UK: The Marine Hose Cartel: A New Era In International Co-Operation

Last Updated: 25 February 2008
Article by Sarah Ince and Dr. Gordon Christian

First published in Competition Law Insight 12 February 2008.

The OFT Brings Its First Criminal Charges Against An International Bid Rigging, Price-Fixing And Market Allocation Cartel

The issue of criminal cartel enforcement in the UK is once again in the headlines, following an announcement shortly before Christmas that the OFT had brought charges for the first time for the cartel offence, four and a half years after the relevant provisions came into force.

The charges, which have been brought against three UK businessmen, relate to participation in the marine hose cartel. They follow an OFT investigation that has involved unprecedented co-ordination with overseas agencies, in particular the Department of Justice (DoJ) in the US, where the three UK businessmen have pleaded guilty and entered into plea agreements that have enabled them to return to the UK to "co-operate with the OFT’s investigation of violations of the … Enterprise Act of 2002 and to allow them to plead guilty to violating the Enterprise Act".

The charges mark not only an important development in our domestic competition regime, but possibly also a new era in terms of international co-operation against cartels. Cooperation to the extent seen in this case between the DoJ and OFT is unprecedented and has led to widespread uncertainty and speculation as to the influence the plea agreements reached with the DoJ may have on sentencing and procedure in England and Wales.

Criminal Cartel Liability In The UK

Section 188 of the Enterprise Act 2002 (the Act), which came into force on 20 June 2003, introduced into UK law a new criminal offence – the cartel offence – which applies only to individuals who dishonestly engage in the most serious and damaging forms of anticompetitive behaviour, that is, hardcore cartel conduct. The maximum penalty following conviction is five years’ imprisonment or an unlimited fine, or both.

Although at the time that the cartel offence was introduced, a number of countries had criminal sanctions against individuals who engaged in hardcore cartels (for example, the US, Canada and Japan), only a few countries within Europe (principally Austria, France, Norway, Ireland and, in relation to bid-rigging, Germany) had such penalties. Moreover, no individual in Europe had received a custodial sentence for a competition law offence until 2006, when an Irish court sentenced an individual to a period of six months’ imprisonment, suspended for a period of 12 months, in connection with an Irish heating oil cartel that operated in the west of Ireland. The first criminal charges for the cartel offence in the UK have thus been eagerly awaited.

Marine Hose Cartel

News of the marine hose cartel first emerged in May 2007, when, in a closely co-ordinated action involving the DoJ, the European Commission and the OFT, eight businessmen from a number of producers of marine hose (which is flexible rubber hose used to transport oil either between ships and storage tanks onshore) were arrested in Houston, Texas, while attending an industry conference. Raids were carried out at various premises in the US and (within Europe) France, Italy and the UK, where, according to the OFT, they conducted their first search of a home address as part of a cartel investigation.

Following the arrests, press releases issued by the DoJ and the European Commission indicated that it was a suspected worldwide cartel and that the marine hose producers had allegedly held secret meetings to discuss and agree rules for implementing a bid rigging, price-fixing and customer allocation scheme.

One of the UK businessmen arrested, Peter Whittle, the owner of the UK-based consulting firm PW Consulting (Oil and Marine) Ltd, is alleged to have taken on the role of cartel organiser, for which he was paid around US$300,000 a year. It appears that he was provided by the companies involved in the cartel with details of forthcoming marine hose jobs and, in accordance with rules agreed between the cartel members, designated which of them would win the job, referring to the winning member as the "champion". After the champion had been designated, he provided the other members of the cartel with instructions about how much to bid on the job for the purpose of ensuring that the designated champion would win the contract.

On 12 December 2007, the DoJ announced that the three UK businessmen arrested – Peter Whittle, Bryan Allison (managing director, Dunlop Oil & Marine Ltd) and David Brammar (sales and marketing director, Dunlop Oil & Marine Ltd) – had agreed to plead guilty to charges in the US in respect of their role in the conspiracy to rig bids, fix prices and allocate markets.

Under the negotiated plea agreements (which are public documents), Peter Whittle has agreed to serve a prison term of two and half years (and pay a fine of US$100,000), Bryan Allison two years (plus a fine of US$100,000) and David Brammar 20 months (plus a fine of US$75,000). These are the longest prison sentences that foreign nationals charged with US antitrust offences have agreed to serve.

However, it is envisaged under the plea agreements that sentencing in the US (whereby the sentences agreed between the defendants and the DoJ are recommended, and in effect sanctioned by the court) will be deferred and the three businessmen will be escorted in custody back to the UK to allow them to co-operate with the OFT’s investigation for breach of the Act and to allow them to plead guilty to breaching the Act.

The charges relate to the period from 20 June 2003 (ie the date on which the Act came into force) until 2 May 2007 (ie the day before the arrests at the industry conference in Houston, Texas). As indicated above, these are the first criminal charges brought by the OFT under the new cartel offence provisions.

It is interesting to note that the first two businessmen to plead guilty to the marine hose conspiracy worked for a French company, Trelleborg Industrie SAS, but they have agreed to serve their sentence in a US prison rather than in France. The reason for this is unclear, but it may indicate that the French competition authority was unwilling or unable to enter into a deal similar to the one reached with the OFT.

The Interplay Between The US And The UK Process

It is clear from the plea agreements that there is an expectation that the three UK businessmen will plead guilty to the UK cartel offence. Notwithstanding this, the OFT insists that the US plea agreements do not affect the rights of the men under UK law and that they are entitled to the normal presumption of innocence until proven guilty and will be free, having had the benefit of independent legal advice from US and UK lawyers, to decide whether they wish to plead guilty to the UK offence or not. Were they to refuse to plead guilty, however, or refuse to return to the US in the event of an acquittal in the UK, they would be in breach of their plea agreements. This would mean that, in accordance with the terms of those agreements, they would waive any right to oppose or contest on any grounds (including – but not limited to – their prosecution or conviction for the UK cartel offence) any request for extradition made by the US. There is therefore a concern as to whether the OFT’s assurances as to the application of these fundamental principles of criminal law can be taken at face value.

On a review of the plea agreements, it appears that the DoJ believes that consecutive sentences could in principle be imposed by the US and UK, since the US sentence is based solely on effects in the US and the UK cartel offence relates only to effects in the UK. This raises questions of fairness and double jeopardy, although, under the plea agreements, the men have agreed that "being charged with or convicted of the UK cartel offence will not provide a defense to [their] prosecution in the United States .. based on the double jeopardy or due process clauses in the Fifth Amendment to the US Constitution." In the light of the agreement by the DoJ that each day served in an English prison can count against the US sentence, it appears that a (if not the) key incentive for the men to plead guilty in the US may have been to ensure that their sentences are served concurrently rather than consecutively. It will, of course, also allow them to serve their sentence in an English prison closer to family and friends rather than in a US prison.

If the men plead, or are found, guilty by the English courts, and face a custodial sentence here, they have agreed under the plea agreement not to seek from the English courts a sentence of imprisonment less than that agreed with the DoJ. However, the issue of sentence is within the sole discretion of the judge and it cannot be assumed that the court will impose prison terms equivalent to those which have been imposed in the US. Indeed, it is quite possible that the English criminal courts may decide to impose shorter sentences than those which the men have agreed with the DoJ. In this regard, the following should be borne in mind:

  • this would be the first prosecution for the cartel offence in the UK;
  • there are no sentencing guidelines;
  • the cartel appears to have started at least as early as 1999 (ie prior to the Act coming into force);
  • the US sentences are the longest any foreign nationals have ever agreed to serve in the US in respect of competition law infringements; and
  • the maximum penalty in the UK is five years’ imprisonment compared with the maximum of 10 years’ imprisonment in the US.

Under the plea agreements, the defendants must return to the US for sentencing after they have completed their sentence here and account will be taken of the number of days which they have spent in custody in England. Were they to refuse to return, any attempt by the US to extradite them under the terms of their plea agreements in circumstances where they have already served substantial sentences is likely to be the subject of considerable criticism.

It is difficult to assess what influence (if any) the issues identified above might have on an English judge hearing the case and any judicial rulings are likely to be closely scrutinised.

Conclusion

The first charges for the cartel offence in the UK are clearly a milestone in the history of UK competition law enforcement and are likely, as envisaged, to provide a strong deterrent effect. What is of most significance, however, is the innovative approach adopted by the US and UK competition authorities. In the light of other known examples of co-operation between the US and UK authorities in relation to other high-profile cartel investigations, such as the British Airways/Virgin case in connection with long-haul passenger fuel surcharges, close cooperation looks set to continue with dramatic implications for businesses. However, it still remains to be seen how the English courts will view and accommodate arrangements of the nature in this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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