The Competition and Markets Authority (CMA), the UK’s competition regulator, recently launched its “Cracking down on Cartels” social media and website campaign aimed at encouraging individuals to speak up on anti-competitive arrangements.

The campaign highlights that anyone who comes forward with information on a cartel that leads to a CMA investigation can receive a financial reward of up to £100,000. There are, however, a number of catches, not least that the whistleblower cannot be “directly involved” in the cartel. Persons or businesses directly involved in a cartel can instead apply to the regulator for leniency and potentially avoid substantial civil fines and criminal penalties – but only if they are the first to come forward about that cartel. If someone else has beaten them to the punch then all bets are off and the potential civil and criminal liability remains live. The CMA’s message for cartel participants is clear: seek leniency before someone else – whether a fellow participant or a cash-seeking informant – exposes you.

The European Commission, for its part, last week launched an “anonymous whistleblower” tool for individuals who want to expose a cross-border cartel but do not wish to identify themselves. The tool protects informant anonymity by way of an encrypted messaging system, run by a specialist intermediary, which removes any identifying metadata from the sender’s message (see here).

What is a cartel?

An illegal agreement, usually secret and often informal, where two or more businesses agree not to compete with each other. Cartels might involve, for example, agreeing to fix prices, restrict supply or collude on “bid-rigging” arrangements. The impact on customers, as well as competitors who act lawfully, can be very damaging. Prices may be kept artificially high, consumer choice can be reduced and product quality can suffer.

While cartels can operate in any industry (online as well as offline) and at any stage of the supply chain, they may arise more often in markets where there are few established competitors or where scope for differentiated quality or service is limited due to the similarity of the products.

What is the law?

Cartels are prohibited in the UK under Chapter 1 of the Competition Act 1998 and, if intra-EU competition is or may be affected, under Article 101 of the Treaty on the Functioning of the European Union. Businesses can be fined up to 10% of their worldwide turnover for involvement in a cartel, as well as suffering potentially significant reputational and brand damage.

In the UK it is also a criminal offence under the Enterprise Act 2002 for an individual to participate in certain types of cartel, with individuals facing unlimited fines and/or up to five years’ imprisonment. Company directors may also find themselves disqualified from acting as a director for up to 15 years.

Blowing the whistle on cartel activity

A cartel participant can, if they wish to come clean, apply to the CMA (or in EU cases the European Commission) for leniency. This is subject to meeting certain conditions. Significantly, the informant has to be the first participant to confess that cartel to the relevant regulator, and (usually) the regulator must not already be investigating it.

If these conditions are met, and as long as the leniency applicant co-operates with the subsequent investigation, it will receive total immunity from financial penalties, disqualification and criminal prosecution. That immunity from criminal prosecution extends to any of its co-operating current or former employees or directors, and the protection from director disqualification proceedings extends to all co-operating directors.

The CMA’s “cash for information” policy is not the same as leniency. It is a separate and discretionary scheme for individual whistleblowers – with clean hands – who provide information which exposes a cartel.

Can an individual involved in a cartel also pick up a financial reward?

Potentially. But only if their involvement in the cartel can be demonstrated to be “relatively peripheral”, such as where an employee was ordered to attend occasional cartel meetings but did not take an active part in cartel decision-making.

A real concern for businesses involved in cartel activity will be that an employee or director – with “relatively peripheral” involvement in the illicit conduct – blows the whistle directly and with full anonymity to the CMA, in the hope of receiving a reward. The CMA’s Informant Reward Policy is clear, however, that “ordinarily” the regulator does not consider that an individual informant granted immunity under the leniency program should also gain a financial reward.

Where individuals were more directly involved in the cartel, the risk to the business is that an individual makes their own leniency application in an attempt to receive immunity from criminal penalty or disqualification. In so doing they could deny the business, and its other employees and directors, from also receiving immunity. It is therefore vital for businesses to seek advice as soon as they discover potentially anti-competitive behaviour, and in particular to manage the process so that information is limited to those who need to know while at the same time keeping on board everyone whose co-operation will be needed to get the benefit of leniency.

Are there distinct issues in Scotland?

In Scotland, only the Lord Advocate, as head of the Crown Office and Procurator Fiscal Service (COPFS), can grant immunity from criminal prosecution. The CMA therefore does not have the authority to grant formal immunity against criminal prosecution for the cartel offence. However, a CMA recommendation to grant conditional criminal immunity will be given serious weight by the Lord Advocate in exercising his discretion to decide not to pursue a prosecution in Scotland.

The clock is ticking…

Whether you are a cartel member thinking about applying for leniency or an individual whistleblower seeking a cash reward, as with so many things in life (and in law) timing is everything. Delaying any confession of cartel involvement could allow another cartelist to steal ahead in the race for leniency. Leniency could also be denied, particularly in light of the CMA’s new campaign, by an individual whistleblower exposing the cartel ahead of you in return for financial reward.

The crosshairs on cartels are being levelled from all angles, increasing the risk that the activity will come to the attention of the CMA or the European Commission. This increased risk of exposure is another, somewhat weighty, factor for anyone involved in cartel activity to bear in mind when considering whether or not to seek leniency.

We can support clients with leniency applications, including making a ‘no names’ approach to the CMA or Commission to confirm whether an investigation is already underway, If not we can obtain a ‘marker’ confirming that our client is the first to apply for leniency, and so will receive immunity as long as they subsequently produce the required information on the cartel.

The CMA issued some £142million in fines last year for Competition Act breaches, having only fined an annual average of £22million for 2012-14. With its latest “Cracking down on Cartels” campaign coming amidst increasing enforcement action across the board, the CMA is leaving businesses in no doubt that anti-competitive conduct will be robustly investigated and enforced, including by taking action against individuals.