Cartels
In the last year 7 people have been prosecuted under the cartel offence with the convicted receiving sentences of at least 2.5 years. Unlimited fines and future restraints can accompany the prison sentence. £25,000 payment of costs and a ban from being a company director for 7 years applied in the first convictions.
Prosecutions range from the sole member of a 1 person consultancy to employees of a multinational company with 37,500 employees in the UK alone. An overview of the offence and how to minimise the risk of falling foul of it are given below.
The offence
The Enterprise Act 2002 brought the cartel offence into force on 20 June 2003. Active enforcement has recently stepped up. Individuals commit the offence if they dishonestly take part in certain arrangements or agreements with one or more parties.
The agreements must be at the same level of the supply chain, termed horizontal agreements, and:
- Directly or indirectly fix prices; or
- Limit or prevent supply or production; or
- Share markets or customers; or
- Rig bids (this is defined as agreeing the detail of bids or who will bid for a tender without informing the tender organiser)
What if nothing is in writing?
No formal agreements are required and simply communicating by phone or meeting in smoky rooms is sufficient.
How is dishonesty measured?
The test for dishonesty is two fold:
1. Was the conduct dishonest by the ordinary standards of reasonable and honest people? and
2. Did the offender realise this?
This is a small hurdle to overcome if sufficient evidence of cartel behaviour is found. All business people are aware that organising who will win a particular tender or agreeing prices with competitors behind closed doors breaches the standard of honest trading. Ignorance is no defence as the offence is strict liability.
How do I avoid it?
The best method of avoiding the cartel offence is to ensure your organisation has a quality competition law compliance program. This must have:
1. The support of senior management;
2. Appropriate policies and procedures;
3. Staff training so that everyone is aware of it; and
4. Regular evaluation so that it complies with rapidly changing legislation and guidelines.
If the worst comes to the worst and you think a cartel offence prosecution may be on the way whistle-blowing is an option. The OFT actively encourage whistle-blowing and it may allow you to receive a no-action letter. The downside is that you will be required to admit participation in a criminal activity and provide all the information you have. You will not get a no-action letter if you don’t give the OFT new information. Any whistle-blower with a no-action letter must also give the OFT full and continuous co-operation.
Conclusion
The OFT is on the warpath against cartels and in February 2008 offered a reward of up to £100,000 to those who provided information about cartel activity. It is essential that every decision maker in a firm knows about the cartel offence so that they avoid the hefty penalties. This is a strict liability offence so stating that you were unaware of it is no defence.
