Written by Robert Garofano in October, 2007
A $40 million fine looks to be imposed on one of Australia’s top five richest men (“the rich man”), for price fixing.
The media has been quick to describe this penalty as “the highest fee ever paid by an Australian company” (Schwab, 10 October 2007) while Victorian Premier John Brumby has claimed the penalty to be “very heavy”.
Although it may be the highest fine ever imposed on an Australian company, it may not pose as much of a financial threat to the rich man, as some are making it out to be.
The rich man is believed to be worth a conservative $5.4 billion (BRW). Thus, a $40 million fine represents 0.75% of his net worth.
For the purposes of comparison, consider the prosecution brought against another person for his involvement in several cases of insider trading. A fine of $130,000 was imposed on this person, representing 0.45% of his net worth.
Further, the Australian Bureau of Statistics states the “average Australian” below the age of 35 has a net worth of $166,600. If, for example, a 30-year-old “average Australian” was caught travelling at 62km/h in a 50km/h zone, they would receive a fine of approximately $250, representing 0.15% of their net worth.
On a relative basis, the rich man’s fine for price fixing would have as much bearing on a billionaire as a “handful of speeding fines” would on a 30-year-old “average Australian” (Schwab, 10 October 2007).
Notwithstanding the above, and in the interest of fairness, the penalties faced by the rich man and the inside trader, along with alleged offenders in general, should not be directly influenced by the net worth of same. Instead, consideration of the damage caused by the breach of the law should play an important part in deciding on the intensity of the prosecution (Schwab, 10 October 2007).
Despite being an Australian record, a $40 million fine also seems little when compared with the penalties imposed overseas. Consider these examples:
1996: Archer Daniels Midland (Agribusiness conglomerate) fined $US400 million for price fixing;
1997: Haarman and Reimer Corp agreed to a $US50 million fine to settle a claim for price-fixing;
1999: F. Hoffmann-La Roche Ltd fined US$500 million for its involvement in a price fixing conspiracy which concerned 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” (Schwab, 10 October 2007);
2003: WorldCom fined US$750 million for accounting fraud to the effect of US$11 billion; and
2004: Microsoft fined US$613 million for abuse of market power (Schwab, 10 October 2007).