Billions in fines, more to come – the cartel industry is booming
Cargo Archive Stories #217
Monday, 24 September 2012
A FEW years ago, when the first air cargo cartel pleas and judgments were signed off, many in the industry wondered where it would all end.
Some even suggested that the final reckoning might be decades away and that billions of dollars would change hands en route.
The doomsayers had the right of it. More than a decade into the blitz (although it didn’t bite heavily in Australia and New Zealand until the summer of 2007/2008), the judgments are still coming. Already, judges have levied more than A$1 billion in fines, court costs and civil settlements.
With many investigations still alive and more class actions currently in the system the total for firms in Australia, New Zealand, the United States, Canada and other jurisdictions might eventually reach A$5 billion.
Plus legal and staff utilisation costs.
No doubt about it, cartel actions are a growth industry.
In just one early-August ruling, a federal judge in New York awarded US$54.4 million in third tranche legal fees or a total of US$92.9 million to date.
Those ‘progress payments’ are for a case that has been running since 2006 and still appears to have a long life ahead of it.
The total to be paid by 17 airlines is around US$485 million. Eleven carriers are still facing action.
While these figures sound almost incredible, they are not perceived as such in the United States.
Judge Gleeson, widely respected for his ability to handle such complex litigation, is also presiding over another class action case that could see two credit card companies pay more than US$7 billion in a settlement, plus the plaintiffs’ legal fees which have been estimated by some observers at hundreds of millions – and counting.
More judgments
Meantime, as we have reported in our daily online news service, court settlements continue as regulatory authorities come to agreements with reluctant carriers.
In June, a judgment in Australia’s Federal Court set a new record for the Australian Competition and Consumer Commission (ACCC) when Malaysia Airlines Cargo was fined A$6 million for price fixing.
“This penalty sees the total penalties ordered against this international cartel increase to a record A$58 million,” said Rod Sims, the ACCC chairman. “These penalties are the highest generated by a single ACCC investigation.”
Malaysia Airlines Cargo also was directed to pay A$500,000 towards the ACCC’s costs.
Proceedings continue against several other carriers.
In Canada, the Competition Bureau’s anti-cartel blitz delivered another guilty plea, this time by Korean Air, which took a C$5.5 million hit. That brought the total from this action to around C$22 million.
Unlike civil class actions, these fines are paid into the public purse.
Korean Air and Emirates were the latest to admit liability in the New Zealand Commerce Commission’s carrier cartel investigation, in late July copping fines of NZ$3.5 and NZ$1.5 million respectively, plus costs.
“The commission is pleased to have settled with two more airlines in this significant case,” said Dr Mark Berry, the Commission chair. “We are focused on achieving the most effective resolution of cases. In this instance we have obtained admissions of liability and penalties that should be a deterrent to others who might breach the Commerce Act.”
The High Court rulings, based on agreements between the carriers and the commission, took the New Zealand blitz total (not including the separate freight forwarder action) to more than NZ$21 million.
The remaining carriers, as we have outlined in earlier reports, have resisted plea-bargaining and are strenuously defending their position. The next stage of what has already proved to be a complicated case will be heard by the High Court in March 2013.
With potential appeals likely up to Supreme Court level, a final resolution could be several years away.
Defendant numbers have dwindled slightly. Prior to Korean Air, Japan Airlines also backed down and in late June was fined NZ$2.275 million and costs.
Also proceeding is the Commerce Commission’s case against Kuehne+Nagel International, following a Court of Appeal ruling that the High Court has jurisdiction to hear it. The forwarder had argued that it was a Swiss holding company without involvement in the operation or management of freight forwarding.
The ruling has become something of a precedent for future action in New Zealand against international companies.
All other defendants in this case have settled, incurring penalties of NZ$8.85 million in total.
While little has been reported about action elsewhere involving freight forwarders, anti-cartel action in the United States has contributed to the outflow of funds from our industry.
In fiscal year 2011, for instance, the US Department of Justice shepherded deals through the courts involving US$48.5 million in fines.
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Billions in fines, more to come – the cartel industry is booming
Cargo Archive Stories #217
Monday, 24 September 2012
A FEW years ago, when the first air cargo cartel pleas and judgments were signed off, many in the industry wondered where it would all end.
Some even suggested that the final reckoning might be decades away and that billions of dollars would change hands en route.
The doomsayers had the right of it. More than a decade into the blitz (although it didn’t bite heavily in Australia and New Zealand until the summer of 2007/2008), the judgments are still coming. Already, judges have levied more than A$1 billion in fines, court costs and civil settlements.
With many investigations still alive and more class actions currently in the system the total for firms in Australia, New Zealand, the United States, Canada and other jurisdictions might eventually reach A$5 billion.
Plus legal and staff utilisation costs.
No doubt about it, cartel actions are a growth industry.
In just one early-August ruling, a federal judge in New York awarded US$54.4 million in third tranche legal fees or a total of US$92.9 million to date.
Those ‘progress payments’ are for a case that has been running since 2006 and still appears to have a long life ahead of it.
The total to be paid by 17 airlines is around US$485 million. Eleven carriers are still facing action.
While these figures sound almost incredible, they are not perceived as such in the United States.
Judge Gleeson, widely respected for his ability to handle such complex litigation, is also presiding over another class action case that could see two credit card companies pay more than US$7 billion in a settlement, plus the plaintiffs’ legal fees which have been estimated by some observers at hundreds of millions – and counting.
More judgments
Meantime, as we have reported in our daily online news service, court settlements continue as regulatory authorities come to agreements with reluctant carriers.
In June, a judgment in Australia’s Federal Court set a new record for the Australian Competition and Consumer Commission (ACCC) when Malaysia Airlines Cargo was fined A$6 million for price fixing.
“This penalty sees the total penalties ordered against this international cartel increase to a record A$58 million,” said Rod Sims, the ACCC chairman. “These penalties are the highest generated by a single ACCC investigation.”
Malaysia Airlines Cargo also was directed to pay A$500,000 towards the ACCC’s costs.
Proceedings continue against several other carriers.
In Canada, the Competition Bureau’s anti-cartel blitz delivered another guilty plea, this time by Korean Air, which took a C$5.5 million hit. That brought the total from this action to around C$22 million.
Unlike civil class actions, these fines are paid into the public purse.
Korean Air and Emirates were the latest to admit liability in the New Zealand Commerce Commission’s carrier cartel investigation, in late July copping fines of NZ$3.5 and NZ$1.5 million respectively, plus costs.
“The commission is pleased to have settled with two more airlines in this significant case,” said Dr Mark Berry, the Commission chair. “We are focused on achieving the most effective resolution of cases. In this instance we have obtained admissions of liability and penalties that should be a deterrent to others who might breach the Commerce Act.”
The High Court rulings, based on agreements between the carriers and the commission, took the New Zealand blitz total (not including the separate freight forwarder action) to more than NZ$21 million.
The remaining carriers, as we have outlined in earlier reports, have resisted plea-bargaining and are strenuously defending their position. The next stage of what has already proved to be a complicated case will be heard by the High Court in March 2013.
With potential appeals likely up to Supreme Court level, a final resolution could be several years away.
Defendant numbers have dwindled slightly. Prior to Korean Air, Japan Airlines also backed down and in late June was fined NZ$2.275 million and costs.
Also proceeding is the Commerce Commission’s case against Kuehne+Nagel International, following a Court of Appeal ruling that the High Court has jurisdiction to hear it. The forwarder had argued that it was a Swiss holding company without involvement in the operation or management of freight forwarding.
The ruling has become something of a precedent for future action in New Zealand against international companies.
All other defendants in this case have settled, incurring penalties of NZ$8.85 million in total.
While little has been reported about action elsewhere involving freight forwarders, anti-cartel action in the United States has contributed to the outflow of funds from our industry.
In fiscal year 2011, for instance, the US Department of Justice shepherded deals through the courts involving US$48.5 million in fines.
