12 May 2010

(by Andreas Stephan) The spectacular collapse of the ‘British Airways Four’ price fixing trial on Monday raises serious questions about the OFT’s competence as a criminal prosecutor and its reliance on a leniency programme. The fallout from the case makes it very unlikely that we will see more criminal prosecutions in the UK any time soon, especially as the cartel offence’s legitimacy may now be brought into question. With the threat of imprisonment for would-be cartelists left to sound a hollow ring, the deterrent message of cartel enforcement may have been significantly weakened.

The remarkable failure by OFT prosecutors to disclose key documents to the defence, betrays their inexperience in criminal proceedings and suggests a complacent overreliance on the whistleblowing party, Virgin Atlantic, in building their case. Virgin’s lawyers were apparently given the responsibility of uncovering evidence, , having previously indicated the files were corrupted. The OFT is more used to acting as investigator, judge and jury in civil investigations; imposing hefty penalties directly on firms subject to competition law investigations, without seeing the inside of a courtroom. Leniency programmes are a vital tool in detecting cartel agreements which would otherwise go unnoticed, but the OFT must corroborate any evidence produced through leniency – especially in building a criminal case. A failure to do this could for example allow the whistleblower to ‘stitch up’ its competitor using fabricated evidence.

, pursuing the BA case showed poor judgement by the OFT. The alleged conduct here was never a sophisticated hardcore cartel, but rather informal contacts between businessmen. The case thus hinged on emails and telephone calls largely produced as a result of Virgin’s cooperation with the regulator. When Virgin’s lawyers eventually produced the additional email evidence, including one communication suggesting a rise in fuel surcharges occurred before any communication took place between the airlines, the case became dead in the water. The defendants now appear as innocent victims of the OFT’s overzealous enforcement; compounded by BA’s decision to stick by Andrew Crawley, even promoting him to Sales and Marketing Director.

Moreover, the OFT clearly had doubts over the BA case for some time. This was demonstrated by their failure to bring criminal prosecutions against individuals in the construction industry last year, when they were found to have rigged bids in public procurement. Surely, hiking the cost of building projects for schools, hospitals and other public projects is more worthy of criminal prosecution than the alleged conduct in the British Airways case?

The collapse is a huge embarrassment for the OFT, who have invested significant time and public money into the four year investigation. Frustratingly, the case will cause many to question the legitimacy of the cartel offence and the use of leniency, without there having been any important clarification of when price fixing might be considered dishonest (a key requirement of the offence, previously given a worrying interpretation by the House of Lords’ decision in Norris).

Most significantly of all, the BA case risks blurring the deterrent message of cartel enforcement. With the prospect of imprisonment now seeming very remote, would-be cartelists may be more likely to flout competition laws, safe in the knowledge that their employer alone will bear the risk of getting caught (in terms of corporate fines). Director Disqualification Orders, and , provide two possible alternative mechanisms for ensuring individual responsibility, but neither of these come close to the sobering prospect of prison.