Cartels & Leniency In The United Kingdom

This article first appeared in the second edition of The

International Comparative Legal Guide to: Cartels &

Leniency; published by Global Legal Group Ltd, London www.iclg.co.uk

1 The Legislative Framework of the Cartel

Prohibition

1.1 What is the legal basis and general nature of the

cartel prohibition e.g. is it civil and/or criminal?

The legal basis for the cartel prohibition in the UK is section

2 of the Competition Act 1998 (the "Competition Act") and

section 188 of the Enterprise Act 2002 (the "Enterprise

Act"). In addition, Council Regulation 1/2003 allows the

competition authorities and courts of EU Member States such as the

UK to enforce the cartel prohibition under article 81 of the EC

treaty (see the EU chapter for further details).

The cartel prohibitions under the Competition Act and article 81

of the EC Treaty are civil/administrative in nature and exclusively

relate to the conduct of companies. The parallel cartel prohibition

under the Enterprise Act is criminal and exclusively relates to the

conduct of individuals.

1.2 What are the specific substantive provisions for the

cartel prohibition?

Section 2 of the Competition Act 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 (the "Chapter I

prohibition"). The Competition Act contains a non-exhaustive

list of corporate conduct that is prohibited by the Chapter I

prohibition and this includes, among others, agreements, decisions

or practices which:

directly or indirectly fix purchase or selling prices or any

other trading conditions;

limit or control production, markets, technical development or

investment; or

share markets or sources of supply.

The Chapter I prohibition applies both to horizontal agreements

between competitors as well as vertical agreements between, for

example, a wholesaler and a retailer. There are certain limited

exemptions that are described under question 1.5 below.

Under section 188 of the Enterprise Act an individual is guilty

of a criminal offence if he dishonestly agrees with one or more

other persons to make or implement, or to cause to be made or

implemented, arrangements between at least two undertakings

involving any of the following:

price fixing;

market sharing;

limiting supply or production; and

bid-rigging.

The criminal cartel offence only applies to horizontal

arrangements between companies which were brought about by the

dishonest conduct of two or more individuals.

If the cartel arrangements have been made in the UK, it is

irrelevant for both the Chapter I prohibition and the cartel

offence whether the restrictive arrangements have actually been

implemented in the UK.

1.3 Who enforces the cartel prohibition?

In the UK both the Chapter I prohibition under the Competition

Act and article 81 of the EC Treaty are enforced by the Office of

Fair Trading ("OFT") as the principal competition

authority in the UK. In addition, the following UK sectoral

regulators have concurrent jurisdiction to investigate cartel

conduct in their sectors under the above provisions: OFCOM

(communications); OFGEM (electricity and gas); OFREG NI (energy in

Northern Ireland); OFWAT (water and sewerage); CAA (civil

aviation); and ORR (railway services).

Investigations and prosecutions under the criminal cartel

offence under the Enterprise Act in England, Wales and Northern

Ireland are conducted by the OFT or the Serious Fraud Office

("SFO"). Private prosecutions may only be brought with

the consent of the OFT. In Scotland, prosecutions will be brought

by the Lord Advocate through the offices of the International and

Financial Crime Unit of the Crown Office.

1.4 What are the basic procedural steps between the

opening of an investigation and the imposition of

sanctions?

The OFT (or a regulator with concurrent jurisdiction) starts an

investigation on the basis of one or more of the following three

grounds: (i) its own market intelligence; (ii) following a

complaint; or (iii) following a leniency application.

Investigations started on the basis of (i) and/or (ii) are referred

to as 'own initiative' cases. The OFT may also obtain

evidence from leniency applicants. The OFT can exercise its formal

powers of investigation (see Section 2 below) where there are

'reasonable grounds for suspecting' that civil or criminal

cartel conduct has occurred. In cartel cases, the OFT will usually

conduct simultaneous parallel unannounced inspections (or 'dawn

raids') of relevant business and residential premises to obtain

further incriminating evidence.

Once the OFT believes that it has sufficient evidence in its

possession to prove the suspected cartel conduct, it will issue a

statement of objections to the alleged cartel participants setting

out the facts upon which it relies, its reasoned provisional

conclusions and the action which it intends to take (for example,

the imposition of fines). The addressees of the statement of

objections then have the opportunity to inspect the OFT's

investigation file, to make written submissions and to attend an

oral hearing to respond to the allegations advanced in the

statement of objections. If, after having had regard to the

parties' written and oral submissions, the OFT concludes that

it has sufficiently strong evidence to prove the alleged cartel

conduct it will issue an infringement decision to all parties

concerned imposing fines. Anon-confidential version of the decision

will then be published on the OFT's website.

The OFT investigates all cartel cases in accordance with the

standards required for criminal investigations. This allows the OFT

to convert a civil investigation into a criminal investigation.

Alternatively, the OFT can decide to open a separate parallel

criminal investigation (in which case a separate investigation team

will be formed and strict disclosure rules will apply between the

two investigation teams).

In the case of criminal investigations, the OFT or the SFO (or

the Crown Office in Scotland) starts the investigation on the same

basis as civil investigations. The OFT/SFO's formal

investigatory powers are similar but more extensive in criminal

investigations than in civil investigations (see Section 2 below).

Where the OFT/SFO believes that it has sufficient evidence to bring

a successful prosecution it will commence criminal proceedings.

Proceedings can be brought in the magistrates' court or before

a jury in the Crown Court.

A criminal investigation can be started by the OFT and then

subsequently be transferred to the SFO for further investigation

and/or prosecution. The SFO will, however, only prosecute cartel

cases, which amount to serious or complex fraud. This would, for

example, exclude smaller bid-rigging cases.

1.5 Are there any sector-specific offences or

exemptions?

The Competition Act excludes certain agreements from the Chapter

I prohibition, for example agreements relating to the production or

trade of agricultural products and agreements that are subject to

competition scrutiny under other legislation such as the Financial

Services and Markets Act 2000, the Broadcasting Act 1990 and the

Communications Act 2003. Further, the Secretary of State may order

that the Chapter I prohibition should not apply to an agreement or

agreements of a particular description if there are exceptional and

compelling public policy reasons to do so. This power has been used

to exclude certain defence related agreements from the Chapter I

prohibition.

There are currently no sector-specific exemptions for the cartel

offence under the Enterprise Act.

1.6 Is cartel conduct outside the UK covered by the

prohibition?

The Chapter I prohibition applies to all restrictive agreements,

decisions or practices which are or are intended to be, implemented

in the UK. The criminal cartel offence under the Enterprise Act

only applies to agreements struck outside the UK if they are

implemented in whole or in part in the UK. The above

'implementation' tests are generally accepted to amount to

an 'effects' test.

2 Investigative Powers

2.1 Summary of general investigatory

powers.

Table of General Investigatory Powers

Please Note: * indicates that the investigatory

measure requires the authorisation by a Court or another body

independent of the competition authority

2.2 Specific or unusual features of the investigatory

powers referred to in the summary table.

In civil investigations the OFT can only take originals where

this is necessary to preserve the documents or where it is not

reasonably practicable to take copies. Any originals must be

returned within three months. In criminal investigations, the

OFT/SFO will always take possession of the original documents.

2.3 Are there general surveillance powers (e.g.

bugging)?

The OFT has the power to authorise 'directed

surveillance' (for example watching an office building from a

public place to establish when the office opens and shuts) and to

use 'covert human intelligence sources' (i.e. informants)

in its cartel investigations both under the Competition Act and the

Enterprise Act.

In criminal cartel investigations the OFT is further granted the

power of 'intrusive surveillance' (for example bugging a

hotel room) and the related power of 'property

interference' which allows the OFT, for example, to place

listening devices into private places. The SFO has the same

powers.

2.4 Are there any other significant powers of

investigation? In criminal cartel offence investigations,

the OFT/SFO also has the power to obtain access to communications

data (for example, obtaining from the telecommunications provider,

records of telephone numbers called by individuals under

investigation).

This power is not available in civil cartel investigations. The

OFT has recently adopted an informants programme, under

which financial rewards of up to £100,000 are available for

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