The OFT has announced it is conducting a criminal and a civil investigation into alleged price coordination by airlines. The Department of Justice in the US has started a parallel investigation.
In February 2006 the European Commission, US and South Korean competition authorities conducted dawn raids on airlines around the world over concerns about the way in which airlines imposed surcharges for fuel and security. The OFT announced in late-June 2006 that it had carried out a further raid on British Airways (BA) focusing on price co-ordination on fuel surcharges for long haul passenger flights to and from the UK. Virgin Atlantic has stated that it is assisting the OFT with its inquiry and both American Airlines and United Airlines have confirmed that they have received inquiries from the US authorities.
When the OFT's raid on BA began, BA announced that it had suspended two of its senior executives. Press coverage suggests one of them had passed on information to Virgin Atlantic regarding BA's planned increase to its fuel surcharge.
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While the OFT has confirmed that no assumption should be made about an infringement of competition law until the investigation concludes, the public way in which BA suspended two senior executives indicates how seriously the investigation is being taken.
The Enterprise Act 2002 introduced criminal sanctions for individuals who have been dishonestly involved in hard-core cartel behaviour. The maximum punishment is 5 years' imprisonment and/or an unlimited fine. In addition, companies found to have infringed competition law may be penalised by civil penalties of up to 10% of global turnover.
This means that if BA and other airlines are found to have infringed the UK competition rules, the companies involved could be fined heavily. There is also the possibility that individuals who have been involved in any cartel activity could be prosecuted, although this would be the first time the OFT has attempted a prosecution using its Enterprise Act powers. However, if no prosecution takes place in the UK, as happened with the individuals known as the ‘NatWest Three’, who were recently extradited to the US on fraud charges, there is the potential for the US authorities to apply for the individuals concerned to be extradited to face prosecution under US antitrust laws.
Revised Commission policy will lead to higher fines
The European Commission has issued new guidelines for the calculation of financial penalties. Although the maximum penalty of 10% of the undertaking's global turnover remains unchanged, the cumulative effect of the revisions is likely to see many more fines imposed at or close to that 10% threshold.
Key changes to the previous (1998) guidelines are:
- The basic amount of the fine will be fixed by reference to a percentage (maximum 30%) of the undertaking's turnover on the affected market (known as ‘relevant turnover’). The Commission will consider a list of factors before fixing the percentage;
- That basic amount will then be multiplied by the number of years the infringement lasted. This is a significant change to the 10% annual uplift under the 1998 guidelines;
- A sum known as the ‘entry-fee’, comprising between 15-25% of the infringer's turnover on the relevant market, may be added as a deterrent;
- If the infringer is a repeat offender (whether at EU or national level), the Commission may increase the fine further by up to 100% (in contrast to the current practice of 50%);
- Conglomerates with large turnovers on markets that are unaffected by their infringing conduct may find their fines increased even more for general deterrence purposes.
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The new guidelines will apply to all infringement decisions that relate to Statements of Objections issued by the Commission any time after the guidelines are published in the Official Journal (expected in early-September 2006). This means that the guidelines have partial retrospective effect, since they could apply to Statements of Objections that contain references to conduct going back several years. In addition, the new fining methodology will permit infringers to calculate in advance their potential exposure to fines and may facilitate the introduction of plea-bargaining into competition enforcement policy.
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