Watchdog must be brave even in aftermath of defeat

The incoming chair of the Australian Competition and Consumer Commission, Gina Cass-Gottlieb. Picture: NCA NewsWire / Gary Ramage

The collapse of the ANZ criminal cartel case is a black mark on ACCC chief Rod Sims’ reign and an even bigger one on Commonwealth Director of Public Prosecutions Sarah McNaughton, but defeat should not deter either agency from taking risks in future.

Regulators make mistakes and this case was demonstrably one.

There are errors made when cases are begun when they shouldn’t have been and when cases are not taken up when they should have.

The ANZ case falls in the first category, but from a public policy perspective the most heinous crime is the latter.

That is the clear view of Sims and his comrade, US Federal Trade Commission boss Lina Khan. The timing of the CDPP backflip was extraordinary – a day after Khan addressed the local market detailing her plans to step up ­prosecutions.

Sims, who addresses the National Press Club on February 23, finishes up at the end of March.

His place will be taken by lawyer Gina Cass-Gottlieb.

At a time when countries from China to South Korea to the US and Germany are ramping up antitrust measures, the federal government appears to be going the other way.

It has chosen a highly regarded practitioner with an as yet unknown view on the global movement and a muted public policy background to take Sims’ place, and did so seven months before he was due to leave.

This was not an accident

If you are Treasurer Josh Frydenberg you would rather an effective practitioner like ASIC’s Joe Longo or Cass-Gottlieb than table-thumping reformers like Alan Fels or Rod Sims in the chair.

Few in public life enjoy being publicly told what to do or when they are wrong, and certainly not Frydenberg. Maybe Cass-Gottlieb will take on a different hue when her time comes to take the job, but as things stand now the world is revving up antitrust and Australia stands in a vacuum.

The ANZ case centred on a ­failed $3bn equity raising in 2015 at $30.95 a share, with a shortfall of 31.5 per cent or $789.2m.

The case alleged ANZ and the float underwriters, including Deutsche and Citibank, colluded on agreeing on the price at which the shortfall could be sold to ensure there was minimal damage to ANZ’s stock price after the raising.

JPMorgan, advised at the time by Cass-Gottlieb, was worried it might have breached the law, so successfully sought immunity.

This was granted and after a year of investigation the case was launched by McNaughton’s CDPP.

With the benefit of hindsight the case should have been a civil action, which itself would have been revolutionary because rightly or wrongly the underwriters meeting to set process is standard practice in equity capital markets and indeed insolvency practice.

This doesn’t mean it is right or that the public is not the loser in this price setting, but a criminal case was high-risk and potentially career-ending for some of the people involved.

Unfortunately, Friday’s outcome doesn’t make it any easier for those involved, many of whom are highly regarded professionals.

The ACCC case was launched at a time when banks were political pariahs, which gave the CDPP and the ACCC some political cover.

Over the years the banks have at various times been convenient cans to kick down the hill, just as Telstra has, along with petrol companies, big retailers and now digital platforms.

Regulators walk a fine line in playing to the politics of the day and ultimately must make prosecution decisions based on a reasonable chance of success and public interest in taking the action.

The ANZ case failed the first test.

This is not to say there are not countless more actions to take, because a quick review of how you spend your life will reveal the vast majority of the services you get come from uncompetitive oligopolies, which explains why Australian productivity is going backwards.

Hope for reform

Amid a frankly disastrous week for the government politically, Treasurer Josh Frydenberg thankfully instigated a key plank of long-term economic planning with another five-year review for the Productivity Commission.

The review, he said, “will analyse Australia’s productivity performance and identify priority areas for reform, including data and digital innovation and workforce skills. It will also consider how the Covid-19 pandemic and our response have shaped Australia’s productivity challenges and opportunities.

“It will help identify opportunities to position Australia for the future, create jobs and lift wages over the long run.” Whether Frydenberg gets to make decisions on the report – due this time next year – obviously depends on who wins the May election. Hopefully whoever does performs better than former treasurer Scott Morrison.

In releasing the last PC review, Shifting the Dial, he delivered a typically brilliant policy speech followed by zero action putting the words into effect.

The report was different in focusing on the non-traded market – health, education and planning – which not only represent the fastest-growing sectors of the services-dominated economy but are also sectors over which federal and state governments have direct control.

That is, some work between the two can deliver policies which facilitate more efficient use of resources and in doing so unleash innovation in the economy.

The NSW government through its mooted switch from stamp duty to land taxes is the only jurisdiction to have actually gone close to delivering on the PC recommendations. The Feds under Morrison have talked big but produced doughnuts.

But then that is hardly new news.

It’s early days in the PC process but it is likely to branch a little wider than the last review, with some recommendations based on the market economy.

Reform is a poorly used term in Canberra, with some measures like infrastructure spending and tax cuts politically appealing but not groundbreaking in actually changing behaviour and resource allocation.

Frydenberg has delivered in other areas, like the digital economy, and from the perspective of the big end of town, groundbreaking insolvency laws that give company boards more power to work on corporate restructuring without handing the reins to a voluntary administrator.

The step towards debtor-in-possession rules allows boards time to make the necessary changes.

Others might say the board was the body that helped create the mess in the first place, but that depends on the facts of the case.

Suffice to say Senator Pauline Hanson’s welcome help in defeating Frydenberg’s ill-fated proxy adviser reforms said it all about the flawed process in which the changes were attempted: by regulation and not a formal parliamentary process.

The Treasurer has an ideological blind spot when it comes to industry super funds which is outdated and ignores the fact that industry funds now control the retirement savings system and in that role play a pivotal role in helping business thrive.

Frydenberg’s claim the proxy rules were all about transparency is true up to a point, but they were also a direct attack on the industry fund ACSI’s advisory role.

The Senate defeat was also a blow to ABL’s Jeremy Leibler, who along with the AICD and sections of the BCA were the only known proponents of the new controls suggested.

Ownership Matters led the campaign against the new regulations, based on facts which at least on this occasion proved unassailable.

That said, question is why Frydenberg wanted to destroy political capital on a clearly flawed idea and process.

The market has won a welcome reprieve.