Caught by the cartels

The area of competition law is one that many solicitors may not think about on a daily basis. Having recently had my attention drawn to competition law matters, I began to wonder whether we, as a profession, are not sleepwalking into a disaster in waiting.

Anti-competitive practices and cartels are harmful to consumers, businesses and the employees within them. As lawyers, it is perhaps time that more attention was paid to this subject, even if only for our own self-preservation.

Whatever the cause of competition law breaches, as lawyers we must learn to identify these dubious forms of conduct in order that appropriate advice can be given to clients and also to guard against it creeping into our own business practices. Finally, we must beware of a potential sting in the tail for ourselves, as solicitors, when even the mere suspicion of the existence of some of these practices comes to our attention.

Lawyers, their trade associations and other associated businesses are not immune from the sort of legal and ethical failings found in society in general or in other business models. In 2003 the Glasgow Solicitors Property Centre was found wanting and was obliged to change its entry rules following an investigation by the Office of Fair Trading. According to the report, the GSPC refused a membership application from a Glasgow based solicitor firm, putting that firm at a competitive disadvantage. The OFT expressed its concern to the GSPC that its admission rules were anti-competitive. The GSPC offered to change its admission procedures to meet the concerns raised by the OFT. The chairman of the OFT was quoted as saying: "It is important for competition, consumers and new businesses that all trade associations have admission rules that are non-discriminatory, fair and transparent."

Recent reporting on the subject of competition law makes me wonder whether the profession is being warned not only to get to grips with the law but also to look at what the profession itself is doing.

Turning up the heat

In July 2014 a joint article by Lindsey Miller, a prosecutor in the Crown Office and Emma Lindsay, assistant director, Cartels & Criminal Enforcement Directorate, Competition & Markets Authority (CMA) appeared in the Journal (online edition). It was entitled “Cartels: raising the stakes”. The summary reads: “Stronger powers for the new Competition & Markets Authority, closer co-operation between enforcement authorities, and legislative changes, increase the chances of conviction for cartel offences.”

The article then went on to tell us that: “Cartel enforcement is one of the key priorities for the new Competition & Markets Authority (CMA) – the body that on 1 April 2014 took over a number of functions of the Office of Fair Trading and the Competition Commission to become the UK’s lead competition and consumer authority. To achieve this, the CMA works closely with the police and other enforcement authorities, including the Crown Office & Procurator Fiscal Service (COPFS) in Scotland.”

It continued: “At the same time, the CMA’s budget has been enhanced specifically to enable it to step up its cartel and broader competition enforcement activities, and the criminal cartel offence under the Enterprise Act 2002 (EA02) has been amended to make it easier to prosecute. The CMA’s civil competition investigation powers under the Competition Act 1998 (CA98) have also been strengthened.”

It wasn’t until the closing sections of the article that the message hit home. “If you believe that you or your clients have been involved in cartel behaviour, you should consider applying for leniency as a priority, because businesses that come forward to report their involvement in a cartel may have their financial penalty reduced or may avoid one altogether.”

Not long after this Journal article, I spotted an article about a speech given by Sonya Branch of the Competition and Markets Authority on 23 September 2014. The speech is a salutary warning, to be ignored at our peril.

Consequences of default

Anti-competitive practices include a very wide range of what is, obviously, anti-competitive conduct. Generally, you will know it when you see. These are dealt with as civil offences and by civil penalties.

Cartel offences have been described as “hard core” anti-competitive conduct, and these are true crimes in every sense of the word. As explained by Ms Branch, the crime is committed whenever an individual agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements that relate to at least two undertakings and are of a “relevant kind”. The “relevant kinds” of arrangement are ones that (if operating as the parties intend) amount to price fixing; market or customer sharing; agreements to restrict production or supply; or bid rigging. Penalties are up to five years' imprisonment and/or an unlimited fine; up to 15 years' director disqualification; and confiscation of assets under the Proceeds of Crime Act.

Although the broader issue of anti-competitive conduct is addressed under a civil regime, the consequences are severe, with penalties of up to 10% of worldwide turnover and director disqualification up to 15 years. An infringement decision could make void previous contracts and enable anyone who was a victim of the conduct to seek damages. Damage to reputation could also be significant.

Cartel conduct and anti-competitive conduct apply to individuals and undertakings, respectively. However, when any individual, even as an employee under orders, engages the facilities of an undertaking to carry out an anti-competitive or cartel practice then, put crudely, the only important distinction here is that the human being can go to jail if a cartel offence is proved whilst the undertaking would suffer financial and other penalties if it turns out to be only, or additionally, an anti-competitive act.

The net cast wider

With regard to cartel offences, until 2014 it was necessary to prove dishonesty in the agreement among suspected offenders. However, after a Government review of the law, it was decided that this was unnecessary. The result was that the requirement for dishonesty as an element of the cartel offence was removed by the Enterprise and Regulatory Reform Act 2013.

In brief, the Competition Act 1998, in combination with the Enterprise Act 2002, sets out various criteria and a framework for identifying and addressing perceived cartel, restrictive business practices and abuse of dominant position within a marketplace. Activities that are defined as restrictive practices engaged in by companies in the UK include conduct that may be seen to distort, restrict or prevent competition. Danger lurks in any horizontal agreement, understandings or collusion between firms on the same level of the chain of supply of goods or services.

Removal of the need for dishonesty in an agreement, written or otherwise, has considerably widened the scope of the offence. This could well catch out individuals who long ago entered into agreements with others, honestly believing them to be in the interests of their business. It is perhaps too easy to think that business agreements and arrangements entered into some years ago must still be legitimate because there was no element of dishonesty at the time of agreement. It would be reckless or complacent to think so, and it may be wise to carry out a full review: time and the law have moved on. If in doubt, the CMA is there to assist.

In February this year a tiny article appeared in the Aberdeen Press & Journal reporting that the Aberdeen Solicitors Property Centre had been made the subject of a complaint to the CMA for allegedly operating anti-competitive practices. What may be most important here is the fact that a complaint was made and that it turned the light on a line of work that is something of a lucrative monopoly for solicitors, who are banded together in solicitor property centres in most parts of Scotland to maintain their historical monopoly in estate agency. At the moment, the CMA has not indicated whether it will or will not carry out a formal investigation, nor even the direction of any possible enquiry.

On 8 May 2015, a decision of the CMA resulted in fines of over £735,000 imposed on an association of estate and lettings agents, three of its members and a newspaper publisher for simply agreeing to restrict the advertising of fees or discounts in a local newspaper. The CMA has now sent warning letters to a number of estate and lettings agents who it had reasonable grounds to suspect may have been involved in similar types of anti-competitive conduct. The CMA also disclosed that it had “received complaints that other associations of estate agents and local newspapers may be engaging in similar practices, and is considering whether to take further action”. 

Serious organised crime on top of this?

And now for the sting in the tail for solicitors that I mentioned earlier. We must start from the point that cartel offences are committed by individuals and not undertakings. In terms of the Criminal Justice and Licensing (Scotland) Act 2010, s 28, a person who agrees with at least one other person to become involved in serious organised crime commits an offence. A person agrees to become involved in serious organised crime if the person agrees to do something (whether or not the doing of that thing would itself constitute an offence), and knows or suspects, or ought reasonably to have known or suspected, that the doing of that thing will enable or further the commission of serious organised crime.

Under subsection (3), “serious organised crime” means crime involving two or more persons acting together for the principal purpose of committing or conspiring to commit a serious offence or a series of serious offences. However a “serious offence” means merely an indictable offence (a) committed with the intention of obtaining a material benefit for any person, or (b) which is an act of violence committed or a threat made with the intention of obtaining such a benefit in the future. The term “material benefit” means a right or interest of any description in any property, whether heritable or moveable and whether corporeal or incorporeal.

The penalty on indictment for an offence under subsection (1) is imprisonment for a term not exceeding 10 years, or a fine, or both. On summary conviction, it is to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum or to both. Recovery under the Proceeds of Crime Act of ill-gotten gains is also a real prospect. As can be seen, cartel offences fall under the definition of serious organised crime, being offences committed by individuals and being indictable offences, regardless of whether or not the offence is ultimately prosecuted on indictment or summary complaint.

If I am correct in my reading of the legislation, dangers may also therefore exist for non-reporting in the context of cartel offences.

Section 31 of the 2010 Act provides that where (a) a person knows or suspects that another person has committed (i) an offence under s 28 or 30, or (ii) an offence which is aggravated by a connection with serious organised crime under s 29, and (b) that knowledge or suspicion originates from information obtained (i) in the course of the person's trade, profession, business or employment, or (ii) as a result of a close personal relationship between the person and the other person, then that person commits an offence if he does not disclose to a constable his knowledge or suspicion, and the information on which that knowledge or suspicion is based. There is no requirement that any person be prosecuted for the actual serious organised crime offence before the “non-reporter” is prosecuted for failure to report. Penalties can be up to five years' imprisonment or a fine or both, if prosecuted on indictment, or if prosecuted on summary complaint, 12 months' imprisonment or a fine or both.

If one thing is certain, it is that our profession must sit up and take notice of competition law provisions, and the associated criminal and civil risks, when it comes to both its own business arrangements as well as those of its clients. Merely turning a blind eye does not seem to be an option.