Author: Syedur Rahman
15 November 2019
5 min read
Syedur Rahman of Rahman Ravelli defines cartel behaviour and outlines the relevant legislation.
The Competition and Markets Authority (CMA) fined three construction firms a total of £36M in October 2019 for price-fixing.
The CMA said that, over a seven-year period beginning in 2006, the three companies agreed to fix or coordinate their prices, shared the market by allocating customers and exchanged competitively sensitive information on a regular basis. The activities of FP McCann, Stanton Bonna Concrete and the CPM Group were in breach of competition law. As a result, FP McCann was fined more than £25M, Stanton Bonna has to pay £7M and the CPM Group £4M. As Stanton Bonna and the CPM Group had admitted breaking competition law they received reduced fines.
A cartel is an arrangement – usually secretive and informal – by which potential business competitors agree not to compete with each other. Both the UK’s Competition Act 1988 and Article 81 of the European Community Treaty prohibit cartels.
The CMA’s ability under the Competition Act to fine a company up to 10% of its global turnover for such behaviour was thought to have an effect on major companies but be of little use as a deterrent for individuals. But this changed in June 2003, when Part 6 of the Enterprise Act 2002 came into force, targeting individuals. Directors and employees of a company can be prosecuted for the offence. It carries a maximum penalty of five years imprisonment and / or an unlimited fine for individuals if tried in the Crown Court, with the maximum penalty in the magistrates’ court being six months imprisonment and/or a fine up £5,000. Under Section 204, directors can be disqualified from being a director for a maximum period of 15 years.
Section 188 of the Enterprise Act 2002 set out the definition of the new criminal cartel offence. Under Section 188, an individual is guilty of the offence if they have agreed with another person to make or implement (or cause to be made or implemented) an arrangement between at least two parties to fix prices, limit supply or production, share customers, share supply or to enter into bid-rigging arrangements.
In respect of arrangements restricting pricing, supply or production, the offence requires that the restriction is reciprocal (Section 188 (3)) and that the arrangement relates to undertakings operating at the same level of the supply chain (Section 189).
The offence will not be committed in the case of arrangements that:
Until the Enterprise and Regulatory Reform Act 2013 came into law, the prosecution had to prove that the individual had acted dishonestly. That is no longer the case. This Act removed the dishonesty element from the offence, introduced circumstances where an agreement could not be considered a criminal cartel and introduced three substantive defences to the offence of cartel behaviour.
Section 188A of the 2013 Act provides three situations in which an individual cannot be considered to have committed the cartel offence:
This section means that individuals will not be prosecuted if the agreements entered into are made public and the consumer becomes aware of the agreement.
Section 188B of the 2013 Act provides three defences to the cartel offence:
At present in the UK, competition law is enforced by the Competition and Markets Authority (CMA) and the European Commission (EC). Both agencies can conduct civil or criminal investigations and can impose heavy fines against any company found to have broken competition law. The UK government has indicated that it will make no major changes to its competition law regime if and when the UK leaves the European Union.
The Enterprise and Regulatory Reform Act 2013 outlines when the CMA can investigate. When deciding whether to investigate, the CMA has to consider issues such as:
As well as the main cartel offence in the Enterprise Act 2002, there are related offences such as unreasonable failure to comply with requirements to answer questions or provide information (maximum punishment six months in prison and / or £5,000 fine), making false or misleading statements or intentionally obstructing an investigation (which carry up to a two-year sentence and an unlimited fine), and destroying, concealing or falsifying documents (which can lead to up to five years in prison and/or an unlimited fine).
The CMA is entitled to carry out investigations to examine how competition is working in a particular business sector; even if there is no suggestion that competition law is being breached. The EC can carry out similar investigations if there are concerns that markets are not functioning properly. Private enforcement is also an option, where a company or individual that believes it has suffered a loss due to a breach of competition law brings an action for damages against those they blame for that breach. These actions are heard at London’s Competition Appeals Tribunal. They can be brought regardless of whether any EC or CMA investigation is ongoing or has been concluded.
Immunity from prosecution can be obtained by admitting to participation in a cartel. Individuals or businesses that self-report involvement in cartel activity and co-operate fully with the CMA investigation can also receive a reduction in the penalty imposed. Although it is notable that a 2018 survey indicated that only 18% of respondents knew that immunity could be obtained in such circumstances.
The CMA offers three levels of protection: Types A, B and C.
Type A leniency, the most far-reaching, is usually referred to as immunity protection as it guarantees immunity from fines, prosecution of individuals and director disqualification. But this will only be made available to the first business or individual to report and provide evidence of a cartel that the CMA is not already investigating or has insufficient information about. To receive Type A leniency, the business or individual must:
If an investigation has already begun and the applicant is the first to seek leniency then Type B leniency is available. Type B leniency can lead to an applicant receiving the same benefits as under Type A - but this is subject to the CMA’s discretion.
Type C is available to those that provide evidence of cartel activity but who do not gain Type A or B leniency; possibly because they were not the first to apply for leniency. Type C leniency can involve the CMA using its discretion to reduce a company’s fine by up to 50% and grant an individual immunity.
In 2017, the CMA published guidance on leniency applications from those in the regulated sector relating to what is called the single queue system. This involves an application for leniency being made to the CMA and, if all the conditions for leniency are met, the applicant should have their place secured in the leniency process with all authorities.
As the CMA’s leniency programme is independent of that run by the European Commission, companies involved in cross-border cartels should apply for leniency to all the relevant competition authorities.
This article was also featured on Lexology.com.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.