ANZ Bank facing criminal cartel prosecution

ANZ Bank, Deutsche Bank and Citigroup expect to face criminal charges over alleged cartel behaviour in a $2.5 billion share sale, in an explosive development triggered by an investigation by the competition watchdog.

In another blow to the banking industry's battered reputation, ANZ on Friday revealed the Commonwealth Director of Public Prosecutions planned to take action against it for being "knowingly concerned in alleged cartel conduct" in relation to the share offer to institutional investors in August 2015.

ANZ on Friday said it had been told late on Thursday about the action, which it would defend.Credit: Wayne Taylor

ANZ said it believed it had acted in accordance with the law and intended to defend itself.

Global banking giants Deutsche Bank and Citigroup, which acted as ANZ's investment banks in the capital raising, also said they would defend the criminal charges "vigorously".

The Australian Competition and Consumer Commission confirmed the CDPP was expected to lay criminal charges against the three banks and "a number of other individuals".

“The charges will involve alleged cartel arrangements relating to trading in ANZ shares following an ANZ institutional share placement in August 2015,” ACCC chairman Rod Sims said. “It will be alleged that ANZ and the individuals were knowingly concerned in some or all of the conduct.”

Companies face maximum penalties of 10 per cent of annual turnover, or three times the benefit gained from criminal cartel behaviour, while individuals can face up to 10 years' jail if they are found guilty.

The allegations relate to the role played by investment banks as lead managers or "underwriters" - where a bank or stockbroker guarantees some proportion of shares being issued to investors will be bought at a certain price.

ANZ on Friday said the joint lead managers on this deal - Citi, Deutsche Bank and JPMorgan - took up about 25.5 million ANZ shares, which was equal to 0.91 per cent of ANZ shares on issue at that time. A JPMorgan spokesman declined to comment.

ANZ said the legal action related to an "arrangement or understanding allegedly made between the joint lead managers" over the supply of ANZ shares.

"ANZ understands the CDPP also intends to bring proceedings against ANZ group treasurer Rick Moscati," the bank said in a statement.

ANZ chief risk officer Kevin Corbally said: “We believe ANZ acted in accordance with the law in relation to the placement and on that basis the bank intends to defend both the company and our employee.”

The bank's shares slumped 1.5 per cent to $26.80

Treasurer Scott Morrison said he had been briefed on the matter and the allegations would be tested through the proper processes.

"These are very serious matters, and it's the product of an ACCC investigation, but given the nature of that and where it stands, it would be inappropriate for me to offer comment than that," Mr Morrison said in Sydney.

In January, Mr Sims said 2018 would be a "very big turning point" for cartel enforcement, after 2010 laws made cartel conduct a criminal offence.

Citigroup said the ACCC was alleging the joint underwriters reached an "understanding" over the disposal of less than 1 per cent of ANZ's shares.

"Any such allegation should be considered in the context that ANZ’s shares are bought and sold freely by thousands of shareholders in volumes representing hundreds of millions of dollars every business day, including for the period in question," Citi said.

Citi said its staff had acted with "integrity" and the action was about a "highly technical" part of the law that had not previously been addressed in guidance notes.

However, Caron Beaton-Wells, a professor of law at the University of Melbourne, said although the facts in this case were not yet clear, it it was unlikely the ACCC and CDPP would launch criminal action as a test case.

Last year, the ACCC had its first successful prosecution under the criminal cartel provisions, which resulted in a fine of $25 million for Japanese shipping company Nippon Yusen Kabushiki Kaisha.

"We've just started to see criminal prosecutions for cartel conduct in the last 18 months," Professor Beaton-Wells said.

Shaw and Partners analyst Brett Le Mesurier said the slump in ANZ's share price on Friday showed investors were taking the allegations seriously. "It's a hint that investors are getting sick of these sorts of problems emerging in banks, and banks get marked down for it."

ANZ also said on Friday morning it was co-operating with an investigation by the Australian Securities and Investments Commission over whether ANZ's announcement at the completion of the raising should have said the joint lead managers took up about 25.5 million shares.

An ASIC spokesman confirmed the sharemarket regulator's involvement in aspects of the investigation, but declined to comment further.