Last week it was reported that the UK competition regime has seen the first successful prosecution for a criminal cartel offence in six years. At a hearing before the Southwark Crown Court on 17 June 2014, the court permitted reporting of the fact that Peter Snee had pleaded guilty (at an earlier hearing) to an offence under section 188 of the Enterprise Act 2002. This followed an announcement by the Office of Fair Trading (OFT) in January 2014 that it had charged an individual following an investigation in respect of the supply in the UK of galvanised steel tanks for water storage. The offence carries a penalty of up to five years in prison and/or an unlimited fine.
This is an important development for the new competition regulator, the Competition and Markets Authority (CMA), which took over from its predecessor on 1 April 2014. The OFT had very limited success with prosecutions, bringing only three in over a decade (including this most recent prosecution), and with no successful contested prosecutions.
The main reason given by the OFT for the lack of prosecutions being brought was the high bar imposed by the dishonesty requirement under section 188, albeit that this has never in fact been tested by the courts. This section required that an individual dishonestly agreed with one or more persons, that two or more undertakings would engage in specified prohibited cartel activity. Section 188(2) specified the prohibited activity as price fixing, market sharing, big rigging, and limiting output.
A significant change to the UK competition regime has been the removal of the dishonesty element of this offence. In force on 1 April 2014, section 47 of the Enterprise and Regulatory Reform Act 2013 (ERRA) amended section 188 to remove this requirement.
In response to concerns that the removal of ‘dishonesty’ would cause the offence to become unduly wide and in an attempt to soften its effect, the ERRA has introduced statutory exceptions to the offence, where customers are informed of the agreement or it is made public. In addition, three separate new defences have been introduced:
- Where there is no intention to conceal nature of arrangements from customers.
- Where there is no intention to conceal the nature of the arrangements from the CMA.
- Where the defendant, before making and/or implementing the agreement, took reasonable steps to ensure the arrangements were disclosed to professional legal advisors for the purposes of obtaining advice.
The ‘legal advice’ defence is an interesting one. Whilst it may appear an attractive prospect to individuals to be afforded this defence, it is not yet clear how this will work in practice. It is not clear, for example, whether the legal advice received would need to have been followed, how the accused would prove that advice had been obtained appropriately, and whether any waiver of privilege would be required.
The CMA has put out a clear message that it means business and will lead a more effective and robust approach to investigating and enforcing competition law breaches. Whilst the recent guilty plea was under the old law, and it remains to be seen what practical effect the new amendments will have on the enforcement of criminal cartel activity, it is nonetheless clear that these changes are likely to lead to a significant increase in cartel prosecutions over the next few years.Companies and individuals who find themselves considering agreements that could fall foul of this regime should take steps to disclose the arrangement in advance of any decision and implementation, and should obtain legal advice before doing so.