Tough but fair – the CMA’s approach to tackling cartels and anti-competitive practices
Kremlinology – as those of us who are old enough will remember – was the pseudo-science by which commentators in western countries during the Cold War tried to work out what was going on in the leadership of the Soviet Union. Was Soviet policy getting more permissive, liberal and accommodating – or more hard-line? Typically, absurdly large conclusions and generalisations would be drawn on the basis of the tiniest scraps of evidence – a single policy decision, an announcement, a change of personnel in the top team.
I must confess that, during the years when I was a competition lawyer in private practice, we used to engage in a spot of Kremlinology when it came to the competition authorities. Were they getting tougher in their approach, and more hard-line, or more accommodating towards the businesses that were the subject of their enforcement activities? For ‘accommodating’, we usually used words like ‘reasonable’ or ‘sensible’. And we used to draw absurdly large conclusions from the smallest fragments of evidence – a single decision, a policy announcement, a change of personnel in the leadership team.
Now I would not like to push the analogy between the old Soviet Politburo and the Competition and Markets Authority (CMA) too far. In fact, I hope people don’t think that there is much comparison at all. And certainly, I hope people will acknowledge that we are a good deal more transparent in the way we undertake our work.
In particular, if people are still wondering whether our approach to competition law enforcement is (to use that crude dichotomy) getting tougher and more ‘hard-line’ – or, rather, more accommodating / ‘reasonable’ / ‘sensible’ – I would like to emphasise the importance of not confusing ‘means’ with ‘ends’: how we undertake enforcement activities, as opposed to the objective that we are seeking to achieve.
The ‘means’ – fairness and rigour in our case work
When it comes to means – how we carry our enforcement activity – let me say at once that we are committed to the highest standards of fairness in our dealings with businesses and with individuals. We take very seriously the idea of giving a fair hearing to those we engage with. We – obviously – do our utmost to be impartial and to avoid bias, and that is embedded in the procedures we adopt. But, more than that basic requirement, we are committed to listening to the arguments and evidence put to us with an open mind; and striving, in our evaluations and assessments, to safeguard ourselves against the very human temptation of viewing matters through the prism of preconceptions and confirmation bias.
We are committed to this approach, not just because of the legal requirements on us, or even because we don’t particularly like having our knuckles rapped by the Competition Appeal Tribunal (CAT) (although I should add that we – genuinely – welcome the discipline and accountability that the Tribunal’s rigorous and effective oversight brings to our work). More importantly, it is because that is what we want. If we are serious about terminating, and deterring, illegal anti-competitive practices – and we are – it is extremely important to us that, so far as reasonably possible, we get it right: that we get a fair understanding of the evidence and the arguments, uncluttered by bias or preconceptions, so that our conclusions are sound. We want to combat illegality. We do not want to ‘chill’ legitimate business activity. And so we want to be best placed to distinguish between the two, which requires as fair and accurate an understanding of the facts and arguments in any one case as is reasonably possible.
In addition, we want to deal fairly with businesses because we know that, if we do not, that will undermine our legitimacy – that is, support for, or at least acceptance of, our work and what we are trying to achieve – in the eyes of the business community, of the legal community, of commentators, and indeed, more widely, of the general public.
I am pleased to say that the CMA teams who work on antitrust and cartels matters need no persuading of the importance of fair dealing. Led by highly experienced and able Senior Directors – Stephen Blake for cartel investigations under both the criminal offence and the UK and European Union (EU) ‘civil’ prohibitions, and Ann Pope for other anti-competitive agreements, concerted practices, and abuses of dominance – our staff are not only dedicated, diligent and thorough, but also committed to the highest standards of integrity, impartiality and fairness. One of the things that has impressed me deeply on joining the CMA from outside is how serious people are about using their talents to reach the right answer, in the public interest. We at the CMA may sometimes make mistakes, as people do, but we are open to being corrected and we are determined to be as fair and rigorous as humanly possible.
At the same time, we will be alert to attempts to exploit this approach by ‘gaming’ the system through spurious procedural challenges and other delaying tactics. And we expect that our openness to those we engage with is matched by an honest and trustworthy approach in their dealings with us – again, not just because of the requirements of the law about falsifying or destroying documents, or providing false or misleading information, or failing to comply properly with our information requests – but because the best prospect for engaging fairly is if relations are based on trust and mutual respect.
In short, we are committed to the highest standards of fairness in our dealings with businesses – and, indeed, with individuals, including in the course of obtaining oral evidence, or exercising our functions in relation to the criminal cartel offence, or director disqualification orders.
If the Kremlinologists among you wish to see that as an ‘accommodating’, or even a ‘reasonable’, approach, so be it.
The ‘end’ – vigorously combating anti-competitive practices
But, to my mind, there is no inconsistency between that approach to the means by which we carry out our functions, and being very serious indeed about the ends: our objective – in fulfilling our statutory duty to promote competition, within and outside the UK, for the benefit of consumers – to combat unlawful anti-competitive practices. Let there be no doubt: we are determined to deploy the resources available to us as effectively as possible
- to put an end to anti-competitive agreements, arrangements and concerted practices, abuses of dominance, and criminal cartels;
- to penalise those who engage in such practices where appropriate; and
- to send a strong message of deterrence to others who might be tempted to do so.
We have the legal powers to do this and, as you all know, those legal powers were to a certain extent strengthened by the legislation which came into force on the day we started operating in April last year. As well as using those powers to enforce competition law, we also want to do all we reasonably can to encourage and help businesses in complying with the law.
The first of the 5 goals we set ourselves when the CMA was established was to ‘deliver effective enforcement’.
And the latest ‘strategic steer’ to us from the government – issued in draft form in July this year – asks us to ‘remain a strong defender of fair competition and enforce antitrust rules fairly and effectively’, ensuring that our decisions are ‘robust’. It asks us to conclude cases ‘as quickly as possible’, so that our cases have ‘the maximum possible positive impact on the welfare of consumers’.
But our determination is not just based on those documents. Mindful of that statutory duty to promote competition for the benefit for consumers, we see it as of fundamental importance, in and of itself, that consumers should be protected from illegal anti-competitive practices.
All of us in this room are familiar with the basic concept that consumers benefit from the downward pressure on price, and the upward pressure on quality and innovation, that vigorous competition engenders. To my mind it follows that those cartels, agreements, arrangements, concerted practices and abuses that deprive consumers of those benefits, by frustrating or weakening competitive pressures, should not be tolerated. Put bluntly, we are determined not to see consumers ripped off by such practices.
Speaking personally, I continue to see the force of Adam Smith’s conception of collusion between businesses as ‘a conspiracy against the public’ (1 - see footnotes at the end). That idea, expressed nearly a quarter of a millennium ago, still resonates today. Much more recently, a similar idea was expressed by David Lewis, who was the first head of the Competition Tribunal in post-apartheid South Africa. His book describing his experiences of enforcing the country’s Competition Act took as its title ‘Thieves at the dinner table’. This refers to a cartel he had to deal with which had had the effect of raising the price of bread in South Africa, so putting bread at the dinner table beyond the reach of millions of poorer South Africans. ‘Thieves at the dinner table’ is a fairly dramatic, but I think not an inaccurate, way of characterising anti-competitive practices that harm consumers.
We all know that the practice and application of competition law is technically complex, and replete with subtlety, with plenty of scope for legitimate debate about the economics, the law and the facts in any particular case. But at heart, this – the ‘conspiracy against the public’, the ‘theft at the dinner table’ - is what competition law enforcement is aimed at combating. That is our objective – our ‘end’, as opposed to ‘means’ – in competition law enforcement.
As we also know, weakening competitive pressures has the further effect of blunting the spurs to economic efficiency. As an economy, as a society, we all lose out. Truly, a conspiracy against the public.
So we in the CMA are determined to be fair in our dealings with business, and determined, also, to be vigorous in combating illegal anti-competitive practices. The Kremlinologists might describe that as tough talking. To my mind, it is simply our job, the fulfilment of our statutory duty.
And it is not an anti-business message. Businesses lose out from anti-competitive practices – not only because businesses are often the customers of those participating in anti-competitive practices, or legitimate competitors excluded by such anti-competitive practices. All businesses lose out when anti-competitive practices weaken the spurs to efficiency. Being vigorous in combating illegal anti-competitive practices is, in the long run, good for business. It is a pro-business approach as well as a pro-consumer one.
Putting these principles into practice
What does all this mean in practice? I have said that we are determined to be fair to businesses, and individuals, in the way we carry out our enforcement activities, enabling us to reach decisions that are robust and as well-placed as reasonably possible to withstand legal challenge. And we are determined to be vigorous in combating anti-competitive agreements. That, indeed, was the policy intention behind the recent reforms of the UK competition regime that led to the establishment of the CMA. The government’s March 2012 policy paper underlying those reforms (2) had expressed a number of concerns about the way we do competition enforcement in the UK – about ‘the quality and robustness of administrative decision-making (including in addressing perceptions of confirmation bias)’, about the number of cases, and about the time those cases take. In other words, the government was saying to the UK competition system: we need you to do more, to do it more quickly, and with greater fairness and rigour.
So the government wanted competition enforcement both to be fairer, and to be more vigorous – precisely the approach that I have just been outlining (albeit they did so somewhat more succinctly).
That was back in March 2012. Just over 2 years later, in April 2014, the CMA opened its doors. How have we done since?
Fairness and rigour in practice
In terms of our means of enforcement – procedural fairness and rigour – I think that over the past few years both we and our predecessors at the Office of Fair Trading (OFT) have gone a long way in addressing many of the concerns expressed about this.
Starting, first, with the position under the UK and EU prohibitions on anti-competitive agreements and abuse of dominance – the Chapter I and Chapter II prohibitions in the Competition Act 1998, and the EU equivalents in Articles 101 and 102, all of which we are empowered to enforce in the UK. In the aftermath of CAT judgments such as that in the Tobacco pricing case in 2011 (3), we and our predecessors took on board that there were serious worries about the risk of confirmation bias – which I spoke about earlier – affecting the decision-making process. It is an aspect of human nature that you can never entirely eliminate that risk of confirmation bias – or indeed of the related peril of ‘groupthink’ – but (with the active support of the government) the OFT and we have put in place some stringent safeguards against it.
- There is, at all key stages of our handling of a case, rigorous ‘quality assurance’ by way of checks and balances, involving critical review of the case team’s work by senior officials outside the team, and by our lawyers and our economists.
- In addition, a system was introduced (and is now enshrined in secondary legislation) under which the officials who make the final decision on the case – the so-called ‘Case Decision Group’ – are a different set of people from the officials who undertook the investigation and drew up the allegations of infringement in the statement of objections. This reduces the risk that the final decision will be influenced by any preconceptions arising from the original investigation. In this respect, we are more advanced than many competition authorities that apply similar competition laws.
- And over the past few years the role of the Procedural Officer, a senior official who is independent of the case team, and who adjudicates on procedural complaints from the businesses involved in a case, has been enhanced.
All these safeguards are, of course, in addition to the discipline of the parties having the right to a full ‘merits’ review of our decisions if they appeal to the CAT.
Second, as regards the criminal cartel offence, the decision-makers are of course wholly independent of the CMA – the jury on the question of guilt or innocence, and the court on the conduct of the trial and sentencing, as amply illustrated by the galvanised steel tanks cartel trial this summer. Although we were naturally disappointed by the jury’s ‘not guilty’ verdicts in the case, we of course accept those verdicts. We did take some satisfaction from the widespread recognition that, in our procedural handling of the case, we had clearly learned the lessons of the previous cartel trial – the procedural failings that had led to the collapse in May 2010 of the OFT’s prosecution of current and former British Airways executives. Indeed, the Crown Court judge in the galvanised steel tanks case went out of his way to comment favourably on the ‘very through and comprehensive review’ that our case team had carried out on disclosure. We also noted the judge’s comments when he sentenced the one defendant in the case who had pleaded guilty; while giving him just a 6 months’ suspended sentence along with community service – he avoided prison time because of his co-operation with the OFT and the CMA – the judge noted that cartel members should normally expect to receive a prison sentence as a deterrent, bearing in mind the economic damage done by cartels, and that in this case, if it had not been for that defendant’s co-operation, the appropriate sentence would have been 2 years in prison (4).
None of this is grounds for complacency. It is simply to highlight that we took seriously the criticisms of our processes, we have worked hard to address them, and we continue to do so.
Increasing the number and speed of cases in practice
On increasing the volume, and the speed, of competition enforcement, we know that more is expected of us, and we ourselves are ambitious to do more. We have invested in specialist expertise in digital forensics and better intelligence-gathering to uncover secret cartels and other anti-competitive practices, complementing the information we receive through our ‘leniency’ programme which provides incentives for participants in cartels to ‘blow the whistle’ on their fellow cartellists. To use the Adam Smith phrase again, secret conspiracies against the public are now high-risk activities – participants in illegal cartels, anti-competitive agreements, concerted practices and abuses of dominance would be ill-advised to assume that their practices will remain hidden from us.
Looking ahead, we believe that we should, and can, increase the number and pace of competition enforcement cases – with a view to achieving our objective of stopping, and deterring, illegal anti-competitive practices which (as we’ve said) harm consumers, businesses and the wider economy. And that we should, and can, do so without compromising the high standards of fairness and rigour that we have worked so hard to achieve. There are clearly efficiencies that we can achieve in the way we deploy our resources, and since the CMA came into being we have started to implement these through enhancement and streamlining processes across the CMA’s competition enforcement activities.
It would be idle to pretend that there is not some degree of trade-off here: plainly, if you achieve greater procedural fairness and robustness through a Case Decision Group in which a new set of people looks afresh at the evidence and arguments in the case, that is going to take more time. (Sometimes, those who want us both to be fairer and more rigorous, and to ‘get on with it’, seem to disregard this.) Yet in the long run, if our cases are fairer and more robust, there is a lower chance that appeals against our decisions will succeed, and one might reasonably expect that that, in turn, will deter people from ‘taking their chances’ with unmeritorious appeals.
If that happens, the increased fairness and rigour will have shortened the end-to-end process and strengthened our deterrence.
In any event, it is right that we seek to increase our enforcement activities. It is right, too, that we avoid unnecessary delays in case handling – delays are bad for the businesses involved in the investigation, because they prolong uncertainty, and they are bad for protecting consumers because they prolong the wrongdoing and weaken the deterrent effect. And it is right that we strive to do both those things, consistently with the highest reasonable standards of procedural fairness and rigour. That is our ambition, and we will pursue it with determination.
Of course, resources are not infinite, and even in the absence of the public expenditure restraints that we all currently face, the CMA would not be able to investigate every alleged infringement that we become aware of. There is also a range of other work we have to do to promote competition and make markets work well in the interests of consumers, businesses and the economy – and to which CMA staff have to be deployed – including upholding consumer protection laws, deciding on regulatory appeals, merger control, and undertaking market studies and market investigations: you will be familiar with our major market investigations into the energy sector and the retail banking sector to which we are currently committing considerable resources. This is work that the public – as well as political leaders, consumer groups, the media and others – expect a national competition authority to be doing.
Some work we are obliged to do – as where a merger is notified to us, or a regulatory appeal submitted to us. In other work, where we have discretion – including on whether to take competition enforcement action in a particular case – we, just like any other competition authority, have to prioritise. Our prioritisation principles have been public for years, and are well-known.
In this context, I have heard it said that we don’t take seriously the complaints people make to us about alleged anti-competitive practices, and even that it’s barely worth submitting complaints to the CMA. That is emphatically not the case. We will carefully consider reasoned complaints that are made to us, in the light of our prioritisation criteria which take into account the strength of the case – that is, the likelihood of a successful outcome – along with considerations about the impact, the strategic significance and the resource costs of pursuing the case.
Cases large and small
I am also conscious of the criticism that’s been made of us that, in our prioritisation decisions, we seem to have prioritised small-scale, local cases, and that these have limited impact and weak deterrent effect. Certainly, we at the CMA share the view that we need to take action against infringements that are large – whether in terms of market value, the size of the businesses concerned, or the number of the consumers affected – and that infringement decisions that generate headlines clearly have a significant deterrent effect. You will be aware that, this summer, we announced the issuance of a statement of objections in respect of pricing in the pharmaceutical sector; specifically, we alleged abuses of dominance by 2 pharmaceutical companies, one of which is a major supplier of drugs in the UK, in respect of an important anti-epilepsy drug, of which the National Health Service (NHS) is a major customer. Without in any way prejudging what will eventually be decided in the case by the Case Decision Group, one thing is clear: in investigating this, we were looking into an issue involving major corporates, in an important economic sector, affecting the health and well-being of large number of patients, and affecting the costs borne by all of us as taxpayers funding the NHS. That is not small-scale. And we have other high-profile cases in the pipeline, all of which we will assess on their merits.
But it would be a mistake to underestimate the deterrent value of smaller-scale or local cases. It is important that all businesses understand that, no matter how small they are or how local their markets, competition law applies to them and they are not beyond the reach of competition enforcement. Consumers in local markets need to be protected no less than consumers in national or global markets, and that is true up and down the country, including in the devolved nations. Small and medium-sized businesses are important to the success of our economy, and, like other businesses, they should not be sheltered from the efficiency-inducing effects of competitive pressures. So there is real value in taking on the smaller-scale and local cases as well as the larger cases that grab the headlines. And in the recent decisions we have made that have been relatively small-scale or local, we have taken active steps to ensure that the deterrent effect goes wider, following up our decisions with active engagement in the sectors concerned to encourage competition law compliance and to make clear the implications of non-compliance. Indeed, such follow-up activity may well flush out other infringements, which can lead to further enforcement action.
Deterring individuals from engaging in anti-competitive practices
In terms of deterrence for individuals, which as we all know can be very powerful, we are naturally considering the implications of the acquittals in the galvanised steel tanks trial. It is of course the case that, for cartel activity after April 2014, last year’s change in the law on the criminal cartel offence entails that it will no longer be necessary for prosecutors to prove dishonesty; this is important, given that the defence in the galvanised steel tanks trial was essentially based on the contention that the defendants had not acted dishonestly. (I note in passing that this put into perspective claims that were made by many in the competition law community that this change to the law was unnecessary, and that the ‘dishonesty’ criterion was not a significant impediment to successful prosecution. In galvanised steel tanks, at least, it clearly was an impediment, and the change in the law could well make a real difference.) I should make clear that, where we find prosecutable offences in relation to pre-April 2014 cartel activity, we will continue to assess them on their merits and will prosecute where appropriate.
And of course, apart from criminal cartel offence, individuals may face other consequences as a result of unlawful anti-competitive practices, for example in terms of disqualification of directors.
So we are determined to protect consumers – and benefit business and the wider economy – by the vigorous enforcement of competition law, which involves increasing the volume and speed of cases, and to do so while maintaining high standards of fairness and rigour. These are stretching ambitions, particularly at a time of public expenditure constraints. We know that, over the coming months and years, where we fall short in achieving our ambitions, you in the competition law community will not be slow to keep us on our toes. And, although that will sometimes be uncomfortable for us, we know that it is both healthy and necessary for the effective, vigorous, fair and robust enforcement of competition law, to help us promote competition for the benefit of consumers.
- Adam Smith, The Wealth of Nations (1776), book 1, chapter 10.
- BIS, Growth, competition and the competition regime – Government response to consultation (March 2012), paragraph 6.8.
- Imperial Tobacco and others v OFT (2011) CAT 41, including in particular paragraph 85.
- Southwark Crown Court, 14 September 2015.