CARTEL OFFENCE: THE UK EXPERIENCE Philipp Girardet,

SJ Berwin

44th

FIW Symposium, 11 March 20111580970v1

Overview

•

The road to criminalisation in the UK

•

Enforcement in the UK to date

–

Marine Hoses case –

BA / Virgin case

•

Challenges ahead

Criminalisation in the UK

•

Extensive debate ahead of criminalisation–

“A World Class Competition Regime”

White Paper, July 2001

–

The Hammond / Penrose Report, Nov 2001•

Key considerations–

Hard core cartels damage the wellbeing of the UK economy

–

Corp. fines under-deter given the low probability of detection–

Introduce a stronger element of personal responsibility

–

Impact on OFT and DG COMP leniency–

UK survey suggested that 83% supported criminalisation

–

The experience in the US and Canada•

Key omission in the debate–

Common law offence of “conspiracy to defraud”

The statutory ‘cartel offence’

•

Section 188 of the Enterprise Act 2002:

“An individual

is guilty of an offence if he dishonestly

agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements of the following kind relating to at least two undertakings

…”

•

Covers price-fixing, bid-rigging, market sharing and limitation of production and supply

•

OFT and SFO can both investigate and prosecute

•

Applies to conduct from June 2003 onwards

The statutory ‘cartel offence’

•

Statutory sanctions –

Up to 5 years imprisonment

–

Unlimited criminal fine

•

Additional sanctions–

Asset recovery orders for ‘proceeds of crime’

–

Director Disqualification Orders–

Extradition risks

–

Adverse impact on employment prospects

Dishonesty

•

Critical issue: what is “dishonesty”?

–

To encourage juries to impose custodial sentences & to avoid juries having to consider complex economic evidence re effects

–

The test in R v

Ghosh

[1982]

•

‘Objective’

part -

Does the jury think what the defendant did was dishonest according to the ordinary standards of reasonable and honest people? If the answer is no, the defendant is not dishonest.

•

‘Subjective’

part: Did the defendant realise that reasonable and honest people would regard what he did as dishonest?

•

7 years, no jury has so far had to consider the matter …

Dishonesty

The notorious ‘man on the Clapham omnibus’

test …

53% of people interviewed

thought it was not wrong

for a carer to persuade a patient to change

their will in the carer’s favour

Recognised challenges

•

Who should be the principal prosecutor?–

Government’s preference was OFT

–

Hammond/Penrose suggested SFO–

Enterprise Act –

both OFT / SFO

•

Relationship between civil / criminal investigations–

All OFT investigations carried out to a criminal standard

–

Hammond/Penrose suggested do criminal cases first–

Would cause significant delays to civil enforcement

•

Role of leniency–

Admissions of ‘dishonesty’

vs ‘witness of fact’

role

–

Pressure on witnesses to be helpful

Lessons learnt (1): Marine Hoses

•

First criminal prosecution and conviction, May 2008

–

Involved global cartel with UK contracts alone worth £17m–

US co-prosecution and plea agreement

– Involved set-off provision for US jail terms– UK guilty pleas meant UK hearings limited to sentencing

• First instance: Sentences in excess of US agreements (eg 3 yrs)

• Court of Appeal reduced terms to US length “not having had the benefit of the kind of argument from counsel to which the court is accustomed”

•

Court had “considerable misgivings”

about the case and urged that the sentences are not to be treated as guidance for future cases

Lessons learnt: BA / Virgin

•

First prosecution in a contested case

–

Allegations of criminal collusion regarding fuel surcharges for passenger flights between BA and Virgin between August 2004 and September 2005

–

Allegations of many millions of pounds worth of unlawful costs–

OFT prosecuted and relied heavily on Virgin for disclosure purposes

–

All four BA defendants entered ‘not guilty’

pleas in July 2009–

Full criminal trial started on 14 April 2010

–

Trial collapsed four weeks later

Lessons learnt: BA / Virgin

•

What happened?–

“Oversight”

led to non-disclosure of some 70,000 emails

–

Some of which had the potential to assist the defence–

Unrealistic to adjourn & OFT offered no evidence

–

Defendants acquitted–

OFT said it would review Virgin’s immunity grant

–

BA said it would review its earlier civil settlement (£121m)

•

Key concerns–

OFT’s reliance on leniency applicant for disclosure

–

Reliability of prosecution witnesses?–

Threat to privilege

–

Settling civil cases early?

What’s next …

•

It is early days for UK criminal enforcement

•

Slow and rocky start but continued commitment

•

More active use of CDOs in civil cases

•

Key issues going forward

–

Separation of investigation and prosecution–

Role of immunity applicants

–

Dishonesty–

Development of ‘plea bargaining’

(cf leniency)

Philipp Girardet EU & Competition

SJ Berwin LLP philipp.girardet@sjberwin.com

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