Another false dawn for UK criminal cartel enforcement?

Another false dawn for UK criminal cartel enforcement?

BCL’s Alex Swan, with Richard Sallybanks, looks at whether we can expect an upturn in the level of criminal investigation of cartel activity in light of the Memorandum of Understanding recently concluded between the SFO and the CMA.

On 21 October 2020, the Serious Fraud Office (“the SFO”) and the Competition and Markets Authority (“the CMA”) signed a Memorandum of Understanding (“MoU”) which sets out the basis upon which the two authorities will cooperate and coordinate in investigations and/or prosecutions of individuals for the criminal cartel offence under section 188 of the Enterprise Act 2002 (“EA02”).

This comes against the background of the former chairman of the CMA, Lord Tyrie, stating in an open letter to the Secretary of State for Business, Energy and Industrial Strategy as long ago as March 2019 that the CMA should focus more directly on protecting the interests of the consumer by, inter alia, “ [requiring] the CMA to relinquish or share some of its existing powers and functions – for example, in the field of regulatory appeals and of criminal cartel enforcement – so that it can focus more effectively on its core responsibilities.”  Indeed, Lord Tyrie’s proposals recognised that “Because hard-core cartel prosecutions are only a small part of its overall enforcement work, the CMA does not maintain the scale of specialist expertise normally possessed by agencies with powers of prosecutions.  Primary responsibility for cartel prosecutions may sit more naturally with an agency that routinely brings criminal prosecutions, such as the Serious Fraud Office…”

In light of this frank acknowledgment by Lord Tyrie, borne out by the less than impressive track record of the CMA (and its predecessor, the Office of Fair Trading (“the OFT”)) in the area of criminal cartel enforcement, it therefore is not overly surprising, particularly in the current era of greater cooperation between enforcement agencies (both domestically and internationally), that agencies such as the SFO and the CMA have decided to enter into this MoU (noting that, in fact, the MoU updates a previous MoU entered into between the two agencies in 2014). So, does this MOU reflect any great change and herald the prospect of greater enforcement of the criminal cartel offence? Or is it another false dawn?

The Criminal Cartel Offence

Section 188 of the EA02, which came into force in June 2003, created the criminal cartel offence (“the s188 offence”) which can only be committed by individuals, not by companies or other commercial organisations which remain subject to the CMA’s civil enforcement regime under the Competition Act 1998 (“CA98”).  In general terms, and in its original incarnation, the offence was committed when a person dishonestly agreed to enter into arrangements involving at least two undertakings which would, if implemented, directly or indirectly fix prices, limit or prevent the supply of a product or service, limit or prevent the production of a product, divide products or services between customers, divide customers between the undertakings, or amount to bid-rigging arrangements.  On 1 April 2014 section 188 was amended by the Enterprise and Regulatory Reform Act 2013, which removed the requirement to prove the dishonesty element of the offence.

Terms of the MoU

The MoU principally records the following:

  • That the cooperation between the SFO and the CMA is to ensure the “effective and efficient investigation or prosecution” of the s188 offence;
  • That the s188 offence may be investigated by the CMA, the SFO, or jointly by both agencies;
  • That the CMA will undertake any necessary initial enquiries upon receipt of information that a s188 offence may have been committed;
  • That if the SFO receives intelligence suggesting that a s188 offence may have been committed, then it will in the first instance refer that information to the CMA;
  • If after initial enquiries, and any informal discussions with the SFO, the CMA identifies a criminal cartel case as being likely to fall within the SFO’s acceptance criteria, then it may refer the case to the SFO;
  • In all events, s188 offence investigations may be led by either the SFO or the CMA, and the authority leading the investigation may request the assistance of the other authority by providing staff and support;
  • It will be presumed that where the SFO is leading an investigation, it will utilise its powers under the Criminal Justice Act 1987 (“the CJA87”) rather than powers under the EA02 where they would achieve essentially the same objective. However, in a joint investigation consideration will need to be given whether to utilise powers under the CJA87, the EA02 or both;
  • The costs of the investigation will be borne by the authority leading the investigation;
  • That the CMA may progress a civil investigation using its powers under the CA98 in parallel to an overlapping criminal investigation led by the SFO. In such instances, suitable procedures will be put in place to ensure that there is appropriate communication between the two authorities and that the civil investigation does not prejudice the criminal investigation;
  • That the CMA retains the power, under the CA98, to grant immunity from criminal prosecution by way of “no-action” letters – any no-action letter is binding upon the SFO. Whilst decisions as to whether to issue no-action letters remain with the CMA, if such a decision could have an impact upon an SFO-led s188 offence investigation or prosecution, then the CMA shall consult the SFO.

The CMA’s track record in prosecuting the s188 offence

According to public domain information, since the s188 offence came into force over 17 years ago the CMA and the OFT have only opened seven criminal investigations, which resulted in only four prosecutions.  Those four prosecutions can be summarised as follows:

  • The ‘Marine Hose’ prosecution resulted in three guilty pleas, but followed on from guilty pleas the three defendants had entered in equivalent proceedings in the US; the UK charges were intended to facilitate the defendants serving their prison sentences in the UK as opposed to the US;
  • The British Airways/Virgin Atlantic case which spectacularly collapsed at trial due to disclosure issues (and perhaps something which Lord Tyrie had in mind when commenting that the CMA did not have “the scale of specialist expertise normally possessed by agencies with powers of prosecutions”);
  • The galvanised steel water tank case, in which two defendants were acquitted at trial notwithstanding that one of the cartel participants had pleaded guilty and became a cooperating witness, giving evidence for the prosecution at trial;
  • The precast concrete drainage case in which one person was prosecuted, with that defendant pleading guilty.

This low number of investigations and prosecutions is in stark contrast to the anticipated six to ten prosecutions a year that the OFT had anticipated prior to the implementation of the EA02.[1]  Furthermore, all of the seven investigations concerned conduct that predated the removal of the requirement to prove that the cartel arrangements had been entered into dishonestly.

The requirement to prove dishonesty was often cited as the obstacle which prevented prosecution of the s188 offence, there being a long-debated question as to whether price fixing (and similar arrangements) are per se dishonest; the acquittals in the galvanised steel water tank case might suggest that the jury in that case, notwithstanding the evidence of the co-operating witness, were not convinced that the arrangements were dishonest. But on the basis that the change in the s188 offence introduced by the Enterprise and Regulatory Reform Act 2013 was not an April fool’s joke, the simplification of proving the s188 offence by removing the dishonesty element has not resulted in the anticipated upturn of criminal cartel investigations and prosecutions. To the contrary, it rather suggests a lack of appetite for criminal enforcement, perhaps for the reasons articulated by Lord Tyrie, and borne out by the fact that since the s188 offence came into force the CMA (and OFT) has opened and concluded 79 civil cartel investigations.

What next?

While the MoU sets out the basis on which the SFO and CMA will cooperate in investigations of the s188 offence, the more fundamental question is whether there will be any such investigations on which the structure for cooperation can be put into practice. We do not think that it is suggested that the dearth of criminal investigations since the EA02 came into force is because there is no cartel activity in the UK (such a view would be inconsistent with the number of civil investigations undertaken in the same period), but rather reflects a lack of appetite to address such activity through criminal, as opposed, to civil sanctions. And so the question is whether the MoU reflects a change in direction for cartel enforcement. Given that the MoU envisages the SFO taking the lead on criminal investigations, the answer to that question would seem to lie with the SFO and whether criminal cartel investigations will become an integral part of its investigative and enforcement activity, or whether such investigations will remain the exception as opposed to the rule.

[1] See A Hammond and R Penrose, “The Proposed Criminalisation of cartels in the UK”, A report prepared for the Office of Fair Trading (November 2001) [2002] UKCLR 97

About the authors:

BCL Solicitor, Alex Swan is an experienced Senior Associate who has worked on a variety of complex and high-profile criminal matters.  He specialises in corporate and financial crime and has extensive experience of advising clients at all stages of investigations and prosecutions.  He is adept at dealing with complex cross-border matters, including where there are often simultaneous investigations taking place in other jurisdictions.  Alex regularly deals with matters being investigated and prosecuted by the SFO, the CPS, HMRC, the NCA, and the FCA, as well as by foreign authorities such as the DOJ, SEC, PNF, CBI and ED.

Richard Sallybanks specialises in complex business crime and regulatory defence work. Richard has been involved in numerous SFO, FCA, HMRC & CMA investigations and prosecutions, together with associated restraint and confiscation proceedings. His recent SFO experience includes the Alstom, Barclays Qatar, and Tesco investigations (acting for senior individuals under suspicion), as well as acting for Robert Tchenguiz in the SFO’s Kaupthing Bank investigation (including the successful Judicial Review challenge to SFO search warrants). Richard has acted in a number of FCA criminal and regulatory investigations for brokers, traders and senior executives, including in relation to allegations of insider dealing and market abuse. He is experienced in cartel investigations, both domestic investigations conducted by the CMA and cross-border anti-trust investigations (including those conducted by the US DoJ). Richard is also experienced in the international mutual legal assistance regime, and in leading and co-ordinating teams of lawyers in multi-jurisdictional investigations.