This note examines the Fraud Act 2006 (“FA”) from a competition law perspective. It seeks to assess what impact the FA could have on competition law in the UK and, in particular, how it relates to existing legislation dealing with cartel activity and the common law offence of conspiracy to defraud.
The FA came into force on the 15th January 2007. By introducing a general offence of “fraud”, the aim was to simplify the law by replacing the various deception offences under the Theft Act. This new general offence of fraud is set out in section 1 of the FA. It can be committed in three ways:
- Fraud by false representation;
- Fraud by failing to disclose information;
- Fraud by abuse of position.
A person who is guilty of fraud is liable on conviction on indictment to imprisonment for a term not exceeding 10 years or to a fine (or both).
Of the three ways that the general offence of fraud can be committed under the FA, perhaps the most applicable to anti-competitive activities is fraud by abuse of position.
Fraud by abuse of position
Under section 4 of the FA a person commits the offence of fraud by abuse of position if he:
- occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,
- dishonestly abuses that position, and
- in so doing, intends to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss.
The relationship between the directors of a company and its shareholders would seem to be covered by subsection (a) above. The term “abuse”, under subsection (b), has deliberately not been defined in the FA to ensure that it covers a broad range of activities. It seems highly likely that cartel behaviour would be deemed to be a dishonest abuse of the position of a director. Indeed, in its response to a consultation on the final report of the Attorney General’s fraud review, the OFT stated that it considered cartels to be a serious form of fraud. It is important to note that under subsection (c) above, a “gain” includes a gain by keeping what one already has, as well as a gain by getting what one does not have. In theory, therefore, a director of a company involved in cartel activities could be prosecuted under the FA. If found guilty, he would be liable to imprisonment for a maximum term of 10 years or to a fine, or to both. Under the Enterprise Act 2002 (“EA”), a person found guilty of a cartel offence is liable on conviction on indictment to imprisonment for a term not exceeding five years or to a fine, or to both. The FA therefore provides for a harsher criminal sanction than the EA.
The Fraud Act, the Enterprise Act and the common law offence of conspiracy to defraud However, whilst the FA might provide for tougher sanctions, that does not necessarily make it the most suitable or likely means of prosecution for cartel activity.
The EA introduced a stand-alone criminal offence relating to the pursuit of cartel conduct. It is a tightly defined statutory offence which also provides for a leniency regime. It is, therefore, a piece of legislation which is highly specific as to subject matter, as to who can be prosecuted and as to the relevant penalties. In many circumstances where an individual is found to be involved in potential cartel activities, therefore, it will be more appropriate to www.reedsmith.com base a criminal prosecution on the provisions of the EA rather than the FA.
Notwithstanding the above, it should be noted that the cartel offence under the EA only applies to horizontal agreements. In relation to a price-fixing arrangement, for example, for the offence under the EA to be applicable, the relevant undertakings must operate at the same level of the supply or production chain. In addition, there can be no criminal offence under the EA if the arrangement in question only requires one undertaking to fix prices or limit production or supply. Arrangements to carry out such prohibited activities must be reciprocal. The FA, however, is not restricted in scope to horizontal agreements, nor does it contain the same requirement for reciprocity. Potentially, therefore, it could be used to prosecute those cartel activities which do not fall within the ambit of the EA.
In addition to both the EA and the FA, the case of Ian Norris has shown that the common law offence of conspiracy to defraud is also potentially applicable to charges of dishonest pricefixing and cartel activity (although it should be noted that the case may go on appeal to the House of Lords). The FA has not abolished the common law offence of conspiracy to defraud. The fact that there is an overlap between the statutory and common law offences does not negate the fact that the common law could also be used to prosecute cartel activity1. Such situations, where offences are potentially covered both by statute and common law, are dealt with by the Interpretation Act 1998, which states that the offender is liable to be prosecuted under either statute or common law, but not under both for the same offence. Should a fraudulent cartel be deemed to be outside the scope of the EA, therefore, there is no reason why the common law would not be applicable.
Clearly, until the FA has been in force long enough to be properly tested by the courts, it will not be possible to reach any firm conclusions as to its potential use in a competition law context. However, although the general offence of fraud under the FA would seem to potentially cover cartel activity, it seems likely that both the cartel offence as provided for under the EA and the common law offence of conspiracy to defraud will remain the more appropriate and potentially effective means of prosecution of such activity.