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Brexit, Competition Law and the Prospect of Prison for Price-Fixers

By Dr Peter Whelan
Posted: 12th July 2016 07:59
Following the recent referendum result on Brexit, some commentators have emphasised that the EU Member States are now set to lose a valuable and innovative contributor to the development of substantive and procedural EU law. At a formal level this would certainly be the case. Indeed, in addition to EU law’s ceasing to form part of the national legal landscape, there will no longer be UK judges at the Court of Justice of the European Union, Britain will not have an EU Commissioner, and its citizens would not vote for representatives in the European Parliament. Informally, however, the situation is more complex. Following Brexit, relevant advances in UK law and procedure will still be closely watched by European officials and may well have potential to influence how EU law develops in future. One particular British legal innovation that comes to mind is the use of imprisonment to enforce cartel prohibitions within competition law.
Cartels can be roughly defined as anticompetitive agreements, arrangements or practices involving competitors that aim to fix prices, divide markets, limit output or rig bids. Cartels are prohibited under both EU competition law (by virtue of Article 101 of the Treaty on the Functioning of the European Union) and the national laws of the EU Member States. The European Commission and the national competition authorities and courts are responsible for enforcing competition law within the EU. When applying their national competition laws to agreements which affect trade within the EU, Member States must also apply EU competition law to those agreements. Traditionally, and in line with the approach currently adopted across most of the European Union, competition law (including its cartel prohibition) is enforced primarily through administrative sanctions which are imposed upon corporations. Over the last number of years however, debate has been going on within Europe regarding the need for criminal (i.e. custodial) sanctions for cartel activity. Those in favour of cartel criminalisation usually take their inspiration from US practice and argue that to deter effectively cartel activity a jurisdiction must not only impose sanctions on corporations but should also impose prison sentences on those individuals responsible for creating and maintaining price-fixing cartels. A small number of EU Member States provide for custodial sentences for violation of national and/or EU cartel prohibitions.
The United Kingdom is one of the EU Member States that has been most persuaded of the necessity of seeking custodial sentences for cartel activity. Since the early part of this century a prohibition on cartel activity has been on its criminal statute books: under Section 188 of the Enterprise Act 2002 an individual faces up to five years of imprisonment if found to have engaged in cartel activity (‘The UK Cartel Offence’). This offence is a provision of national law and is not linked to any requirement to prove a violation of EU competition law. Under the provision as originally enacted only individuals who ‘dishonestly’ engage in cartel activity can be convicted. Following a robust government consultation, and the subsequent adoption of Section 47 of Enterprise and Regulatory Reform Act 2013 (which entered into force on 1 April 2014), the dishonesty element has been removed from the definitional elements of the offence. It was felt that the criminal law test for identifying ‘dishonesty’ was not well suited to the concept of cartel activity, in particular because citizens do not at present display hardened negative attitudes to such activity. To avoid potential overreach of the criminal prohibition a number of ‘carve outs’ from the offence were also provided under the reform. For example, a criminal offence would not be committed if specified details of the (otherwise criminal) cartel agreement were publically published in an appropriate manner prior to its implementation. It is hoped by advocates of criminalisation that the legislature has created a reinvigorated offence that will deliver clear results in terms of deterrence of price-fixing and related ‘hard core’ anticompetitive conduct.
Prosecutions under the amended UK Cartel Offence are yet to be initiated. This is not particularly worrying at present as the Competition and Markets Authority (the specialist competition agency responsible for prosecuting the Cartel Offence) has to date focused on clearing a small backlog of cases that fall within the temporal scope of the pre-April 2014 offence and has underlined quite regularly its official dedication to the criminalisation project. While the overall enforcement record concerning the (original) Cartel Offence has indeed been poor (with no cases where a successful conviction has been achieved following a jury trial), supporters expect it to improve once investigations under the new offence start to materialise. The current author, however, has grave reservations about the potential for success regarding the amended Cartel Offence. The reason for this is that the reform process not only resulted in the removal of the dishonesty element, it also led to the creation of a statutory defence that has the ability to short circuit prosecutions of the offence.
The defence at issue provides that an individual charged with the UK Cartel Offence will escape conviction if it can be proven (on the balance of probabilities) that, before the making of the agreement, ‘she took reasonable steps to ensure that the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining advice about them before their making or (as the case may be) their implementation’. The reason that it is problematic is that, on its face, this defence allows cartelists to escape criminal conviction merely by informing their lawyers of their intended cartel plans in order to get their advice regarding their legality. Taken literally, the defence does not impose a requirement to follow any legal advice provided, even when that advice clearly explains that the proposed conduct would otherwise fall within the scope of the UK Cartel Offence; all it seems to require is that reasonable steps are taken to obtain the advice. This interpretation is supported by the Explanatory Notes and the Competition and Markets Authority’s Prosecution Guidance, both of which are silent regarding any need to take the advice provided. The Cartel Offence, then, may operate in future merely as a measure that ensures both the payment of a solicitor’s fee by a cartelist and the inconvenience of disclosing to that solicitor her future cartel plans to obtain legal advice. If so, this would be a rather strange feature of the UK competition regime, not to mention an unacceptable development for those who wish to see a real deterrent effect from criminal cartel sanctions: convictions are unlikely to be forthcoming when a defence can so easily be made out.
Irrespective of the prospect of Brexit, competition law officials, scholars and policymakers across Europe will continue to keep a keen eye on the operation of the UK Cartel Offence. Debate about the appropriateness of using criminal sanctions to enforce (EU or national) cartel prohibitions is ongoing. The extent to which the UK is successful or unsuccessful in achieving deterrence of cartel activity through reliance upon custodial sentences for cartelists is likely to have a considerable impact on whether such a policy of cartel criminalisation should be pursued within the EU.
Dr Peter Whelan is an Associate Professor in Law at the University of Leeds. A qualified US Attorney-at-Law with a PhD from the University of Cambridge, Peter has expertise in competition law and criminal law. He has provided oral evidence to the New Zealand Parliament and has advised the Finnish Ministry of Justice on the desirability of cartel criminalisation. He has provided legal training to judges in Romania and was a Visiting Professor at the Institute of International Trade and Law in Moscow.He recently published a monograph with Oxford University Press on the criminalisation of European cartel enforcement.

Dr Peter Whelan can be contacted on +44 (0) 113 34 31618 or by email at

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