Cartels – what are they?

A priority of the OFT is taking action against cartels on the basis that they are a particularly damaging form of anti-competitive behaviour.

Cartels are prohibited by the Competition Act 1998 and the EC Treaty . In summary, any business found by the OFT to be a member of a cartel could be fined up to 10 percent of its worldwide turnover. Additionally, it is a criminal offence for individuals to dishonestly take part in the most serious types of cartels (under the Enterprise Act 2002). If convicted of the offence, a maximum penalty of five years imprisonment and/or an unlimited fine can be imposed plus the possibility of a 15 year disqualification for directors from running a company.

A party involved that confesses can gain immunity:

1. from criminal prosecution under the Enterprise Act 2002, or

2. a reduction in any fine that could be imposed by the OFT under the Competition Act and Article 81.

Essentially, a cartel is an agreement between businesses not to compete with each other which is usually secret, verbal and often informal.

Typically, cartel members may agree on:

• prices

• output levels

• discounts

• credit terms

• customers they will supply

• areas they will supply

• who should win a contract (bid rigging).

Each of these actions is prohibited by the Competition Act. Meanwhile, the Enterprise Act results in it being a criminal offence for individuals to dishonestly take part in certain specified cartels. These are mainly those that involve:

• price fixing

• market sharing

• limitation of production or supply

• bid rigging

The OFT has identified that whilst cartels can occur in almost any industry and can involve goods or services at the manufacturing, distribution or retail level, some sectors are more susceptible to cartels than others. The construction industry has been identified as one such area and in the OFT’s 2005/06 Annual Plan the industry was identified as an area in which the OFT would prioritise a crack-down on anti-competitive practices.

This is mainly because of the structure of the industry and the way in which it operates.

Cartels - complaints to the OFT?

If the OFT has grounds for suspecting that:

• The Competition Act and/or Article 81 of the EC Treaty have been infringed; or

• a criminal offence under the Enterprise Act has been committed,

then it has powers to investigate any complaints by making informal inquiries or conducting an investigation.

Confess to the OFT?

Incentives offered by the OFT to individuals and businesses to stop cartel practices and tell the OFT about the cartel include:

• the OFT’s leniency programme; and/or

• benefits under a no-action letter

which are referred to below.

Leniency programme

The leniency policy was introduced in March 2000. It has resulted in an increase in the number of cartels broken. The OFT’s leniency regime actively encourages whistleblowing and prisoner’s dilemma type decisions. Either total or partial immunity from fines, that the OFT could apply due to infringements of the Competition Act and/or Article 81, can be granted to a business if it provides information. A business does have an incentive to come forward as soon as possible as the first through the door can receive a 100 percent reduction in fines. Additionally, reductions in penalty of up to 50 percent are also available. Fellow cartel members can be whistleblowers to the OFT, customers or current or former employees

No-action letter

A no action letter may be issued by the OFT to individuals who provide information about their involvement in a criminal cartel offence. They may be granted immunity from prosecution in the form of the no action letter. Certain conditions must be satisfied, including admitting participation in the criminal offence and maintaining continuous and complete cooperation throughout the investigation.

Dawn raids – what happens?

Whilst a visit from the OFT is generally known as a dawn raid, in practice the dawn raid will take place at the more civilised time of 9.30am prompt. A warrant from the Court will usually have been secured allowing them to enter the premises immediately. Notice is not required under the terms of the court order as to do so could allow a suspect company time to destroy documents. The investigation team will usually arrive at the company reception and ask to speak to the most senior person in the company. Usually this would be the managing director and failing that the most senior person on the premises which may be the financial director or even the marketing manager. The team of investigators will comprise those heading the investigation, a lawyer and a number of IT specialists on hand to scan documents and download information held on the company server (about six).

If lawyers have been requested to attend, then the OFT will usually allow about an hour for them to arrive. Employees will be taken to areas where they can be monitored and so that IT systems are secured. If possible, a lawyer should shadow each OFT team member. The investigation team may interview employees, with lawyers present, but will notify members of the company before this takes place.

What to do if the OFT arrives at your door

On arrival

• Request that the inspectors wait until your lawyers arrive as provided in the Explanatory Note attached to the warrant

• Check the terms of the warrant such as are the main details correct such as name, address, timings set out in the warrant

• Do not prevent access to the property or otherwise interfere with the raid as doing so could result in imprisonment or fines being imposed.

Documents - searched and seized

• Allow the search to proceed if the warrant relates to documents relevant to the investigation (but not others). Although, identifying documents relevant to the investigation may be almost impossible if the terms of the warrant are particularly vague which is standard practice.

• Keep a full copy of the documents that are copied or scanned by the inspectors. You will probably be provided with copies by the inspectors. Ensure you cross check that the copy is a full copy. You will probably be given an index by the OFT of the documents they have copied and scanned. Those that have been copies will be placed in sealed bags whilst you are present.

• If you are interviewed or questioned then ensure that you have lawyers present and ensure that the interview is recorded.

• Obtain an agreed signed minute noting the names of each member of the investigation team (as referred to on the warrant) and confirming that the company co operated.

As the summer is leading to autumn, it is expected that further announcements will be made by the OFT and its approach to the industry. Further updates will be provided

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