Speech given by Stephen Blake, Senior Director, Cartels and Criminal Group at a conference on the 'Challenges in the field of economic and financial crime in Europe'.
The case for specialist enforcement authorities from the perspective of the UK Competition and Markets Authority
Good afternoon, ladies and gentlemen, and my thanks to Eclan (European Criminal Law Academic Network) and the University of Luxembourg for inviting me to attend this conference and specifically to speak about the case for specialist enforcement authorities from the perspective of the UK Competition and Markets Authority (CMA).
In doing so, I will explain:
- first, the role of the CMA, including its criminal enforcement function, and how that fits within the wider UK competition regime;
- secondly, the key features of the UK cartel regime and the challenges it presents; and
- thirdly, the CMA’s approach to meeting those challenges – including how it is structured and its relationships with other enforcement agencies, both within the UK and internationally.
I will argue that there are clear benefits in embedding the CMA’s criminal enforcement functions within a specialist competition authority, supported by strong partnership-working with other enforcement authorities.
The importance of cartel enforcement and the role of the CMA
The CMA is an independent, non-ministerial government department which was established by the Enterprise and Regulatory Reform Act 2013 (ERRA) and brought together the UK’s Competition Commission (CC) and parts of the Office of Fair Trading (OFT), thus providing the UK with a single, integrated competition authority, alongside certain sectoral regulators which also have powers to apply competition law in the particular sectors they regulate – powers which they hold concurrently with the CMA (1 – see footnotes at the end). The CMA acquired its powers on 1 April 2014.
The CMA’s overall mission is to make markets work well in the interests of consumers, business and the economy, recognising that competition is a vital contributor to productivity and strong, sustainable economic growth (2). As such, it has a broad remit with responsibility for carrying out investigations into mergers, markets and the regulated industries (3), as well as enforcing competition and consumer law. The CMA’s enforcement functions include criminal enforcement, principally in relation to cartels, although the CMA also has the power to prosecute certain consumer protection offences, an example of this being the recently concluded CMA prosecution of a £20 million pyramid promotion scheme which resulted in the conviction of 9 individuals (4).
In delivering this mission, the CMA takes a holistic, joined-up approach across its work and tools, bringing them together for maximum positive effect in markets and ensuring that the UK competition, markets and consumer protection regime adds up to more than the sum of its parts (5, 6). Enforcement, balanced by the CMA’s compliance and awareness-raising work, is central to this. In particular, the CMA recognises that effective enforcement is key to its credibility and underlines its efforts to protect consumers and markets, as well as adding weight to its arguments for greater competition (7).
Within that, the CMA places a particular emphasis on the importance of effective cartel enforcement. Cartels are a major barrier to competition. They artificially increase prices for purchasers (whether consumers, businesses or government), reduce output and innovation, disincentivise efficiency, and lead to consumer harm. Indeed, academic research suggests that cartels can inflate prices in a market by 30% or more (8).
The cartel enforcement regime
With that, by way of context, let me turn now to the key features of the UK cartel regime. This is essentially a dual regime: a criminal regime directed at the conduct of individuals, and a parallel civil (administrative) regime directed at businesses (‘undertakings’) (9, 10).
The criminal regime
The UK criminal cartel offence (11), which applies only to individuals, has the aim of criminalising and deterring behaviour by individuals leading to the most egregious and damaging forms of anti-competitive agreements, namely ‘hardcore cartels’. These are typically secret arrangements under which competitors agree to fix prices, share markets or customers, restrict production or supply, or rig bids, in each case at the expense of customers and without any countervailing customer benefits, usually in order to preserve or drive up prices.
The consequences for persons convicted of the cartel offence may include:
- up to 5 years imprisonment and/or an unlimited fine;
- director disqualification for a period of up to 15 years (12); and/or
- the confiscation of assets under the Proceeds of Crime Act 2002.
For example, in the Marine hose case – R v Whittle, Brammer & Allison – 3 individuals were convicted and sentenced to terms of imprisonment of between 20 months and two and a half years, as well as being disqualified from acting as company directors for periods of between 5 and 7 years. Two of the defendants were also the subject of confiscation orders totalling over £1 million. The third defendant was ordered to pay costs.
In England and Wales, and in Northern Ireland, prosecutions for the criminal cartel offence may only be brought by the CMA or Serious Fraud Office (SFO), or with the consent of the CMA (13). Decisions whether to prosecute for the cartel offence are taken in accordance with the principles set out in guidance published by the CMA under the Enterprise Act 2002 (EA02) (14) and the Code for Crown Prosecutors, which is issued by the Director of Public Prosecutions and is applied in all prosecution decisions by the Crown Prosecution Service, the principal public prosecution service for England and Wales (15). In Scotland, the decision whether to prosecute is made by the Crown Office and Procurator Fiscal Service (COPFS), the sole prosecution authority in Scotland, which is headed by the Lord Advocate and which applies the COPFS Code (16).
The civil (administrative) regime
Sitting alongside the criminal cartel offence are the prohibitions on anti-competitive agreements under EU and national competition law, which the CMA (along with the European Commission (EC) and the UK sectoral regulators) is also responsible for enforcing.
Specifically, Chapter I of Competition Act 1998 (CA98) prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade within the UK and which have as their object or effect the prevention, restriction or distortion of competition within the UK unless they are excluded or exempt. The Chapter I prohibition is based on Article 101 of the Treaty on the Functioning of the European Union, which the CMA must also apply to agreements or concerted practices which may affect trade between EU member states and have as their object or effect the prevention, restriction or distortion of competition within the internal market. By contrast with the cartel offence, the civil regime is directed at undertakings (17).
The civil prohibitions in relation to anti-competitive agreements are wider than the criminal cartel offence. For example:
- they also extend to anti-competitive arrangements that fall short of an agreement but that would amount to a ‘concerted practice’;
- they are not limited to hardcore cartels, but extend to any agreement or concerted practice between undertakings whose object or effect is to prevent, restrict or distort competition; and
- the infringing conduct need not have been committed intentionally or knowingly to attract a sanction under the civil regime; negligence will suffice (18).
For example, the Loans to professional services firms case concerned the unilateral disclosure of confidential, commercially sensitive pricing information, which was found to be an ‘object’ infringement under civil competition law (19). By contrast, the disclosure to competitors, or exchange among them, of confidential future pricing information would not in and of itself be caught by the criminal cartel offence (although it may be evidence of an underlying agreement by which the offence is committed).
As in the case of the criminal regime, the consequences of civil enforcement action are significant:
- undertakings face penalties of up to 10% of their worldwide turnover;
- Individuals may be subject to director disqualification for a period of up to 15 years (20); and
- an infringement decision may be relied on in support of follow-on private actions and claims for damages.
For example, a £28.59 million fine was imposed on the Royal Bank of Scotland in the Loans to professional services firms case (21) and a fine of £58.5 million was imposed on British Airways in the Airline passenger fuel surcharges civil case (22). In respect of the latter, the Competition Appeal Tribunal published an order in October 2014 consenting to the withdrawal of a damages action brought by the UK Ministry of Defence against British Airways by way of follow-on action to the OFT’s infringement decision, the parties having agreed terms of settlement (23).
Relationship between the criminal and civil regimes
The criminal and civil regimes are separate but complement each other.
Through the prosecution of individuals and the serious consequences which follow from it, including the possibility of imprisonment, the criminal regime is designed to ensure that individuals are appropriately punished for – and deterred from – engaging in the most egregious and damaging forms of anti-competitive agreements. The civil regime on the other hand, ensures that businesses – which in cartel cases will usually be the main beneficiaries of the infringing conduct – are equally incentivised to play their part in ensuring compliance with the competition rules.
Cartel cases in the UK may thus be investigated exclusively under the criminal or civil regime, but – in appropriate cases – may equally be investigated under both regimes in parallel, either by the CMA or with the CMA investigating the case under the criminal regime and the European Commission (EC) or a UK sectoral regulator taking forward a parallel civil investigation (24).
The case for specialist enforcement authorities: meeting the challenges of cartel enforcement
Cartel enforcement is inherently difficult and criminal cartel enforcement particularly so.
Cartels are almost invariably difficult to uncover, since they are carried out in secret with very little written documentation, or documentation that is fragmentary in nature and susceptible to interpretation. Moreover, unlike most instances of fraud, cartel cases cannot be built around an identifiable ‘money trail’ from the victim to the offender. Complaints alone also tend to be of only limited value, given that complainants will mostly be customers or competitors, who are rarely able to provide evidence of collusion.
Furthermore, the legal and jurisdictional landscape is a complex one, with:
- parallel criminal and civil regimes, each with their own procedural and evidential rules, including in relation to disclosure;
- both national and directly applicable EU rules;
- at EU level, a system of parallel competence among the EC, the CMA and other national competition authorities; and
- in the UK, a similar regime involving the CMA and UK sectoral regulators with concurrent powers to enforce the civil competition prohibitions in the regulated sectors.
Moreover, cartels will often be global, further widening the international dimension of cartel enforcement beyond Europe.
All this requires a quite exceptional level of expertise and specialist knowledge of any authority charged with the task of uncovering, investigating and prosecuting cartels. It also calls for specific policies tailored to the challenges of cartel enforcement; foremost among these, an effective leniency policy, the management of which is itself a whole further area of expertise.
So how does the UK regime seek to achieve this? I would point to the following key elements:
- First, the inclusion of cartel enforcement (both criminal and civil) within an independent, specialist competition authority.
- Second, the inclusion to the extent possible of investigatory and prosecution functions within the same agency – not least, but not exclusively, to support an effective leniency policy.
- Third, a dedicated cartels group within the competition agency with strong specialist intelligence, investigation, prosecution and civil cartel enforcement expertise, together with the ability to draw on expertise from elsewhere within the wider competition agency.
- Fourth, strong relationships and joint working arrangements with other national and international enforcement partners.
- Fifth, political and wider public support reflected in the legislative architecture of the regime and funding for the organisation.
Inclusion of cartel enforcement within an independent specialist competition agency
Starting with the inclusion of cartel enforcement within an independent specialist competition agency…
If nothing else, embedding cartel enforcement within an agency committed to promoting competition means that cartel enforcement (both civil and criminal, and across the full range of different types of cartel behaviour) can always be expected to be a priority. Given the challenges presented by cartel enforcement, a large generalist agency with a broad criminal portfolio is understandably less likely to have a significant appetite for cartel enforcement work, which will invariably have to compete for resources and attention with other types of crime (25).
At the same time, a single integrated competition agency is able to use its wider knowledge and understanding of markets to inform its enforcement activities and priorities, with a view to ensuring that its interventions are appropriately targeted to maximise competition and economic growth (26). Thus, the CMA chooses carefully what to prioritise and progress according to the available evidence and balancing potential impact and strategic significance against risk and resource. This will include aiming to have a portfolio of cases that reflects its strategic priorities, covering sectors from across the economy, and firms of varying sizes and in different geographic areas. These priorities are set by the CMA’s board in the light of periodic strategic assessments of the risks to consumers (27).
As part of this broader strategic perspective, including cartel enforcement within the CMA also means that through its competition promotion role, the CMA is well placed to ensure that its enforcement activity achieves maximum impact in terms of deterring anti-competitive agreements and promoting compliance. Thus, the CMA has created a number of resources to ensure that competition law is better understood across the economy and to help businesses understand what they need to do to comply, including in respect of the key lessons from completed casework.
More specifically, the CMA has developed guidance on competing fairly and the application of competition law, how to identify cartel activity, how small businesses can comply with competition law, and the CMA’s powers of investigation of anti-competitive behaviour (28). In conjunction with the Institute of Risk Management the CMA has also recently produced a short guide to competition law risk (29). This highlights unacceptable business practices by reference to a number of powerful case studies across a range of unlawful anti-competitive conduct, including cartels, other anti-competitive agreements and abuse of dominance. The guide shows how easy it can be to cross the line if risks are not properly understood and managed. It also provides suggestions as to how organisations might approach the management of risk systematically and effectively, including advice on a four-step risk management process.
By way of follow-up to the Mercedes-Benz commercial vehicles civil case and working with industry partners, the CMA has also recently delivered a programme of actions aimed at ensuring that the key messages coming out of that case are understood and disseminated across the sector. This included speaking at trade conferences, publishing articles in trade magazines, using social media and sending an open letter to the industry, which was distributed by the National Franchise Dealer Association to approximately 80% of the 200,000 people working in franchised car and commercial vehicle dealers in the UK (30).
The independence of the competition agency is also a key ingredient for its effectiveness and credibility. Recognition of this in the UK and elsewhere has been an important development over recent decades. Independence provides the CMA with the freedom to prioritise its own resources, choose the right tools for addressing problems, take decisions in particular cases, and set its own annual plans of activity. Moreover, as has been pointed out recently by David Green, the Director of the UK’s Serious Fraud Office (SFO) (31), in a world where businesses under investigation can have significant power – economically, politically and in the media – visible and demonstrable independence is crucial in creating a level playing field and in ensuring judicial, business and public confidence in the authority’s investigations and enforcement.
Inclusion of investigatory and prosecution functions within the same agency
This brings me to the second ingredient for the effectiveness of the UK cartel enforcement regime, namely the inclusion to the extent possible of investigatory and prosecution functions within the same agency.
This is a key feature of the CMA and follows the ‘Roskill model’ – an operating model first adopted in the UK with the creation of the SFO, following recommendations made by an inquiry led by Lord Roskill into fighting serious and complex fraud.
One of Roskill’s recommendations was that serious and complex cases should be investigated and prosecuted by a multi-disciplinary office, combining forensic investigators, accountants, lawyers, computer specialists and counsel working together from the start of a case, right through investigation and prosecution. As Stuart Alford QC, Joint Head of Fraud at the SFO, recently commented:
This model is intended to ensure that the core skills of forensic analysis and legal strategy are deployed together, in unison, throughout the life cycle of the case (32).
Including investigation and prosecution functions within the same agency allows the CMA to maintain a consistent strategic vision throughout the lifetime of a case, as well as enabling investigations to lead to more effective prosecutions and/or decision-making. Thus, the CMA’s cartel cases are overseen by highly experienced senior lawyers, supported by multi-disciplinary teams made up of specialist investigators, case officers, digital forensics and intelligence experts, disclosure and case support experts, economists, and financial analysts, according to the needs of the case. Specialists work together collaboratively, drawing on a variety of expertise to make the most of the information and evidence available. The oversight of these invariably challenging and frequently hard-fought cases by senior lawyers from the outset also means that teams are able to manage legal risk effectively throughout the investigation of the case to its ultimate presentation in court.
The CMA’s leniency programme
The inclusion of investigation and prosecution functions in the same agency also brings with it benefits for the CMA’s leniency programme.
As I highlighted earlier, the difficulties of detecting and investigating cartels mean that there is a strong need for ‘inside’ information.
Consistent with international best practice in this area and the policies of the EC and other leading competition agencies (33), the CMA therefore operates a leniency policy, under which undertakings that have engaged in cartel activity can benefit from lenient treatment if they come forward with information about the cartel, admit their involvement and cooperate with the CMA’s investigation (34).
The CMA’s leniency programme has been designed to maximise incentives for would-be applicants to come forward. Depending on the circumstances, undertakings may benefit from total immunity from financial penalties and their employees may benefit from immunity from prosecution from the criminal cartel offence (35).
In order for potential applicants to approach an authority for immunity or leniency and ‘blow the whistle’ on the cartel, it is essential that they should have maximum upfront certainty as to the outcome for both the business and its employees. This is particularly the case in circumstances where there is no prior investigation. The incentive to apply for leniency will only be as strong as the level of certainty offered; and the alignment of the CMA’s civil and criminal immunity policies is essential to this. Put simply, without the upfront certainty of personal immunity from criminal prosecution, company directors and other employees involved in cartel activity would be highly unlikely to come forward simply to avoid a civil fine on the company for which they work. The ability of the CMA to grant criminal immunity and to devise appropriate policies and procedures to enable undertakings to apply for immunity both on their own account and on behalf of their directors and employees is, therefore, a critical feature of the UK cartel enforcement regime and a key for its success.
The fact that in England and Wales, and in Northern Ireland, the CMA both investigates and prosecutes the cartel offence is thus enormously helpful to the effectiveness of the leniency regime. In the case of Scotland, where prosecutions are brought by the COPFS, the CMA’s ‘Memorandum of understanding with the Crown Office’ (36) includes provisions for the handling of leniency applications designed to provide applicants with a similar level of upfront certainty, to the extent possible within the applicable constitutional arrangements (37).
Moreover, leniency is not a one-off decision: the relationship with the leniency applicant needs to be carefully and consistently managed throughout the lifetime of the case and ultimately depends on the confidence of competition practitioners in the authority, a confidence which can be fragile – difficult to gain and easy to lose. By providing a single gateway for businesses seeking to report cartel activity in the UK, the CMA is able to maintain the trust which companies and specialist competition legal advisers now have in the regime, built up over more than a decade.
A leniency regime which is operated by a single specialist authority also prevents duplication of resources and potentially conflicting results, for example, through differences in procedures for the handling of applications, the prioritisation of cases, allocation of resources, and in the application of leniency criteria. This too is important for confidence in the leniency regime and hence its effectiveness.
A dedicated cartels group with the ability to draw on expertise from elsewhere within the wider competition agency
Turning now to the third ingredient for the effectiveness of the UK cartel enforcement regime…
As in the case of other major competition authorities, investigating and taking enforcement action against cartels is the responsibility within the CMA of a specialist Cartels and Criminal Group (CCG).
The group is structured around a number of professional skills groups – criminal prosecution, including disclosure; investigation and intelligence; digital forensics; civil cartel enforcement; and casework support. Successful cartel enforcement requires close team-working between members of all these groups. For example, on a typical cartel matter being investigated both criminally and civilly:
- the skills of the civil team will be required to handle any immunity or leniency applications in such a way as to preserve the integrity of the leniency applicant’s evidence so that it can be used both for any civil enforcement and in any criminal prosecution; the civil team will also take forward any resulting civil/administrative case;
- the skills of the intelligence, investigation and digital forensics teams will be required to build the evidence for both criminal and civil enforcement purposes;
- the prosecution team, supported by the criminal disclosure team, will prosecute the case criminally; and
- the casework support team will provide support throughout, including as regards the handling of evidence and management of the file, as well as liaising with witnesses and the courts in the run-up to and during any trial.
An integrated civil and criminal cartel group also provides benefits as regards the making of strategic decisions. The choice of which legal tool to use in dealing with cartels can send important messages to business, whilst insufficiently coordinated choices can send the wrong signals about cartel policy. Particular challenges may arise, for example, in coordinating decisions as to whether to settle cases. Settlement can be an efficient way to resolve cases, but it involves a consideration of the issues as a whole, weighing up the efficiencies that could be generated against the overall impact on deterrence. The timing of such decisions is also critical.
Equally, the inclusion of a dedicated cartels and criminal group within the CMA signals a strong commitment to cartel enforcement.
Importantly, by being embedded within the CMA, CCG is also able to draw on specialist knowledge and expertise from across the wider organisation, including expert economic, financial analysis and litigation advice from competition specialists. Equally, the CMA as a whole benefits from CCG’s ability to provide expert investigatory advice and support to enforcement teams across the CMA, for example, in such areas as the conduct of searches and on-site inspections and interviewing witnesses. CCG provides similar support to UK sectoral regulators in relation to the exercise of their concurrent competition enforcement powers.
Strong relationships and joint working arrangements with other national and international enforcement partners
As well as having its own CCG, the CMA also benefits from strong relationships with its UK and international enforcement partners, thus bringing me to the fourth ingredient for the effectiveness of the UK cartel enforcement regime.
Such relationships enable the CMA to access valuable experience, expertise and sources of information. And the CMA has strong relationships – and is working increasingly closely – with national agencies such as the police, the National Crime Agency, the SFO, the Financial Conduct Authority, and Trading Standards, as well as key enforcement partners within the UK’s devolved nations, and with overseas enforcement agencies such as the EC and other national competition authorities.
Coordination with international counterparts
Starting with the international dimension…
In increasingly globalised markets, where businesses operate within multiple jurisdictions, there is an obvious need to help facilitate an environment in which markets can develop efficiently across borders and in which UK business can compete effectively.
The internationalisation of cartels means that agencies must work closely together, based on a common understanding of approaches and trust built through regular interactions. Including cartel enforcement (both criminal and civil) within a specialist competition agency greatly facilitates this.
As a member of the European Competition Network (ECN) and the International Competition Network (ICN), and through its participation in the Organisation for Economic Co-operation and Development (OECD), the CMA frequently interacts with its international counterparts on particular issues, and is able to share ideas, information and (in some instances) evidence, and to disseminate best practice, as well as actively engaging and co-operating on cases.
In the context of cartel investigations involving the EC, the close relationship between the CMA and the European Commission’s Directorate General for Competition (DG COMP) – including through the ECN – is a key factor in the CMA’s ability to conduct criminal investigations in parallel with civil investigations by the Commission.
By way of example, an investigation into the supply of commercial vehicles in the UK ultimately led to a major EU investigation (38), which has recently resulted in the issue by the EC of a statement of objections to a number of heavy- and medium-duty truck producers informing them that it suspects them of having participated in a cartel in breach of EU anti-trust rules (39). A number of UK criminal cartel investigations have also required, at relatively short notice, the organisation and conduct of simultaneous inspections of the same premises alongside the EC. This calls for a high level of coordination and trust between the 2 agencies, built on a solid understanding of each other’s procedures and concerns.
The CMA has also worked in parallel with other overseas agencies such as the US Department of Justice, the Japan Fair Trade Commission and others.
The Marine hose case is perhaps the clearest example of such international cooperation, with parallel investigations and proceedings by the EC, the US Department of Justice, the Japan Fair Trade Commission and other national competition authorities, along with the UK. That case involved coordinated searches of offices and homes, the arrest of 8 suspects in the US, including three UK nationals, and an unprecedented US plea agreement in which the three UK nationals pleaded guilty in the US but were allowed to return to the UK, where they were prosecuted and pleaded guilty to the cartel offence.
The CMA’s strong relationships with its international partners is also important for ensuring that cartel policies internationally are consistent and mutually supporting. This is particularly true of leniency, since before deciding to self-report and apply for immunity in one jurisdiction, a leniency applicant in the case of an international cartel will invariably want to be confident of being able to do so in all other jurisdictions where it faces the risk of sanction; any weakening of one regime also weakens those of the others. Thus, the leniency regime in the UK benefits from the CMA’s international network, both in terms of ensuring to the extent possible a consistent approach to key common issues and for establishing a high level of trust between agencies that is essential when handling individual cases. This is particularly important in the EU context where, in the absence of full EU harmonisation in the area of sanctions or procedures, the scope for the convergence of leniency policies across the EU is limited, necessitating close working relationships between ECN members to resolve any practical difficulties that may arise from differences between their respective regimes.
Building relationships at home
Within the UK, the CMA equally recognises that its enforcement goals cannot be achieved in isolation. A successful enforcement regime requires close cooperation with others; we achieve better enforcement through combining efforts and sharing best practice.
In the case of enforcement of the civil competition law rules, the CMA shares information and agrees the allocation of cases with sectoral regulators through the UK Competition Network; with some similarities between this and the CMA’s involvement in information sharing and case allocation with the EC and other EU national competition authorities through the ECN (40).
In the case of its criminal enforcement activities, the CMA is able to draw on police expertise in the conduct of searches, and has, for instance, co-operated extensively with the City of London Police and other police forces on a number of criminal cartel cases, including with the execution of warrants and the arrest of suspects.
The CMA is also building on existing relationships with key enforcement partners within the UK’s devolved nations. For example, it has worked closely with the COPFS in Scotland and the Crown Solicitors Office in Northern Ireland in obtaining and executing criminal cartel warrants for business premises in those jurisdictions. The CMA has also recently adopted a ‘Memorandum of understanding with the Crown Office’, governing the basis on which the CMA and Crown Office co-operate to investigate and/or prosecute individuals in respect of the cartel offence where such an offence may have been committed within the jurisdiction of the Scottish courts (41).
Recognising the challenges posed by its relatively limited caseload (when compared to that of a larger, generalist enforcement agency), such partnerships also ensure that the CMA has access to the right mix of skills and experience. The CMA also recruits staff from a broad range of backgrounds, including from the police and other enforcement agencies such as the SFO, and invests in extensive training and development initiatives to strengthen its in-house capabilities, as well as drawing on external specialist expertise, such as for example from expert external counsel.
The cartel offence and other criminality: a mutually reinforcing system
The CMA also recognises that the facts giving rise to cartel activity can overlap with other forms of economic crime, such as bribery and corruption. For example, bid-rigging might include bribery of a corrupt procurer or agent or of others ‘on the inside’; or cartelists might make compensation payments to each other in exchange for cartel involvement. Cartel activity might also be associated with fraud, such as for example rigging bids or fixing prices and then falsely representing to the purchaser that the bid or price was reached independently. More broadly, businesses involved in other forms of economic crime can be involved in cartels, and vice versa – cartels can be an indicator of a corporate culture of rule-breaking. One of the companies involved in the Marine hose cartel, for example, was also found to have been involved in a separate conspiracy to make corrupt payments to Latin American government officials, in relation to which it pleaded guilty in the US courts and was fined $28 million in 2011.
Where there are overlaps with other forms of economic crime, the CMA works on cases in parallel with other UK agencies and continues to liaise with them so long as the respective investigations are ongoing. Thus, recognising that it has a more limited perspective than larger generalist enforcement agencies, the CMA seeks to ensure – by partnership-working together with its mix of internally and externally recruited staff – that it is nevertheless able to identify broader crimes in the fact patterns that it is considering, and to refer appropriate cases to its partner agencies, including in particular the SFO which can also prosecute the cartel offence. For example, the SFO’s successful prosecution of Christopher Ronnie, a former chief executive of JJB Sports plc, together with 2 other individuals, for non-cartel offences, arose from a referral by the CMA’s predecessor in the course of an investigation into suspected CA98 infringements by Sports Direct International plc and JJB Sports. The CMA and its predecessor assisted the SFO with its investigation (42). No charges were brought by the SFO against the companies and the OFT’s competition investigation was closed in 2011 (43).
Political and wider public support
Turning finally to the fifth ingredient for the effectiveness of the UK cartel enforcement regime…
I have already referred to the importance of independence for the effectiveness and credibility of any competition enforcement agency. Equally important however, is that the agency should enjoy political and wider public support and that this should be reflected in the legislative architecture of the regime and in the funding of the agency.
The CMA is fortunate in enjoying broad political support for its mission. This is reflected not only in the creation of the CMA but also in recent reforms to the UK cartel offence to improve its effectiveness as a deterrent, as well as the strengthening of the CMA’s civil competition enforcement powers.
As originally enacted, the cartel offence included a requirement to prove that the defendants had acted dishonestly. This requirement was originally included to provide a signal as to the seriousness of the offence, to exclude the need for detailed economic analysis and evidence, to distinguish the offence from EU and national competition law, and to ensure that it did not apply to agreements that might have countervailing benefits, making them lawful under competition law. However, the inclusion of the dishonesty requirement also made it considerably harder in practice to bring cases than originally anticipated, thereby undermining its effectiveness as a deterrent. When the UK government came to review the specific reasons behind the dishonesty requirement, it also found that the requirement was either unnecessary or ineffective (44). The ERRA therefore removed the dishonesty requirement and introduced a number of statutory exclusions and defences in its place (45).
As regards the CMA’s civil competition enforcement powers, the ERRA provides for new powers under the CA98 to impose civil penalties for failing to comply with investigations (46) and to require individuals to answer questions (47). The threshold for imposing interim measures to stop alleged infringing conduct during an investigation was also lowered (48).
Equally significantly, the CMA has also been provided with additional funding to enable it to deliver what UK government ministers have described as a ‘step change’ in terms of the scale and sophistication of its competition enforcement activities, including in tackling cartels (49).
As a result, the CMA is now investing further in building its intelligence, investigation and enforcement capacity to enable it to increase the number and speed of cartel cases that it is able to pursue. In particular, whilst the CMA’s leniency programme is a key tool for detecting cartels and an important source of intelligence, it is not the CMA’s only detection tool and nor is it without limitations. For instance, leniency relies on companies and individuals choosing to come forward and tends to catch ‘late stage’ or failing cartels.
Aside from leniency, the CMA, as a specialist competition agency, has access to a broad range of information flowing from its market investigations and mergers work. Strong relationships with UK and international enforcement partners also provide further opportunities for the CMA to access valuable sources of intelligence. In addition, the CMA has a dedicated ‘cartels hotline’ and is one of the few competition authorities which has adopted an informant rewards programme, offering rewards of up to £100,000 for information about cartel activity. The CMA also has covert investigation powers under the Regulation of Investigatory Powers Act (RIPA), under which the CMA can require the production of communications data, carry out surveillance (directed and intrusive) and use covert human intelligence sources.
Building on the legacy of its predecessor organisations and taking advantage of the broader range of information now available to it as a result of their merger, the CMA is taking an increasingly proactive approach to cartel detection and looking further to reduce its reliance on leniency, including through the recruitment of additional staff and investment in a more sophisticated digital forensics and intelligence capability, including the recruitment of a Director of Intelligence and Director of Digital Forensics and Intelligence (50).
The CMA and its predecessor have already had some early success – almost half of the CMA’s cartel investigations opened since 2010 have been intelligence led. We are also undertaking larger scale operations, for example, the execution in 2013 of search warrants across 7 sites throughout the UK, including Scotland and Northern Ireland, with the involvement of 6 police forces and the simultaneous arrest of 7 individuals. Most recently in the galvanised steel tanks case, 2 men have been charged with the cartel offence and another has pleaded guilty to the same offence (51). It is anticipated that a larger, more resilient criminal prosecution function will be able to handle more such cases.
Having a strong and specialised cartel enforcement function within the CMA also means that, through its engagement with government as well as the EC, the CMA is well placed to act as an advocate for the cartel enforcement regime and to advise on how it interacts with the broader competition regime, as well as other species of economic crime. The CMA is thus able to contribute to ensuring that the cartel enforcement regime is fit for purpose and sits comfortably within the broader competition landscape and the wider UK criminal justice system.
In conclusion and as I hope I have demonstrated, embedding cartel enforcement within the CMA as a specialist competition authority brings with it clear benefits.
As well as creating efficiencies, it ensures an informed and consistent approach to tackling cartels within the broader UK competition regime, as well as enabling the CMA to draw on and develop the range of specific skills and expertise required for effective cartel enforcement, both criminal and civil.
This is particularly important given the inherent difficulties in detecting, investigating and prosecuting cartels, as well as the complex enforcement landscape at a national, EU and wider international level. In my submission, the establishment of the CMA as a strong independent competition agency; with the necessary functions, powers and capabilities; adequately funded and supported by effective partnership-working with other national and international enforcement agencies; provides the UK with the best opportunity to meet the challenges that cartels present, and to ensure that cartel enforcement is appropriately prioritised and supported by effective policies.
Providing for strong and effective cartel enforcement also represents a strengthening of the UK’s capability for tackling economic crime overall. Through a combination of specialist agencies and strong partnership-working between them, the UK model – when operating at its best – allows for competition and other forms of economic and financial crime enforcement to be mutually reinforcing, strengthening the UK’s capability for tackling economic crime overall.
As a specialist independent agency the CMA is also ideally placed to act as a single, strong advocate for competition compliance both nationally and internationally; and to ensure that its enforcement work is made visible to and is understood by businesses, so as to maximise compliance for the benefit of consumers, businesses and the wider economy.
I am grateful to a number of CMA colleagues for their assistance in preparing this speech, in particular, to Ruth Ashworth, together with Emma Lindsay, Lee Craddock, Richard Brown, Juliette Enser, Roland Green, Paul Latham, Michael Grenfell and John Kirkpatrick.
- These powers include the power to apply the EU and UK prohibitions of anti-competitive agreements and the abuse of a dominant position, and to make market investigation references to the CMA under the EA02 in relation to activities in their respective sectors. Through its Sector Regulation Unit, the CMA plays a key role in ensuring the consistent and effective use of competition powers across the regulated sectors, and more generally in promoting competition within those sectors. The sectoral regulators which at present have such concurrent competition law powers are: the Office of Communications, the Gas and Electricity Markets Authority, the Water Services Regulation Authority, the Office of Rail Regulation, the Civil Aviation Authority, Monitor (the health service regulator) and the Utility Regulator of Northern Ireland. The Financial Conduct Authority and the new Payment Systems Regulator will also obtain such concurrent competition law powers on 1 April 2015.
- A robust competition regime contributes to open, well-functioning markets, ensuring that the terms of competition are fair for all, rewarding businesses that innovate to satisfy consumers, and encouraging new entry and investment. In turn, consumers benefit from lower prices, wider choice and better products.
- For example, the CMA may conduct market studies and investigations with the aim of identifying and addressing competition and consumer issues that may not be the result of any infringement on the part of firms or individuals. The issues identified may be dealt with in a number of ways, including by way of structural or legislative remedy, thus leading to interventions that produce real transformations in key markets. A CMA market investigation may also be initiated following a market investigation reference by a sectoral regulator using its concurrent competition law powers, as described in note 1 above.
- These convictions followed a major investigation in which almost 300 witness statements were taken and over 5,000 items of material were seized and examined, and lengthy proceedings involving 2 long and hard-fought trials. Confiscation orders have also been made against 2 of those convicted and confiscation proceedings are on-going against others. See the ‘Prosecution of a number of individuals involved in an alleged unlawful pyramid scheme’ case page.
- Combining the competition and market functions of the CC and the OFT within a single agency also provides the opportunity to create efficiencies – to streamline processes, remove duplication and increase flexibility in resource allocation – thus enabling the delivery of decisions in a more timely way without a reduction in quality. The CMA is supported in this by a project management office to oversee the progress of cases. For further details see ‘The new Competition and Markets Authority: how will it promote competition?’, a speech given by CMA Chairman David Currie to the Beesley Lectures on 7 November 2013.
- The creation of the CMA has also provided an opportunity to embed procedural improvements and to increase transparency, predictability and certainty for businesses. For example, the CMA has issued a suite of revised guidance, including on CA98 procedures and transparency (including as regards settlement). The ability to use CMA inquiry chairs and CMA panel members on case decision groups alongside senior members of CMA staff has also significantly increased the CMA’s capacity at a senior level for collective decision making on CA98 cases.
- The CMA has set itself 5 key, strategic goals. These are set out in its ‘Annual plan 2014/15’. They are: to deliver effective enforcement; to extend competition frontiers; to refocus consumer protection; to achieve professional excellence; and to develop integrated performance. Enforcement is at the core of 2 of these goals and integral to the others.
- See ‘An assessment of the UK discretionary penalties regimes’. See also the ‘Report on the nature and impact of hardcore cartels and sanctions against cartels under national competition laws’, in which the OECD looked at a selection of cartel cases and estimated the median price increase to be between 15 and 20%, with a high of over 50%.
- References in this article to the civil regime are to the administrative regime for the enforcement of the EU and UK competition rules applying to undertakings.
- An undertaking for these purposes is any entity engaged in economic activity, regardless of its legal status or how it is financed: see, for example, case C-41/1990, ‘Höfner and Elser v Macrotron (1991) ECR I-1979’ at para. 21; see also case T-6/89, ‘Enichem v Commission (1991) ECR II-1623’ at paragraph 235. While legal persons such as companies will often be acting as undertakings, the notion of an entity in this context can be broader than one legal person. A corporate group made up of a number of individual legal persons can constitute a single undertaking: see for example case 170/83, ‘Hydrotherm v Compact (1984) ECR 2999’. Note also that a natural person engaged in economic activity would also be an undertaking. An example of this would be a sole trader selling goods on a market: see for example case C-309/99 ‘Wouters (2002) ECR I-1577’. Companies belonging to the same corporate group will generally constitute a single undertaking.
- The criminal cartel offence is contained in section 188(1) of EA02.
- Disqualification following criminal conviction may be granted by the court, without the need for a CMA application.
- The only prosecutions to date have been by the CMA or its predecessor, the OFT.
- ‘Cartel offence prosecution: CMA9’.
- ‘The Code for Crown Prosecutors’.
- ‘Prosecution code’.
- See note 10 above.
- Section 36(3) CA98.
- Case CE/8950/08, ‘Loans to professional services firms’.
- On application by the CMA to the High Court.
- Case CE/8950/08, ‘Loans to professional services firms’.
- Case CE/7691-06, ‘Airline passenger fuel surcharges’.
- ‘The Ministry of Defence v British Airways plc.’.
- Where the EC or sectoral regulator is best placed to take the civil investigation forward.
- It is notable, for example, that to date the only prosecutions for the cartel offence have been by the CMA or its predecessor, the OFT.
- The CMA is supported in this by a research, intelligence and advocacy team, with responsibility for developing the CMA’s pipeline, gathering intelligence, providing analysis and for reporting, coordinating and supporting the prioritisation of the CMA’s enforcement, markets and consumer work, including evaluating the benefits to consumers of all its work.
- See for example: ‘CMA Strategic Assessment’.
- ‘Competition Act 98 and cartels guidance’.
- ‘CMA launches short guide on competition law risk’.
- ‘Commercial vehicles case: cartel enforcement lessons’. Tweet: ‘Cartels have serious consequences for you and your business’. Tweet: ‘If you’re in a cartel, the CMA has a leniency policy for businesses that come forward’. Tweet: ‘Competition law applies to all businesses, big or small’.
- See ‘David Green CB QC speech to the Pinsent Masons Regulatory Conference 23 October 2014’.
- ‘Stuart Alford QC: Enforcing the UK Bribery Act – The UK Serious Fraud Office’s Perspective’.
- See for example: the ‘ECN model leniency programme’, ‘ICN guidance’, and ‘OECD guidance’.
- See ‘OFT’s guidance as to the appropriate amount of a penalty, OFT423’ at paragraph 3.5 and following.
- Immunity from criminal cartel prosecution in England, Wales and Northern Ireland has a statutory basis in section 190(4) EA02. The types of leniency and immunity available to businesses and individuals are also discussed in the CMA’s leniency guidance. See ‘Applications for leniency and no-action in cartel cases, OFT1495’. This was originally an OFT document and has been adopted by the CMA.
- ‘Memorandum of understanding between the CMA and the Crown Office, Scotland’.
- In the context of a cartel offence in Scotland, because of the constitutional position of the Lord Advocate, the CMA cannot guarantee immunity from prosecution (unlike in England and Wales, and Northern Ireland). Where the CMA has received an application for immunity from prosecution in respect of a cartel that falls to be prosecuted in Scotland, the CMA will report the circumstances and recommendations to the Lord Advocate, who will accord any recommendation for immunity serious weight in exercising his discretion in the grant of criminal immunity in Scotland. In determining whether to grant criminal immunity, the Lord Advocate will take cognisance of the CMA’s own rules on leniency. Where possible the Lord Advocate will also give an early indication at the commencement of a leniency application, and before the applicant’s identity has been revealed, whether criminal immunity is likely to be granted (subject to full ongoing co-operation and on the basis that there are no criminal convictions or associations to be disclosed). Further discussion can be found in ‘Cartels: raising the stakes’, 14 July 2014, by Lindsey Miller and Emma Lindsay.
- See ‘Investigation into commercial vehicle manufacturers (CA98)’.
- See ‘Anti-trust: Commission sends statement of objections to suspected participants in trucks cartel’.
- The CMA has recently concluded a number of memorandums of understanding with the sectoral regulators. The CMA has also recently entered into a memorandum of understanding with the SFO.
- ‘Memorandum of understanding between the Competition and Markets Authority and the Crown Office and Procurator Fiscal Service’.
- See ‘Three convicted in JJB trial’.
- See ‘Investigation into sports goods retail sector’.
- See ‘Department for Business Innovation and Skills: A competition regime for growth – a consultation on options for reform’ (March 2011), and ‘Department for Business Innovation and Skills: Growth, competition and the competition regime, government response to consultation’ (March 2012).
- Specifically, the ERRA created two new exclusions – the notification exclusion (section 188A(1)(a) EA02) and the publication exclusion (section 188A(1)(c) EA02) – as well as retaining the bid-rigging notification exclusion (section 188A(1)(b) EA02). In addition, the ERRA also introduced a number of statutory defences. These apply where: the defendant can show that he or she did not intend to conceal the arrangements from customers; did not intend that the arrangements would be concealed from the CMA; or before entering the agreement, took reasonable steps to ensure that the arrangements would be disclosed to a professional legal adviser for the purpose of obtaining advice about them before they were made or implemented (section 188B EA02).
- Section 40A CA98.
- Section 26A CA98.
- Section 35 CA98. Specifically, the requirement that the measures should be necessary to prevent serious, irreparable damage was amended to provide that the damage need only be significant. As previously, interim measures may also be imposed where it is necessary to protect the public interest.
- See ‘HM Treasury Autumn Statement 2013’, at paragraph 1.212.
- Recent appointments also include the appointment of a Director of Criminal Enforcement to work alongside the CMA’s existing Director of Investigations and Criminal Enforcement. See ‘CMA announces two senior cartel appointments’ and ‘CMA appoints to new senior cartel role’.
- See ‘Supply of galvanised steel tanks for water storage: criminal investigation’. This case is subject to reporting restrictions.