Peter Crowther, London head of competition, Dewey & LeBoeuf
Opinion: Reform of cartel legislation lacks specificity
11 April 2011
20 June 2014
21 August 2013
5 February 2014
11 March 2014
27 March 2014
On 16 March the Government issued a consultation paper entitled ’A Competition Regime for Growth: A Consultation on Options for Reform’.
Among the many issues in the paper is the important question of how to amend the criminal cartel regime so that it works. In the eight years since it has been in force
the criminal cartel offence has never been prosecuted successfully in a contested case.
Currently the Enterprise Act 2002 makes it a criminal offence for individuals “dishonestly” to agree to engage in certain practices, including price-fixing and bid-rigging. OFT officials have long commented that the criminal cartel offence, because it includes a dishonesty element, is extremely difficult to prosecute.
So at one level the Government’s various proposals for reform appear to make sense, since they all involve either removing the dishonesty element of the offence or replacing it with some other test.
However, there is no evidence based on court practice that the cartel offence could not work effectively. There has only been one contested cartel offence case before the courts, the BA-Virgin price-fixing case, and that collapsed because the OFT failed to satisfy the judge of the adequacy of its pre-trial disclosure.
So far as the dishonesty debate is concerned, had the BA-Virgin case got that far it would have been interesting to see what the jury would have made of BA executives potentially going to prison for doing the same thing as Virgin executives, who would walk away scot-free merely because they had confessed to their crimes. Presumably, defence counsel would also have made much of the credibility of defence witness testimony where those witnesses had agreed they were dishonest.
From the thrust of the consultation paper it seems unlikely that we will ever find out whether this element of the cartel offence was fit for purpose, although there are a couple of pending criminal investigations. A cynic might comment that the absence of cases confirms that the offence as defined by the authorities was ill-suited to its task. But tinkering with one element of the offence is not necessarily the way forward and does not address whether the institutional design is appropriate.
The real lesson of the immediate past is what can happen when civil enforcement is tangled up with criminal enforcement in the context of a whistleblowing programme that rewards cooperating individuals and companies with complete immunity.
With the benefit of hindsight, many would agree that, based on the facts, the BA-Virgin criminal case should never have been brought. This says something about institutional design.
It may be that the decision has already been taken to strip the OFT (or, more likely, its successor organisation) of its criminal powers in the context of the creation of the Economic Crime Agency.
Whether or not this is appropriate is not the point. What matters is that any assessment of institutional reform must take full account of the substantive offences the Government wishes to introduce. A treatment of these fundamentally linked aspects of law reform is absent from the consultation paper, despite the many problems caused by parallel civil and criminal enforcement of competition law.
Institutional design must go hand-in-hand with substantive reform.
If the Government wishes to continue criminalising cartel conduct it needs to consider how cartels operate in practice, design the offence appropriately, work out the enforcement regime and ensure that the division of labour between the civil and criminal regimes is articulated clearly.
There is no such thing as an honest cartel, so maybe dishonesty is not a necessary element, but that is not the whole story.