Cartel Regulation In The United Kingdom.

An extract from The European Antitrust Review 2008, a Global Competition Review special report - www.GlobalCompetitionReview.com.

OFT reorganisation completed

Since the arrival of Philip Collins as chairman and John Fingleton as chief executive of the Office of Fair Trading (the OFT) in October 2005, one of their priorities had been the internal reorganisation of the OFT to allow for a better integration of its consumer and competition law functions, as well as to enable the OFT to take a more 'holistic approach' to analysing markets and deciding on appropriate interventions. This reorganisation process was completed in October 2006 and as a result much has changed at the OFT. The two notable exceptions from the wide-ranging structural changes at the OFT have been the mergers and cartels branches. The OFT's cartels branch continues to operate as a separate unit and remains responsible for all aspects of the OFT's cartels work, including the investigation of civil and criminal cartel allegations as well as the operation of the OFT's civil leniency and criminal immunity (or no-action) policies. One thing that has changed for the OFT's cartels branch is that it is, along with every other part of the OFT, now subject to the OFT's new and developing case prioritisation criteria, which aim to ensure that the OFT's case load as a whole reflects the OFT's priorities from time to time. However, given that cartel cases have been and continue to be a top enforcement priority for the OFT, it is reasonable to expect that all serious allegations of cartel conduct will continue to be investigated and pursued by the OFT.

Civil cartel case developments

Over the past year (ie, since August 2006), the OFT has issued only one cartel decision, the Independent Schools decision. The case concerned the sharing of information between 50 fee-paying independent schools about intended fee increases. The case was settled by the OFT by way of an innovative procedure under which the implicated schools accepted liability and agreed both to pay a nominal fine of [pounds sterling]10,000 each and to make ex gratia payments into a charitable trust for the benefit of the pupils who attended the implicated schools during the period of the infringement. The OFT issued the final infringement decision in this case in November 2006. Further, the OFT recently confirmed that during the year ended 31 March 2007, the OFT visited 14 business premises using its formal inspection powers under section 27 of the Competition Act, ie, without search warrants (11 visits) and under section 28 of the Competition Act, ie, with search warrants (three visits) in relation to five separate investigations.

Sean Williams, the new executive director for markets and projects at the OFT indicated, however, in a speech in July 20071 that he was expecting the OFT to issue "some big decisions" during the course of the next year. There are three significant civil cartel cases that are known to be at an advanced stage. In September 2006, the OFT announced that it had issued a statement of objections to six Scottish dairies. The OFT alleges that these companies were engaged in cartel conduct between 2000 and 2003 in relation to the supply of fresh processed milk to so-called 'middle ground' customers (ie, customers that are neither supermarkets nor individual consumers). On the assumption that the parties' representations do not lead the OFT to abandon or recast the case by way of a supplementary statement of objections, an infringement decision can be expected later this year in this case. Then there is the OFT's civil 'airline passenger fuel surcharge' case (which runs in parallel to an OFT criminal investigation of certain implicated individuals) into allegations of price coordination by certain airlines in relation to fuel surcharges for long-haul passenger flights to and from the UK. The OFT's investigation was made public in June 2006 and was confirmed by British Airways at the time.2 In May 2007, British Airways announced that it had set aside [pounds sterling]350 million to cover its total liabilities that may arise out of the separate investigations into passenger long-haul surcharges and into certain cargo surcharges (the latter case is being investigated by, among others, the European Commission and the US Department of Justice). Finally, the OFT is continuing its extensive investigation into bid-rigging activities in the construction industry in England. The OFT announced in March 2007 that the OFT had so far inspected the business premises of 57 construction companies in this case and that 37 companies had applied for leniency.3 As a result of the investigation, the OFT said it had uncovered evidence of bid-rigging in thousands of tenders with a combined estimated value approaching [pounds sterling]3 billion.4 In the context of this investigation, the OFT made its first-ever use of its forensic IT evidence gathering skills.5 The OFT further stated that normal leniency applications will no longer be considered in this case, but that it had offered a novel 'fast track' procedure to implicated companies under which companies can obtain a reduced financial penalty in return for specific admissions. This demonstrates the continued willingness of the OFT to develop innovative procedures to deal with exceptional cases (eg, the Independent Schools settlement) or otherwise unusual investigations. All three investigations may ultimately lead to infringement decisions with very significant fines in due course.

Criminal 'cartel offence' developments

The Enterprise Act 2002 introduced with effect from 20 June 2003 a new criminal offence known as the 'cartel offence' in the UK.6 The question of whether price fixing conduct both pre- and post-June 2003 can also be said to amount to a criminal offence under the common law provisions of conspiracy to defraud currently remains the subject of judicial consideration in the ongoing Ian Norris extradition case7 and the SFO's generic pharmaceuticals price fixing case.8 In a speech in July 2007,9 Sean Williams confirmed that the OFT is currently pursuing three separate criminal cartel investigations in the UK (two of these are discussed below, the nature of the third investigation is not yet in the public domain).10 Further, the OFT recently confirmed that during the year ended 31 Match 2007, it visited four business premises under criminal search warrants obtained under section 194 of the Enterprise Act and issued 14 section 193 notices - one to a business and 13 to individuals - requiring the immediate production of specified documents and the provision of specified information, in relation to two separate cases.

In conjunction with the new statutory cartel offence, the Enterprise Act gave the OFT specific criminal investigative powers. The most high-profile use of its new criminal investigation powers to date was in connection with its continuing investigation of employees of British Airways and possibly other airlines regarding allegations of price coordination by airlines in relation to surcharges on long-haul passenger flights to and from the UK, which went public in June 2006.11 Then, in May 2007, the OFT announced that it had carried out a number of on-site searches using its new criminal search powers under the Enterprise Act 2002 as part of a criminal investigation into suspected cartel conduct in relation to the supply of marine hoses used for oil transfers. In a press notice, the OFT confirmed that one of the premises searched under criminal powers in this case was a private address.12 This marks the first time that the OFT has carried out a search at a private home as part of a cartel investigation.

Increase in internationally coordinated cartel investigations

The OFT's investigations into long-haul passenger surcharges and marine hoses form part of internationally coordinated cartel investigations. Both the long-haul passenger surcharges case and the marine hoses case are being investigated in parallel by the US Department of Justice to the extent that the alleged conduct affected US commerce and consumers. The marine hoses case is also being investigated by the European Commission under EC competition law. On the basis of publicly available information, the marine hoses case would appear to be the first example of a cartel case being investigated both by the European Commission under its civil and administrative powers and by the OFT under its statutory criminal cartel offence powers. In practice, this meant that the OFT had to form two separate case teams, one for the investigation of its criminal case and a separate team to assist the European Commission with its UK searches under the European Commission's civil EU search powers. It appears that these two separate OFT teams then searched the same premises in the UK, each under different search powers. This gives rise to a new degree of complexity for targets of such parallel investigations and their advisers. It also highlights the importance of considering at a very early stage the often diverging interests of the company under investigation and any implicated directors or employees and whether separate legal advice ought to be obtained for the various parties.

Leniency developments

It appears that the leniency policy continues to work well. The OFT recently confirmed that during the year ended 31 March 2007 it had received 19 applications, of which eight related to the OFT's ongoing construction investigation. The remaining 11 applications related to seven separate cases. Further, a significant development over the past year was the publication for consultation of further guidance on general leniency and criminal immunity from prosecution ('no-action') policy issues in November 2006 which developed and updated the OFT's interim guidance note of 2005. The 2006 note (the Draft Final Guidance Note)13 largely confirms the provisions contained in the 2005 interim note but offers further clarifications on certain important issues, such as the interaction of the OFT's policies with the leniency policy of the European Commission. The OFT's consultation period closed in January 2007 and the OFT is expected to publish its final guidance in the autumn. The key amendments contained in the Draft Final Guidance Note on the handling of leniency and no-action applications concern the following issues (all of which the OFT is expected to confirm in its final guidance later this year).

Corporate leniency policy

The introduction of a short-term no-names marker by the OFT for UK immunity under the OFT's leniency policy in cases where a company wishes to apply to the European Commission for immunity under the Commission's leniency notice.

The introduction of short form 'summary applications' under the OFT's leniency policy for companies that have applied to the European Commission for immunity in relation to certain cross-border European cartel conduct.

Individual no-action policy

A detailed discussion of the interaction between the UK's statutory cartel offence and the European Commission's leniency notice.

The requirement to admit 'dishonest conduct' for individuals wishing to obtain a promise by the OFT that they will not be prosecuted under the cartel offence provisions (a so-called 'noaction letter').

Another significant development over the past year in the field of leniency in the UK and more generally across Europe was the adoption of the European Competition Network's (ECN) Model Leniency Programme.14 The programme had been developed by the ECN's leniency working group which consisted of representatives of most of the national competition authorities in the EU and members of the European Commission. Its objective is to encourage EU countries that do not have a leniency programme to adopt such a policy and to establish a benchmark for all existing leniency programmes across the EU. The Model Programme was adopted by all member state competition authorities and the European Commission in September 200615 in the hope that it will create greater harmonisation between the individual leniency policies across the EU, thereby further facilitating the reporting of cross-border cartel conduct in Europe. The OFT considers that its leniency policy and procedures (as explained in the Draft Final Guidance Note) are fully in line with the provisions of the Model Programme.

Damages actions in cartel cases

As is the case for many other European competition authorities, the OFT is also developing its thinking in the field of private damages actions in competition law cases. The OFT issued a discussion paper in April 200716 on this issue to add to the ongoing debate. In its paper, the OFT notes that it believes that "most of the main structural and legal elements for effective private actions in competition law are already in place" but notes that there are still issues concerning the effectiveness of, for example, the rules for representative actions and fees and costs more generally. In March 2007, UK consumer association Which? commenced the first ever 'representative action' in a cartel case on behalf of 130 named individuals. The action relates to the OFT's 2003 decision that a number of parties fixed the retail prices for replica football shirts for Manchester United and the England team between 2000 and 2001.17 The OFT's decision was subsequently appealed and upheld by both the Competition Appeal Tribunal (the CAT) and the Court of Appeal. In February 2007, the House of Lords refused permission to appeal, making the OFT's 2003 decision final,18 following which the damages action was commenced by Which?.19 This case, if not settled, will be an important test case for consumer follow-on damages claims in the UK.

Significant developments in UK cartels case law

In the past year there have been significant case law developments in the cartels field. In October 2006, the Court of Appeal upheld both the OFT's Replica Football Shirts price fixing case (referred to above) and the OFT's 2003 Toys decision.20 The Court of Appeal broadly confirmed the CAT's earlier judgments which had upheld both decisions at the first appellate stage and further clarified the law on when indirect communications between two competing retailers through a common supplier may amount to hard-core cartel conduct, ie, horizontal price fixing or market sharing or both. The judgment is also significant in that it is the highest judicial endorsement to date of the legality of the OFT's general leniency policy which has no statutory basis and is merely based on an argument that it amounts to a legitimate exercise of the OFT's more general statutory functions as set out under both the Competition Act 1998 and the Enterprise Act 2002.

At the CAT level, there have also been noteworthy developments over the past year. The CAT considered three appeals against OFT cartel decisions, ie, in Stock Check Pads (November 2006)21 Makers (February 2007)22 and Spacers Bars (March 2007)23. The CAT dismissed each of the appeals in their entirety. In all three judgments, the CAT emphasised the wide margin of discretion the OFT has when setting penalties and the importance of penalties amounting to an effective deterrent. In particular, the CAT held in these cases, among other things, that the OFT has a wide margin of discretion when deciding whether a fine should be reduced where it could lead to the market exit of a company already in severe financial difficulties, noting: "The OFT's consideration of how to balance the need for fines to operate as an effective deterrent against the possibility of adverse effects on the structure of the market [ie, the risk of market exit] as a result of the fines is a consideration within the OFT's margin of appreciation."24

In this context, the CAT also considered certain equal treatment and fairness arguments raised by one appellant (Makers), holding that: "Where the mistake is an arithmetical error made by the Regulator in calculating another party's penalty the application of the principle of equal treatment does not require a reduction in Makers' penalty in this case."25

The CAT further clarified in Makers, which concerned bid-rigging activities in the construction industry, that great care must be taken when one bidder asks another competing bidder for a subcontracting quote for some or all of the works of the tender, as this may be construed as amounting to bid-rigging in certain circumstances.26 Cartel regulation in the UK - the two-pronged approach Cartel regulation in the UK operates on two levels, with the possibility of civil proceedings being brought against companies and criminal prosecutions being brought against individuals. Full immunity from both types of enforcement action is potentially available under the OFT's leniency policy (for companies) and no-action policy (for individuals), and both companies and individuals are actively encouraged by the OFT to contact the OFT if they suspect cartel activity.27 If found guilty of an infringement, companies face large fines and employees can face prison sentences, with directors also subject to the possibility of being disqualified as a director for up to 15 years (see further below).

Companies - civil investigations

Companies and individuals who enter into agreements or otherwise collude to fix prices, limit or restrict production, share markets or 'rig' bids, will infringe section 2(1) of the UK Competition Act 1998 (the 'Chapter I prohibition') and article 81(1) of the EC Treaty. Such 'hard-core' cartel conduct is unlikely to benefit from any exemption from the competition rules.28 Companies found guilty of infringing competition laws face fines of up to 10 per cent of their worldwide turnover.29

Under the powers contained in the Competition Act, if the OFT has reasonable grounds for suspecting that UK or EC competition laws have been infringed, it may:30

order the production of specific documents or information relevant to the investigation and take copies thereof (including documents stored in electronic form);

carry out an unannounced 'dawn raid' on business premises with or without a warrant (although the OFT will only have the power actively to search premises and take original documents if a warrant is obtained and produced at the beginning of the dawn raid);

carry out a dawn raid with a warrant on private premises (eg, a director's home or car) including the power to search such premises;

in the case of a dawn raid carried out with a warrant, retain original documents for up to three months and investigators may take any other steps necessary to preserve the existence of documents; and

require an explanation of documents or information supplied or an explanation as to where a document might be found if it cannot be produced.

The OFT has two additional powers when conducting civil cartel investigations under the Competition Act or the EC Treaty: the power to obtain information by way of 'directed surveillance';31 and the power to obtain information through 'informants' (socalled 'covert human intelligence sources' or 'CHISes').32 However, if the OFT carries out a dawn raid acting jointly with the European Commission under the European Commission's enforcement powers, the OFT will not have powers to take original documents or to authorise surveillance, as it will only have the same powers as the European Commission as set out in article 20 of Regulation 1/2003. If the OFT is carrying out an inspection to establish whether there has been an infringement of the Treaty on behalf of another member state's competition authority or at the request of the European Commission, then it will be able to use the full scope of the OFT's own domestic powers in carrying out the inspection (article 22 of Regulation 1/2003).

Individuals who fail to cooperate with an OFT investigation by not complying with a request, intentionally obstructing an inspection, destroying or falsifying evidence, or providing false or misleading evidence can face criminal sanctions, including imprisonment.

Individuals - criminal investigations and sanctions

Since June 2003,33 it is a criminal offence under the Enterprise Act 2002 for individuals to dishonestly34 engage in conduct that leads to certain specified cartel arrangements between two or more companies, such as price-fixing, market sharing or bid-rigging. The offence only applies to conduct that leads to cartel agreements between companies at the same level of the supply chain (ie, horizontal agreements). Vertical agreements, between, for example, a supplier and a retailer, will not fall within the scope of the criminal offence. Proceedings for the cartel offence may only be instituted by or with the consent of the OFT or by the director of the Serious Fraud Office (SFO).35 Although there are currently three open criminal investigations by the OFT, there have so far not been any prosecutions for the cartel offence by either the OFT or the director of the SFO.

The cartel offence will be committed irrespective of whether or not the cartel agreement reached between the individuals on behalf of their respective companies is ever implemented, and irrespective of whether or not the individuals have the authority to act in the way they did at the time the agreement is made. Individuals found guilty can be imprisoned for up to five years or face an unlimited fine, or both. The Enterprise Act gives the OFT the power to conduct a criminal investigation if there are 'reasonable' grounds for suspecting that the cartel offence has been committed. The OFT will also work in close cooperation with the SFO if it appears that the case concerns 'serious or complex fraud'.36 The OFT's powers of criminal investigation are very similar to those given to the SFO under the Criminal Justice Act 1987 and include the ability to:

compel individuals to answer questions and to provide relevant information and documents and take copies thereof;

enter business and private premises under a warrant and search for any relevant documentation;

seize any material, in whatever form and including originals, thought to be relevant to the investigation (including legally privileged or irrelevant documents if it would be impracticable to separate out the material while on the premises - the separation of such documents will be carried out at a later stage);

carry out 'directed surveillance';37 and

carry out 'intrusive surveillance' in residential premises or vehicles, eg, through the covert installation of surveillance devices (ie, bugging).38

When the OFT first starts an investigation of cartel allegations, it may not be able to decide at the outset whether to investigate the case under its civil or criminal powers. In practice, the OFT often decides to start an investigation under its civil Competition Act powers but conducts its investigation and evidence gathering to a criminal standard (as, for example, specified in the Police and Criminal Evidence Act (PACE) Codes of Practice). This allows the OFT subsequently to use evidence gathered under its civil investigation powers in a parallel criminal investigation. However, any transmission of evidence from a civil investigation to a criminal investigation (and vice versa) must always comply with strict disclosure rules and certain disclosed material may be subject to specific restrictions. For example, the OFT may not use information obtained under the compulsory interviewing powers for criminal cartel investigations under the Enterprise Act for a subsequent civil cartel investigation of any companies under the Competition Act.39

Competition disqualification orders

Where companies engage in cartel conduct, implicated company directors may not only face criminal sanctions under the cartel offence provisions of the Enterprise Act but may also be subject to competition disqualification orders (CDOs). The Enterprise Act 2002 amended the Company Directors Disqualification Act 1986 to empower the OFT to apply to the High Court (or the Court of Sessions in Scotland) for CDOs. Before making an application for a CDO, the OFT must give notice to the person concerned and give him or her an opportunity to make representations. The court must make a CDO against a person if it considers that two conditions are met: a company of which that person is a director has breached competition law (under the Competition Act 1998 or the EC Treaty); and the court considers that person's conduct as a director makes him or her unfit to be involved in the management of a company. The OFT may, instead of applying for a CDO, accept a competition disqualification undertaking (CDU). A CDU has the same effect as a CDO, but is a binding commitment given to the OFT by the person, rather than an order issued by the court. The maximum period of disqualification under a CDO is 15 years. During the period in which a person is subject to a CDO, it is a criminal offence for him or her to be concerned in the management of a company. To date, the OFT has not made use of its CDO or CDU powers.

The OFT's leniency policy

One of the effects of the OFT now having such powerful sanctions at hand to enforce competition law is that its leniency programme becomes all the more attractive to companies and individuals who might otherwise face large fines, prison sentences and CDOs. Under the leniency programme, the OFT can reduce fines for businesses that 'blow the whistle' on cartels and, provided certain conditions are satisfied, give total immunity to the first party to a cartel which comes forward. In the financial year 2005 to 2006, the OFT entered into conditional leniency agreements with 22 companies in relation to nine cases, resulting in a reduction of the total fines imposed in cartel cases from [pounds sterling]4.696 million to [pounds sterling]1.864 million.40 This is a large increase from the previous year. Although official statistics for the past 12 months are not yet available, we understand that the OFT's leniency programme continues to be working well. For example, the OFT stated that of the 57 construction companies visited by OFT investigation officers in the context of the OFT's investigation into bid-rigging practices in the construction industry in England, 37 companies applied for leniency, ie, 65 per cent of inspected companies applied for leniency in this case.

Leniency is now very much an essential feature of almost all cartel investigations in the UK and companies need to evaluate carefully whether or not it may be in their best interests to make use of the OFT's leniency offer either actively and before an OFT investigation has begun (eg, by way of inspections) or subsequently. Once a decision has been taken to seek lenient treatment, an application for leniency can be made (at least initially) very quickly and informally in the UK simply by calling the OFT's director of cartel investigations or, in his absence, one of his two deputy directors.

Lenient treatment for companies

The leniency programme in relation to civil investigations of companies is set out in the 'OFT Guidance as to the appropriate amount of the penalty' (OFT 423) and explained in further detail in 'Leniency and no-action - OFT's draft final guidance note on the handling of applications' (OFT803a), ie, the Draft Final Guidance Note. The latter document specifies four different categories of corporate leniency:

Type A immunity, where the company was the first to apply and there was no pre-existing civil or criminal investigation of the reported cartel activity. The company will always be automatically granted civil immunity from fines and all of its current and former employees and directors are automatically granted criminal immunity from prosecution for their individual cartel conduct.

Type B immunity, where the company was the first to apply but there was already a pre-existing civil or criminal investigation of the reported activity. The company may be granted discretionary civil immunity from fines and all of its current and former employees and directors are granted discretionary criminal immunity from prosecution.

Type B leniency, where the company was the first to apply but there was already a pre-existing civil or criminal investigation of the reported activity and the OFT already has good evidence of the allegations. The company may not be granted discretionary type B immunity but only a reduction in fines under leniency (of up to 100 per cent but not 100 per cent) and there is no automatic immunity from prosecution for all current and former employees and directors; and

Type C leniency, where the company was not the first to apply and there was already a pre-existing civil or criminal investigation of the relevant cartel activity and the company is granted a reduction of fines of up to 50 per cent (and as under type B leniency, there is no automatic criminal immunity from prosecution for all current and former employees and directors in this case).

To be granted immunity, a company must not have taken steps to 'coerce' another company to take part in the cartel. The OFT has provided some guidance on the meaning of the concept of coercion in its Draft Final Guidance Note where the OFT states that conduct may amount to coercion where there is evidence of "actual physical violence or proven threats of violence which have a realistic prospect of being carried out, or blackmail" or "such strong economic pressure as to make market exit a real risk".41

Further, all companies benefiting under the OFT's leniency policy must also always:

provide the OFT with all information, documents and evidence available to it concerning the cartel activity;

maintain continuous and complete cooperation throughout the investigation and the conclusion of any subsequent appeals; and

end their involvement in the cartel as soon as they inform the OFT of the existence of an infringement (unless directed otherwise by the OFT).

Companies considering applying for leniency may approach the OFT for confidential guidance before deciding whether to come forward. Such guidance usually takes the form of a 'hypothetical' discussion on a no-names basis about a particular factual scenario, with the idea being that the company can be reasonably sure of its position under the OFT's leniency policy before making an application. A company can also ask its legal adviser to contact the OFT to inquire whether 'type A immunity' is still available in a given case. Where it is, the company requesting to be provided with this information must then apply for immunity. If type A immunity is not available, the company is free to consider other options.

The evidential threshold for the information an applicant must provide to the OFT differs between the different types of corporate leniency. A successful application for type A immunity will be one where the applicant provides the OFT with sufficient information for it to take forward a 'credible investigation'. In practice, this means that the information provided by the leniency applicant must allow the OFT to exercise its formal powers of investigation (for example, on-site inspections). To encourage companies to report cartel activity as soon as possible, businesses are not required to furnish the OFT will all relevant information at the time of their leniency application. Instead, companies can put down a 'marker', effectively securing its rank in the leniency 'queue', and provide more substantial information within an agreed time frame. In order to obtain a marker, the company must have a 'concrete basis' for its suspicion that it may have participated in cartel activity. Purely hypothetical applications for a marker will not be entertained by the OFT. Further, to obtain a 'marker' a company must normally be able to provide the OFT with information of the nature and emerging details of the suspected infringement, and give an explanation of the information uncovered thus far.

Individuals and the OFT's no-action policy

Immunity from prosecution is also available for individuals under the OFT's no-action policy.42 The OFT's leniency and no-action policies are designed to work together to ensure that a successful corporate type A immunity or type B immunity applicant will automatically receive 'blanket' individual immunity for all current and former employees and directors of the company (provided, of course, that these individuals cooperate fully with the OFT throughout its investigation). However, where a company only qualifies for type C leniency it will not be granted such blanket immunity for its employees and directors but the OFT will consider on a case-by-case basis whether one or more individuals associated with the corporate type C applicant should be granted 'individual immunity', ie, immunity that is not linked to a grant of corporate immunity. The OFT's decision will depend to a significant extent on an assessment of the overall value added by the type C applicant and on whether such a grant would be in the public interest.43

An individual will be guaranteed a no-action letter, if he or she needs it, provided that the person tells the OFT about the cartel activity before any other individual or company and there is no preexisting criminal or civil investigation.44

To obtain individual immunity from criminal prosecution, individuals must always give a full and truthful account of all the relevant facts and provide the OFT with any evidence in their possession or under their control.

Further, the OFT has stated that the general expectation should be that no-action letters will require the recipient to admit to the criminal conduct for which the no-action letter is granted - including an admission of dishonesty. This is because where a person is clearly a principal offender in a dishonest cartel arrangement, his or her evidence is likely to be needed to support a prosecution case against other principals and in this context a full admission of their participation in the offence will be required. In the case of 'peripheral' wrongdoers, or where the cartel is not regarded as being at the most serious end of the scale, it is more appropriate simply to issue relevant individuals with a 'comfort' letter (which does not require a formal admission of dishonesty) to the effect that the individual is not at risk of prosecution for the cartel offence rather than with a formal no-action letter.45

It is clear that the establishment of civil and criminal offences for cartel activity, together with the OFT's concurrent leniency and noaction policies, creates a situation where the interests of a company may differ from those of its employees and directors. In practice, this means it is normally prudent to appoint separate legal representation for the company and key implicated individuals within it at an early stage.

Leniency plus

The OFT also operates a 'leniency plus' regime. Under this policy, a company that already benefits from a reduced fine under type C leniency can increase that reduction if it reports a second and unrelated conspiracy to the OFT for which it obtains type A immunity.

Going for leniency? Are you sure?

The attraction of type A immunity is obvious as companies will automatically receive a 100 per cent reduction in any fine, and all relevant employees and directors will be guaranteed no-action letters no matter how serious their individual conduct may have been. The burden of full and continued cooperation with the OFT would appear to be a fair price for the significant benefits on offer in such a case. Nevertheless, in deciding whether to apply for leniency, companies and individuals should also take into account a number of other factors:

Does the conduct amount to a cartel and is the OFT likely to be able to make the cartel allegation 'stick'? That is, will the OFT be able to gather sufficient evidence to establish the infringement to the requisite legal standard of proof (civil or criminal) and successfully defend it on appeal? In our experience, this can be a very difficult decision, as a company will not know what evidence the OFT already has, or what it may subsequently obtain from other companies (under leniency or otherwise), ie, it does not know what it does not know.

What are the 'reputational' effects? Although cartels are illegal, whistle-blowing can have significant implications for both a company's and an individual's relationships with third parties (both commercial and personal).

Is an application to the OFT sufficient? If the cartel activity also affects jurisdictions outside the UK, companies and individuals must consider whether to make parallel applications to other competition authorities (eg, the European Commission or US Department of Justice). Obtaining immunity in the UK will not prevent infringement proceedings being brought by other competition authorities in relation to offences committed in or affecting other jurisdictions.

Will information be passed on to other competition authorities abroad or to other law enforcement agencies with the UK? Although there are significant safeguards and leniency applicants are normally consulted and their consent is usually sought before any disclosures are made, would-be applicants are well advised to consider possible onward disclosure issues at an early stage and where appropriate discuss these with the OFT.46

In relation to the granting of a no-action letter, the OFT states that immunity from prosecution will not extend to an offence relating to cartel behaviour but which is clearly severable from it - such as the corruption of a public official in a bid-rigging case. This means that although individuals can obtain immunity from prosecution in relation to the cartel offence, they are not immune from actions that may be taken by other government agencies, such as the Crown Prosecution Service or the SFO for offences other than the cartel offence. Individuals can, however, take some comfort from the fact that in the Draft Final Guidance Note, the director of the SFO has confirmed that if an individual has been given a no-action letter in relation to particular cartel activity, the SFO will not attempt to prosecute that individual for the cartel behaviour with a charge of conspiracy to defraud.47

Parties should also be aware that the leniency policy does not provide companies with immunity from civil damages actions that might be launched by aggrieved third parties. This makes the control of information supplied under a leniency application even more important, as the 'leaking' of any inculpatory evidence to potential civil claimants may prove very costly.

The future

The OFT's enforcement activities in the field of cartels have developed significantly over the past few years and we understand significant cases are currently in the pipeline, many of which are now supported by leniency applicants. Also, as at EU level, there is a clearly visible trend that fine levels in UK cartel cases are going up and that the OFT is actively making use of its new criminal cartel offences powers against individuals. The first criminal prosecution and conviction for cartel conduct in the UK may not be too far off. As a result of all of this, it is vital that companies do their utmost to identify any cartel exposure they may have and consider whether UK leniency and no-action policies may offer attractive opportunities for managing any identified risks.

Footnotes

1 Sean Williams, Law Society European Group lecture, 'New brooms at the OFT', Law Society, London, 16 July 2007.

2 OFT press notice of 22 June 2006 'OFT investigation into alleged price coordination in relation to long haul passenger flights to and from the UK'; and British Airways press release 'OFT/DOJ Investigations' of the same date.

3 OFT press notice of 22 March 2007, 'OFT makes 'fast track' offer in biggest ever UK cartel investigation'.

4 Ibid.

5 The OFT Annual Report and Resources Accounts 2006-07, p42.

6 Section 188 of the Enterprise Act 2002.

7 See Norris v US Government & Others [2007] EWHC 71 (Admin); [2007] 2 All ER 29. On 13 March 2007, the High Court certified five questions relating to this case to be heard by the House of Lords. The questions cover the issue of whether price fixing is indictable under as a conspiracy to defraud and, if so, whether it matches the US offence of price fixing and satisfies the requirements of the Extradition Act 2003. The House of Lords indicated in July 2007 that it will hear the matter in January 2008.

8 See R v Denis O'Neill & Others, Southwark Crown Court, Case T2006/7302; in this context see also Sir Jeremy Lever QC and John Pike's 2005 paper on the common law offence of conspiracy to defraud and the statutory cartel offence, Lever and Pike: 'Cartel Agreements', [2005] ECLR, issues 2 and 3.

9 Sean Williams, Law Society European Group lecture, 'New brooms at the OFT', Law Society, London, 16 July 2007.

10 The OFT Annual Report and Resources Accounts 2006-07 refers to one further criminal investigation which was undertaken over the course of the last year and related to bid-rigging activities. However, this investigation has since then been closed; see p41.

11 OFT press notice of 22 June 2006, 'OFT investigation into alleged price coordination in relation to long haul passenger flights to and from the UK'.

12 OFT press notice of 3 May 2007, 'OFT launches criminal investigation into alleged international bid rigging, price fixing and market allocation cartel'.

13 www.oft.gov.uk/shared_oft/reports/comp_policy/oft803a.pdf.

14 For a copy of the ECN Model Leniency Programme and certain accompanying notes, see the ECN website at www.ec.europa.eu/ comm/competition/antitrust/ecn/ecn_home.html.

15 OFT press notice of 29 September 2006, 'OFT welcomes introduction of European Model Leniency Programme'.

16 OFT press notice of 18 April 2007, 'OFT announces consultation on private actions in competition law'.

17 OFT decision No. CA98/06/2003 Price-fixing of Replica Football Kit of 1 August 2003.

18 Case No 2005/1017, 1074 and 1623 Argos Limited, Littlewoods Limited v OFT and JJB Sports PLC v OFT [2006] EWCA Civ 1318. Following the handing down of the Court of Appeal's judgment, the appellants applied for leave to appeal which was refused first by the Court of Appeal and then subsequently by the Appeal Committee of the House of Lords on 7 February 2007.

19 The Consumer Association v JJB Sports PLC, Case No 1078/7/9/07.

20 OFT decision No. CA98/8/2003 Agreements between Hasbro UK Ltd, Argos Ltd and Littlewoods Ltd fixing the price of Hasbro toys and games of 21 November 2003.

21 Achilles Paper Group Limited v OFT [2006] CAT 24 (Stock Check Pads) (regarding OFT decision No. CA98/03/2006 Price fixing and market sharing in stock check pads of 31 March 2006).

22 Makers UK Limited v OFT [2007] CAT 11 (Makers) (regarding OFT decision No. CA98/01/2006 Collusive tendering for flat roof and car park surfacing contracts in England and Scotland of 22 February 2006).

23 Double Quick Supply Line and Precision Concepts Limited v OFT [2007] CAT 13 (Spacer Bars) (regarding OFT decision No. CA98/04/2006 Agreement to fix prices and share the market for aluminium double glazing spacer bars of 28 June 2006).

24 Stock Check Pads at paragraph 59.

25 Makers at paragraph 167.

26 Makers at paragraph 109.

27 To secure an applicant's position in the queue, cartel activity can be reported in the first instance orally over the telephone to the OFT's director of cartel investigations or, in his absence, to one of his two deputy directors (telephone number [phone]).

28 The relevant exemption provisions are contained in section 9 of the Competition Act 1998 and article 81(3) of the EC Treaty.

29 Section 36(8) of the Competition Act 1998.

30 Sections 26, 27, 28 and 28A of the Competition Act 1998.

31 'Directed surveillance' means any specific monitoring which is likely to result in the obtaining of private information which is covert (ie, it is intended that the targets are unaware of it) and not intrusive (ie, it does not involve private premises and it does not require any act of trespass); see section 26(2) of the Regulation of Investigatory Powers Act 2000 (RIPA). A practical example of directed surveillance would be OFT officers watching the main entrance of a business from a public place, such as a car parked on a municipal street, to establish when a certain employee tends to arrive for work in the morning. The OFT has summarised its powers of surveillance in a code of practice, 'Covert surveillance in cartel investigations' (OFT 738) August 2004.

32 For the OFT to 'run an informant', or CHIS, means to task someone to establish or maintain a personal or other relationship with a person for the covert (or undisclosed) purpose of providing the OFT with information or giving the OFT access to information; see section 26(8) RIPA. The OFT has summarised its powers in relation to CHISes in a code of practice, 'Covert human intelligence sources in cartel investigation' (OFT 739), August 2004.

33 Part 6, sections 188-202 of the Enterprise Act.

34 The offence is only committed if the individual acts dishonestly. The classic test for dishonesty under English law is set out R v Ghosh [1982] QB 1053, 75 Cr AppR 154 CA, 2 All ER 689, CA.

35 Section 190 of the Enterprise Act.

36 The OFT and the SFO signed a memorandum of understanding (SFO MoU) in October 2003 (OFT547) explaining the basis on which the two offices will cooperate in the Investigation and/or prosecution of criminal cartel cases. Under the SFO MoU, the OFT accepts in principle that it will transfer cartel offence cases which amount to 'serious or complex fraud' to the SFO. The SFO considers that criminal cartel cases may amount to 'serious or complex fraud' where the sum at risk is estimated to be at least [pounds sterling]1 million, that are likely to give rise to national publicity and widespread public concern (for example, those involving public bodies) and where legal, accountancy and investigative skills need to be brought together; see OFT guidance 'Powers for investigating criminal cartels' (OFT 515) at paragraph 3.18.

37 See footnote 31.

38 'Intrusive surveillance' is defined by section 26 of RIPA as covert surveillance that is carried out in relation to anything taking place on any residential premises or in any private vehicle and involves the presence of an individual on the premises or in the vehicle or is carried out by means of a surveillance device. Residential premises includes private homes but also, for example, hotel rooms. This power can normally only be used if it has been specifically authorised by the chairman of the OFT and approved by surveillance commissioner of the Office of Surveillance Commissioners (OSC) which is independent from the OFT.

39 See, in particular, section 4 'Parallel OFT criminal and civil investigations' in the OFT guidance on 'Powers for investigating criminal cartels'.

40 OFT Annual Report 2005/2006 at page 41.

41 Draft Final Guidance Note at paragraph 3.5.

42 Immunity means immunity from prosecution in England and Wales or Northern Ireland. In Scotland the Lord Advocate decides whether to grant immunity or leniency, though it is expected that the decisions of the OFT would be followed.

43 Draft Final Guidance Note at paragraph 4.18-19.

44 Draft Final Guidance Note at paragraph 4.23.

45 Draft Final Guidance Note at paragraph 4.2-3.

46 Transfer of information issues in leniency cases are discussed in the Draft Final Guidance Note at paragraphs 5.7 to 5.9.

47 Draft Final Guidance Note at paragraph 5.10.

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.

Mr Simon Holmes 

SJ Berwin LLP 

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