Out-Law Guide | 30 Mar 2005 | 2:59 pm | 5 min. read
While competition authorities around the world continue to impose increasingly heavy fines on businesses for infringing competition law, including the UK Competition and Markets Authority (CMA), the prospect of a fine has not always been a sufficient deterrent for individuals within the business to comply with the rules. The Enterprise Act 2002 (the Act), which came into force in June 2003, introduced tougher criminal sanctions to create a more powerful incentive for individuals themselves not to engage in cartel behaviour, as well as a number of other measures to reinforce the responsibility of individuals for compliance.
However, it proved difficult for the old competition authority, the OFT, to bring successful prosecutions over the 10 years since this legislation was introduced and on 1 April 2014, changes to the cartel offence were implemented which in principle should make it easier to take action against illegal conduct of this kind. Other changes to the UK competition law regime introduced on 1 April are also designed to strengthen the enforcement of competition law in the UK.
The United States has led the way in imprisoning executives convicted of fixing prices and participating in other hardcore anti-competitive conduct. Individuals face a maximum of ten years in prison and/or a $1 million fine. In Spring 2013, the US Department of Justice (DoJ) reported that for fiscal years 2010-2012, an average of 71 per cent of the individuals sentenced were sentenced to prison time and that the average prison term was almost 25 months. The vast majority of these sentences in recent years result from plea bargains. Also in 2012, the DoJ obtained its first trial conviction against foreign nationals for their participation in the LCD price-fixing cartel; two of them were sentenced to three years in prison.
In Ireland, cartels were first criminalised in 1996, and prison sentences of up to five years and fines of up to €5 million can be imposed on guilty individuals. In 2007, following an investigation by the Irish Competition Authority into the activities of the Citroën Dealers Association, the Director of Public Prosecutions (DPP) brought criminal charges against 14 of the Association's members. One of the members was convicted and given a 15 month prison sentence, suspended for five years and fined €80,000 for his involvement in the cartel. To date, 10 custodial sentences have been imposed. However, the Irish courts have not yet required any individual to actually serve time in prison for cartel offences; all custodial sentences have, to date, been suspended sentences.
Custodial sentences also have been imposed on individuals participating in cartels in other countries, for example Canada and Israel, and there is the risk of imprisonment in a number of other countries including Brazil, France, India, Japan, Korea, and Russia.
In the UK, the Act introduced the "cartel offence", whereby individuals who are involved in hardcore cartels may be liable to criminal sanctions, including imprisonment for up to five years and/or unlimited personal fines. The criminal sanctions under the Act apply only to those individuals who set up and maintain hardcore cartels i.e. agreements between competitors to fix prices, share markets, limit production, and rig bids (horizontal agreements). The offence is committed regardless of whether the agreement in question is implemented or not.
In December 2007, the OFT announced that three UK businessmen were charged in relation to their involvement in the global marine hose cartel. The three businessmen pleaded guilty and were sentenced to imprisonment for periods of between two and a half and three years each. They were also disqualified from acting as company directors for between five and seven years (see below).
More recently, four British Airways individuals were charged with cartel offences in connection with the OFT's investigation into price-fixing of fuel surcharges for long haul passenger flights. However, the trial collapsed when additional evidence was uncovered which ought to have been disclosed to the defence.
From 1 April 2014, the cartel offence was redefined such that, for agreements entered into or operating after that date, it is no longer necessary for the prosecution to prove that the individuals acted "dishonestly". However, to compensate for that broadening of the offence, the Act introduced a number of additional exclusions, as well as three defences which an individual can rely upon.
In addition to an exclusion for any agreement made to comply with a legal requirement, an individual does not commit the offence if customers or the tendering authority are given 'relevant information' in advance of agreeing to purchase or the bid being made, or such information is published before the arrangements are implemented. It is also a defence for an individual to show that he or she did not intend the nature of the agreement to be kept secret from customers or from the new Competition and Markets Authority ("CMA"). There is also a defence where the individual has taken reasonable steps to seek legal advice.
It remains to be seen whether these changes will have the desired effect of making it easier for the CMA to prosecute cartels, but more criminal investigations and prosecutions are expected. There are understood to be four criminal cases ongoing in the UK as at 1 April, although only two of these are in the public domain, one in relation to the market for water tanks and the other in the construction sector.
The Act added new provisions to the Company Directors Disqualification Act 1986 to permit the disqualification of directors where the company of which they are a director has breached competition law, and their conduct as a director makes them unfit to be involved in the management of a company. The OFT may seek disqualification (for a period of up to 15 years) where serious infringements of EU or UK competition law are established, not just for participation in hardcore cartels.
An application for a disqualification order may be made where the director's conduct contributed to the breach; he had reasonable grounds to suspect that the conduct of the undertaking constituted the breach and he took no steps to prevent it; and where he did not know but ought to have known that the conduct of the undertaking constituted the breach.
The Act encourages whistleblowers and those who report anti-competitive conduct may receive protection from prosecution. The CMA offers financial rewards of up to £100,000 (in exceptional circumstances) for information about cartel activity.
The Act introduced new procedures to empower consumer bodies to make claims on behalf of individuals who have suffered loss as a result of anti-competitive behaviour.
In January 2008, the high street chain JJB was ordered to pay compensation to people who were over-charged when they purchased certain replica football shirts between 2000 and 2001, after the consumer group, Which? launched an action on behalf of consumers. JJB had already been fined over £8 million by the OFT, but has agreed to pay a further £20 to every customer who joined the damages action, and £5 or £10 to any consumer who can produce evidence of having bought a shirt at the time of the anti-competitive behaviour.
There are proposals for new legislation at both EU and UK level designed to make access to redress for competition law infringements easier for individuals. These reforms, if implemented as currently proposed, are expected to lead to an increase in private litigation, as well as an increase in the amounts defendants will be liable to pay in damages.