It’s widely expected that the Federal Court will next week agree to impose a $40 million fine on Visy, the company owned by Australia’s third richest man, Richard Pratt, for price fixing. While the press has been quick to point out that $40 million will be the highest fine ever paid by an Australian company, and Victorian premier John Brumby claimed that the penalty was “very heavy”, it’s worth considering exactly how harsh the proposed penalty is.
According to BRW, Pratt is believed to be worth around $5.4 billion (although that estimate is probably conservative given the private nature of Pratt’s businesses). If Pratt is fined $40 million that represents are 0.75% of his net worth. It should be remembered that Pratt did not confess his crimes until after years of costly investigations and well after his cartel partner, Amcor, fessed up to authorities. Further, Visy was fined $500,000 in 2004 for inducing a rival to not poach its customers, so it wasn’t the company’s first brush with the law.
As a comparison, Australia’s most recent celebrity crook, funnyman insider trader, Steve Vizard, was fined $130,000 for three instances of insider trading. Vizard, who recently sold his Toorak mansion for $18 million is probably worth in the vicinity of $30 million. Vizard, who is considered by many to have escaped too easily, received a penalty which was equivalent to around 0.45% of his wealth.
Or consider the “average Australian” under the age of 35, who according to the ABS has a net worth of $166,600. If the “average” Australian of that age drives a car at 62 km/h in a 50 km/h zone, they would receive a fine of approximately $250 – equivalent to 0.15% of their net worth.
Therefore, on a proportional basis, Pratt and Visy’s fine for admitting to price fixing over a number of years on a large scale has a similar effect on the billionaire as a handful of speeding fines would to a 28-year-old.
However, in fairness to Pratt, the net wealth of an alleged wrongdoer should have no direct bearing on the ultimate penalty. Rather, the sanctions faced by Visy should be determined with reference to the damage caused and conduct committed. It is therefore worth considering a few international comparisons, for while a $40 million fine would be an Australian record, it pales in comparison with the penalties doled out overseas.
In 1999, F. Hoffmann-La Roche Ltd (owned by pharmaceutical giant, Roche) agreed to pay US$500 million in fines after being caught in a vitamin-price fixing conspiracy (co-conspirator, BASF received a US$225 million fine). The Hoffman-La Roche fraud involved more than US$5 billion worth of commerce products. One would expect that the Visy/Amcor collusion would have been on a similar, if not greater scale.
In 1996, agribusiness conglomerate, Archer Daniels Midland, agreed to pay a US$100 million fine after being charged with price fixing in the lysine market. Archer Daniels later paid US$400 million to settle a related class settlement. Similarly, Haarman & Reimer Corp agreed to pay fines of US$50 million to settle a price-fixing claim relating to citric acid in 1997.
US Telecommunications company, WorldCom, was fined US$750 million in 2003 after the company was found guilty of an US$11 billion accounting fraud. Fellow Telco, Qwest, paid the US Securities and Exchange Commission US$250 million for accounting fraud. Meanwhile, Microsoft copped a US$613 million penalty from the European Union for abuse of market power in 2004 (the fine was upheld in September 2007 by Europe’s second highest-court).
Compared to overseas precedents, and Pratt’s net worth, negotiating a $40 million fine for being caught red handed in a multi-billion price fixing scam looks, despite John Brumby’s claims, to be one of Pratt’s most astute deals ever.