BREAKING NEWS: Global car carrier K-line fined $23.4 million for criminal cartel offenses

It entered into a cartel with other shipping companies: Mitsui OSK; Toyofuji Shipping; Nissan Motor Car Carrier; and Wallenius Wilhelmsen Logistics. The cartel started at least as early as February 1997 but it ended in or about September 2012 after raids by the Japan Fair Trade Commission and the U.S. Department of Justice on the offices of several shipping companies.

Specifically, the cartel members would share actual and proposed freight rates with each other. They would also agree to freight rates and changes to freight rates. They would also submit, or decline to submit, tenders or bids in line with the agreements they had made to fix, control or maintain prices and to maintain existing market shares.

K-Line ultimately pleaded guilty to several instances between July 2009 and September 2012 for giving effect to price fixing on certain routes to Australia.

During the period, K-Line’s global share of capacity for ro-ro services was between 11.6 and 11.9 percent. Mitsui had between 12.1 percent and 14.1 percent. NYK had between 15.5 percent and 17.2 percent. Eukor had 10.9 percent and 11.6 percent and Wallenius Wilhelmsen had between 8.2 percent and 10.5 percent. Other car carriers had lower shares.

It was found as a fact that employees at varying levels of K-Line were aware of the cartel agreement. Some members of K-Line’s board of directors knew. Senior managers knew. Managers knew. Even junior employees knew as more senior managers would inform them. And junior employees would sometimes inform their superiors of the outcomes of discussions.

Employees at K-Line knew about competition (antitrust) law because the company provided training in it. Employees also sought to cover up their behavior.

“Reports were often marked with words to the effect of “Confidential. Dispose of after Reading.” Written records were marked in that way because of an awareness that those communications were most likely improper or illegal under competition law. It was the practice of the General Manager of the Car Carrier Business Group to delete and destroy documents which recorded communications with the other carriers,” the court found.

There was even a global marketing meeting where the Senior Managing Executive Officer instructed staff that communications with competitors should continue in a “careful manner” and should be limited to those at the General Manager level and above. However, the staff ignored that instruction.

After raids by the Japanese and U.S. authorities in 2012, Australia’s regulator, the Australian Competition and Consumer Commission (ACCC), began investigating into whether any criminal offenses had been committed in relation to Australia. The ACCC later brought criminal charges against Nippon Yusen Kabushiki Kaisha (JPX: 9101) and K-Line. NYK was subsequently found by the Federal Court of Australia to have derived revenues of A$54.9 million and profits of A$15.4 million over three years of offending from 2010 to 2012 when it shipped 69,348 new vehicles to Australia. NYK was fined A$25 million.

In fining K-Line A$35 million today, the Federal Court of Australia said, “it is important to reiterate that cartel conduct of the sort engaged in by K-Line warrants stern denunciation and condign punishment. It is inimical to and destructive of the competition that underpins Australia’s free market economy. It is ultimately detrimental to, or at least likely to be detrimental to, Australian businesses and consumers. The penalty imposed on K-Line should send a powerful message to multinational corporations that conduct business in Australia that anti-competitive conduct will not be tolerated and will be dealt with harshly. That is so even where, as here, the decisions and conduct are engaged in overseas and as part of a global cartel.”

On publication of the judgment today, the ACCC (Australia’s competition watchdog) welcomed the news.

“Cartel conduct, such as that engaged in by K-line, not only cheats consumers and other businesses through inflated prices and costs, but also restricts healthy economic growth and discourages innovation. This decision is a serious warning to businesses and will deter others seeking to join or start a cartel. Businesses should know that engaging in cartel conduct will result in ACCC scrutiny and result in potentially very serious consequences,” ACCC chairman Rod Sims said.

The ACCC’s investigation of other alleged cartel members continues.

Significant punishments have been imposed on the cartel and on K-Line around the world. K-line was fined approximately A$68.3 million by Japan in March 2014. In the U.S., K-Line was fined US$67.7 million for its anti-competitive behavior. Three K-Line employees were sentenced to jail; two to 18 months and one to 14 months. They were also each fined US$20,000. 

In the European Union, four ocean shipping car carriers were fined a total of A$619.9 million. K-Line was fined A$61.4 million. In South Korea, nine global shipping companies, including K-Line, were fined a total of A$47.68 million. 

In Chile, six shipping companies including Mitsui, K-Line, NYK, Eukor and two others are facing legal proceedings that have yet to be finalized. In China, K-Line was fined approximately A$5.1 million. In South Africa, K-Line has agreed to pay a cumulative penalty of A$9.71 million. In Mexico, K-Line and one of its subsidiaries have been fined A$8.38 million.