaite 2003; Reference TylerTyler 1990; Reference Tyler and HuoTyler & Huo 2002). Moreover, big businesses that perceive regulatory enforcement as illegitimate are also likely to actively lobby for the removal or non-appointment of key regulatory staff and for accountability mechanisms to rein in “illegitimate” enforcement activities.
Where fulsome political and moral support for the enforcement regime is lacking, then the compliance trap is set. Responsive regulators find themselves in a dilemma: overcome the deterrence trap by making morally tough demands that may not only undermine business commitment to compliance in the longer term (because they lack political legitimacy), but also undermine their own political support (because business will respond by lobbying government to emasculate the regulatory enforcement agency). Or avoid conflict with businesses by not making any difference at all. Since political support for a tough, moralizing enforcement approach to business regulation is often lacking (Reference SniderSnider 1991), “responsive” regulators are likely to find themselves jumping out of the deterrence trap frying pan into the compliance trap fire.
It is a compliance trap because it occurs only when regulators are actively seeking to improve business compliance, and commitment to compliance, through their enforcement activity. A regulator that engages in formalistic enforcement activity for its own sake will not face this dilemma. It is a trap because, in the absence of external political support, there is nothing the regulator can do to escape. The regulator must either choose weakness (no compliance impact) or have weakness thrust upon it (lack of legitimacy leading to emasculation). The regulator itself can overcome the deterrence trap by the skillful use of responsive regulatory technique. The compliance trap can only be resolved politically, external to any particular regulatory enforcement encounter.
The empirical evidence in this article comes from qualitative research on the impact of Australian Competition and Consumer Commission (ACCC) cartel enforcement activity on business compliance with competition law between mid-1997 and mid-2003. The ACCC is Australia's federal competition and consumer law regulator, responsible for investigating and enforcing provisions of the Trade Practices Act 1974 (Commonwealth) (“the Act”), including Section 45, which prohibits anticompetitive agreements (which can include price-fixing and market-sharing agreements). At the time of the enforcement activity reported on in this article, the ACCC was explicitly committed to using a responsive regulatory pyramid of enforcement strategies (see Reference BraithwaiteJ. Braithwaite 2002:231; Reference ParkerParker 1999).
The data are based on qualitative interviews with ACCC enforcement staff, business people, and their external lawyers, focusing on four major cases—the Freight, Concrete, Transformers, and Fire Protection cases—in which the ACCC took enforcement action against cartel conduct and in which the interviewees (or their firm) were personally involved. Table 1 provides a brief background to each of these cases and their outcomes. These data are supplemented with secondary analyses of contemporaneous accounts of the same four cases (e.g., court documents and newspaper reports), and interviews with 37 ACCC staff and 21 specialist trade practices lawyers on the impact of ACCC enforcement activity generally. The Appendix contains a more detailed description of the methodology used in this research. The empirical details of these case studies, but not the analysis set out here, have been reported in more detail previously (Reference ParkerParker et al. 2004).
Table 1. Summary of Case Studies
a 21Justice Burchett, in TPC v. TNT Australia Pty Ltd and ORS, ATPR 41-375 at 9 (1995).
b See ACCC v. Hymix Industries Pty Ltd, ATPR 41-465 (1996); ACCC v. Pioneer Concrete (Qld) Pty Ltd, ATPR 41-457 (1996).
c Concrete sold at approximately $A10 a cubic meter above what would have been achieved in a more competitive environment according to ACCC investigation.
d ACCC v. ABB Transmission and Distribution Ltd, FCA 383, ATPR 41-815 at paras 22 & 25 (5 April 2001) (Justice Finkelstein); Schneider Electric (Australia) Pty Ltd v. ACCC, FCAFC 2 (14 February 2003); ACCC v. ABB Transmission and Distribution Ltd (No. 2), FCA 558 (3 May 2002) (Justice Finkelstein); ACCC v. ABB Transmission and Distribution Ltd (No. 2), FCA 559 (3 May 2002) (Justice Finkelstein); ACCC, “ACCC Transformer Cartel bust: Record $35 million penalties” Media Release 057/04, issued 7 April 2004; http://www.accc.gov.au.
e According to a report commissioned by the ACCC and on the ACCC's enforcement file in relation to this case.
f The Fire Protection cartel raised prices by 5–15%, according to cooperating parties' statements, in an industry worth $A50 million a year, for 15 years.
The Freight case (see brief description in Table 1) was the ACCC's first major cartel enforcement action success, and it is therefore used as the central case study in this article. As shown below, even in this first apparently very successful case, the contours of the deterrence and compliance traps are already visible. The other three cases and the general interviews are used to confirm that the problems identified with the ACCC's approach to the Freight case arose more generally in the ACCC's cartel enforcement activity. The four cases studied in detail in this research were generally considered by all interviewees to be four of the most successful ACCC cartel enforcement actions. Indeed, that was the principle on which they were selected for the study (see Appendix). This selection bias renders the methodology conservative—if the compliance trap applies even in cases considered on all sides as successful, then it is more likely that it represents a fundamental and widespread problem in cases and among regulators seen as less successful.
Overcoming the Deterrence Trap with Leveraged Deterrence: Responsive Regulation
A Failure of Simple Deterrence
Australia's antitrust provisions do not set in place a tough enforcement regime. The enforcement agency, the ACCC, must prosecute contraventions of the competition provisions of the Act in court through a civil, not a criminal, process, and it has no power to impose penalties of its own.Footnote 1 The main compliance mechanism evident in the Act is to deter misconduct through the application of penalties (Reference YeungYeung 2004:63–72). While the penalties available in court since 1993 amendments to the Act are large relative to other Australian regulatory regimes (A$25,000 for individuals and A$10 million for firms per offenseFootnote 2), they are paltry compared with the possibility of jail sentences and fines of a percentage of turnover in other jurisdictions, such as the United States, European Community, and Japan.Footnote 3 Moreover, penalties never even approach the maxima in practice (Reference RoundRound 2000).
Looking at three of the four of the ACCC's most successful cartel cases studied here—the Concrete, Transformers, and Fire Protection casesFootnote 4—we find little evidence that the penalties outweighed the gains made, especially once a discount for a less than 100% chance of detection is factored in.Footnote 5 For each case, the total penalties awarded and estimates of cartel profits are shown in Table 1. In the Transformers case, the estimated profits were more than twice the penalties, while in the Fire Protection case, the profits exceeded the penalties by a factor of more than 50. In only one of the cases studied was there evidence of any economic hardship caused by the penalties (i.e., evidence that companies may go out of business because of the penalties, in the Transformers case). The penalties in each of the four cases were all well below the legislated maximum, although all except Fire Protection set records for the amount of penalties awarded. As we see below, in at least one of the four cases studied here, firm management felt they had got out of the case “lightly” by agreeing to the penalties with the ACCC.
Even maximum penalties under the Act would not have achieved effective deterrence in those cases where a large turnover was affected (see Reference DawsonDawson et al. 2003:164–5). But in cases such as Fire Protection, which involved many small businesses (as well as larger ones), maximum penalties would have been beyond the capacity of many participants to pay. Moreover, the general deterrent impact of cartel fines on other industry players can be questioned. In a number of the ACCC's later cartel enforcement actions, it found evidence that cartel participants were well aware of the penalties levied in earlier cases but continued their activity anyway (Reference ParkerParker et al. 2004:60–1).
Leveraged Deterrence Success
There has been enormous change in what is considered appropriate or normal market behavior in terms of market sharing and price-fixing since the introduction of the Act in 1974.Footnote 6 When Ron Bannerman became the first Commissioner of Trade Practices in 1965, restrictive practices were formalized, although kept secret, in hundreds of Australian trade associations (Reference BannermanBannerman 1985:84). Explicitly anticompetitive practices (or “orderly marketing”) are no longer considered a normal part of Australian business practice. Many of the interviewees in this research made it very clear that over the last 20 years they had seen a significant “generational” change in management attitudes to competition law compliance. A recent review of the Act even recommended criminalizing the cartel provisions of the Act (Reference DawsonDawson et al. 2003:161–2), a suggestion that has been accepted by the federal government.Footnote 7 This was virtually unthinkable in Australia 20 or 30 years ago, yet big business acquiesced in the recommendation. (This does not mean, however, that business, or perhaps even the government, believes that the ACCC should use its investigation and enforcement powers in the same way that police would in relation to street crime, as we shall see below.) Elite trade practices lawyers interviewed for this study also reported that over the last 10 years they have been kept increasingly busy with preventive compliance activities for clients, such as educational programs and proactive monitoring and investigation of trade practices compliance risks (Reference Parker and StepanenkoParker & Stepanenko 2003:48–52).
As can be seen in Table 2, between 1997 and 2003 most cartel cases settled. Of the 21% that were litigated, the ACCC won the vast majority. The Freight and Concrete cases, two of the earliest cartel cases finalized after the higher penalty regime had been introduced in 1993, set a benchmark for high penalties that received much media coverage and gave the ACCC an “image of invincibility” (Reference Ayres and BraithwaiteAyres & Braithwaite 1992:45; see also Reference HawkinsHawkins 1984).Footnote 8 Both cases were settled via agreed court orders (essentially a form of plea bargain) after lengthy investigations and negotiations early in the leadership of the chair of the ACCC, Allan Fels. After Freight and Concrete, the vast majority of ACCC cartel enforcement actions were settled via statements of agreed facts to the court and usually submissions of agreed penalties and orders. Litigation about liability was rare, decisive defeats in the courts for the ACCC extremely rare. A few cases were settled on the facts but argued on the penalties (e.g., three companies in the Transformers case). Before 1993, by contrast, the ACCC generally had a poor record at both settling matters and winning in cartel litigation (Reference RoundRound et al. 1996:298).Footnote 9
Table 2. Disposition of ACCC s45 Matters mid-1997 to mid-2003a
a Based on data from the ACCC's annual reports from 1997 to 2003 (ACCC, Canberra).
b Includes cases litigated only on facts, facts and penalties, and only penalties.
c Numbers in this column add up to more than 76 because some of the matters had several outcomes.
The ACCC strategically and intentionally overcame deterrence failure in two ways to achieve these successes. First, the ACCC leveraged up the deterrence value of the modest financial penalties available under Australian competition law with the administrative and personal cost and inconvenience of the investigation process and the reputational damage caused by publicity (compare Reference FeeleyFeeley 1979). Consistent with previous research on motivations for compliance (e.g., Reference Fisse and BraithwaiteFisse & Braithwaite 1983; Reference GennGenn 1993), all the interviews indicated that businesses and their lawyers saw the process of ACCC investigations, and the publicity associated with ACCC enforcements, as more effective motivators of compliance than penalties (see Reference Parker and StepanenkoParker & Stepanenko 2003:42–3).
TNT's settlement in the Freight case illustrates well the ways in which the process becomes the main punishment for those firms that face enforcement action (see also Reference SimpsonSimpson 2002:134). It also shows that the penalties, which are the outcome of that process, will often have little if any specific deterrent effect. After many previous failed attempts at settlement, the case against TNT and its executives was settled in one afternoon in a meeting between the ACCC chair and two other senior ACCC officers and the CEO of TNT without lawyers present (at the insistence of the ACCC). Settlement negotiations began with the ACCC suggesting $A23 million in penalties and concluded with an agreed penalty of $A6 million (including costs). The other defendant, Mayne Nickless, settled soon after. ACCC and ex-ACCC staff generally believe that both companies realized that they could not win against the overwhelming weight of evidence collected by the ACCC. According to one ACCC interviewee, the companies were keen to settle because “the evidence in most price-fixing cases is so horrible, management would not want to go through a trial.” Many of the witnesses “would have been clients [who] would get up and say you screwed me”' (02–002).Footnote 10
The ACCC interviewees believed that TNT had caved in because the weight of evidence collected by the regulator indubitably demonstrated their guilt. However, company insiders put a slightly different slant on it. Although TNT had admitted to the misconduct for the purposes of the settlement, the company also stated publicly at the time that:
I wish to emphasize that the withdrawal of our defense was taken purely for commercial reasons and under no circumstances does TNT accept guilt or liability, nor do we have any evidence that these alleged activities ever took place. In fact, if we had continued our defense we believe we could have won (quote attributed to Mr. Fred Millar, General Manager TNT Australia, in “Record Fine For TNT, Ansett Over Price-fixing,”The Age, 8 Nov., n.p.; http://www.theage.com.au).Footnote 11
As this suggests, and both interviewees explained, the amount of the agreed penalties was a “good deal” in terms of the likely reputational damage, legal costs, and costs of management distraction if the matter had continued on the pathway to trial. The potential penalty, if found liable for the cartel conduct, did not even have to be factored into the equation to make this a wise decision:
[m]ake no mistake when the litigation was proceeding there was at least one story per week in the Australian Financial Review about [the] litigation. The company and its advisors had no doubt that the TPC [Trade Practices Commission] kept feeding the media. This exposure generated a negative sentiment about the company within the financial sector and make no mistake this may have been a bigger incentive to settle than the costs of the litigation.
There is equally no doubt that the costs of the litigation were a major issue for the TNT group. Despite what the TPC may say about its belief in the success of the claim there is no doubt that the defendants were anything but convinced… But again make no mistake that management becomes substantially diverted by such proceedings to the detriment of the performance of the business. It is of course difficult to place amounts upon such matters but it was accepted by the CEO that this detriment far exceeded the legal costs. On a straight financial analysis there could be little extra needed to justify settlement (02–007).
The Freight case began a trend of settling trade practices enforcement matters with the Commission. The interviews with lawyers indicated that in most of these cases, the reputational, legal, and management costs of the enforcement process were what provided these firms with the commercial imperative to settle, rather than the amount of penalties that might be awarded by the court. These process costs also became a greater specific and general deterrent against further noncompliance than the (agreed) penalties themselves (Reference ParkerParker et al. 2004:34).
Second, the ACCC targeted a range of individuals and organizations (such as industry associations, compliance professionals, and potential whistle-blowers) with the capacity to improve business compliance by putting in place a web of controls that reduced the opportunities for, or the advantages of, offenses (Reference Braithwaite and BraithwaiteV. Braithwaite 2003:25) and embedding norms and practices for avoiding noncompliance in the social structure of industry.
The ACCC developed a policy of holding as many parties—individual and corporate—legally liable as actually contributed to the conduct, rather than just focusing on the main corporate participants in the cartel. Even if penalties against firms are too small relative to the firm's size and profits to be of deterrent value, this strategy spreads the deterrent threat to individuals who are likely to be more sensitive to smaller penalties, or even just to the shame of having a finding of liability and an injunction against re-offending against them (see Reference BraithwaiteJ. Braithwaite 2002:109–22; Reference SimpsonSimpson 1998:121).Footnote 12 ACCC enforcement action also almost always includes a requirement that the firm implement or upgrade a trade practices compliance program, which is supposed to be independently and rigorously audited by a compliance specialist—institutionalization of a form of corporate conscience (Reference ParkerParker 1999, Reference Parker2003).
Finally, ACCC enforcement action has often forced other parties who had some capacity to regulate the market practices of the relevant industry or individual firms in the case to do so. For example in a number of cases, as a result of enforcement action, relevant industry associations became committed to educating and empowering business members to take competition law compliance seriously.Footnote 13 Where a variety of agents, not just the ACCC, but industry groups, consumers, and lawyers and compliance officers within the company, are all committed to stopping cartel conduct, not only does the network of control make it more difficult for potential offenders to engage in cartel conduct, but it also helps convince them that such conduct is not generally considered acceptable or right.
Responsive Regulation
These two strategies reflect John Braithwaite's responsive regulation prescriptions for overcoming the deterrence trap by using, respectively, “broad, informal, weak sanctions” (2002:109), and enforcement targeting not confined to the actor who benefits from the crime. According to responsive regulation theory, the deterrence trap is a trap not only because regulators may not be able to levy a financial penalty sufficient to deter, but also because assuming that people make decisions about compliance on the basis of cost-benefit calculations is often likely to be a mistake. Responsive regulation responds to the complexity of the motivations and contextual factors that influence compliant and noncompliant behavior. It seeks to build on people's intrinsic commitment to comply, where it exists, and broaden the targets of regulatory enforcement so that the regulator is more likely to find “softer” targets that can be motivated by modest deterrent penalties or by the shame of being implicated in wrongdoing (Reference BraithwaiteJ. Braithwaite 2002:110). As we see in the next section, however, these strategies communicated too potent a message about the moral seriousness of cartel conduct to be palatable to businesses and their lawyers. The resulting conflict between businesses and the ACCC showed that the ACCC was in a compliance trap.
The Compliance Trap
Business Criticism of ACCC Cartel Enforcement Activity
The most intriguing aspect of ACCC enforcement action, including in cartel cases, is the way in which businesses have criticized and openly expressed their resentment for the ACCC's enforcement methods, even while settling most cases with the ACCC (as shown in Table 2) and apparently improving cooperative compliance at the base of the pyramid. It has even been suggested that Fels's chairmanship of the ACCC between 1991 and 2003 was “Australia's competition watershed … he electrified business into taking competition law seriously” (Reference BrenchleyBrenchley 2003:278–9). Yet at the same time, businesses, including the CEOs of a number of Australia's biggest companies, regularly and openly criticized the ACCC for adversarialism that they perceived as procedurally unfair, and publicity that was stigmatizing. For example, Dick Warburton, chairman of Caltex, has said that the manner in which Fels went about his job was “unfair, unjust and immoral” (Reference GittinsGittins 2002:13). David Murray, CEO of the Commonwealth Bank, has said the ACCC's behavior is “a corruption of administration of the Trade Practices Act” and “false and misleading behavior on the part of the cop” (Reference GittinsGittins 2002:13). Geoff Dixon, CEO of Qantas, said the ACCC uses the media “in a way that damages companies before they are proven guilty,” while Roger Corbett, CEO of Woolworths, said the ACCC “really doesn't have any line of accountability at all” (Reference GittinsGittins 2002:13; see also Reference BrenchleyBrenchley 2003:211–36).
Businesses have even settled matters and then denied their legal liability and moral responsibility for the conduct they admitted for the purposes of settlements, as well as criticizing the ACCC for taking enforcement action in the first place, and for the manner in which it has enforced the law. Businesses have perceived the ACCC's conduct of investigations, and even negotiated the settlement of enforcement matters, as excessively adversarial and moralizing, and in some cases a possible abuse of the ACCC's legal authority (Reference YeungYeung 2004).
The Moral Message of ACCC Cartel Enforcement Action
As we have seen, Australian business clearly saw cartel behavior as normal before the Act was introduced. Even after the Act was introduced, the formal sanctions against cartel conduct were civil only, the penalties relatively modest, and the moral status of these offenses therefore ambiguous (see Reference Harding and JoshuaHarding & Joshua 2003:9–11; Reference YeungYeung 2004:81). There was no great political commitment or consensus that cartel behavior should be perceived as morally bad (Reference YeungYeung 2004:253). There is no reason why cartel behavior (and other anticompetitive behavior) should not be seen as bad by business—most businesses think it is morally bad when they themselves are the victims of bid-rigging, abuse of market power, or bullying to join a cartel.Footnote 14 Most see a fair and competitive marketplace as more sustainable in the long term. But they also more strongly agree with the consumer protection policy goals of the Act than with the competition policy goals (see Reference Nielsen and ParkerNielsen & Parker 2005:173).Footnote 15 Achieving the objectives of the Act, especially the competition policy objectives, required a culture change at the industry and internal firm level. And the deterrence trap meant that this could not be achieved by the application of financial penalties alone.
Rather than acquiescing with ineffective, formalistic, or captured enforcement, the ACCC turned its attention to its more informal sources of power in an attempt to attract social sanctions (reputational damage, feelings of shame, and so on) to cartel offenses and to change social norms to define cartel behavior as socially and morally unacceptable (see Reference BraithwaiteJ. Braithwaite 2002:73–136). These “leveraging” strategies worked (to an extent) because they were infused with moral content—they incorporated a moral message. In order to mobilize publicity to shame offenders, convince them of their responsibility for their wrongdoing, and encourage them to rehabilitate themselves (Reference Braithwaite and DrahosJ. Braithwaite & Drahos 2002; Reference BraithwaiteJ. Braithwaite 2002:110; Reference Fisse and BraithwaiteFisse & Braithwaite 1983; Reference ParkerParker 2004; Reference YeungYeung 2005), the ACCC portrayed cartel conduct as morally bad. In order to evoke feelings of organizational and personal responsibility to prevent future noncompliance, a wide range of individuals and organizations were targeted in the investigation process for the purposes of potential enforcement action.
However, in taking on so wholeheartedly the mission of promoting the policy and values of the Act, the ACCC became a political agent, and was perceived as such by business. The ACCC tried consciously to exercise power to change business practices, consumer expectations, and, therefore, economic and social structures. From the business point of view, the ACCC's leveraged deterrence strategies lacked legitimacy because they disagreed with the ACCC's implicit and explicit moral stand on cartel conduct and how it should be treated in the enforcement process. Businesses would prefer the ACCC to take a technical, purely economically rational deterrent approach, where noncompliance has a financial price but not a moral and reputational one.
This difference of opinion about the moral status of cartel offenses and therefore how the ACCC should exercise its enforcement powers in this area is evident in the two sides' conflicting views about (1) the ACCC's use of its powers of investigation, (2) the ACCC's use of publicity to draw attention to offenses, and (3) the meaning of a settlement of enforcement action, as shown in the following sections. In each case, businesses (and business lawyers) complained that ACCC enforcement action was stigmatizing, overly aggressive, and adversarial. They would prefer a more cooperative, reparative, and rehabilitative approach.
ACCC's Use of Powers of Investigation
Businesses criticized the ACCC for using its investigation and enforcement powers fully. Despite the fact that the Act gives the ACCC fairly substantial powers to compel the production of documents and attendance at interviews, and even to enter premises to make copies of documents, businesses and business lawyers seemed to feel that the ACCC should avoid appearing to act “like police.” Several lawyers mentioned the case of the oil company “raids” as an inappropriate use of the ACCC's powers to enter premises and inspect documents. In this case, the ACCC entered the premises of several major oil companies looking for evidence of price-fixing alleged by a whistle-blower, but without any other evidence of breaches of the law (see Reference BrenchleyBrenchley 2003:153–61 for a fuller account of the raids). One of the main criticisms of the raids was that it was inappropriate and unnecessarily adversarial for the ACCC to begin an investigation with unannounced visits to businesses using its powers under the Act. Lawyer interviewees thought that by making unannounced visits, the ACCC treated businesses as if they were likely to commit criminal offenses to hide or destroy documents and evidence (Reference ParkerParker et al. 2004:77).
Similarly, the ACCC was also criticized by lawyers interviewed for using Section 155 notices (requiring individuals and businesses to produce evidence or answer questions) too early in other investigations and without adequately trying cooperative methods of investigation first—a practice that makes businesses feel they are being treated like criminals:
They don't call first or anything—they just start with a s155 notice. They're cautious of tipping people off, I suppose. They feel the people they are investigating are baddies and they don't want them to go away and start shredding documents (03-014; see also Reference ParkerParker et al. 2004:76–9).
ACCC's Use of Publicity
Similarly, the publicity that the ACCC, and especially former Chair Fels, attracted for its enforcement activities has been an issue of some controversy and concern for trade practices lawyers and business, and the interviews reflected the broader issues that have been raised in public debate on the topic (see Reference DawsonDawson et al. 2003: Ch. 12; Reference YeungYeung 2005). Some interviewees believed that the ACCC intentionally and unfairly made an example of cases for the sake of publicity, or that the ACCC had publicized enforcement activity before there was any court decision to announce (see Reference Parker and StepanenkoParker & Stepanenko 2003:57–9).Footnote 16
Business and lawyer interviewees criticized ACCC publicity for portraying offenders too starkly as evildoers motivated purely by the possibility of obtaining excessive profits and gains for themselves by price gouging. The ACCC did intentionally make media statements pointing out each of its successes in cartel enforcement and identifying what it believed to be the social harm of each case of cartel conduct as it was settled. At the same time, the ACCC had also been campaigning for criminalization of cartel conduct. The juxtaposition of the ACCC's campaign for criminalization of cartels with its proactive media statements about the social harmfulness of the conduct in particular cases made some offenders who settled with the ACCC feel stigmatized.
This was particularly true in the Transformers case (see Reference ParkerParker et al. 2004:45–8). It is evident from the press reports of the case that the ACCC and at least one of the Australian offenders had quite opposing ideas about what was at stake in the case, its severity and level of moral blameworthiness, and that this was exacerbated by ACCC statements to the media after the case. Following the finalization of the ACCC case against four of the cartel participants, Fels was quoted in the media as saying:
“This is substantial, sustained secret, senior collusion that affected the price everyone pays for electricity: consumers, business large and small, people in city and country areas,” he said … Professor Fels estimated the cartel, which controlled almost the entire market in transformers, had illegally gained tens of millions of dollars by pushing up the prices paid by electricity companies for equipment. Consumers ultimately paid with higher prices, he said (Reference Heasley and MyerHeasley & Myer 2000: n.p.).
These comments are phrased as estimates because the ACCC did not in fact present evidence (agreed or otherwise) to the court that the cartel included arrangements to inflate prices or that unjustified price increases had been passed onto customers. Robert Wilson, the managing director of Wilson Transformer Company, responded by pointing this out and asserting that his firm had not “defrauded or disadvantaged” their customers (Reference Heasley and MyerHeasley & Myer 2000: n.p.).
Wilson Transformer Company, through Wilson, in fact, cooperated fully with the ACCC from the very day that the ACCC contacted him about the cartels. Yet Wilson had a very different view of the reasons for the breach than the ACCC. For Wilson, the motivations for doing something he knew to be illegal were complex and included patriotism and loyalty to his employees and a business that his father had started, as well as a rational calculation about the benefits versus the costs of doing so. He explained them in an interview:
The key reason for us to enter into those arrangements was not to make profits, but for survival and to retain jobs within Australia … I am very emotionally committed to Australian manufacturing and keeping jobs here … They [the distribution and power transformer cartels] were both driven by the need to ensure a reasonable base-load for the factories … At the time I knew I was breaking the law. I knew all the basics of the TPA … At that time we had gone from an employment high of 350 down to 190. I had been involved in retrenching people and that had involved a lot of pain … In that time fines were relatively small—A$100 000. Fines that small were unquestionably palatable in the context …
In comparison to the motivational complexity set out here (see also Reference Geis, Clinard and QuinneyGeis 1967; Reference SimpsonSimpson 1986, Reference Simpson1987 for other examples of complex motivations for cartel behavior), the apparent message of the media publicity prompted by the ACCC relating to the case was much more simple—businesspeople enter cartels for the purposes of raising prices in order to make excessive profits, and this should be seen as criminal behavior and preferably punished with jail terms. From the point of view of the ACCC and competition law, this makes perfect sense. But for a businessperson it may lack sense. The motivations evident for entering into cartels in the case studies analyzed here were often more complex and less dramatic than pure greed. They included the desire for stability in new market conditions (the Transformers cartel was a response to market uncertainty in the context of the deregulation of the electricity industry), simply accepting market-sharing and price-fixing as an established part of the job (a number of the defendants in the Concrete case commented on this), and the fear of retaliation and being driven out of the industry if one did not submit to a cartel (there was very strong evidence of this in the Fire Protection case).Footnote 17
The Meaning of Settlement of Enforcement Action
Businesses and business lawyers also tended to think that the ACCC was excessively adversarial in its approach to negotiating settlements. The ACCC's approach to cooperative settlement of cartel enforcement matters clashed with the business approach, which sees decisions about settlement or litigation as a commercial matter implying no admission of moral blameworthiness:
The Commission is obsessive about getting declarations of guilt … (03-018)
It is a problem that you can't settle a case on the basis that you won't admit the conduct, but are nonetheless prepared to accept the consequences. (03–004)
[The ACCC] don't take the commercial advice. They don't weigh up the costs of taking action. They just run the case. For example, Company X caved in on the actual conduct but they wouldn't agree to declarations. So they had a bit of a fight about that and [the ACCC] went to court asking for declarations … From a commercial point of view, you would say it is better to cut the deal even if it is not perfect. On the other hand with the ACCC, you know that if they say they are going to litigate something, they will. A commercial litigant might cave in and settle when it gets near court and the costs start going up. The ACCC doesn't look at costs—it just keeps going. (03–007)
Businesses saw agreeing penalties, court orders and enforceable undertakings with the ACCC as a nolo contendere. They simply saw themselves as “not contesting” the regulator's case but making admissions “for the purposes of proceedings only.” In doing so, they expected to escape moral opprobrium and accountability, just as they normally try to do in private civil law disputes. The ACCC, by contrast, saw the bringing of enforcement proceedings as a matter of public morality to show that standards were being maintained and misconduct remedied (Reference HawkinsHawkins 2002:3–13). The ACCC was not willing to abandon this objective merely to get a settlement. Settlements would often only be negotiated if the ACCC could secure admissions of liability, and the ACCC would go on to publicly comment on the socially harmful nature of the conduct and the need for criminal sanctions against cartel conduct even after achieving a cooperative settlement—things that business saw as inappropriate, unfair, and stigmatizing where the matter had been cooperatively settled.
On a simple deterrence model, the cost of cartel behavior was the possibility of a modest penalty combined with the costs of litigation and discounted by the probability of detection. The ACCC, however, leveraged up deterrence by adding to those costs the possibility of damaging publicity, highlighting the costs of the investigation and litigation process, targeting a wide range of individuals and entities for enforcement action, and requiring implementation of a compliance program and its independent audit. This motivated businesses to seek cooperative settlements with the ACCC. But business and ACCC understandings of what a cooperative process of settlement would involve diverged. It is apparent from the interviews that businesses expected a settlement with the ACCC to be negotiated administratively behind closed doors and to involve a modest financial penalty (discounted for cooperation) and perhaps some renewed commitment to making efforts to promote compliance. The ACCC, by contrast, was certainly willing to settle matters, but only if the agreed settlement would take the form of a court order that included an injunction to cease the conduct (a clear public statement of the legal wrongfulness of the conduct, stamped with the authority of the court) and the opportunity for the ACCC to make public statements about the social harmfulness or immorality of the conduct.
The Compliance Trap and the Failure of Responsive Regulation
What amounts to compliance with the law is a matter of interpretation, negotiation, and frequently argumentation, between businesses and regulators, their lawyers, and, where matters are litigated, the courts (Reference BlackBlack 1997; Reference McBarnet, Cain and HarringtonMcBarnet 1994, Reference McBarnet and Braithwaite2003; Reference Reichman, Schlegel and WeisburdReichman 1992). Compliance is meaningless, or rather has contested meanings, in the absence of some commonly accepted understanding of the way regulatory requirements should be interpreted and applied. The literature on regulatory compliance and responsive regulation (e.g., Reference Bardach and KaganBardach & Kagan 1982) suggests that enforcement action should be an opportunity to bring regulators and those regulated closer together in their views of compliance with the law. Enforcement action might provide an opportunity (1) for businesspeople to be persuaded of the value of compliance with the law (through both deterrence and conversion to the values of the law), and for (2) regulators to understand more fully the motivational complexity that leads to violations of the law and learn how to improve the law and their enforcement of it to cope with that motivational complexity in a fair and nonstigmatizing way.
This subjective interpretation of the process of regulatory enforcement action, however, is fueled by a conflict about the substance of the morality of businesses' own involvement in cartel conduct that has not been resolved. Businesses may subjectively believe that theirs is a posture of compliance in settling matters with the ACCC. But if this posture exists in concert with what the regulator sees as noncompliance behavior, then a conflict must occur. There are at least four possibilities.
First, the firm may claim it is the “victim” of a rogue employee who has engaged in misconduct on a frolic of his or her own and therefore the business should not be treated as morally and legally responsible. If this is true, then there should be no conflict because business and the regulator should both be equally interested in seeing the responsible party dealt with according to the law and with the appropriate degree of moral seriousness.
Second, the business and the regulator may be in fervent disagreement about what compliance with the Act means and/or what priority it should be accorded as against other legitimate business goals (such as making a profit or keeping Australian jobs). If so, then this is a fundamental underlying conflict, which means that cooperative compliance is not achievable until the conflict has been resolved one way or another. This is likely to be quite common in the early years and decades of regulatory regimes as norms of interpretation of acceptable conduct are institutionalized. It may also be common where a risk management mentality holds sway in business (Reference RosenRosen 2003).
Third, the firm, or individuals within it, may have been badly motivated and intended to break the law, yet the firm objects to the ACCC characterizing the conduct as morally blameworthy.
Fourth, the firm's management is responsible in some way for the fact that its norms of compliance do not match up with its behavior. This could be for any of a variety of reasons, including that firm management is lazy, negligent, or incompetent, or too focused on other matters to ensure compliance with the prohibition on cartel conduct.
In these last two cases, in order for a business to comply with the law, it must be confronted with the fact that the reality of its own behavior does not match its ideological posture of compliance. Simple deterrence via economic penalties on its own generally will not provoke an adequate conflict about the businessperson or firm's identity because penalties can be readily reconciled with a purely commercial rationality.
This is the heart of the compliance trap dilemma. In the absence of authoritative, broader political and cultural support for the regulator's view of the law, the regulator is trapped. There is no technique, style, or approach the regulator can utilize to improve compliance where the meaning of compliance is politically contested. The regulator has only three choices:
First, the regulator can revert to going soft on compliance in order to avoid criticism and illegitimacy. In other words, the regulator can capitulate to business interpretations of what compliance requires and how the Act should be enforced. Regulators that lack the financial and human resources to take on business and win, as well as those that lack cultural and political support for tough regulation of business, are likely to take this approach (Reference SniderSnider 1991). Here the regulator gives up.
Second, the regulator can revert to taking more enforcement matters through the formal court process—a more formal, punitive enforcement style, which leaves it to the courts to determine any conflicts. But this approach runs the risk of falling back into the trap of simple deterrence and failing to promote the cultural and moral change that is necessary for compliance. This approach becomes as ineffective as the first.
Third, and from the regulator's point of view, ideally, a business's views of the morality of its own conduct and the social context for cartel conduct might change so that the regulator's enforcement methods come to be seen as legitimate after all and compliance with the regulator's interpretation of the law comes to be seen as normal.
The ACCC tried to take the third path with its leveraged deterrence strategy. But ultimately it appears to have failed to garner the political support necessary to sustain the legitimacy of its interpretation of the law and its moral seriousness. The ACCC's apparently most successful cartel enforcement action ultimately lacked legitimacy in the eyes of business regulatees. Much of the ACCC's leveraging was viewed as procedurally unfair and stigmatizing of “ordinary honest businesspeople.” As predicted by Reference Braithwaite and BraithwaiteValerie Braithwaite's (2003) research on motivational postures toward regulatory authorities, Tyler's research on procedural justice (1990; Reference Tyler and HuoTyler & Huo 2002; see also Reference MurphyMurphy 2003), reintegrative shaming theory (Reference AhmedAhmed et al. 2001), and responsive regulation theory itself, the lawyers and compliance advisers interviewed for this project cited many instances where they believed that clients were certainly willing to behave in compliance with competition law after ACCC enforcement action, but they felt that the ACCC's actions had broken down the intrinsic motivation to comply, leading to the development of attitudes of resistance, defiance, or disengagement toward the ACCC and its enforcement of the Act (see Reference ParkerParker et al. 2004:94–8). There is also no doubt that, despite changes in the social acceptability of explicit cartel behavior, Australian industry remains highly concentrated and cartelized (Reference DignamDignam 2005:769–70, 778–82).
More significant than this, however, is evidence that big business has regularly attempted to influence the way the ACCC carries out its statutory functions by complaining to government ministers, including the Prime Minister, both openly and secretly, about particular ACCC decisions, enforcement strategies, and investigations and about ACCC commissioners, particularly the chair (see Reference BrenchleyBrenchley 2003:22, 143, 211–236). Such complaints can result in legislative and administrative reform, media attention, and public critique. The Dawson Review of the Act (Reference DawsonDawson et al. 2003) was prompted by both big business and small business complaints about the ACCC and resulted in various reforms to ACCC procedures and accountability in relation to decisionmaking and publicity (see Reference BartholomeuszBartholomeusz 2002; Reference DignamDignam 2005:782). Or complaints can result in less-public consequences such as the failure to reappoint particular commissioners or to promote particular staff members. At his retirement halfway through 2003, Fels himself expressed surprise at how long he had lasted in the job given the opposition expressed about him by big business and the frequency of backroom political lobbying around the activities of the ACCC by business.Footnote 18 Deputy Commissioner Allan Asher, a labor government appointment, was not reappointed by a conservative government, presumably because of the unpopularity of his vigorous enforcement methods (Reference BrenchleyBrenchley 2003:118–21). The position was left vacant from November 2000 until November 2003. Fels himself retired after the same conservative government reappointed him, but for only three years and eight months instead of the customary five: “Costello [the Australian Treasurer], in effect, was sending Fels a message: ‘You've become very powerful and we want to keep a rein on you. If you behave, you might get a further term’” (Reference BrenchleyBrenchley 2003:215; see also Reference RyanRyan 2002). A new chair was appointed who was seen as much more acceptable to business (Reference Oldfield and MitchellOldfield & Mitchell 2002).
The compliance trap analysis in this article suggests that where a regulator fails to gain political and community support for its moral messages, it will tend to relapse into one of the first two options above. Regulators are forced into a situation where they feel they have to avoid the conflict engendered by strong enforcement action and strong statements of moral responsibility. This may be one reason why regulatory enforcement agencies often seem to seesaw between formal and punitive, or soft and facilitative enforcement approaches (Reference BernsteinBernstein 1955). It is so difficult to escape the two traps that most regulators most of the time take comfort in a formalism that verges on industry capture—capitulating to business most of the time and taking only the most egregious cases to court in simple deterrence mode the rest of the time. This may well be true of the current ACCC. Although the federal government has now announced that it will criminalize cartel conduct (Reference ClarkeClarke 2005), this decision was made more than a year after the leadership of the ACCC had been changed. It remains to be seen whether, and if so how quickly, the ACCC under its new leadership succeeds in building a moral commitment to comply. At the time of this writing, it seems just as likely that the new, more “business-friendly” leadership will take the route of taming any new criminal offenses via formal and legalistic enforcement, rather than inventing new leveraging strategies (see Reference GrantGrant 2005; Reference O'LoughlinO'Loughlin 2004; Reference Tingle and SkulleyTingle & Skulley 2002).
Conclusion
Much of the recent literature on the compliance impact of enforcement action in general, and responsive regulation in particular, is concerned mostly with the identification and impact of different procedural approaches or styles in different situations (Reference May and WinterMay & Winter 2000; Reference May and WoodMay & Wood 2003; see also Reference BraithwaiteV. Braithwaite et al. 1994; Reference Grabosky and BraithwaiteGrabosky & Braithwaite 1986; Reference HutterHutter 1989), and whether it is possible for regulators (and businesses) to have the social and emotional intelligence to consistently or even mostly act in a responsive way (Reference NielsenNielsen n.d.). The analysis reported here shows that responsive regulation is not merely a matter of technique, style, or skill that can be controlled by the regulator. Ultimately, whatever processes a regulator uses to take enforcement action, there are likely to be conflicts between business and regulator over the substance of the law, its application in business contexts, and the moral seriousness of the social harm caused by its breach (see Reference Tyler and DarleyTyler & Darley 1999–2000). The ACCC cartel enforcement data in this article show that businesses will interpret regulatory enforcement processes in the light of any substantive conflict over the moral message implicit in that enforcement action. The ACCC may avoid stigmatization of cartel offenders by being careful to label the conduct as so harmful it should be criminalized, rather than labeling the people as criminals. But if businesses do not see the conduct as criminal, then they will perceive this as stigmatizing. In this context, conflict between businesses and a regulatory enforcement agency is necessary. It is a sign that the regulator is doing its job and is raising the issues that need to be decided. Confrontation about the moral and social consequences of wrongdoing is required.
The compliance trap highlights the moral and political instability of cooperative strategies in the absence of broad political and democratic support. In order for responsive regulation to even be possible, regulators must have the capacity to convince people that regulatory offenses represent shared values as criminal offenses do (Reference SimpsonSimpson 2002:49, 151). The conflict between business and regulator over enforcement in the context of the 30-year-old Australian competition regime can be best understood as a sign of continuing social change in relation to cartel behavior and norms. It is a very public contest between regulator and business as to what compliance with the Act should mean, and whether enforcement should assume that antitrust offenses should attract moral opprobrium or not.
Similar contests are occurring or have occurred over other areas of business regulation (e.g., Reference JohnstoneJohnstone 2003; Reference SniderSnider 1991). Recently, Reference GunninghamGunningham et alia (2003:41–74) and Reference MayMay (2005) have noted the way in which regulatees' motivations to comply, and indeed to go beyond compliance, are shaped by the terms of a multifaceted regulatory, social, and economic “license to operate” (Reference GunninghamGunningham et al. 2003) or by the existence or not of a “social contract” involving shared expectations about what constitutes compliance established through repeated regulatory interaction and a sense of civic duty to comply (Reference MayMay 2005) in environmental, building safety, and boatyard regulation. ACCC cartel enforcement appears to be not (yet) supported by any implicit social contract nor by the terms of a firm's economic and social license to operate. Economic and social pressures on firms to comply with the prohibition against cartel conduct in Australia are probably not as strong and self-evident as economic and social pressures to comply with environmental and safety regulations have become over the last 20 years (Reference GunninghamGunningham et al. 2003). Nor does the ACCC engage in the type of repeated, reciprocal interactions with firms that Reference MayMay (2005) suggests are necessary for regulators and firms to negotiate shared expectations about compliance.
We might equally say that regulatory enforcement agencies themselves operate under the terms of their social, political, and regulatory licenses.” As Ayres and Braithwaite argue, regulatory responses to wrongdoing must be (and be seen to be) morally and politically acceptable (1992:36). Regulators only come to be “granted the credibility of being benign big guns” because of their “political power” (Reference Ayres and BraithwaiteAyres & Braithwaite 1992:45). Ayres and Braithwaite suggest that we can only understand how responsive regulation might work by understanding how regulatory agencies construct or fail to construct “appearances of invincibility by displaying their firepower in strategic contests,” how they “handle the crucial tests of their strength that occur at watersheds in their history” (Reference Ayres and BraithwaiteAyres & Braithwaite 1992:46). The compliance trap suggests that regulatory enforcement agencies may do all they can to display their firepower, but if they do not receive external political support, they will be left without “license” to regulate effectively.
The usual scholarly critique of responsive regulation is that by advocating cooperative compliance as the first preferred enforcement strategy, it fails to treat business offenses as “real” crime subject to “adversarial, punitive and interventionist forms of regulation” (Reference TombsTombs 2002:126; see also Reference AbelAbel 1981; Reference GlasbeekGlasbeek 2002; Reference Pearce and TombsPearce & Tombs 1997). This article argues that on the whole the ACCC did not fall into this trap between mid-1997 and mid-2003. Rather, it took responsive regulation seriously enough to settle most matters cooperatively, while simultaneously taking a tough stand on the immorality of cartel conduct and the need for wide-ranging admissions of liability and correction and prevention of breaches by business offenders and their managers. Settlements of enforcement action can often avoid conflict rather than resolve it. But this does not disprove the potency of responsive regulation and restorative justice theory as a guide for regulatory enforcement. It should remind us that responsive regulation scholarship and practice must include consideration of substantive legitimacy and morality, not just procedural fairness and cooperation. This suggests two specific practical lessons for how regulatory enforcement agencies should implement responsive regulation strategies.
First, regulators should not settle enforcement matters with “for the purposes of proceedings” admissions. If business offenders settle a matter with admissions and later renege on those admissions by stating that they believe they were not legally or morally liable for the conduct, then the regulator should confront them about their denials, making the conflict explicit and able to be resolved one way or another. “For the purposes of proceedings” admissions that are later revoked for other purposes are likely to be a particular problem in a regulatory regime such as Australia's, where cartel conduct is a civil penalty offense and most matters are settled privately. However, the same problem can still arise under a criminal penalty regime, such as in the United States, because of the availability of nolo contendere pleas in which the offender submits a guilty plea without admitting guilt (see Reference BibasBibas 2003),Footnote 19 and the extensive use of consent decrees to settle matters (Reference BlizzardBlizzard 1998; Reference McDavidMcDavid et al. 1983). Regulators should only settle where offenders show remorse, apologize, and make a commitment to repair the harm caused by their misconduct; that is where “restorative justice” is demonstrated in substance (Reference BraithwaiteJ. Braithwaite 2002).
Restorative justice theory suggests that this is unlikely to be achieved where regulatory staff lecture and moralize—sincere and substantive moral commitments occur where offenders find remorse for themselves. Restorative justice processes seek to overcome offenders' rationalizations, denials, and neutralizations of their wrongdoing by making them meet victims and be confronted with the details of how the misconduct has harmed them. In some cases, the ACCC has been able to use a deeper restorative dialogue of this kind to dissolve the compliance trap dilemma. For example, in a famous case of misleading and deceptive conduct in the sale of insurance to uneducated indigenous people, senior company executives traveled to remote parts of northern Australia to meet with the victims of their agents' scams in physically and emotionally uncomfortable circumstances, called a media conference to publicly apologize, and voluntarily chose to generously compensate their victims and donate money to set up an Aboriginal Consumer Education Fund (see Reference BraithwaiteJ. Braithwaite 2002:22–4; Reference ParkerParker 2004:221–3). There could be no denial of substantive (business) responsibility or (ACCC enforcement action) legitimacy after such a process.
Similarly, in the field of ordinary criminal prosecutions, Reference JohnsonJohnson (2002:179–92) has shown the way in which Japanese prosecutors prioritize offender remorse as a factor in the prosecution decisionmaking process, while it is irrelevant to U.S. prosecutors. John Reference BraithwaiteBraithwaite (1989:164–5) argues that Western justice systems often “crush” possibilities for remorse that would make regulation more effective, while the Japanese regard for remorse makes their regulatory systems more effective.
Second, the ACCC's cartel enforcement experience affirms that enforcement is more successful in promoting compliance at the bottom of the pyramid the greater the range of gradated sanctions available toward the tip of the pyramid. Generally that means that regulators should have a full range of sanctions, including high penalties and criminal sanctions, available to them. The availability of criminal law and high penalties are important not so much because of their deterrent impact but because of their moral impact in legitimating the substantive content of the message at the bottom of the pyramid. This is not to say that procedural fairness is less important for the legitimacy of regulators. It is merely to demonstrate the truth of the responsive regulation insight that it is the range of different enforcement tools and their messages that is significant in promoting compliance.
Reference BraithwaiteJohn Braithwaite (2002:30) puts a rider on his theory of responsive regulation that regulators must be enforcing a “just” law—otherwise most activity at the bottom of the pyramid will need to be dialogue about whether the law is just or not. Presumably, he means not only that the law must be just, but that it must be recognized as just (or morally appropriate and democratically supported), in order for the pyramid of responsive regulation to promote compliance rather than conflict. This rider should be printed in capital letters on every page of every scholarly or policy-oriented discussion of responsive business regulation. The type of criticism and conflict suffered by the ACCC is a symptom of a socio-polity that does not take business crime seriously enough to treat it as crime. In the absence of a full arsenal of enforcement tools, and political and cultural support for the law that they are required to enforce, business regulators are being given an impossible task to promote compliance—even if they are skillful enough to overcome the deterrence trap, they will fall into the compliance trap, which can only be resolved politically.
Appendix: Data Collection
The empirical research reported here is part of a larger study, the ACCC Enforcement and Compliance Project, which uses qualitative and quantitative methods to identify and evaluate the impact of the mix of techniques used by the ACCC in both competition and consumer protection enforcement. The data used in this article come from two phases of qualitative data collection within the larger project.
First, interviews were conducted around Australia with (1) 37 ACCC staff (including some former senior officers and commissioners), and (2) 21 trade practices lawyers and other advisers to gather examples of key cases of ACCC compliance and enforcement activity and general information on the nature of ACCC enforcement activity and its impact on compliance. An analysis of the frequency and outcomes of different types of ACCC enforcement activity was also made using ACCC annual reports and the data from interviews (see Reference Parker and StepanenkoParker & Stepanenko 2003.)
Second, 15 ACCC enforcement matters were examined in more detail. This involved a further 25 focused interviews with people in the businesses or industries affected by ACCC enforcement action in these cases and analysis of data obtained via contemporaneous newspaper reports and other documentary sources. Among these 15 cases were four major Australian price-fixing and cartel enforcement cases. Each of these cases was identified as a particularly significant and successful cartel enforcement case in preliminary interviews with ACCC staff.Footnote 20 A brief account of each is given in Table 1.
The four case studies formed the basis for an analysis of the compliance impact of ACCC enforcement activity in cartel cases that was then tested, supplemented, and expanded by analysis of all 83 interviews (using the Reference Glaser and StraussGlaser & Strauss 1967 constant comparative method) insofar as they were relevant to the issues raised by cartel enforcement. This led to a fifth matter, the Oil Raids case, being investigated in the same detail as the other four cases. The full descriptive analysis of these data can be found in Reference ParkerParker et alia (2004). This article proposes further explanation and analysis than is provided in that report. References to Reference ParkerParker et alia (2004) are included throughout this article wherever further supporting interview quotations and empirical evidence can be found in that earlier report.
The main aim of the interviews and other data collection was to establish in as much detail as possible (1) what had occurred in the course of the ACCC's investigation and enforcement of misconduct, what investigative and enforcement techniques had been used, and how regulator and business people had interacted, and (2) the response of the individuals, businesses, related industry associations, and any other parties involved in the enforcement process, as well as the response of business bystanders and industry more generally. Evidence of the compliance impact of enforcement action was sought in a “grounded” way by asking the interviewees (regulators, lawyers, and businesspeople) themselves what they saw as the impact of the enforcement matters in which they had been personally involved (see Reference Parker and StepanenkoParker & Stepanenko 2003:30–4 for a description of what this involved). All interviews were conducted by the author (many with the assistance of Natalie Stepanenko, a research assistant), except for seven interviews that were conducted by John Braithwaite, a collaborator on the larger project. Interviews were not taped, as it was believed that this would lead to a more candid discussion of sensitive matters. Copious notes were taken during the interviews, and then they were typed up as quickly as possible after the interview in order to include as much verbatim material as possible. The data collection did not involve direct observation of interactions between regulators and business. Nevertheless, the five cases chosen for detailed study were chosen partly because we had been able to establish in a reasonable degree of detail what had actually occurred via interviews with at least one participant from both the ACCC and business sides in each case.
The quotations in the text of this article, unless otherwise attributed, are from the interviews with ACCC staff, business lawyers, and businesspeople described above. The author's code numbers for the interviewees have been retained so that readers can see to what extent the quotations are from different people.
