Saturday, May 10, 2008

Bruce McCaffrey, who was formerly the vice-president in charge of freight operations in the United States for Australian flag carrier Qantas, has been sentenced to eight months imprisonment and fined US$21,000 by the US Department of Justice (DoJ) for his involvement in a major air cargo price fixing cartel.

McCaffrey is one of six past and present employees of the airline who have been charged over the arrangement, which is thought to have run for six years starting in 2000. He is also the first individual to be sentenced regarding the cartel. He, as well as Stephen Cleary, group general manager for freight in Sydney, Harold Pang, general manager for freight sales in Singapore, Peter Frampton, former group general manager for freight, John Cooper former general manager for freight sales and Desmond Church, a former freight employee, were all charged after being exempt from immunity granted in a plea bargain by Qantas in which the airline paid a US$61 million fine.

In Australia price fixing is not actually a criminal offense, so former head of freight Peter Frampton and three other staff members in Australia will not be extradited to face charges. Meanwhile, the Australian Competition and Consumer Commission is seeking admittances of guilt from airlines whose operations fall under its jurisdiction in exchange for lighter penalties. Qantas is amongst those airlines.

The cartel, which prevented competition in air freight shipments rates, is said to involve almost thirty airlines. As well as Qantas, Japan Airlines, British Airways, Korean Air and Lufthansa have all had their involvement confirmed. Whistleblower Lufthansa, a German airline, was granted immunity from prosecution in exchange for exposing the operation. In August, British Airways and Korean Air pled guilty to their involvement and received fines of US$300 million each. Last month Japan Airlines also admitted to their role and paid a US$110 million fine. Amongst the others alleged to be involved are Air New Zealand, Singapore Airlines and Cathay Pacific. Hundreds of Australian businesses are involved in a class action suit against these seven airlines for AU$200 million that they believe was unfairly charged to them as a result of criminal activity.

McCarthy, who ran Qantas’s Australia-US cargo route for twenty years, entered a plea bargain with the authorities. Under the US Sherman Act he could have faced up to a US$1.06 million fine and up to 10 years imprisonment, but the DoJ says that the maximum fine could actually be double the gain from the offences committed or double the loss of those victimised if either were found to be higher than the normal maximum. According to the case, he was involved with “meetings, conversations and communications in the US and elsewhere to discuss the cargo rates to be charged on certain routes to and from the US”.

In light of the news, shares in Qantas fell 3ยข to AU$3.41.