(by Andreas Stephan) The UK has had a criminal cartel offence since 2004. Since then, it has prosecuted just two cases. One was the result of a plea bargain in the USA. The other . The criminal offence is in crisis. The government’s consultation document on the UK competition regime recognises the need for reform , pointing to problems associated with the requisite test of dishonesty, such as those highlighted by a . The four options suggested by the Government would each make it easier for the prosecutor to argue a case. However, none would result in a wave of criminal prosecutions or avoid difficulties related to efficiency defences for cartel-like behaviour.

The Options

The four options suggested in the consultation document are:

1. Removing dishonesty and introducing guidance for prosecutors. Guidance could steer the competition authority clear of problematic cases but may run into problems under Article 7 of the European Convention of Human Rights.
2. Removing dishonesty and defining the offence to exclude a set of ‘white-listed’ agreements. These might include joint ventures and vertical agreements, with some similarities to the approach taken in Canada and Australia.
3. Replacing dishonesty with a secrecy element. It is suggested that ‘secrecy’ should amount to taking measures to prevent the conduct from becoming known to customers or public authorities. The consultation document rightly suggests that ‘active secrecy’ would be hard for the prosecutor to prove and that ‘passive secrecy’ would cause confusion among businesses and jurors. It is thus strange that this should be considered as an option.
4. Removing dishonesty and defining the offence to exclude ‘agreements made openly’. This means excluding collusive conduct that all customers are made aware of in advance.

Interestingly, all four options would essentially create something close to a strict liability offence, following other key antitrust jurisdictions. This means that prosecutors need only show the physical act of price fixing etc without delving into a specific mental element like intention or dishonesty. These bold proposals drop dishonesty but don’t seem to replace it with anything! By contrast, the academic debate has focused on alternatives, with Julian Joshua advocating conspiracy. Others have mooted a redefined dishonesty test, recklessness or something based on ‘object’ agreements under Article 101 TFEU. The absence of a specific mental element like conspiracy (which would amount to intention or recklessness as to cartel conduct, as in the US) would make the offence so wide that it could result in less respect for the law, or a loss of deterrence resulting from firms taking less care.

The desire to exclude countervailing economic arguments

The four alternatives ostensibly reflect the same concern which originally motivated the inclusion of dishonesty: that the offence should not capture behaviour which might be subject to countervailing economic arguments. There is a particular fear that such arguments would confuse jurors. However, we need to ask whether such concerns are appropriate. Countervailing economic arguments very rarely excuse horizontal price fixing, market sharing, output restriction or bid-rigging. When they do, the evidence needs to be very compelling indeed. The issue may just be one of economics-phobia within general courts.

The Government claims that Option 4 would in some way avert countervailing arguments, but it is unclear exactly how. It perhaps assumes that firms making such arguments will always be open about defensible collusive practices because they have nothing to hide. The fact that an agreement has been kept secret cannot, however, preclude economic arguments of countervailing benefits. Ironically, the courts have even ruled that economic evidence can be relevant to the issue of dishonesty under the current criminal offence.

Can customers really avoid companies openly colluding?

A stated rationale for Option 4 is that where a cartel openly informs customers of its anti-competitive conduct, those customers will choose to trade elsewhere. This is rather dubious given the very characteristics that make a cartel worthwhile (significant enough market share to raise price, high barriers to entry, and low substitutability) also mean that customers have little choice about who they buy from. However, this would not preclude customers from seeking damages or prevent the competition authority from imposing fines under the Competition Act 1998.

Reconciling civil and criminal enforcement

Once the dishonesty requirement is consigned to the history books, the biggest challenges to increasing the number of criminal cartel cases may have little to do with the design of the offence itself. Unlike many other competition regimes, the UK’s cartel offence relates only to individuals. This means that unlike Canada, the US or Ireland, criminal investigations against individuals must complement civil investigations against their firms. The authority’s experience and internal expertise are consequently geared for a different process. As criminal investigations must afford greater protection to the rights of individuals, these must take precedence. Criminal cases will thus hold up the civil cases. It also means they are unlikely to be engaged in the most serious pan-European cartel cases dealt with by the European Commission.

Criminal investigations are more time consuming, more expensive and more risky than civil cases against the firm, making it likely they will have an adverse effect on the way in which an authority prioritises its cases. For example, the repeated delays and legal challenges in the failed British Airways case caused the OFT to back off from applying the offence in its other civil cases. In particular, Director Disqualification Orders appear to have gained greater prominence in recent years as a proxy for the deterrent effect of the criminal offence. These problems are (to some extent) averted in the US and Canada through sophisticated systems of direct settlement or plea bargain in criminal cases. Such mechanisms are not currently available in the UK.

The proposed reforms to the criminal offence would certainly make it easier for a prosecutor to successfully argue their case. However, this will not necessarily ensure a wave of criminal cases. There are serious procedural issues which also require careful attention – in particular the incentives to prioritise ‘safer’ civil investigations over less predictable criminal prosecutions.

IB v The Queen [2009] EWCA Crim 2575