11 Apr 2010

(by ) The trial of four British Airways employees charged with fixing fuel surcharges under the Enterprise Act 2002 is expected to begin today. This is the first real test for the OFT’s most powerful weapon against cartels. There are a number of factors which make this trial both compelling and extremely important. Not least, the fact that one of the individuals is still an employee of British Airways, was promoted to Director of Sales and Marketing after he was charged, and recently received .

Imprisonment is far more likely to deter would-be cartelists than corporate fines. The latter are imposed in an administrative procedure, as long as ten years after the cartel was formed and are borne by the employer and ultimately shareholders. By this time, the small number of individual managers typically responsible, may have moved on or retired. The criminal offence came into force in 2003 and was intended to make sure those responsible faced sobering consequences.

However, this is only the second case arising under the criminal offence and the first to go to trial. In three individuals pleaded guilty, but were induced to do so by a plea bargain with the US Department of Justice. The OFT’s decision not to bring criminal charges in its case last year reflects the costly and protracted nature of criminal proceedings in the BA case, as well as uncertainties over whether a jury will convict.

The mountain the OFT must climb in this case is to convince a jury that the BA four acted dishonestly and knew they were acting dishonestly, in talking to their competitor about fuel surcharges. The problem is that they are not alleged to have engaged in a sophisticated hard core cartel, but essentially in a handful of telephone conversations. Moreover, half of those involved (the Virgin Atlantic management) have gone completely unpunished for blowing the whistle.

The case shows poor judgement by the OFT during these crucial early years of the criminal offence. A by the ESRC Centre for Competition Policy in 2007 showed that only 25% of Britons strongly felt price fixing was dishonest, and only 11% felt imprisonment was an appropriate sanction. The fact that BA are standing behind one of the defendants – and that the others have hadat high levels since leaving BA – suggests that British corporations do not think they have done anything particularly bad; certainly not criminal.

In the face of weak public and business perceptions, the OFT would have done better to concentrate on clear-cut breaches of cartel laws such as bid-rigging in public procurement, while a credible body of convictions could be built up. This would have sent a strong message to the business community and to members of the public, as well as improving popular understanding of why such practices are illegal. Instead, the British Airways case risks undermining the legitimacy of the cartel offence altogether.

If the OFT are successful in overcoming the dishonesty hurdle and convict at least one of the defendants, it will be a remarkable accomplishment. A conviction will send out a strong message; encouraging managers to stay clear of cartel practices or to plead guilty when they are caught, and giving the OFT a new lease of confidence in pressing for criminal convictions.

If the BA case fails, the OFT will be unlikely to pursue criminal sanctions in a cartel case again, until a legislative change removes the problematic requirement of dishonesty. Without criminal sanctions, the consequences of breaking cartel laws will continue to be borne by the company alone in the shape of stiff corporate fines, with no direct punishment for the individuals responsible, except for director disqualification orders.