Drastic change to the UK competition regime was proposed by the Government in its March 2011 consultation paper which in May 2012 resulted in the publication of the Enterprise and Regulatory Reform Bill, which is now making its way through Parliament. In relation to the criminal cartel offence under the Enterprise Act 2002, the long-debated dishonesty element of the offence is to be removed.
The new cartel offence, stripped of dishonesty, will be subject to exceptions based on publication of 'relevant information' to customers or bid procurers. The Bill is silent on what needs to be published and how. This important detail will be left to secondary legislation although the practical implications may start to become clearer as the Bill proceeds. There are real difficulties with this approach. The new offence will not necessarily be any easier to prosecute than the old one and will, at a stroke, render uncertain the line between criminal conduct and acceptable competitive behaviour. The idea that the prosecutorial discretion of the OFT is a sufficient safeguard against abuse is fanciful. Businesses need to know where they stand and so do individual business people who, unlike companies, are at risk of prosecution and prison if convicted and are most in need of a clear legislative line on what is criminal and what is not.
The OFT has been opposed to the dishonesty element of the cartel offence despite the very short period of time since the offence was introduced in June 2003. As is well known, the OFT, as investigator and prosecutor, has not managed to complete a single criminal cartel trial in that period but that cannot be a good enough basis for change. It had always been expected that the OFT would investigate cartel conduct and seek the assistance of the SFO to mount prosecutions. That never happened and the OFT suffered a humiliating pre-trial defeat in the high-profile BA/Virgin case from which it never recovered.
Subsequent criminal cartel investigations into commercial vehicles, agricultural products and the automotive sector have all been terminated without any charges being laid. There are now no criminal investigations in the public domain and it seems highly unlikely that the OFT will take the risk of prosecuting another criminal cartel offence while the current offence requiring proof of dishonesty remains.
By contrast, the Antitrust Division of the US Department of Justice launched 90 prosecutions in 2011 and collected fines of USD524 million in criminal enforcement cases. Average prison sentences continued to rise to 24 months for criminal antitrust cases.
A number of factors explain the OFT’s mediocre record. Its resources for conducting complex investigations have not always been adequate, leading to an excessive reliance on co-conspirator whistleblowers giving evidence with the benefit of leniency. The peril of such reliance, especially in a cartel case with only two corporate participants, was highlighted by the ignominious failure in the BA case. On one view, the inclusion of the dishonesty element set the bar too high. One could argue also that the low five year maximum sentence, compared with ten years for conspiracy to defraud and offences under the Fraud Act 2006, always made the cartel offence out of line with other dishonesty offences, which even Parliament considered to be not nearly as serious as real fraud.
Whilst dishonesty has made the cartel offence hard to prove and removing it might appear to make criminal convictions easier to obtain, this reform is not a panacea. What the Bill fails to consider are other ways of improving the criminal cartel regime. This omission suggests a knee-jerk reaction to an offence that has only been on the statute book for a short time. The Government wants to abandon the requirement to prove dishonesty despite the fact that not a single cartel prosecution has yet been the subject of a jury’s deliberation and only one case has so far been brought to trial. The Government consultation paper on which the Bill was based preferred to rely on very limited academic research instead of practical experience of prosecuting cases in court.
The Government failed to take into account the detailed consideration given to the reform of the law on fraud by the Law Commission in its 2002 report which gave rise to the Fraud Act 2006. Instead, it refers to an earlier 1999 Law Commission report. In its 2002 report, the Law Commission found that the Ghosh test of dishonesty is unproblematic for jurors - a vital element of a large number of criminal offences - and that to abandon it would have a significant impact on the criminal justice system.
Corporate criminal liability is not addressed in the Government’s reforms. The Enterprise Act 2002 only criminalised the dishonest conduct of individuals in relation to cartel activity, leaving corporate liability to be dealt with under the national and European civil competition regimes. This approach is inconsistent with other countries including the US, Ireland and Australia, where provision is made for corporate criminal liability. It is also inconsistent with the Government’s policy in other areas such as the new Bribery Act 2010 which criminalises companies which fail to prevent bribery and in corporate manslaughter cases under the Corporate Manslaughter and Corporate Homicide Act 2007. In both these areas, the offences are said to be significant deterrents even though there will be only a small number of prosecutions. The failure to raise the issue of corporate criminal liability for cartel conduct is disappointing because it is arguable that the threat of criminal prosecution for companies which would attract the risk of very high fines, criminal confiscation orders and concurrent civil liability is more likely to encourage leniency applicants to come forward.
If companies also faced the risk of criminal prosecution, there would be greater scope for prosecutors to attack large scale criminal cartel conduct involving substantial corporate gain. In cases involving individuals, it is likely to be very hard to identify any personal gain from cartel conduct which, in turn, makes the offence more difficult to prosecute because there is often no clear motive for personal, as opposed to corporate, gain.
There is plenty of cartel activity around the world but national and regional competition regimes vary considerably in the range of enforcement tools available to them. Criminal penalties do operate as a significant deterrent if they are backed by real cases coming to court. In the UK at least, the criminal cartel regime needs time to develop with more resources for investigation and prosecution. Change is now inevitable but leaving corporate conduct outside the jurisdiction of the criminal courts looks too lenient and out of step with other countries. Removing dishonesty as an element of the cartel offence is an easy option but it is unlikely to speed up investigations or to make convictions easier to secure. Instead, it is likely to make potential defendants more likely to fight cases at trial. Securing cartel convictions will not be easy, even without dishonesty as an element of the offence, but that at least is right. The bar for proof of criminal conduct should be high and prosecutors need to ensure that they have evidence to reach it.