After some years of talking about the possibility of imprisonment in the UK for Competition Law infringement, it has finally happened. It was always a question of "when" and not "if", and finally in June, Southwark Crown Court sentenced three executives involved in the so-called marine hose cartel to between two and a half and three years' imprisonment. The individuals concerned were also disqualified from acting as UK company directors for between five and seven years and two of the individuals concerned were ordered to pay combined sums of over £1m in relation to their personal gains from the cartel, or face additional prison terms. These were the first convictions under Section 188 of the Enterprise Act 2002, known as the "cartel offence", which came into force on 20 June 2003.
Then last month the OFT announced that four British Airways executives were being similarly charged with cartel offences in connection with the OFT's investigation into the price-fixing of fuel surcharges for long haul passenger flights between July 2004 and April 2006. The BA executives are due in court on 24 September. The OFT is also in the process of conducting various other investigations including into over 100 general building contractors, however there has been no suggestion so far that the case involves any criminal prosecution elements.
The marine hose and BA cases show that criminal prosecutions for UK Competition Law infringement are now a reality and should not be underestimated. Nothing concentrates the mind like the threat of loss of liberty and this is precisely the law's intention, with the judge in the marine hose case warning that future sentences were likely to be higher, and the OFT simultaneously saying that it will bring more prosecutions against individuals participating in criminal cartels in future.
The OFT has also said that in absent criminal prosecution, it is likely to seek director disqualification orders in less serious cases (for example where the company's involvement has been more peripheral) as an alternative. If a company is found to have breached civil competition rules the OFT has the power to disqualify a director implicated in cartel activities from acting as a UK company director for up to 15 years. The OFT wants UK business to clearly understand that cartel offences should be seen as another species of fraud, and the OFT's hotline, offering individuals up to £100,000 for inside information related to cartel activity, has apparently received a number of calls. This initiative runs side by side to the OFT's general leniency or "whistleblower" programme, whereby full or partial immunity from criminal prosecution and fines can be exchanged for information leading to the dismantling and conviction of cartels.
The clear message from these cases is not to take competition law infringement lightly. If in doubt about a particular course of action or agreement, seek legal advice before entering into it. If worried about a past action or agreement again seek legal advice to determine whether further remedial action is required, which perhaps in worst cases may lead to voluntary whistleblower applications for leniency to relevant competition authorities such as the OFT.
The individuals in question in the marine hose case pleaded guilty to dishonestly participating in a horizontal cartel to allocate markets and customers, restrict supplies, fix prices and rig bids for the supply of marine hose and associated equipment in the UK. The offences were committed between 20 June 2003 (when the cartel offence came into force) and 2 May 2007, when the men were arrested and the cartel arrangements brought to an end. There were coordinated raids relating to the suspected cartel on a number of marine hose manufacturers in the UK, US, France and Italy. The UK executives were first arrested in the US under US antitrust law. Plea bargain agreements were reached whereby they agreed to serve prison terms of between 20 and 30 months and pay fines from US$75,000 to 100,000, but were allowed to return to the UK to face UK criminal charges on the basis they would receive credit towards their US sentences for any UK jail terms imposed. Two of the individuals concerned were employed by Dunlop Oil and Marine and the third was an independent consultant. Other companies are believed to be still under investigation and the European Commission is also pursuing an investigation against the relevant companies for breach of Article 81 of the EC Treaty. In addition to this, there may in due course be actions for damages from third parties considering themselves to have suffered as a result of the illegal activity
As noted above the relevant law underpinning these convictions is Section 188 of the Enterprise Act 2002. This holds that the cartel offence is committed if an individual dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements such as price-fixing, limiting supply or production, market-sharing or bid-rigging and such arrangements relate to at least two undertakings. The Act also provides that a person guilty of such an offence may be subject to maximum penalties of imprisonment for a term not exceeding five years or to a fine, or to both.
The marine hose case is clearly important for its potential impact upon those falling foul of the cartel offence in the UK. However, there are wider implications to this case since it also involved active co-operation between the UK and US competition authorities. The defendants were arrested in the US following a cartel meeting there and were only allowed to leave the US as part of a plea bargain. This international co-operation highlights not only the fact that breaches of Competition Law are high on the agenda of many nations, but also that carrying out anti-competitive activities abroad does not equate to immunity from prosecution in the UK.
Another case of UK/US cooperation recently in the news again involved Mr. Ian Norris, former Chief Executive of Morgan Crucible, who had previously evaded extradition to the US to face criminal charges in relation to cartel involvement on the grounds (upheld by the House of Lords) that at the relevant time of these offences (prior to 20 June 2003) the same offences were not yet criminalised in the UK. However, a district judge in the UK has now ruled that Mr. Norris may be extradited to the US on to face alternative charges of obstructing justice, namely by shredding key evidence and tampering with witnesses. Mr. Norris has denied any wrongdoing and is said to be considering his options for challenging the decision. This case further underlines that anti-cartel enforcement is an international matter and the relevant authorities in leading jurisdictions will not it slip, maintaining as they do that vigorous enforcement is vital not only for its punitive effect on transgressors but also for its deterrent effect on everyone else.
Leaving the last word to John Fingleton Chief Executive of the OFT, his comments following the marine hose sentences were: "This first criminal prosecution sends a clear message to individuals and companies about the seriousness with which UK law views cartel behaviour. The OFT will continue to investigate and prosecute cartels vigorously, with the aim of ensuring strong competition within the UK economy".