UK: The Cartel Offence under the Enterprise Act 2002

Last Updated: 15 May 2003

In one of its first firm policy statements after winning the 2001 General Election, the Government announced that it intended to introduce criminal penalties for "hard core" cartel activities. These activities are considered to be the most serious of the anti-competitive practices which could be engaged in and also those which are most likely to cause real harm to consumers and competition generally.

There was in the Government’s view a strong case for ensuring that such behaviour was deterred and that there were suitable punishments for individuals who caused hard core cartels to be formed. Accordingly, Part 6 of the Enterprise Act 2002 (the Act) introduces a new cartel offence as well as related powers of investigation and sentencing for such anti-competitive behaviour. The cartel offence will come into force on 20 June 2003 along with the other provisions of the Act.

This article summarises the main provisions of the Act dealing with the cartel offence. It also provides some comments on practical issues which may arise, relevant provisions of criminal law and the interaction between the cartel offence and the existing provisions of general competition law.

SUMMARY OF PROVISIONS OF THE OFFENCE

Elements of the offence

Section 188 of the Act sets out the definition of the new criminal offence committed by individuals agreeing to enter into a "hard core" cartel. The offence has two limbs:

  • An individual must be shown to have agreed with another person to make or implement (or cause to be made or implemented) an arrangement between at least 2 undertakings to fix prices, limit supply or production, share customers, share supply or to enter into bid-rigging arrangements (i.e. hard core cartel activities).
  • The individual must have made such an agreement dishonestly.

While the concept of cartel behaviour arises from traditional, competition law, the definitions employed by the Act deliberately seek to avoid any reference to the provisions of the Competition Act but rather endeavour to define simply (and without reference to economic concepts) the specific categories of conduct which are intended to be covered. It is intended as a result that there should be no need for any detailed economic analysis. There is also no need for any finding of any civil breach of the Competition Act. So although it is not intended, it would for example be possible for behaviour capable of being given an individual exemption under the Competition Act to constitute commission of the cartel offence.

This means that the compliance measures taken by companies to prevent or limit competition law risks will need to be reviewed to ensure that behaviour complies not only with general competition law but also with the related but distinct criminal regime established by the Enterprise Act.

Sentencing

Individuals convicted of the cartel offence may receive sentences of up to 5 years imprisonment and/or an unlimited fine1. No guidelines for sentencing have yet been issued and it is difficult to predict what the tariff sentences are likely to be at this stage. However, the policy object has clearly been that those committing the cartel offence should in all but exceptional cases spend time in prison. The initial consultation paper ahead of the Act being introduced recommended that there should be a mandatory prison sentence for those found guilty of committing the cartel offence. There are also significant criminal penalties for those who obstruct or mislead investigations into the cartel offence (these are set out later in this note).

In addition to the criminal penalties for the commission of the cartel offence, the Act also provides for the making of disqualification orders against directors of companies which have been involved in breaches of competition law. In practice this will act as a further deterrent on breaches of competition law and the Act by directors and also provide a further strong reason for directors of companies to ensure that their companies comply with competition law and the Act.

KEY ELEMENTS OF THE OFFENCE

Only individuals may be guilty

The cartel offence will only apply to individuals (e.g. the employees and directors of companies). Companies will continue to be subject only to the existing civil competition law regime under the Competition Act and Articles 81 and 82 EC. As discussed below, this may give rise to conflicts between the interests of undertakings which have been involved in cartel activities and the individuals who were responsible for the undertaking’s participation in the cartel. As a practical matter this may lead to difficulties for companies in attempting to manage the response to the discovery of possible cartel behaviour. This can be contrasted with the system under the Sherman Act in the US where both businesses and their employees are subject to the same criminal regime and therefore their interests in avoiding criminal liability are much more closely aligned.

Dishonesty

The requirement that the individual entering into the cartel agreement must have been dishonest in doing so has the effect of making the offence fall closely into line with the way in which general criminal law works. It also reduces or removes the scope for economic analysis into the actual effects of the alleged cartel.

The introduction of the concept of dishonesty into the competition law sphere also marks a change in attitude to cartel behaviour clarifying the policy position that cartels are not ‘merely’ unfair business practices but actually more akin to fraudulent practice. While the Serious Fraud Office (SFO) (which is given the power to lead prosecutions for the cartel offence and which will be in practice the primary prosecutor in the near future until the Office of Fair Trading (OFT) has developed suitable levels of experience of criminal prosecution work) has taken the view that it will only prosecute in cases which are fairly obviously criminally dishonest in nature, in practice it will be difficult to exclude the possibility that borderline cases might fall within the scope of the offence.

The criminal law concept of dishonesty refers to the state of mind of the accused. The concept is part of the mens rea (or mental element) of theft under the Theft Act 1968 and a wide range of other offences. A belief that behaviour was not dishonest is enough to relieve an individual of guilt of the cartel offence. The reasonableness of the belief is only relevant in considering whether the belief was truly held. What is meant by dishonesty in a technical sense was for some time a matter of controversy but has been settled for over 20 years.

The Court of Appeal gave a general definition of dishonesty in Ghosh2 in the context of the Theft Act 1968. This definition will also apply in relation to the cartel offence. The Court established two principles. First, that the question of whether the accused was dishonest is for the jury to decide (i.e. it is not a matter of law but a matter of fact and evidence). Second, that "dishonesty is something in the mind of the accused". Therefore "…if the mind of the accused is honest, it cannot be deemed dishonest merely because members of the jury would have regarded it as dishonest to embark on that course of conduct". The Court held that the jury should determine whether the accused acted dishonestly in two stages:

  • by deciding whether according to the standards of reasonable and honest people what was done was dishonest, if not then; and
  • it must consider whether the accused must have realised that what he was doing was dishonest by the standards of reasonable and honest people.

According to the Court of Appeal, in most cases, if the actions are obviously dishonest by ordinary standards, it will be obvious that the accused knew he was acting dishonestly. However, the Court of Appeal did consider possible situations where this might not be the case. It gave the example of a person who came from a country where all buses were free who travelled on a bus in the UK without paying. In such circumstances that person might not know that it was dishonest to travel on a bus in the UK without paying. This may have application in respect of the cartel offence in respect of an agreement entered into in a jurisdiction which did not have any civil or criminal sanctions against hard core cartel behaviour (or in respect of an individual from such a jurisdiction). However, it would appear from the example that a defendant in a trial for the cartel offence who wished to deny dishonesty in this way would need to establish these relevant facts positively (rather than the prosecution having to exclude this possibility) and to show that the defendant actually believed the conduct to be not dishonest. Inferences may be drawn from the accused’s conduct although conduct is not conclusive in determining state of mind.

Are there likely to be many trials for the cartel offence?

It is not immediately clear that juries would necessarily consider even hard-core cartel behaviour to be dishonest; it is debatable whether the public generally are aware of the meaning or impact of cartel behaviour. While in some cases it will be relatively straightforward for the prosecution to establish that a particular hard core cartel member was dishonest because of the circumstantial evidence, for example where there are clear attempts to conceal the agreement (beyond the ordinary levels of confidentiality involved in commercial negotiations) or because the effects of the cartel would have clearly been unfair and damaging to a third party and not appear to be honest business practice, this will not always be the case. This suggests that the offence is likely only to be prosecuted in cases where there is clear evidence of real dishonesty, rather than in every possible hard-core cartel (which reflects the approach taken by the SFO).

However, this is at odds with the view of the Government and the OFT who clearly believe that hard core cartel activity is just as inherently damaging and dishonest as theft and that it will be possible to show dishonesty in a much wider range of cases (i.e. in all but those cases where there could be seen to be genuinely honest motives behind a cartel and where it is a strong possibility that the man in the street would not consider the behaviour to be dishonest. It was anticipated3 prior to the Act being presented as a draft Bill that there would be in the region of six to ten prosecutions for the cartel offence each year. This would have the effect of increasing the SFO’s caseload very significantly (currently between 20-30 new cases per year, with 80 cases being investigated in total at any one time). As the Hammond Report also advised that it would be disproportionately costly to create an in-house prosecution team in the OFT due to the low number of anticipated cases, it is unclear how many criminal investigations will in fact occur and the degree of seriousness of the cases which would be taken on.

The SFO does not anticipate being in a position to take a cartel offence case to trial for at least 2-3 years following the Act coming into force (and this would be in respect of a case occurring at the same time as the Act came into force). At the same time, given the high publicity which the Government has given to the Act and the high political priority it has received it seems likely that there will be pressure on the OFT and SFO to conduct some successful early prosecutions to demonstrate the efficacy of the new Act.

It is possible that after a number of years of successful and well-publicised convictions for the cartel offence it will become much easier to establish that reasonable and honest people would generally view hard core cartels as dishonest. But this is unlikely to be the case early on, particularly given the relative novelty of rigorous competition law with serious civil penalties in the UK.

Price fixing, market sharing, bid rigging

The cartel offence is limited to these three broad types of anti-competitive practice which were considered to be amongst the most serious possible. There is a view that in practice the majority of prosecutions will arise in the context of bid rigging. In many countries the only criminal penalties for anti-competitive behaviour are in relation to bid-rigging.

Bid rigging occurs in situations where someone has sought bids for the supply of goods or services (e.g. public procurement tenders, although the offence also covers purely private transactions) and two (or more) of the bidders for the contract have agreed between themselves that bids should not be put in by all of them or that they will only bid according to agreed terms (e.g. Company A an Company B agree that they will both bid for the contract with Company B agreeing not to bid at a lower price than Company A is offering). An arrangement of this sort is not a bid rigging arrangement for the purposes of the cartel offence if the person seeking the bids is aware of the arrangements at or before the time the bids are made (e.g. consortium bids where different bidders have got together to bid for the contract on the condition that they do not also bid individually would not be examples of bid rigging if this was made clear on the face of the bid when submitted). It is unclear how much knowledge of the arrangements the person seeking the bids needs to have in order to prevent an allegation of bid-rigging, although common sense would suggest that it would only need to extend to knowledge of those parts of the arrangements which might otherwise constitute bid-rigging (i.e. other parts of the arrangements such as the commercial terms agreed between consortium members for the share of profits and liabilities would probably not need to be known).

There are no UK cases under the Competition Act regarding bid rigging arrangements although there were a number of cases under previous legislation4. It is unclear whether this is because the existing law is unsuited towards detecting them or because they are not as significant a feature of business practice in the UK as previously thought.

No reference to economic analysis or Competition Act

In order to avoid confusion between the civil and criminal regimes and to keep the processes separate, it was decided to define the criminal offence without reference to the concepts commonly used and understood in general competition law. However, there is still some room for such concepts to be debated. For example in s189 there are references to both of the undertakings which are to be bound by the cartel agreement needing to be at the same level of in the supply chain. This is clearly an economic concept and one which is not necessarily uncontroversial. The aim was to limit the application of the cartel offence to horizontal agreements (essentially agreements between competitors). However, this seems to require that an arrangement constituting the cartel offence would need to concern an agreement relating to the same (or similar) product or service. This imports issues of market definition into the set of facts which the prosecution would need to establish.

It is not entirely clear why vertical agreements (e.g. agreements between suppliers and their customers) have been sought to be excluded in this way. In the recent OFT decisions in Hasbro/Argos/Littlewoods and Lladro it was clear that the OFT was of the opinion that the alleged vertical price fixing was highly serious. It was also clear that Hasbro operated on a different level of trade than Argos and Littlewoods as it was the supplier of the goods in respect of which it is alleged that Argos and Littlewoods fixed the price. There have also been numerous decisions under the present and former legislation condemning resale price maintenance measures.

It is also important to note that the scope of the cartel offence may be widened considerably by the potential for individuals to be charged with related offences such as conspiracies, attempts and incitements to commit the cartel offence, and aiding, abetting, counselling and procuring the cartel offence. Therefore it will be necessary to place reliance on prosecutorial discretion and on the SFO and OFT taking a practical approach to the issue of dishonesty in a consistent way. Some of the possibilities for the wide potential scope of the cartel offence are discussed later in this note.

INVESTIGATORY POWERS

The Act establishes that the OFT can investigate, using its powers, if it believes there are reasonable grounds for suspecting a cartel offence has been committed. It may involve the Serious Fraud Office (the "SFO") in the investigation. The SFO has the right to prosecute offences and has similar powers of investigation to the OFT. However, as a practical matter, while the OFT remains inexperienced in running criminal investigations and prosecutions (and in the absence of suitable funding and personnel), the SFO will take responsibility for prosecutions of the cartel offence, at the very least for an initial period and is likely to be involved in the investigatory stage.

Unfortunately the position is not entirely clear. This is because the SFO has, in addition to the normal criteria for deciding whether to conduct an investigation and prosecution which is common to all prosecuting authorities, an obligation only to take on cases which are suitably complex, serious, of high value and in the public interest to pursue. This would tend to suggest that smaller cartels and more straightforward cases would be within the sole remit of the OFT. However, the present position is that the OFT will not take any prosecutions in its own right. Instead, where the OFT identifies the possibility that there may have been a criminal offence committed in relation to a case it will inform the SFO. The SFO will then decide whether the case is suitable for prosecution. Where it is decided that a criminal investigation should take place the SFO and OFT will agree on the division of responsibilities in the investigation. The investigation of the case will then take place using the powers under the Act. After the conclusion of these investigations the SFO will decide, after consulting the OFT, whether to proceed with a criminal prosecution. At a later stage in the proceedings, the SFO may also decide to exercise its investigatory powers under the Criminal Justice Act 1987 (these powers are broadly the same as those under the Enterprise Act).

It will be difficult, from a compliance perspective, to be able to discern in advance whether even a hard core cartel will lead to a criminal prosecution because of the self-imposed limits on jurisdiction of the SFO and OFT. There is also some prospect of the OFT changing its stance on this matter and taking on prosecutions from an earlier date in order to ensure that there is early use of the Act which might act as a deterrent. It would therefore be very dangerous for any individual or business to act on the basis that prosecutions might be rare.

Compulsory statements and production of documents

The OFT can, by sending a written request, compel a person under investigation, or any person it believes may have relevant information, to answer questions. It can also request information and documents and copy or take extracts from them. It can either set a time limit for complying with the request or require the information or documents immediately. It also has the right to request an explanation of a document from the person producing it. If a requested document is not produced the OFT may require a person to state to the best of his belief where that document is.

There is no right to silence – the questions of the OFT must be answered. However any statements compulsorily obtained cannot be used against the individual who made them except:

  • in the prosecution of offences under s201 (e.g. offences regarding false or misleading statements given in an investigation); or
  • where the individual is being prosecuted for some other offence and makes a statement inconsistent with it (but only if they bring evidence relating to the statement or ask a question relating to it in the course of the trial of that other offence).

Documents containing confidential legal advice from external legal advisers do not have to be disclosed as they benefit from legal professional privilege. However, as a practical matter, potential defendants may wish to disclose such documents, for example where the advice would help to establish that they believed that they were behaving honestly. But in most cases advice will have been given to the individual’s employer rather than to the individual himself (see also the section on Legal Professional Privilege later in this note). This would mean that it would not be possible for the individual to use the advice in such a way.

While these limits on their face offer a good degree of protection for the rights of people who are subject to a requirement to give a compulsory statement, in practice it would be easy for much of this protection to be side-stepped. There is nothing (other than, possibly, public policy arguments and the hearsay rules) to stop the OFT using such statements against a person other than the giver of the statement or as a road-map to enable it to find equivalent information from other sources.

PACE interviews

Special protection is given where an interview is conducted under the provisions of the Police and Criminal Evidence Act 1984 (PACE) and the Codes of Practice made under it. PACE establishes the procedures and protections in respect of interviews of all suspects in criminal cases. In all cases, persons suspected of having committed the cartel offence will be questioned under the provisions of PACE in addition to any compulsory statements they may be required to give under the Act. This is because the compulsory statements given by an individual will not be capable of being used against that person, as discussed above, and therefore it will be necessary for the OFT to seek admissible evidence from that individual which could be used in the case. The OFT intends to issue its own Code of Practice in respect of the application of PACE to investigations under the Act.

These include tape recording, the issue of a caution setting out the accused’s right not to answer questions, the presence of legal representation, the conditions in which interviews should take place, the types of questions which may be asked or which ought to be answered (e.g. investigators can be required by the accused or his representatives to show the evidence they have which founds an allegation being put) and other such important matters the detail of which is outside the scope of this note. Adverse inferences, (e.g. that the later statement may have been concocted or self-serving and therefore less credible) may be drawn by a jury from a failure to mention at the earliest possible time relevant facts later relied on at trial.

Search/seizure

The OFT can apply to the High Court for a warrant to enter and search premises. It can obtain a warrant if it is believed that there are documents on the premises which the it has the power to request and either:

  • a person has failed to comply with a request to produce those documents; or
  • it is not practicable for the OFT to request those documents; or
  • making a request for the documents might seriously prejudice the investigation.

The warrant will authorise officers of the OFT (one of whom must be named in the warrant) to:

  • enter the premises using such force as is reasonably necessary;
  • search the premises and seize documents or to take any other steps which may appear to be necessary for preserving them or preventing interference with them;
  • require explanations of any document or a statement as to where it might be found;
  • require information stored in electronic form to be produced in a visible and legible form which can be taken away.

The draft guidelines indicate that the search will be conducted in accordance with the relevant PACE Codes of Conduct (although these do not apply in Scotland). The OFT will not wait for legal advisers to arrive before commencing the search although a witness to the search will usually be allowed and the OFT may wait for legal advisers before it removes documents from the premises, for example, where the relevant documents or computer files are also essential for the carrying out of the normal functions of the business. The OFT will not usually conduct interviews under caution (this would in most cases be impractical given the need for such interviews to be tape recorded) or use its compulsory powers in the course of a search although it can ask for explanations of documents found during the search.

Unlike the "dawn raids" conducted by the OFT currently under the Competition Act the normal procedure for dawn raids in general criminal cases is that they genuinely do take place at around dawn (usually around 6am) and there is not the same culture of co-operation that there is in civil investigations where the OFT will allow the subject of the investigation time to collect itself and get suitable personnel and advisers in place. The investigators will take the originals of any documents they consider to be relevant. Powers to "seize and sift" (i.e. to take a large amount of documentation to sift through at a later stage for relevant material, rather than only taking that material which immediately appears to be relevant) evidence may also come into force under the Criminal Justice and Police Act. The SFO consider that the use of the criminal investigation powers in relation to the cartel offence will be no different to how those powers might be used in a major fraud or drugs case.

Intrusive surveillance/use of CHIS (covert human intelligence sources) etc

The chairman of the OFT, on application by an officer of the OFT, can authorise the use of intrusive surveillance if he thinks it is necessary for the purpose of preventing or detecting an offence. The method of surveillance must be proportionate (e.g. it would be disproportionate to use large amounts of covert surveillance in a case which was relatively minor or where the information sought could be gathered through other less intrusive means). The approval of the Office of Surveillance Commissioners is also required except in urgent cases.

Intrusive surveillance is defined as covert surveillance carried out in relation to anything taking place on any residential premises (including hotels) or in any private vehicle. Covert installation of surveillance devices in property is permitted.

The OFT is also expecting to be granted powers by the government to use directed surveillance (e.g. watching a person’s office) and to use CHIS (e.g. informants). Once these powers are available there would in theory be the possibility that a participant in a cartel offence may be asked (but not coerced) to continue participating in the cartel in order to enable the gathering of further evidence. However, such cases are likely to be rare and highly sensitive. The OFT has also applied for authorisation to obtain access to communications data such as records of telephone numbers called. The OFT intends to publish Codes of Practice for exercising these powers.

Offence

Sanction on summary conviction

Sanction on conviction on indictment

Failure to comply with a requirement imposed under the investigation powers

Fine of up to £5,000 and/or up to six months imprisonment

N/A

Intentionally or recklessly make a false or misleading statement

As above

Unlimited find and/or up to two years imprisonment

Intentionally destroy, dispose of, falsify or conceal documents.

As above

Unlimited fine and/or up to five years' imprisonment

Intentionally obstruct a person carrying out an investigation with a warrant

Fine of up to £5,000

Unlimited fine and/or up to two years' imprisonmnet

Sanctions for failure to answer/destruction of evidence

(See fig 1 above)

It is interesting to note that the maximum penalty for giving false or misleading statements is less than that which may be imposed on those who destroy, falsify or conceal evidence. These latter offences carry the same potential penalty as the cartel offence itself. This can be justified by the potentially more grave effects that such behaviour might have – if a person lies or misleads the OFT recklessly this can be detected if there is other evidence, but if potentially material evidence is destroyed it may not be possible to proceed with a prosecution for the cartel offence at all. This should be borne strongly in mind in considering document retention policies. Although documents which are routinely destroyed outside the context of a live or anticipated investigation would not be covered, there is a possibility of prosecution if this is done with the knowledge or suspicion that there might be an investigation in the future.

INTERPLAY BETWEEN CIVIL AND CRIMINAL JURISDICTIONS AND INVESTIGATION

The OFT published a consultation on the operation of the powers for investigating the cartel offence and their interplay with the existing civil regime under the Competition Act in April 2003. The comments below are on the basis of the consultation paper which will not be finalised until after the Act enters into force on 20 June 2003 (the consultation period for responses continues until 1 July and a final statement would be expected to follow some time shortly afterwards). However, it is likely that until a finalised statement on the operation of these powers is published the OFT will seek to retain consistency with the approach outlined in the consultation.

Criminal prosecutions to occur prior to decision in civil case

Criminal prosecutions will occur ahead of the civil procedure under the Competition Act. However, in gathering the evidence for a criminal prosecution, the OFT will also be able to gather that evidence for the purposes of a related Competition Act investigation against the undertakings involved. The OFT may proceed a limited way with the civil investigation prior to the conclusion of the criminal case, for example it may open a civil investigation and impose interim measures to prevent the continuation of the cartel’s behaviour. However, the civil investigation would only proceed towards a decision from the OFT after the criminal process had been exhausted or abandoned.

Criminal and civil investigations in parallel

In many cases it will not be possible for the OFT to be able to tell whether the cartel offence may have been committed when investigating a potential infringement of the Chapter I prohibition under the Competition Act. The OFT will bear the possibility of a criminal investigation in mind when commencing an investigation into a cartel and use its criminal investigation powers where there is a prospect of criminal charges being brought.

The SFO has expressed the view that it would prefer that criminal and civil investigations be kept separate as far as possible and that it is undesirable for both to run in parallel other than at the very earliest stages.

Use of evidence from civil investigation in criminal case?

Responses given to questions posed under the Competition Act (e.g. explanations of documents) cannot generally be used in a criminal prosecution against the person who made the statement due to the privilege against self-incrimination. This is subject to the proviso that if that person makes a subsequent inconsistent statement in the criminal case and he brings evidence in relation to that statement in his defence the responses may be used against him (e.g. if he wishes to give evidence of co-operation by mentioning a partially exculpatory compulsory statement under the Competition Act it will be open to the prosecution to bring up the inculpatory parts of that statement). The OFT may, however, re-interview a person in accordance with the criminal investigation powers and rules to cover the same issues. In the event that inconsistent answers were given in the criminal interview, this would open up the likelihood that the original statement would be used to show the inconsistencies. Statements made by third parties will be subject to the criminal laws on hearsay, which are beyond the scope of this note, but which in general terms would tend to exclude the admissibility of such statements.

Documents obtained in a civil investigation may be used in the criminal investigation. The OFT intends to adopt the standards of document handling and production required in criminal cases to ensure that this will be the case or alternatively to use its powers under the Act to obtain originals of the same documents for the criminal trial.

Where a criminal trial has already taken place, the evidence used in the criminal trial may be used by the OFT in a subsequent civil investigation. In any event, once evidence has been found by the OFT in one context, as a practical matter the OFT would be able to seek that same evidence again if there were any technical objections.

Rules of evidence etc

The criminal rules of evidence and procedure will apply to investigations under the Act. These generally set more stringent standards in terms of admissibility than civil evidence rules. The standard of proof required in a criminal trial will be higher than in civil investigations (proof beyond reasonable doubt). In all cartel cases which might involve commission of the cartel offence, the OFT will raise this possibility with the SFO and seek to apply the criminal investigation powers. It would be irregular, prior to a change in policy so that the OFT took prosecution decisions without the need to refer to the SFO, for the OFT to commence an investigation using the powers of the Act without the SFO’s involvement. However, this is not precluded by the Act itself.

Legal Professional Privilege

Documents protected by legal professional privilege may not be required to be disclosed by the OFT under the Act other than that lawyers may be required to provide the name and address of their client. However, where a legal adviser has provided advice to guide a client in the commission of a criminal offence such as the cartel offence, even where the legal adviser is ignorant of the purpose for which the advice is sought, this is not protected by privilege and may be disclosed.

A further issue which may arise is that in most cases relating to advice from external legal advisers the privilege will belong to the company, rather than the individual employee seeking the advice. This may lead to conflicts of interest.

LENIENCY

"No action" letters – criteria and eligibility for immunity

A no-action letter is a letter stating that the OFT has no intention to prosecute or to apply for a competition disqualification order. A no-action letter is binding on the OFT and the SFO (this does not apply in Scotland5 ), although they can be revoked in certain circumstances. The eligibility requirements for an individual to obtain a no-action letter are:

  • admission of participation in the criminal offence;
  • provision of all information available to them regarding the existence and activities of the cartel to the OFT;
  • continuous and complete cooperation with the OFT throughout the investigation and until the conclusion of any criminal proceedings;
  • not to have taken any steps to coerce another undertaking to participate in the cartel (coercing people within one’s own organisation is not relevant for this requirement); and
  • no further participation in the cartel from the time of disclosure to the OFT unless so directed by the SFO or OFT.

The OFT will not issue a no-action letter if it already has or is in the course of gathering sufficient information to bring a successful prosecution against the individual requesting it.

An individual may find in seeking a no-action letter that the OFT take the view that there are insufficient grounds to commence a criminal investigation. In such circumstances it would not be necessary for the OFT to issue a no-action letter and the OFT may merely state that it has no present intention to prosecute. This may be unsatisfactory as it would be possible for the OFT to subsequently change its mind (e.g. on the receipt of further evidence). However, there is some chance that such an individual would in many cases be able to resist a subsequent prosecution on public policy grounds.

It is also important to note that it is possible for the OFT to withdraw the benefit of a no-action letter if insufficient co-operation is provided by the individual. If a no-action letter is not granted, the evidence provided by the person seeking the no-action letter cannot be used against him. However, there is nothing to preclude the OFT from using the evidence supplied as a guide to acquiring similar evidence from other sources.

It is possible for individuals to seek no-action letters under the Act jointly with an undertaking seeking civil leniency. In such circumstances the scope for conflicts of interest between the individuals and the undertaking may be much reduced. Such a joint approach would enable the undertaking to manage the disclosure of information by the individuals who were at risk of prosecution under the cartel offence while ensuring that those individuals had an interest in assisting the undertaking in supplying information to enable civil leniency to be obtained.

Availability of immunity for individuals compared with Competition Act leniency

 

Individual Immunity

Leniency of Undertakings

Legislation

Enterprise Act 2002

Competition Act 1998

Type of leniency

No-action letter granting immunity from prosecution

Immunity from financial penalties

Eligibility

Eligibility criteria as above

Eligibility criteria similar but undertaking must not have acted as instigator or played leading role in cartel

Timing

Must alert OFT before it has or is in the course of gathering sufficient information to bring a successful prosecution against the individual requesting immunity

If first to alert OFT before investigation has started, or, at the OFT's discretion, if after investigation commenced but before written notice of proposed infringement decision given

Availability of immunity under 100%?

No - all or nothing, although no-action letters may be issued to more than one individual

Reductions in financial penalties may be granted to cmpanies providing evidence of the existence and

Fig 2. Availability of immunity for individuals compared with Competition Act leniency

Conflicts of interest

There is a potential conflict between the position of the corporate body and the position of individuals. There may be an incentive for an individual to act independently of the company and an individual may require separate legal advice. The OFT guidance provides that joint approaches by a company and an individual (with either joint or separate representation) will be permitted and where 100% leniency is granted to a company a no-action letter will normally also be issued to relevant named employees. The following is a selection of such possible scenarios:

  • An employee who is aware that he has been involved in committing the cartel offence may seek a no-action letter from the OFT in order to avoid prosecution and the threat of imprisonment. This may be done without his employer’s knowledge and would be very likely to lead to his employer being exposed to fines under the Competition Act and in civil litigation.
  • In such circumstances, the employee’s being granted a no-action letter may also prejudice his employer’s ability to argue that the activities in question were justifiable on competition grounds as the employee would already have admitted dishonesty which would tend to make the employer’s arguments less plausible.
  • An undertaking may, for example through its compliance programme, become aware of its involvement in cartel activities and seek leniency from the OFT. The individual employees who actually carried out the acts implicating the undertaking may wish to minimise their own participation and obstruct the undertaking in its efforts to comply with the requirements of the OFT that it fully co-operates with its investigation.
  • An employee may wish to rely upon legal advice given to him while he was acting on behalf of his employers. As discussed below, in these circumstances, the employee would not be the client of the legal advisers and would not be entitled to waive the legal professional privilege in that advice.

RELATED OFFENCES

Aiding, abetting, counselling, procuring

Liability as an accessory applies to the cartel offence. An accessory is one who aids, abets, counsels or procures the commission of the offence. An accessory can be tried and punished as a principal offender. The phrase "aid, abet, counsel or procure" is generally used as a whole phrase although just one of the four is sufficient. The meanings are detailed in the chart on the next page (see fig 3.).

Offence

Meaning

Conspiracy or common purpose required between accessory and principal?

Causal link required between action of accessory and commission of the offence?

Aid

Assistance at the time of offence.

Yes

No

Abet

Encouragement at the time of the offence

Yes

No

Counsel

Advice and assistance at an earlier stage

Yes

No, as long as advice comes to attention of principal

Procure

Advice and assistance at an earlier stage

No

Yes

fig 3. Aiding, abetting, counselling, procuring

These distinctions are virtually obsolete in general criminal law, the only distinction of importance being that between principal and accessory. However, in the context of the cartel offence the distinctions may have some importance in that they may be used by the OFT to expand the range of behaviour which might be caught by the cartel offence. An example of this might be seen in the facts of the recent Hasbro/Argos/Littlewoods case where (a lack of dishonesty aside) Hasbro’s employees would not fall within the scope of the cartel offence because Hasbro operated at a different level of trade to Argos and Littlewoods. However, in that case, the OFT found that Hasbro employees acted as instigators of the alleged price fixing cartel between Argos and Littlewoods. In these circumstances it could be argued that Hasbro employees procured the commission of the cartel offence by Argos and Littlewoods.

To date there has been no evidence of the SFO or OFT specifically focusing on such a use of the existing scope of the law on accessories to crime in such a way to expand the range of activities which might be caught under the Act, but it is not inconceivable that they may do so in the future

Conspiracy

The cartel offence appears in many respects to have similarities with the offence of conspiracy described below. It is possible that offences related to cartels could be investigated and prosecuted as conspiracy to defraud and thereby bypass the operation of the Act and the use of OFT personnel entirely. An alternative possibility is that the SFO may decide to proceed with a prosecution for conspiracy to defraud in cases commenced as cartel offence investigations where there have been technical arguments raised (e.g. in relation to which level of trade the businesses are operating on). Other situations where such an alternative charge could be used might be in bid rigging cases where the person who has requested bids is himself involved in rigging the bids or favouring specific bidders which would fall outside the scope of the cartel offence due to the knowledge of the party requesting the bids. Agreement is the essence of conspiracy. If negotiations do not result in a firm agreement there is no conspiracy. It is possible to have a conspiracy in which some parties do not meet the others6 if the parties are participants in a common scheme and are aware that they are attaching themselves to a larger scheme (otherwise each will be a separate conspiracy). At least two persons must agree for there to be a conspiracy although a single person may be charged and convicted even if the identities of his fellow conspirators remain unknown or if they are acquitted (unless his conviction is inconsistent with the acquittal of the other conspirators).

Contingencies and conditional agreements (e.g. an agreement to fix prices if the market price falls below a certain level) may be conspiracies although the law is not clear on this point. It is clear however, that the agreement is the basis of the liability and neither abandonment of the agreement nor failure to carry out its terms can affect such liability once it has been incurred7 .

EXTRADITION

Ability to extradite defendants to/from UK?

The cartel offence is an extraditable offence. A conspiracy or an attempt to commit the offence is also extraditable. A person cannot be extradited unless the offence for which extradition is sought is a crime in both the requesting and the requested states. The fact that the cartel offence is an extraditable offence means that individuals in the UK who are involved in hard core cartels in other countries are now clearly extraditable; e.g. it was unclear previously whether the Chairman of Christies was extraditable to the US in respect of the price fixing cartel engaged in with Sotheby’s.8

Footnotes

1 If tried in the Crown Court. The maximum penalty in the Magistrate’s Courts is 6 months imprisonment and/or a fine up £5,000. However, in the light of the SFO’s criteria for conducting prosecutions it appears highly unlikely that there will be any summary prosecutions for the cartel offence, at least until the OFT starts to prosecute the offence in its own right without the SFO taking the lead.

2 [1982] QB 1053

3 In a report on the practical aspects of criminal prosecutions for the cartel offence (the Hammond Report) by Anthony Hammond QC, a former Treasury Solicitor and Roger Penrose, a senior police officer.

4 The two most recent cases from 1999 both related to collusive tendering for school bus services in Hull and Staffordshire respectively. In both cases the Restrictive Practices Court struck down the agreements under the Restrictive Trade Practices Act 1976 and prohibited the parties from entering into similar agreements in the future. However, it seems unlikely that these would be considered sufficiently serious or complex cases (or of sufficient "value") for the SFO to wish to prosecute.

5 However, the Lord Advocate, who is responsible for criminal prosecutions in Scotland will have "due regard to" no-action letters. In practice this is likely to mean that it would be highly exceptional for there to be a prosecution for the cartel offence in Scotland where a no-action letter has been issued.

6 Such as a chain (A agrees with B, B with C, C with D etc) or a wheel (A recruits B, C & D to the scheme).

7 Bolton (1991) 94 Cr App R 74 8 Although it is arguable that the cartel offence covers subject matter which could previously have been prosecuted as conspiracy to defraud which is itself an extraditable offence. However, no attempt was made by the US to extradite the Chairman of Christies from the UK using such an argument.

By Angelo Basu

© Herbert Smith 2003

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