(by Andreas Stephan) British bank, Royal Bank of Scotland (RBS), has agreed to pay a fine of £28.6 million for price fixing. RBS employees shared confidential pricing information concerning commercial loans, with their counterparts at Barclays, who apparently adjusted their own pricing accordingly. The fact that RBS is 84% nationalised means that the OFT is effectively fining the taxpayer. Nevertheless, they should be applauded for not abandoning important enforcement principles.

RBS’s offices were originally raided in June 2008 when Barclays approached the OFT to report the exchange of information in return for immunity from fines. Following a relatively short investigation (by cartel standards), RBS has agreed to pay the fine in the spirit of direct settlement which is becoming increasingly common in OFT decisions. The  found that “individuals in RBS’s Professional Practices Coverage Team had unilaterally disclosed generic as well as specific confidential future pricing information to their counterparts at Barclays Bank”. Had RBS chosen not to cooperate in this way, the OFT’s fine would have been £33.6 million.

The conduct in question occurred between October 2007 and February 2008 “on the fringes of social, client or industry events or through telephone conversations”. The disgraced Fred Goodwin was CEO of RBS at the time. By the end of 2008, RBS’s reckless incompetence in other activities had brought it to the brink of bankruptcy. The government had to step in and bought what became an 84% stake in the bank in order to prevent it from folding.

On the face of it, the fine may appear entirely counterproductive. £28.6 million is to be paid by a company essentially owned by the taxpayer which, made . Some might argue the result is a pointless movement of public money in a complete circle (as fines go to the treasury), with substantial administrative costs involved.

However, the OFT is absolutely right to impose a significant (if not unprecedented) fine on an apparently serious breach of competition law, even in the face of the current economic downturn. The timing of the infringement in the early months of the credit cruch demonstrates the heightened danger of cartel practices during difficult trading times. Businessmen who would not consider price fixing to be an acceptable strategy during a boom, may look on it very differently where there is a real danger of unemployment or insolvency. It would be very easy for the OFT to succumb to pressure for ‘soft’ enforcement during an economic downturn. By instead pressing on with hard enforcement against cartel practices, the regulator sends out a strong message about competition which could ultimately benefit the economy and speed up the recovery. There is also the intriguing possibility that the current .

An added twist to this tale is that the offence was by the Professional Practices team and lawyers are among the alleged victims identified by the OFT. If there was ever an OFT decision to create a splash in the stagnant pond that is private enforcement, this may be it.