Cartel Regulation in the United Kingdom

Simon Holmes, Philipp Girardet and Amanda Butler

SJ Berwin

Cartel regulation in the UK: the two-pronged approach

Cartel regulation in the UK operates on two levels, with the possibility of civil proceedings against companies and criminal prosecutions against individuals. Full immunity from both types of enforcement action is potentially available under the OFT’s leniency policy (for companies) and no-action policy (for individuals), and both companies and individuals are actively encouraged by the OFT to contact the OFT if they suspect cartel activity.¹ If found guilty of an infringement, companies face large fines and employees can face prison sentences, with directors also subject to the possibility of being disqualified as a director for up to 15 years.

Companies: civil cartel investigations and sanctions

Companies that enter into agreements or otherwise collude by way of a concerted practice to fix prices, limit or restrict production, share markets or ‘rig’ bids, will almost certainly infringe section 2(1) of the UK Competition Act 1998 (the chapter I prohibition) and, where the conduct affects trade between EU member states, article 81(1) of the EC Treaty. Such ‘hard-core’ cartel conduct is unlikely to benefit from any exemption from the competition rules.² Companies found guilty of infringing competition laws face fines of up to 10 per cent of their worldwide turnover.³
Under the powers contained in the Competition Act, if the OFT has reasonable grounds for suspecting that UK or EC competition laws have been infringed, it may:⁴
• order the production of specific documents or information relevant to the investigation and take copies thereof (including documents stored in electronic form);
• carry out an unannounced ‘dawn raid’ on business premises with or without a warrant (although the OFT will only have the power actively to search premises and take original documents if a warrant is obtained and produced at the beginning of the dawn raid);
• carry out a dawn raid with a warrant on private premises (eg, a director’s home or car) including the power to search such premises;
• in the case of a dawn raid carried out with a warrant, retain original documents for up to three months and investigators may take any other steps necessary to preserve the existence of documents; and
• require an explanation of documents or information supplied or an explanation as to where a document might be found if it cannot be produced.

The OFT has two additional powers when conducting civil cartel investigations under the Competition Act or the EC Treaty: the power to obtain information by way of ‘directed surveillance’;⁵ and the power to obtain information through ‘informants’ (so-called ‘covert human intelligence sources’ or ‘CHISes’).⁶ However, if the OFT carries out a dawn raid acting jointly with the European Commission under the European Commission’s enforcement powers, the OFT will not have powers to take original documents or to authorise surveillance, as it will only have the same powers as the European Commission as set out in article 20 of Regulation 1/2003.⁷
Individuals who fail to cooperate with an OFT investigation by not complying with a request, intentionally obstructing an inspection, destroying or falsifying evidence, or providing false or misleading evidence can face criminal sanctions, including imprisonment.

Recent developments in civil cartel enforcement

There have been no final cartel decisions issued by the OFT since the Independent Schools decision in November 2006, although there have been significant developments in four large cases in key sectors of the economy, namely Construction, Passenger Airline Fuel Surcharges, Dairy Retailing and Tobacco products. It is of note that in each of these cases the OFT has offered the parties a form of early resolution (see further below).
In August 2007, the OFT announced that British Airways had admitted colluding with Virgin Atlantic over the price of long-haul passenger fuel surcharges and agreed to pay a penalty of £121.5 million.⁸ This penalty is by far the highest imposed by the OFT on a company for an infringement of competition law to date. As part of an early resolution agreement with the OFT, British Airways has admitted to colluding with Virgin Atlantic over the surcharges, which were added to ticket prices in response to rising oil prices between August 2004 and January 2006. Virgin Atlantic reported the cartel conduct to the OFT under the OFT’s leniency policy and qualified for immunity from fines under the OFT’s policy. British Airways subsequently cooperated fully with the OFT’s investigation and obtained a significant reduction in penalty as a result. The OFT’s investigation was conducted in parallel with a separate US investigation and the two agencies consulted each other throughout. The final infringement decision is awaited but may not be issued until certain parallel criminal prosecutions in relation to this case have concluded (see below).
In April 2008, the OFT issued a statement of objections against 112 construction companies in its wide-ranging investigation into bid-rigging activities in the construction industry in England.⁹ The OFT’s investigation is focused on 240 instances of alleged bid-rigging. The OFT received 37 leniency applications and all other parties received an offer of reduced financial penalties under a fast-track procedure that is aimed at speeding up the OFT’s case.
In September 2007, the OFT announced that it had issued a statement of objections to five large supermarkets (Asda, Morrisons, Safeway, Sainsbury’s and Tesco) and certain dairy processors (Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Wiseman).¹⁰ The OFT alleges that these companies colluded on the retail prices of certain dairy products.¹¹ The companies are alleged to have shared commercially sensitive information in 2002, and in some cases 2003. In December 2007, the OFT announced that it had reached ‘early resolution’ agreements with Asda, Dairy Crest, Safeway, Sainsbury’s, The Cheese Company and Wiseman based upon the OFT’s provisional findings in the statement of objections. A further early resolution agreement with Lactalis McLelland was later entered into in February 2008.¹² The parties have each admitted liability in principle and will pay penalties amounting to a maximum of over £120 million. The OFT is continuing with its case against Morrisons and Tesco, who will have an opportunity to make representations on the statement of objections. A final decision is expected sometime in 2009.
Finally, in July 2008 the OFT announced that it had reached early resolution agreements with six companies who have admitted to engaging in unlawful practices in relation to the retail price for tobacco products in the UK.¹³ The announcement follows the issue of a statement of objections in April 2008 against certain tobacco manufacturers and retailers.¹⁴ The OFT has stated that each of the parties who have entered into early resolution agreements will receive ‘a significant reduction’ in financial penalty, providing full cooperation is maintained. It is understood that certain of the parties may also benefit under the leniency programme. If all discounts are given the total fines that would have been imposed will be reduced from £173.3 million to £132.3 million. The case against certain other companies in this case is continuing.

Early resolution agreements and settlements in civil cartel cases

As indicated above, there is growing consensus that an ability to resolve cases without the need to complete a full administrative procedure, but while still leading to an infringement decision can be of benefit to both competition authorities and undertakings. Unlike the European Commission which has published a notice setting out its approach to settlements before settling cartel cases in practice, the OFT has been developing its approach to what it calls ‘early resolution’ agreements through case experience (ie, cases such as Independent Schools, Passenger Airline Fuel Surcharges, Construction, Dairy Retailing and Tobacco products). A key principle underlying early resolution is that an agreement is reached between the OFT and one or more of the parties to the investigation whereby a reduced penalty is imposed in return for specific admissions of liability and other types of cooperation, such as for example limiting the company’s requests for access to the OFT’s file and its representations in response to the statement of objections.

Private damages actions in cartel cases

As is the case for many other European competition authorities, the OFT is continuing to develop its thinking in the field of private damages actions in competition law cases. In November 2007, the OFT published recommendations to the government to improve the effectiveness of redress for consumers and businesses that have suffered loss as a result of breaches of competition law.¹⁵ The OFT recommends that the government consult on a number of proposed measures to make private actions in competition law effective, including:
• allowing representative bodies to bring actions on behalf of consumers and businesses, irrespective of whether a competition authority has previously taken public enforcement action;
• allowing representative actions to be brought on behalf of consumers and businesses ‘at large’ (ie, on behalf of all individuals in an identified class, other than those who expressly opt out); and
• safeguarding the effectiveness of the leniency regime for cartel investigations by excluding the use in private actions of certain documents provided by whistleblowers and limiting their liability in certain cases.

The recommendations are being considered by the Department for Business Enterprise and Regulatory Reform.
In March 2007, UK consumer association Which? commenced the first ever ‘representative action’ in a cartel case brought in the Competition Appeal Tribunal on behalf of several hundred named individuals.¹⁶ The action relates to the OFT’s 2003 Football Replica Kits decision that a number of parties fixed the retail prices for replica football shirts for Manchester United and the England team between 2000 and 2001.¹⁷ In January 2008, Which? announced that it had reached agreement with JJB Sports plc to settle the damages action.¹⁸ Each named individual who was party to the representative action will receive a payment of £20. Although Which? estimated that around several hundred thousand consumers had been overcharged, only a few hundred consumers signed up to the action. The relatively low level of uptake by consumers has added to the calls for a change in the law to allow representative actions to be brought on an opt-out basis.
In the recent case of Devenish v Sanofi-Aventis, the High Court explored the types of remedy available to claimants seeking redress for harm suffered as a result of cartel activity.¹⁹ The court ruled that exemplary damages were not available in cartel damages claims where the cartelists had already been subjected to fines or had benefited from the European Commission’s leniency programme for whistle-blowers. Exemplary damages were held to have the same aims as a penalty fine (ie, deterrence and punishment) and as such would sanction the same person twice for the same unlawful conduct.

Individuals: criminal cartel investigations and sanctions

Since 20 June 2003,²⁰ it has been a criminal offence under the Enterprise Act 2002 for individuals to dishonestly²¹ engage in conduct that leads to certain specified cartel arrangements between two or more companies, such as price fixing, market sharing or bid rigging. The offence only applies to conduct that leads to cartel agreements between companies at the same level of the supply chain (ie, horizontal agreements). Proceedings for the cartel offence may only be instituted by or with the consent of the OFT or by the Serious Fraud Office (SFO).²²
The cartel offence will be committed irrespective of whether or not the cartel agreement reached between the individuals on behalf of their respective companies is ever implemented, and irrespective of whether or not the individuals have the authority to act in the way they did at the time the agreement is made. Individuals found guilty can be imprisoned for up to five years or face an unlimited fine, or both. The Enterprise Act gives the OFT the power to conduct a criminal investigation if there are ‘reasonable’ grounds for suspecting that the cartel offence has been committed. The OFT will also work in close cooperation with the SFO if it appears that the case concerns ‘serious or complex fraud’.²³ The OFT’s powers of criminal investigation are very similar to those given to the SFO under the Criminal Justice Act 1987 and include the ability to:
• compel individuals to answer questions and to provide relevant information and documents;
• enter business and private premises under a warrant and search for any relevant documentation;
• seize any material, in whatever form and including originals, thought to be relevant to the investigation;²⁴
• carry out ‘directed surveillance’;²⁵ and
• carry out ‘intrusive surveillance’ in residential premises or vehicles, for example, through the covert installation of surveillance devices (ie, bugging).²⁶

When the OFT first starts an investigation of cartel allegations, it may not be able to decide at the outset whether to investigate the case under its civil or criminal powers. In practice, the OFT often decides to start an investigation under its civil Competition Act powers but conducts its investigation and evidence gathering to a criminal standard (eg, as specified in the Police and Criminal Evidence Act (PACE) Codes of Practice). This allows the OFT subsequently to use evidence gathered under its civil investigation powers in a parallel criminal investigation. However, any transmission of evidence from a civil investigation to a criminal investigation (and vice versa) must always comply with strict disclosure rules and certain disclosed material may be subject to specific restrictions. For example, the OFT may not use information obtained under the compulsory interviewing powers for criminal cartel investigations under the Enterprise Act for a subsequent civil cartel investigation of any companies under the Competition Act.²⁷

Competition disqualification orders

Where companies engage in cartel conduct, implicated company directors may not only face criminal sanctions under the cartel offence provisions of the Enterprise Act but may also be subject to competition disqualification orders (CDOs). The Enterprise Act 2002 amended the Company Directors Disqualification Act 1986 to empower the OFT to apply to the High Court (or the Court of Session in Scotland) for CDOs. Before making an application for a CDO, the OFT must give notice to the person concerned and give them an opportunity to make representations. The court must make a CDO against a person if it considers that two conditions are met: a company of which that person is a director has breached competition law (under the Competition Act 1998 or the EC Treaty); and the court considers that person’s conduct as a director makes him or her unfit to be involved in the management of a company. The OFT may, instead of applying for a CDO, accept a competition disqualification undertaking (CDU). A CDU has the same effect as a CDO, but is a binding commitment given to the OFT by the person, rather than an order issued by the court. The maximum period of disqualification under a CDO is 15 years. During the period in which a person is subject to a CDO, it is a criminal offence for him or her to be concerned in the management of a company. In the context of a criminal prosecution of a director under the cartel offence provisions of the Enterprise Act, the court will also always consider whether to impose a director disqualification order in addition to any criminal sanctions it may wish to impose.

Recent developments in the field of individual sanctions in cartel cases

In June 2008, the first-ever prosecutions under the cartel offence provisions of the Enterprise Act were brought by the OFT in relation to three UK executives for their dishonest participation in the Marine Hoses case. The three executives pleaded guilty and were sentenced to terms of imprisonment of between two-and-a-half and three years. All three were also disqualified from acting as company directors for periods of between five and seven years. The prosecutions relate to the period between June 2003 and May 2007. The three men were arrested in the United States following a cartel meeting in Houston that the US Department of Justice (DoJ) had recorded covertly. That evidence, along with evidence uncovered by the OFT during dawn raids, witness evidence and admissions from the three executives, was used to prosecute the three individuals. As two of the executives had been found to have benefited personally from the cartel, they were also ordered to pay sums of between £350,000 and £650,000 under the Proceeds of Crime Act 2002.
The three executives also accepted terms of imprisonment and fines under US law, however, as a result of entering into plea agreements with the DoJ they were allowed to return to the UK to face prosecution and for the UK prison sentences to count against their US sentences. This unprecedented approach was accepted without comment by the English judge. The novel approach is also a good indicator of the high levels of cooperation that took place between the UK and US competition authorities in this case. An appeal on the length of the prison sentences has been lodged in the UK courts.
In August 2008, the OFT announced that four men have each been charged with the cartel offence under the Enterprise Act in connection with the OFT’s criminal investigation into price fixing of fuel surcharges for long haul passenger flights.²⁸ The charges relate to the period between July 2004 and April 2006 when the men were employed by British Airways. The four men are alleged to have dishonestly agreed to make or implement arrangements that fixed the price for the supply of passenger air-transport services by British Airways and Virgin Atlantic. It is understood that the case may be heard in the High Court in late September. The charges follow the civil case (referred to above) brought by the OFT in August 2007.
The question of whether price-fixing conduct can also amount to a criminal offence under the common law provisions of conspiracy to defraud was the subject of judicial consideration in the Ian Norris extradition case. In March 2008, the House of Lords ruled²⁹ that price fixing on its own, that is, without any aggravating features, has never been a criminal offence under English common law. Aggravating features could for example include misrepresentation, positive deception, intimidation or fraud. The House of Lords ruling has raised the question as to whether evidence of aggravating features is also required to establish the statutory cartel offence, given the requirement of dishonesty. The issue may be raised, and judicially ruled upon, in the Passenger Airline Fuel Surcharge case prosecutions referred to above, which are currently expected to be heard in late September 2008.
In relation to the OFT’s developing policy on seeking to impose sanctions on individuals in cartel cases, Simon Williams, the senior director of cartels and criminal enforcement at the OFT, has recently warned that the OFT is seeking to impose more sanctions against individuals, that is, bringing more prosecutions against those individuals participating in criminal cartels as well as seeking to disqualify company directors in appropriate cases. Mr Williams has indicated that the OFT will be operating a twin-track approach against executives: it will bring criminal charges against those individuals dishonestly engaging in hard-core cartel activity and, in less serious cases, for example where the executive’s involvement is more peripheral, it will seek a CDO.³⁰ To date, the OFT has not utilised the specific powers relating to CDOs in civil cartel cases.
The OFT’s increasing emphasis on criminal sanctions and director disqualifications reflects the conclusions in the recent study carried out for the OFT which indicates that criminal sanctions, director disqualification and adverse publicity are perceived by businesses as being the most important sanctions in deterring infringement.³¹

The OFT’s leniency policy

One of the effects of the OFT now having such powerful sanctions to enforce competition law is that its leniency programme becomes all the more attractive to companies and executives who might otherwise face large fines, prison sentences and CDOs. Under the leniency programme, the OFT can reduce fines for businesses that ‘blow the whistle’ on cartels and, provided certain conditions are satisfied, give total immunity to the first party to a cartel that comes forward.
Leniency is now very much an essential feature of almost all cartel investigations in the UK and companies need to evaluate carefully whether or not it may be in their best interests to make use of the OFT’s leniency offer either proactively and before an OFT investigation has begun (eg, by way of inspections) or subsequently. Once a decision has been taken to seek lenient treatment, an application for leniency can be made (at least initially) very quickly and informally in the UK simply by calling the OFT’s director of cartel investigations or, in his absence, one of his two deputy directors.

The OFT’s leniency policy for companies

The leniency programme in relation to civil cartel investigations of companies is set out in the ‘OFT Guidance as to the appropriate amount of the penalty’ (OFT 423) and explained in further detail in ‘Leniency and no-action – OFT’s draft final guidance note on the handling of applications’ (OFT803a), that is, the Draft Final Guidance Note, which is due to be finalised later in 2008. The latter document specifies four different categories of corporate leniency:
• type A immunity, where the company was the first to apply and there was no pre-existing civil or criminal investigation of the reported cartel activity. The company will always be automatically granted civil immunity from fines and all of its current and former employees and directors are automatically granted criminal immunity from prosecution for their individual cartel conduct;
• type B immunity, where the company was the first to apply but there was already a pre-existing civil or criminal investigation of the reported activity. The company may be granted discretionary civil immunity from fines and all of its current and former employees and directors are granted discretionary criminal immunity from prosecution;
• type B leniency, where the company was the first to apply but there was already a pre-existing civil or criminal investigation of the reported activity and the OFT already has good evidence of the allegations. The company may not be granted discretionary type B immunity but only a reduction in fines under leniency (of up to 100 per cent but not 100 per cent) and there is no automatic immunity from prosecution for all current and former employees and directors; and
• type C leniency, where the company was not the first to apply and there was already a pre-existing civil or criminal investigation of the relevant cartel activity and the company is granted a reduction of fines of up to 50 per cent (and as under type B leniency, there is no automatic criminal immunity from prosecution for all current and former employees and directors in this case).

To be granted immunity, a company must not have taken steps to ‘coerce’ another company to take part in the cartel. The OFT has provided some guidance on the meaning of the concept of coercion in its Draft Final Guidance Note where the OFT states that conduct may amount to coercion where there is evidence of ‘actual physical violence or proven threats of violence which have a realistic prospect of being carried out, or blackmail’ or ‘such strong economic pressure as to make market exit a real risk’.³²
Further, all companies benefiting under the OFT’s leniency policy must also always:
• provide the OFT with all information, documents and evidence available to it concerning the cartel activity;
• maintain continuous and complete cooperation throughout the investigation and the conclusion of any subsequent appeals; and
• end their involvement in the cartel as soon as they inform the OFT of the existence of an infringement (unless directed otherwise by the OFT).

Companies considering applying for leniency may approach the OFT for confidential guidance before deciding whether to come forward. Such guidance usually takes the form of a ‘hypothetical’ discussion on a no-names basis about a particular factual scenario, with the idea being that the company can be reasonably sure of its position under the OFT’s leniency policy before making an application. A company can also ask its legal adviser to contact the OFT to inquire whether type A immunity is still available in a given case. Where it is, the company asking to be provided with this information must then apply for immunity. If type A immunity is not available, the company is free to consider other options.
The evidential threshold for the information an applicant must provide to the OFT differs between the different types of corporate leniency. A successful application for type A immunity will be one where the applicant provides the OFT with sufficient information for it to take forward a ‘credible investigation’ under its formal powers of investigation (for example, on-site inspections). In practice the evidential threshold is relatively low. To encourage companies to report cartel activity as soon as possible, businesses are not required to furnish the OFT will all relevant information at the time of their leniency application. Instead, companies can put down a ‘marker’, effectively securing its rank in the leniency ‘queue’, and provide more substantial information within an agreed time frame. In order to obtain a marker, the company must have a ‘concrete basis’ for its suspicion that it may have participated in cartel activity. Purely hypothetical applications for a marker will not be entertained by the OFT. Further, to obtain a ‘marker’ a company must normally be able to provide the OFT with information of the nature and emerging details of the suspected infringement, and give an explanation of the information uncovered thus far.
The OFT also operates a ‘leniency plus’ regime. Under this policy, a company that already benefits from a reduced fine under type C leniency can increase that reduction if it reports a second and unrelated conspiracy to the OFT for which it obtains type A immunity.

The OFT’s no-action policy for individuals

Immunity from prosecution is also available for individuals under the OFT’s no-action policy.³³ The OFT’s leniency and no-action policies are designed to work together to ensure that a successful corporate type A immunity or type B immunity applicant will automatically receive ‘blanket’ individual immunity for all current and former employees and directors of the company (provided, of course, that these individuals cooperate fully with the OFT throughout its investigation). However, where a company only qualifies for type C leniency, it will not be granted such blanket immunity for its employees and directors but the OFT will consider on a case-by-case basis whether one or more individuals associated with the corporate type C applicant should be granted ‘individual immunity’, ie, immunity that is not linked to a grant of corporate immunity. The OFT’s decision will depend to a significant extent on an assessment of the overall value added by the type C applicant and on whether such a grant would be in the public interest.³⁴
An individual who benefits from a grant of immunity, will only be given a formal ‘no-action letter’ by the OFT, if he or she actually needs it, that is, there is a realistic prospect of a criminal prosecution and not merely a theoretical possibility. In such a case the individual must admit that his or her conduct was ‘dishonest’. In all other cases, the OFT will upon request provide the company with a general ‘comfort letter’ stating that there is no realistic prospect of a prosecution for any of the company’s affected executives. In this situation no express admissions of dishonesty by individuals are required. ³⁵
Individuals can also apply directly to the OFT for immunity and will be guaranteed immunity, provided that the person tells the OFT about the cartel activity before any other individual or company and there is no pre-existing criminal or civil investigation and then cooperates fully with the OFT’s investigation.³⁶
It is clear that the establishment of civil and criminal offences for cartel activity, together with the OFT’s concurrent leniency and no-action policies, creates a situation where the interests of a company may differ from those of its employees and directors. In practice, this means it is normally prudent to consider the appointment of separate legal representation for the company and key implicated individuals within it at an early stage.

Going for leniency? Are you sure?

The attraction of type A immunity is obvious as companies will automatically receive a 100 per cent reduction in any fine, and all relevant employees and directors will benefit from immunity from prosecution no matter how serious their individual conduct may have been. The burden of full and continued cooperation with the OFT would appear to be a fair price for the significant benefits on offer in such a case. Nevertheless, in deciding whether to apply for leniency, companies and individuals should also take into account a number of other factors:
• does the conduct amount to a cartel and is the OFT likely to be able to make the cartel allegation ‘stick’? That is, will the OFT be able to gather sufficient evidence to establish the infringement to the requisite legal standard of proof (civil or criminal) and successfully defend it on appeal? In our experience, this can be a very difficult decision, as a company will not know what evidence the OFT already has, or what it may subsequently obtain from other companies (under leniency or otherwise), i.e., it does not know what it does not know;
• what are the ‘reputational’ effects? The fact that a company has applied for leniency will be made public in the OFT’s final decision. Although cartels are illegal, whistle-blowing can have significant implications for both a company’s and an individual’s relationships with third parties (both commercial and personal). The adverse commercial implications tend to be greater where the leniency applications has negative consequences (eg, fines) for key customers than for key competitors of the leniency applicant;
• is an application to the OFT sufficient? If the cartel activity also affects jurisdictions outside the UK, companies and individuals must consider whether to make parallel applications to other competition authorities (eg, the European Commission or US Department of Justice). Obtaining immunity in the UK will not prevent infringement proceedings being brought by other competition authorities in relation to offences committed in or affecting other jurisdictions;
• will information be passed on to other competition authorities abroad or to other law enforcement agencies with the UK? Although there are significant safeguards and leniency applicants are normally consulted and their consent is usually sought before any disclosures are made, would-be applicants are well advised to consider possible onward disclosure issues at an early stage and where appropriate discuss these with the OFT;³⁷
• the OFT states that immunity from prosecution will not extend to an offence relating to cartel behaviour but which is clearly severable from it – such as the corruption of a public official in a bid-rigging case. This means that although individuals can obtain immunity from prosecution in relation to the cartel offence, they are not immune from actions that may be taken by other government agencies, such as the Crown Prosecution Service or the SFO for offences other than the cartel offence. Individuals can, however, take some comfort from the fact that in the Draft Final Guidance Note, the director of the SFO has confirmed that if an individual has been given a no-action letter in relation to particular cartel activity, the SFO will not attempt to prosecute that individual for the cartel behaviour with a charge of conspiracy to defraud;³⁸ and
• parties should also be aware that the leniency policy does not provide companies with immunity from civil damages actions that might be launched by aggrieved third parties. This makes the control of information supplied under a leniency application even more important, as the ‘leaking’ of any inculpatory evidence to potential civil claimants may prove very costly.

Recent OFT procedural developments in cartel enforcement

Financial incentives for inside information on cartel activity

In February 2008, the OFT announced a new initiative aimed at uncovering information regarding cartel activity. Under the new policy, the OFT will pay up to £100,000 to individuals who have, or have access to, inside information that may be of value to the OFT in uncovering and taking action against illegal cartels. The amount paid in any individual case will depend on the ultimate value of the information to the OFT which will only become apparent at the end of the investigation. The new scheme is directed at individuals who have not been directly involved in cartel activity. Those parties (companies or individuals) who have been directly involved in cartel activity and who wish to come forward should continue to apply for leniency in the normal way under the OFT’s leniency policy. So far no financial awards have been announced although Simon Williams, senior director of cartels and criminal enforcement at the OFT, has recently confirmed that the new policy has given rise to a number of calls.

Increase in international cooperation and coordination

Both the Passenger Airline Fuel Surcharges case and the Marine Hoses case, referred to above, were investigated by the OFT in parallel with the US DoJ, to the extent that the alleged conduct affected US commerce and consumers. Both cases exemplify the high degree of cooperation and coordination that is now taking place between competition authorities (eg, on the timing of raids and use of evidence). The Marine Hoses case is also currently being investigated by the European Commission under EC competition law.
On the basis of publicly available information, the Marine Hoses case would appear to be the first example of a cartel case being investigated both by the European Commission under its civil and administrative powers and by the OFT under its statutory criminal cartel offence powers. This had certain practical consequences for the OFT. The OFT was required to form two separate case teams, one for the investigation of its criminal case and a separate team to assist the European Commission with its UK searches under the European Commission’s civil EU search powers. Having two separate teams ensured a clear distinction between the two functions and provided comfort that no improper advantage was gained as a result of the other authority’s investigation. This development gives rise to a new degree of complexity for targets of such parallel investigations and their advisers. It also highlights the importance of considering at a very early stage the often diverging interests of the company under investigation and any implicated directors or employees and whether separate legal advice ought to be obtained for the various parties.

OFT’s prioritisation principles

The OFT has been piloting the application of draft prioritisation principles, which were published for consultation in September 2007. The OFT expects to publish the final version of its prioritisation principles later in 2008.³⁹ Given that cartel cases have been and continue to be a top enforcement priority for the OFT, it is reasonable to expect that all serious allegations of cartel conduct will continue to be investigated and pursued by the OFT.

The future

The OFT’s enforcement activities in the field of cartels have developed significantly over the past few years and significant cases are currently in the pipeline, many of which are now supported by leniency applicants. Also, as at EU level, there is a clearly visible trend that fine levels in UK cartel cases are going up and that the OFT is actively making use of its new criminal cartel offences powers against individuals. The first criminal prosecutions and convictions for cartel conduct in the UK took place in June 2008 in relation to the Marine Hoses cartel and further prosecutions in relation to the Passenger Airline Fuel Surcharges case are due to be heard later this year. More emphasis is also being placed on CDOs and, given this, it is possible that we may see the first CDOs arising out of one of the OFT’s civil cartel cases in the coming year. As a result of all of this, it is vital that companies and their legal advisers do their utmost to identify any cartel exposure the company may have and consider whether UK leniency and no-action policies, on balance, may offer attractive opportunities for managing any identified risks.

Notes

1 To secure an applicant’s position in the queue, cartel activity can be reported in the first instance orally over the telephone to the OFT’s director of cartel investigations or, in his absence, to one of his two deputy directors.
2 The relevant exemption provisions are contained in section 9 of the Competition Act 1998 and article 81(3) of the EC Treaty.
3 Section 36(8) of the Competition Act 1998.
4 Sections 26, 27, 28 and 28A of the Competition Act 1998.
5 ‘Directed surveillance’ means any specific monitoring that is likely to result in the obtaining of private information that is covert (ie, it is intended that the targets are unaware of it) and not intrusive (ie, it does not involve private premises and it does not require any act of trespass); see section 26(2) of the Regulation of Investigatory Powers Act 2000 (RIPA). A practical example of directed surveillance would be OFT officers watching the main entrance of a business from a public place, such as a car parked on a municipal street, to establish when a certain employee tends to arrive for work in the morning. The OFT has summarised its powers of surveillance in a code of practice, ‘Covert surveillance in cartel investigations’ (OFT 738), August 2004.
6 For the OFT to ‘run an informant’ (or CHIS) means to task someone to establish or maintain a personal or other relationship with a person for the covert (or undisclosed) purpose of providing the OFT with information or giving the OFT access to information; see RIPA, section 26(8). The OFT has summarised its powers in relation to CHISes in a code of practice, ‘Covert human intelligence sources in cartel investigation’ (OFT 739), August 2004.
7 If the OFT is carrying out an inspection to establish whether there has been an infringement of the Treaty on behalf of another member state’s competition authority or at the request of the European Commission, then it will be able to use the full scope of the OFT’s own domestic powers in carrying out the inspection (Regulation 1/2003, article 22).
8 OFT press release, 1 August 2007, ‘British Airways to pay record £121.5 m penalty in price fixing investigation’.
9 OFT press release, 17 April 2008, OFT issues statement of objections against 112 construction companies.
10 OFT press release, 7 December 2007, ‘OFT welcomes early resolution agreements and agrees over £116m penalties’.
11 One or more of liquid milk products, fresh liquid milk, UK-produced cheese and value butter.
12 OFT press release, 15 February 2008, ‘Lactalis McLelland agrees early resolution in dairy retail price initiatives’.
13 OFT press release, 11 July 2008, ‘OFT reaches early resolution agreements in tobacco case’.
14 OFT press release, 25 April 2008, ‘OFT issues proposed decision against certain tobacco manufacturers and retailers over retail price practices’.
15 OFT press release, 26 November 2007, ‘OFT publishes recommendations on private actions in competition law’.
16 Consumer Association v JJB Sports PLC, case no. 1078/7/9/07.
17 OFT decision no. CA98/06/2003, Price-fixing of Replica Football Kit, 1 August 2003. The OFT’s decision was subsequently upheld on appeal by both the Competition Appeal Tribunal (CAT) and the Court of Appeal. In February 2007, the House of Lords refused permission to appeal, making the OFT’s 2003 decision final (case no. 2005/1017, 1074 and 1623 Argos Limited, Littlewoods Limited v OFT and JJB Sports PLC v OFT [2006] EWCA Civ 1318).
18 Which? Corporate Press Release, 9 January 2008, ‘JJB to make payments to consumers for replica football shirts’.
19 Devenish Nutrition Ltd v Sanofi-Aventis SA and Ors [2007] EWHC 2394 (Ch).
20 Part 6, sections 188 to 202 of the Enterprise Act.
21 The offence is only committed if the individual acts dishonestly. The classic test for dishonesty under English law is set out R v Ghosh [1982] QB 1053, 75 Cr AppR 154 CA, 2 All ER 689, CA.
22 Section 190 of the Enterprise Act.
23 The OFT and the SFO signed a memorandum of understanding (MoU) in October 2003 (OFT547) explaining the basis on which the two offices will cooperate in the Investigation and/or prosecution of criminal cartel cases. Under the MoU, the OFT accepts in principle that it will transfer cartel offence cases which amount to ‘serious or complex fraud’ to the SFO. The SFO considers that criminal cartel cases may amount to ‘serious or complex fraud’ where the sum at risk is estimated to be at least £1 million, that are likely to give rise to national publicity and widespread public concern (eg, those involving public bodies) and where legal, accountancy and investigative skills need to be brought together; see OFT guidance ‘Powers for investigating criminal cartels’ (OFT 515) at paragraph 3.18.
24 Including legally privileged or irrelevant documents if it would be impracticable to separate out the material while on the premises – the separation of such documents will be carried out at a later stage.
25 See footnote 5.
26 ‘Intrusive surveillance’ is defined by section 26 of RIPA as covert surveillance that is carried out in relation to anything taking place on any residential premises or in any private vehicle and involves the presence of an individual on the premises or in the vehicle or is carried out by means of a surveillance device. Residential premises includes private homes but also, for example, hotel rooms. This power can normally only be used if it has been specifically authorised by the chairman of the OFT and approved by surveillance commissioner of the Office of Surveillance Commissioners (OSC), which is independent from the OFT.
27 See, in particular, section 4 ‘Parallel OFT criminal and civil investigations’ in the OFT guidance on ‘Powers for investigating criminal cartels’.
28 OFT press release, 7 August 2008, ‘OFT announces criminal charges in airline fuel surcharges cartel case’.
29 Norris v Government of United States of America [2008] UKHL 16, 12 March 2008.
30 Financial Times, 23 June 2008, ‘Businesses urged not to resist crackdown on price-fixing’.
31 The deterrent effect of competition enforcement by the OFT, a report prepared for the OFT by Deloitte, November 2007.
32 Draft Final Guidance Note, paragraph 3.5.
33 Immunity means immunity from prosecution in England and Wales or Northern Ireland. In Scotland the Lord Advocate decides whether to grant immunity or leniency, though it is expected that the decisions of the OFT would be followed.
34 Draft Final Guidance Note, paragraph 4.18-19.
35 Draft Final Guidance Note, paragraph 4.2-3.
36 Draft Final Guidance Note, paragraph 4.23.
37 Transfer of information issues in leniency cases are discussed in the Draft Final Guidance Note, paragraphs 5.7 to 5.9.
38 Draft Final Guidance Note, paragraph 5.10.
39 OFT Annual Report and Resource Accounts 2007-2008, page 46.

An extract from The European Antitrust Review 2009