While competition law often hits the headlines with eye-watering fines on multi-national corporations, recent developments have highlighted that there is more to enforcement of competition law than corporate sanctions on large international companies.
Non-compliance with competition law does not just risk fines for the corporate entity, but can also have serious consequences for the individuals involved, with possible sanctions including unlimited fines, disqualification from acting as a director and even criminal prosecution (cartel participation can result in up to 5 years’ imprisonment). As recent enforcement action indicates, competition and regulatory authorities are now using the full range of their powers and are increasingly willing to impose sanctions even on small companies and individuals.
Criminal prosecution of individuals
Criminal prosecution under the cartel offence carries a maximum prison sentence of five years and/or an unlimited fine. While relatively few successful prosecutions have been brought to date, the Competition and Markets Authority (CMA), the UK’s competition law enforcer, is actively looking to make more use of these draconian sanctions.
The current cartel offence makes it a criminal offence for individuals to agree to make or implement, or to cause to be made or implemented, arrangements which constitute certain types of cartel activity; namely price-fixing, limiting or preventing supply or production, market-sharing and bid-rigging.
Historically, the Office of Fair Trading (the CMA’s predecessor) had limited success in prosecuting the previous cartel offence, not least because this required the OFT to prove that the individual had acted “dishonestly”, which in practice proved to be a very high hurdle to overcome. This prompted a change of law to remove the dishonesty requirement for cartel activity occurring on or after 1 April 2014. This amendment was done at the behest of the CMA, with the express intent of making it easier to secure prosecutions.
While the full extent of the change is yet to be felt (given that most cartel activity post-April 2014 remains under investigation or is yet to be discovered), the CMA has recently experienced some success in bringing prosecutions:
- in September 2015, in the first criminal prosecution brought by the CMA, following the galvanised steel tanks cartel, a director was sentenced to 6 months’ imprisonment, suspended for 12 months and ordered to do 120 hours of community service;
- in March 2016, an individual pleaded guilty to one count under the criminal cartel offence, following the precast concrete cartel.
The CMA continues to investigate suspected cartel activity in this industry. Given that both of these cases were brought under the old cartel offence, going forward, the number of cases being brought by the CMA is likely to increase and, as the difficult “dishonesty” element has been removed, it is likely to have greater success in prosecuting.
After imprisonment, the next most forbidding sanction is the power to disqualify an individual from acting as a director. This sanction not only affects the individual’s professional position at the time, but also their reputation for years to come. Since 2002, the CMA has had the power to seek disqualification of an individual from holding company directorships for a period of up to 15 years. Until recently, however, this power was not initially used to its full potential.
December 2016 marked a turning point. For the first time in the UK, a director was disqualified for his involvement in unlawful activities contrary to competition law. Daniel Aston, managing director of the online poster supplier Trod Ltd, has given a disqualification undertaking not to act as a director of any UK company for five years. This comes after Trod was found to have infringed competition law by agreeing with one of its competitors that they would not undercut each other’s prices for posters and frames sold on Amazon’s UK website.
As a result of Aston’s role as managing director at the time of the infringement and his personal contribution to the breach, the CMA found that his conduct makes him unfit to be a company director. This is despite the fact that the fine handed down to Trod for the competition law breach was the relatively minor sum of £163,371. The CMA is clearly committed to making directors personally accountable, irrespective of the size of the fine.
Civil fines: big and small companies at risk
Alongside imposing sanctions on responsible individuals, the CMA regularly levies significant fines on the corporate entities involved, which should also act as an effective deterrent. Most notably, fines imposed can be up to 10% of the company’s worldwide turnover.
Importantly, it is not just large, multinational companies that are at risk. As recent cases brought by the CMA and other European competition authorities show, authorities are taking enforcement action against small companies and imposing relatively small fines. The CMA seems to be demonstrating its intention to penalise anti-competitive conduct, no matter the value or the size of the company involved. One such example of this is the Trod case (above), but others include a CMA fine of £382,500 in relation to private ophthalmology and a fine by the Spanish competition authority of €13,000 on a college of lawyers.
Not just the CMA
Alongside competition authorities, in some jurisdictions, other regulatory bodies can also investigate and prosecute conduct which adversely affects competition. In the UK, the Serious Fraud Office (SFO) has a successful track record in bringing criminal prosecutions in the corporate arena. The SFO also has additional powers, including confiscation orders, which act as a further deterrent for individuals.
An area of recent regulatory interest has been the rigging of comparable base rates, such as Euribor and Libor. While investigations into the companies were carried out by the European Commission, which is the principal competition enforcement authority in the EU, investigations into specific individuals were carried out in the UK by the SFO.
Following the SFO’s investigation, Tom Hayes, a former UBS and Citigroup trader who was instrumental in the Libor manipulation scandal, was the first individual to be convicted for conspiracy to defraud. As well as being imprisoned for 11 years (reduced from 14 years), Hayes was ordered to pay a confiscation order of £878,806, reflecting the value of the assets obtained as a result of the crime. Most recently, three ex-Barclays bankers (who were also found guilty of Libor-rigging offences) also face confiscation orders when they return to court on 9 February 2017.
These cases show that the penalties for competition law-related infringements are wide-ranging and potentially very damaging for the individuals involved.
A continuing trend
The CMA can be expected to want to build on its recent successes in enforcement of competition law. Recent publications from the CMA make clear its intention to prioritise prosecutions and tackle cartels robustly, pointing out the inherent public interest in prosecuting individuals involved in cartels.
In January 2017, the CMA issued revised guidance to businesses on managing competition law risk, which includes advice for company directors on avoiding disqualification for company breaches of competition law. This issue is clearly on the CMA’s agenda, so directors and others in positions of power should ensure that they and their companies are fully compliant.
What can you do to reduce your risk?
The increasing focus on competition law enforcement means that companies must ensure they have effective compliance policies in place to reduce their risk. This may include:
- ensuring your company has an effective competition law compliance policy. Policies should be checked and refreshed annually to ensure they are up to date and appropriately tailored for the business;
- arranging face-to-face training for key personnel within the business, such as directors and sales teams, to ensure a basic understanding of competition law and what you can and cannot do;
- running periodic internal audits to check key contracts comply with competition law to ensure their validity and enforceability; and
- conducting “deep dive” audits of email correspondence generated by “higher risk” individuals (such as senior sales personnel), coupled with training to address any interesting / best practice points that might arise.