Following on from the criminal and civil enforcement by the Competition and Markets Authority (“CMA”) of the UK market-sharing cartel in the galvanised steel water storage tank industry (see our recent update in the July edition of Compliance Inform), the CMA has now published a speech by the Senior Director in its Cartels and Criminal Group, Mr Stephen Blake, to the Swedish Competition Authority in Stockholm, sending a clear message to businesses and their officers and directors across the UK economy – cartels and serious anti-competitive conduct carry severe penalties and may result in imprisonment!
CARTELS ARE A CRIME – THE CMA STRESSES THE ROLE OF THE CARTEL OFFENCE AS A KEY TOOL IN ENFORCEMENT
Mr Blake’s speech focused on the three prosecutions taken up by the CMA since the original inception of the offence in the Enterprise Act 2002. The water storage and marine hose cartel prosecutions have been the most significant and resulted in convictions, prison terms and director disqualifications. However, each conviction has followed a guilty plea by the defendant in question. All attempted prosecutions of those pleading not guilty have failed (somewhat embarrassingly, in the 2010 air passenger fuel surcharges case, because a technical error led to the very late discovery of a large body of evidence relating to a key witness, prompting the collapse of the trial). In particular, Mr Blake emphasised how the water storage tank case has demonstrated the need for the reform introduced by the Enterprise and Regulatory Reform Act 2013; namely, to remove the requirement for the CMA’s prosecution counsel to prove that the accused acted dishonestly (by the relevant legal standard) in entering into the arrangements alleged to have led to the commission of an offence.
Mr Blake stressed how the statutory offence, especially as amended, is designed to act as a strenuous deterrent to the highly damaging and iniquitous implications of cartel behaviour. The thinking behind this is that fining businesses, as the CMA does when it finds an infringement has taken place following a civil investigation, is not sufficient alone to warn directors, officers and other employees of offending companies against engaging in price-fixing, market allocation, collusive tendering and other forms of so-called ‘hard-core’ anti-competitive conduct which, to borrow the emotive phraseology of Mr Blake’s speech, “cheat” customers and clients of the affected goods and services out of the greater benefits proper competition in the marketplace ensures. It takes, he said, the threat of serious consequences for individuals from receiving a conviction, including potential imprisonment and severe detriment to career prospects, to counteract the (often short-term) incentives that possible collusion with competitors, however nefarious, can sometimes present.
Furthermore, the existence of the criminal cartel offence enables the CMA to bolster its civil leniency and immunity policy (whereby infringing businesses can escape or reduce their exposure to financial penalties by being the first to report a cartel and/or cooperating with the CMA’s uncovering of participation in it), with an equivalent policy allowing corporates and individuals to avoid criminal ramifications. This can act as a powerful incentive for cartel participants to ‘blow the whistle’ before others and thereby accelerate the reporting and, thus, cessation of cartel behaviour. By the same token, Mr Blake emphasised the importance of ensuring both immunity and leniency programmes sit beside one another, to prevent directors and offices potentially implicated in an anti-competitive practice being dis-incentivised from approving a whistleblowing report by the company to the CMA. These incentives for participants to report cartel conduct are integral to the CMA’s enforcement functions.
WARNING: CMA WILL TAKE OFFENCE – CMA INVESTIGATIVE ACTIVITIES AND CRIMINAL ENFORCEMENT TO STEP UP AS ‘DISHONESTY’ REQUIREMENT FALLS AWAY
Mr Blake has issued a very pertinent reminder to businesses and their advisors and, also, to individual directors and employees, that the removal of the dishonesty requirement will make it potentially much easier for the CMA to secure convictions. He explained how the difficulty of convicting under the original offence had been illustrated in the trials of those executives pleading not guilty as part of the water storage case. The jury could not be convinced that the defendants had acted “dishonestly” under the relevant legal test (being that their actions were dishonest by the standards of reasonable, honest men and that they knew what they doing was dishonest by those standards). In particular, Mr Blake highlighted arguments such as the executives being motivated by preserving the employment of their staff and their not benefiting personally from agreeing to allocate markets. With these difficulties in mind, he emphasised how significant a step forward it will be for the CMA not to have to prove this challenging element of its prosecution case in future, substantially increasing the risk of criminal conviction for company directors and officers going forward.
Importantly, also, Mr Blake recounted observations from the water storage case about potential issues with evidence from witnesses who had received immunity for “whistle-blowing” the cartel, vis-à-vis those who were, for instance, fellow suspected offenders. Without suggesting that the CMA might not continue to rely on such witnesses in future (since they undeniably remain key sources of evidence), he did emphasise that the CMA could not ultimately rely on leniency and immunity incentives alone to uncover cartels going forward, since there remained the need for potential whistle-blowers to at least sense a risk of detection of the cartels in which they are involved; otherwise, they would be minded not to come forward at all.
As a result, Mr Blake concluded by underlining the long-term need for the CMA to commit resource to exercising its own-initiative investigatory powers in gathering and acting on intelligence in and around affected markets and industries and taking up more criminal prosecutions on the back of this (he even highlighted the existence of the CMA’s dedicated cartels ‘hotline’ with a reward of up to £100,000 for informants!). This way, serious cartel and hard-core competition law infringements can be identified and penalised (including by way of directorship disqualifications, which Mr Blake also highlighted) without the need to enter into leniency and immunity arrangements.
For this reason, it is becoming more important than ever to think very seriously about Competition law compliance in all aspects of your business – prevention is better than cure!