Andrew Finfer, Legal Director at Addleshaw Goddard LLP takes a slightly humorous look at the serious business of anti-competitive behavior
Hang together … or hang separately?
Imagine …. your business is facing difficult trading conditions. A “disrupter” has entered the market upsetting age-old arrangements that allowed you and your competitors to trade profitably. A virus has changed everything and your customers have disappeared or are disappearing. What do you do? Do you hang together or hang separately? Do you – like crocodiles in a drying-out riverbed – fight your competitors to the death knowing that some will not survive? Or do you co-operate so that all of you may survive, albeit leaner and perhaps fitter? As one member of a cartel commented (while being secretly recorded by the Competition and Markets Authority) “But guys, look at our, look at all our financial numbers, we’ve all had a good year. Everybody has had a good year financially and profit-wise. And that’s come about by all sitting here and [being] patient”.
The answers to these questions are the main reason why cartels – anti-competitive arrangements between competitors – are formed and exist. While cartels – price fixing and market sharing are the most well-known examples – undoubtedly benefit those involved, they do so by causing damage to consumers, and for this reason they are unlawful. At a conservative estimate, 18 cartels investigated between 2005-2007 caused £6.89 bn damage to consumers.
But why don’t I know someone who has been apprehended for their involvement in a cartel? Is it because they have obeyed the Eleventh Commandment – Thou shall not get caught?
While not everyone spends their leisure time reading decisions of competition authorities and learned judges, we all know of businesses who have been fined for involvement in anti-competitive arrangements – Ford, Volkswagen, Peugeot, ASDA, Morrison’s, Sainsbury’s for example. Understandably, those involved don’t publicise their involvement in unlawful activity – few will know that Nigel Snee (formerly Managing Director of Franklin Hodge Industries Limited) was sentenced to six months’ imprisonment in 2015 for committing a criminal cartel offence by fixing the prices of galvanised steel tanks and by sharing customers with his competitors.
But surely they were unlucky or careless?
Cartels operate undercover – sometime using (amusing) cover names like “The Pidgeon Club”. Members of cartels are careless: one company director wrote “Cartel Meeting” in his diary on the days that he met with his competitors and then tried to obliterate the entries using five biros, each with a different colour, when an investigation of the cartel began. Unfortunately, his diary entries became legible when the pages were held up to the light.
Investigating authorities are very aware of the secret nature of cartels, which is why the Competition and Markets Authority (the UK competition regulator) can be given permission to enter premises and place listening and other surveillance devices in the premises or arrange for people to spy on the cartel’s activities through involvement in meetings.
However, the most effective means the CMA has of discovering cartels is its leniency programme.
Honour Among Thieves?
It is perhaps not surprising that dishonest people cannot be trusted. Competition authorities around the world take advantage of this trait of human nature by operating leniency programmes. If a member of a cartel secretly confesses involvement in the cartel and secretly assists the authority with its investigation of the cartel, the member will be given a 100% reduction of the civil and criminal penalties that it would otherwise suffer. This “get out of jail free card” is only available as of right to the first member of the cartel to take advantage of the programme; the other members of the cartel will usually suffer substantial penalties.
The more imaginative competition authorities like to appeal to the commercial instincts of cartel members by offering a “two for one” deal. If a member is being investigated for involvement in one cartel and confesses to involvement in another cartel, it will not only receive a reduction of the penalty for involvement in the second cartel but also an additional reduction of the penalty that is to be imposed on it for involvement in the first cartel.
What if I am caught? What can they do to me? The answer is:
- Disqualify a director of a company from holding the office of director in any company for up to 15 years
- Fine the company up to 10% of its worldwide turnover
In addition to causing substantial reputational damage to a business, competition authorities enable anyone who has suffered loss as a result of the business’ unlawful activities to successfully sue the company.
So what do you do when faced with the difficult choices referred to above? The best option is to operate a simple but effective compliance policy to manage the risk of inadvertent infringement of the law. Be in a position where you can take advantage of a leniency programme – get your retaliation in first.
The alternative is to join the growing ranks of those who decided that involvement in a cartel was a great initiative, like Mike Brighty formerly Sales director of Hasbro (the toy manufacturer). The text of an email sent by Mike Brighty was repeated word for word in the competition regulators’ decision to fine Hasbro £15.59m for involvement in a cartel …
‘Ian … This is a great initiative that you and Neil have instigated!!!!!!!!! However, a word to the wise, never ever put anything in writing, its highly illegal and it could bite you right in the arse!!!! Suggest you phone Lesley and tell her to trash? Talk to Dave. Mike’.
You decide …
Addleshaw Goddard provide a legal helpline for FIS members, offering 15 minutes free advice on construction related legal issues. For more information click here.