On 1 April 2014, the Competition and Markets Authority (“CMA”) became the main UK competition authority, taking over the Office of Fair Trading’s (“OFT”) competition functions (including handling all of its active cartel offence investigations and prosecutions), as well as the responsibilities of the Competition Commission.
Shortly thereafter, on 29 April 2014, the CMA and the Serious Fraud Office (“SFO”), the UK’s lead agency for the investigation and prosecution of serious or complex fraud, published a Memorandum of Understanding (“MoU”). This MoU builds on an earlier MoU, created shortly after the EA02 entered into force, and lays out the basis on which the CMA and the SFO will co-operate in the investigation and/or prosecution of individuals in respect of the criminal cartel offence, established by Section 188 of the Enterprise Act 2002 (“EAO2”), where serious or complex fraud is suspected, including price-fixing, limitation of production or supply, market-sharing and bid-rigging. The cartel offence no longer requires the presence of dishonest intent. However, it will not have been committed where the collaborative arrangements were made public or the relevant customer was informed.
Under the MoU structures and processes have been set up that will not only force the agencies to discuss cases at an early stage but also to share information and intelligence more routinely. The implications arising from this are that there will be a much greater level of co-operation between the two agencies than ever before and an increased likelihood of criminal enforcement of cartel matters in the UK.
Co-operation under the MOU
The MoU sets out various aspects of future co-operation between the CMA and SFO, including:
- Intelligence and exchange of information: “The Gateways”
Paragraph 4 of the MoU outlines the statutory “gateways” under which both the CMA and the SFO are allowed to supply and share information with each other. The CMA is governed by Part 9 of the EAO2, whilst the SFO is governed by Section 3(5) of the Criminal Justice Act 1987 (“CJA”).
Under Part 9 of the EAO2, the disclosure of “specified information” (including information about individuals or businesses that an authority such as the CMA may come across whilst performing its statutory functions) is prohibited, except in certain circumstances. Under Section 242 of the EA02, the CMA is allowed to disclose such specified information to the SFO in three circumstances:
- In connection with the investigation of any criminal offence in any part of the UK.
- For the purpose of criminal proceedings in any part of the UK.
- For the purpose of any decision whether to start or close any such investigation or proceedings.
Furthermore the CMA also needs to ensure that factors relevant to disclosure of specified information have been considered and whether the making of such disclosure is proportionate to what is sought to be achieved by it.
Under section 3(5) of the CJA the SFO is allowed to disclose information to other Government departments and authorities, including the CMA, for the purpose of prosecution in England, Wales, Northern Ireland or elsewhere, or to assist any authority to discharge its functions specified in an order made by the Secretary of State. It is interesting to note that the SFO cannot share information if it was obtained under an agreement which “restricts the disclosure of the information supplied” – for example any material obtained voluntarily from an individual or a company under a provision specifically stating that it not be shared or disclosed, which was agreed to by the SFO, would prevent any subsequent onward disclosure to the CMA.
As such the statutory thresholds for the sharing of information and intelligence are surprisingly low. To date these have not been used as effectively as they could, evidenced by the paucity of cartel prosecutions by the SFO. The remainder of the MoU sets out to remedy this by creating processes to facilitate such improved sharing.
- Intelligence and exchange of information: The new processes
The MoU sets out a number of practical measures that will be put into place so as to facilitate the flow of information between the two departments, which include:
- The CMA appointing a “single point of contact” (“SPOC”), a nominated senior officer and deputy, to liaise with the SFO. The SPOC’s duties will include ensuring that the information/intelligence that passes between the two departments complies with all necessary provisions of Part 9 of the EAO2. Likewise the SFO will have a nominated liaison officer, either from the SFO’s Intelligence Unit or from the investigation or prosecution team.
- The SFO is required to contact the CMA as soon as practicable, when it receives evidence of activity that could involve criminal cartel activity. The SFO and CMA can then decide upon the proper course of action, having regard to their respective priorities and confidentiality requirements.
- Most importantly “In order to ensure effective working relationships, the nominated liaison officers of the SFO and the CMA will meet periodically in order to discuss cases of mutual interest and to discuss the progress of cases”. This provision sets up a mechanism by which both agencies will interact on a regular basis in order to become aware of and act upon any case of mutual interest. Of all the provisions within the MoU this one is the single most important as it will facilitate early notification of cases of interest and in all likelihood this will lead to greater co-operation and subsequently greater enforcement action taking place. Although this may not stop a repeat of the failed prosecution of 4 British Airways executives for cartel offences, it makes this much less likely.
- Dealing with initial enquiries and the practicalities arising
When the CMA receives information that criminal cartel activity may have occurred, if appropriate, the CMA’s Cartels and Criminal Enforcement Group (“CCEG”) will undertake any necessary initial criminal enquiries. Likewise if the SFO receives any information suggesting criminal cartel activity, prior to any referral from the CMA, then it must refer such information to the CMA.
Having made its initial enquiries, if the CMA considers that the case is likely to fall within the SFO’s acceptance criteria, involving serious or complex fraud, it can then refer the case to the SFO. The SFO’s director will then have 28 days to make a decision as to whether to accept the referral for investigation or ask the CMA to undertake further enquiries before making a decision.
If the SFO does accept the CMA’s referral, then a criminal case team will be formed, which can include assistance from the CMA and any relevant police force. Potentially problematic issues around costs have also been resolved, with the agreement that the SFO will fund all of the costs of the investigation, except for costs of the CMA’s staff.
- Parallel Investigations
If there are parallel investigations, the criminal being undertaken by the SFO and the regulatory route being taken by the CMA, the MoU states that “suitable procedures” will be adopted to ensure that both investigation teams maintain a dialogue to ensure that neither investigation is prejudiced – and no doubt to also ensure that relevant information and evidence is shared throughout both sets of investigations.
Likewise if the CMA becomes aware of an investigation by DG Comp, the EU competition authority, which may involve a potential cartel offence in the UK, involving serious or complex fraud, then it shall facilitate the co-ordination of these investigations with the SFO. This is an important development as it creates a mechanism by which prosecutors in the UK are to be informed more routinely of potentially relevant cartel investigations in Europe, which in turn may lead to greater co-operation and enforcement in the UK or between the UK and Europe.
- Leniency and No Action Letters
The CMA can offer leniency to undertakings that are prepared to confess their involvement in a cartel thereby granting either immunity from fines or reductions in the level of fine imposed. The CMA can also notify individuals in writing (‘a no-action letter’) that they will not be prosecuted for cartel activity. All decisions in relation to “leniency” and “no-action” letters are to remain with the CMA. However, if any such decision could impact on an SFO-led cartel investigation the CMA has undertaken to consult with the SFO. Likewise, if the SFO is taking the lead in a cartel investigation or prosecution and where it has agreed with an offending individual that they can enter into an “assisting offender agreement”, whereby credit is given to the offender for admitting guilt and assisting the authorities, the SFO will not revoke any such agreement for non-co-operation without first consulting with the CMA.
Even if the CMA has issued a no-action letter, this will not prevent prosecution for conduct which amounts to a separate or distinct offence, such as fraud or corruption. However, the SFO has agreed that if an individual has been granted a no-action letter in relation to particular cartel activity, the SFO will not subsequently attempt to prosecute that individual for a criminal offence which relates to the same cartel behaviour, in order to circumvent the effects of the no action letter.
- Implications going forward
Although to date the SFO and OFT have had limited impact in relation to criminal cartel enforcement, this MoU may herald a new dawn for the OFT’s successor the CMA.
In the recent past, the remoulded financial services regulator the FCA has begun to show its teeth and has been actively co-operating with the SFO, in particular in relation to the LIBOR investigation and prosecution. This MoU provides the opportunity for regular liaison between the SFO and CMA, for much greater co-operation and sharing of information as to cases of interest both in the UK and also those arising in Europe.
Recent statements by the CMA indicate that the criminal cartel division will have increased resources to take on such investigations and the SFO now has the facility to obtain “blockbuster funding” for significant cases. In all the circumstances this appears to highlight the prospects of much greater and far more effective pan-European and UK enforcement on the horizon.