The situation: Global Pharma Cartel

• On 29 November 2022, the Federal Court of Australia handed down ~$2 million in fines to Alkaloids of Australia Pty Ltd (Alkaloids) and sentenced its former export manager, Christopher Kenneth Joyce (Joyce), to 32 months imprisonment to be served by way of intensive correction in the community. 
• As well as a custodial sentence, Joyce was sentenced to 400 hours of community service, fined $50,000 and disqualified from managing a company for five years.
• The sentences relate to an international cartel involving suppliers of the active pharmaceutical ingredient, scopolamine N-butylbromide (SNBB), which is used in anti-spasmodic drugs for the treatment of abdominal and other pain.
• The cartel involved several global suppliers.  Alkaloids was directly involved and Alkaloids manager, Joyce, was found to have been active in monitoring the cartel and forceful with other participants in advocating compliance with the arrangements. Joyce did so by, for example, having distributors report the prices quoted to them by Alkaloids’ competitors, and following up other cartel members via email when he suspected they had departed from the arrangements.
• Both Alkaloids and Joyce pleaded guilty in October and November 2021 to three criminal charges, involving two charges of giving effect to a cartel provision and one charge for attempting to make an agreement containing such a provision.  Joyce was the first individual to plead guilty to a criminal cartel offence under the Australian criminal cartel provisions.
• The decision follows less than three months after sentencing of four people in the Vina Money cartel, which involved price fixing in relation to money remittance. Vina Money was the first matter where individuals have been sentenced under the Australian criminal cartel provisions.

 Why is the Alkaloids prosecution significant?

The Federal Court’s sentencing decision is significant for several reasons:

• Alkaloids is the most significant successful criminal cartel prosecution by the ACCC in Australia to date and is notable because it involves international cartel conduct in the pharmaceutical industry.  The cartel is also being investigated by competition authorities in overseas jurisdictions, including Brazil and Switzerland.
• Following the unsuccessful, contested criminal cartel trial in Country Care and the discontinued proceedings in ANZ, the sanctions imposed by the Federal Court are a much-needed win for the Australian Competition and Consumer Commission (ACCC).  They demonstrate, perhaps, that “classic” and well-understood forms of cartel conduct can support a successful criminal prosecution under the Australian criminal cartel provisions.
• The case also provides an insight into the sentencing approach of the Federal Court in criminal cartel cases. In sentencing, her Honour Justice Abrahams emphasised the long-term nature of the conduct, the fact that it was deliberate, systematic, coordinated and covert and was motivated by financial gain for both Alkaloids and Joyce.
• Her Honour also commented on the importance of general deterrence in the context of cartel conduct which, like other white collar conduct, is difficult to successfully detect, investigate and prosecute. Her Honour treated general deterrence as a primary sentencing consideration.
• The sentencing of Joyce, in particular, reflects the most significant criminal sentence handed down for an individual to date in relation to criminal cartel conduct – comprising a combination of financial penalty, a custodial sentence, community service obligations and a disqualification from management.  The extended 5-year disqualification order has not been a penalty commonly sought in Australia by the ACCC (although it is frequently sought in the United Kingdom in enforcement matters) and it remains to be seen whether this indicates a change in approach for the ACCC when pursuing individuals in cartel matters.

The SNBB cartel

SNBB is an active pharmaceutical ingredient used in antispasmodic medications that treat abdominal pain, amongst other things. SNBB is manufactured from the alkaloid scopolamine, which is extracted from Duboisia plants which are native to Australia. Alkaloids is a supplier of SNBB, and the only known manufacturer in Australia, and generates its revenue from the sale of SNBB, Duboisia and another product, hyoscine hydrobromide.

Joyce is Alkaloids’s former export manager and was responsible for all aspects of the marketing and sale of SNBB, including setting the price at which it was sold. 

Alkaloids and Joyce engaged in cartel conduct over a period of almost a decade from 2009. During that time, Joyce met on several occasions with other global SNBB suppliers at industry conventions and private meetings in various locations around the world, including China, Spain and Switzerland. The conduct also involved emails and telephone calls in which Joyce policed and monitored other suppliers’ adherence to the cartel arrangements.

The relevant cartel arrangements included:

• fixing the price of SNBB at between USD1,500 and USD5,000 per kilogram;
• agreeing to acquire all Duboisia from a particular supplier (who was required to commit to not producing or growing an Duboisia on certain property); and
• attempting to fix the price of SNBB so that the price was inversely tiered based on the quantity to be supplied.

In evidence, Joyce argued that he was not aware that the conduct was unlawful at the time and only became aware of that fact in September 2019, when the ACCC raided his office.

In December 2020, following an investigation by the ACCC, the Commonwealth Director of Public Prosecutions (CDPP) filed criminal charges against Alkaloids and Joyce for cartel conduct relating to the supply of SNBB.  Alkaloids and Joyce were each charged with 33 criminal cartel offences involving allegations that Alkaloids, alongside other international suppliers of SNBB, made and gave effect to arrangements to fix prices, restrict supply, allocate markets and / or customers and rig bids in relation to the supply of SNBB to generic pharmaceutical manufacturers.

Those charges were restructured, as part of a plea deal and, over October and November 2021, Joyce and Alkaloids both pleaded guilty to three charges and also admitted to a further seven offences. 

On 29 November 2022, both Alkaloids and Joyce were convicted and sentenced. Alkaloids was fined almost $2 million in total, which comprised:

• $1.5 million for the first charge regarding price fixing;
• $375,000 for the second charge relating to the supply of Duboisia; and
• $112,500 for the third charge of attempting to establish a cartel.

Joyce received an aggregate sentence of 32 months imprisonment to be served by way of intensive correction in the community (an Intensive Corrections Order is a form of custodial sentence that allows a person to serve time in the community, under strict conditions).  Joyce was also sentenced to 400 hours of community service as a condition of the custodial sentence, fined $50,000 and was disqualified from managing corporations for the maximum period of five years (to November 2027).

The sentence handed down for Joyce was the most significant criminal sentence for an individual in relation to cartel conduct to date.  This reflects the dim view the Court took of Alkaloids and Joyce’s conduct, including that it was both systematic and covert.

Australia also appears to be the first of a number of international jurisdictions to finalise prosecution of the cartel, which involved conduct in a number of countries including China, Spain, and Switzerland. 

Implications of criminal cartel enforcement in Australia

Since the criminalisation of cartel conduct in 2009, the ACCC has had mixed results, with high profile losses in a jury trial (Country Care) and collapse of the ANZ prosecution. 

To date, five criminal cartel cases pursued by the ACCC have resulted in guilty pleas by defendants.

There are two instances (ANZ and CFMMEU) where prosecutions were set to be contested in a jury trial, but charges were withdrawn and proceedings discontinued, and one matter that proceeded to a jury trial that resulted in the defendants being acquitted (Country Care).

The ACCC and CDPP’s success in prosecuting Alkaloids and Joyce may therefore reflect the better prospects of prosecuting more traditional criminal cartel matters, especially where the facts appear clear and are sufficient to deliver early guilty pleas.

Mr Joyce’s sentencing also follows the recent sentencing of four people in relation to a money remittance cartel in September 2022, in the matter of Vina Money. In Vina Money, guilty pleas were obtained from four individuals as well as the corporate defendant, but a fifth individual pleaded not guilty and charges against him were subsequently withdrawn.  

However, the sentence for Joyce in this case was longer than any of those issued in Vina Money and also included other financial and non-pecuniary penalties that were not imposed in that case.  For example, Joyce was also disqualified from managing corporations for a substantial period. This is a penalty more often sought in the United Kingdom in civil trials and so the use of it in Alkaloids may signal that the ACCC will look to use them more when bringing actions against individuals in cartel matters.

Ultimately, despite the strong message sent by the sentences handed down for Alkaloids and Joyce, we are still yet to see success for the ACCC or CDPP in a contested criminal prosecution.  The challenges of bringing a complex cartel case before a jury which were exposed in the Country Care and ANZ prosecutions remain hurdles for the enforcers to overcome.