UK: Nowhere To Hide: First Criminal Cartel Convictions Under The Enterprise Act 2002

Last Updated: 28 August 2008
Article by Robert Bell

On 11 June 2008, nearly five years after the introduction of the Enterprise Act 2002 ("the Enterprise Act"), the first UK prison sentences for cartel activity were handed down to three individuals at Southwark Crown Court.

Bryan Allison, David Brammar, and Peter Whittle all pleaded guilty to a single cartel offence connected to the so called "Marine Hose Cartel". John Fingleton, the OFT's chief executive, stated that "this first criminal prosecution sends a clear message to individuals at the companies about the seriousness with which UK law views cartel behaviour".

The Marine Hose Cartel Conspiracy

The guilty men admitted to dishonestly participating in a cartel to allocate markets and customers, restrict supplies, fix prices and rig bids for the supply of marine hose and ancillary equipment in the UK. Marine hose is used by the oil and defence industries for transporting oil between tankers and storage facilities.

The investigations which led to the arrests were prompted in May 2007 when the US Department of Justice arrested eight individuals, including Allison, Brammar and Whittle, in Houston and San Francisco. The arrests followed a cartel meeting that had been secretly recorded. Accordingly to the Department of Justice, the cartel members had used meetings such as these to agree on matter such as the allocation of shares of the market between themselves, a price list for marine hose, and various bid rigging procedures. The cartel involved people from all sectors of the marine hose industry, including employees of French, Italian, German and Japanese companies.

Allison and Brammar were respectively the Managing Director and Sales Director of Dunlop Oil and Marine Limited, the manufacturer of marine hose based in Grimsby. Whittle traded as an independent consultant but in reality was being employed full time by Allison and Brammar to coordinate their cartel's activities around the world. Under a plea bargain arrangement, the guilty trio agreed to return to the UK to face the punishment of the OFT rather than remain in the US.

Judge Geoffrey Rivlin QC commented that the three had been guilty of a "carefully orchestrated and comprehensive process" of fixing prices, and that Whittle in particular was paid $300,000 for year to several to run the scam, which he did as a "full time job".

The sentences imposed on each defendant were:

  • Peter Whittle – three years imprisonment and seven years director's disqualification;

  • David Brammar – two and a half years imprisonment and five years director's disqualification;

  • Bryan Allison – three years imprisonment, seven years director's disqualification and £25,000 in costs.

Brammar and Whittle will also be facing confiscation proceedings and costs proceedings which are to be due to be heard in July 2008.

Legal Framework

Under section 188 of the Enterprise Act, an individual is guilty of an offence if he dishonestly agrees with one or more persons to make or implement, or causes to be made or implemented, arrangements whereby at least two undertakings will engage in one or more prohibited cartel activities.

The prohibited cartel activities include:

  • direct or indirect price fixing, limitation of production or supply,

  • the sharing of customers or markets, and

  • bid rigging.

The activities must relate to the supply or production for product or service in the UK. In addition, arrangements fixing prices, limiting supplies or limiting production must be reciprocal in that at least two undertakings must each be bound to fix prices limit supplies or limit production.

The offence may be committed even if the agreement is not implemented or the individuals involved do not have the authority to act on behalf of their companies. A person who is guilty of the cartel offence is liable on conviction on indictment to imprisonment for a maximum term of five years and/or a fine.

In a press release, the OFT reminded the public that anyone who has information about cartels can call the cartel's hotline on 0800 0851664 or email cartelshotline@oft.gsi.gov.uk. The OFT has a policy under which it will pay financial incentives of up to £100,000 in return for information which helps it to identify and take action against illegal cartels. It also operates a leniency program for companies and other individuals who wish to confess to cartel conduct.

Comment

Nearly five years after the introduction of the Enterprise Act, the OFT has finally flexed its legislative muscles and used the powers granted to it under the Act to investigate and prosecute cartel behaviour. Indeed, this is only the beginning, as those who have suffered loss as a result of the activities of cartel are now entitled to pursue claims for damages against the companies involved. These convictions should send a strong message to companies based in the UK that the OFT is pursuing such investigations far more aggressively than ever before, and an individual should now be fully aware that prison is a distinct possibility for those caught participating in a cartel.

The trial Judge presented the sentences as mitigated by the fact that the cartel was already fully in operation by the time of the introduction of the Enterprise Act 2002, and that the offences had come into effect only recently, while the cartel in question had been running for years. He commented that "the line of mitigation will not be open" from now on and "any likely sentence will be higher than that imposed in this case".

This case should focus the mind of company directors and should act as a massive disincentive to those who might attempt cartelisation or bid rigging. There are some who claim that these convictions have made the board room a more dangerous place than ever before, however, it is to be remembered that the activities of cartels can have a huge effect on consumers and the economy generally. Cartel activity is not a victimless crime and the encouragement of competition is higher on the international agenda than ever before.

The crushing of this international cartel in such a high-profile manner should be a stark warning to other industries, and should concentrate the minds of those who are currently under investigation by the OFT. The Enterprise Act 2002 has introduced personal accountability into the equation, and individuals involved in cartel activity will suddenly have a lot more to lose.

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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