Changing Cartel Offence Law
Fixing prices with competitors and bid rigging (where firms collude to raise the cost of procurement contracts and decide beforehand who will submit the winning bid) are both examples of cartel behaviour, but what are the motives behind committing them?
For many years dishonesty has been used in the UK to distinguish cartel behaviour that should be treated as a crime, from behaviour that is only subject to an administrative fine.
But research undertaken by Professor Andreas Stephan, of UEA’s School of Law, highlighted the difficulties associated with convincing a jury that a defendant entered into a cartel arrangement in an unambiguously dishonest way, and resulted in a change in the law in 2014.
Prof Stephan’s research has provided evidence to suggest that even the most serious forms of cartel behaviour can easily be portrayed as being honest or at least ambiguous as to its dishonesty. This is especially so where there is any kind of crisis immediately prior to the cartel being formed or where communication between the competitors was originally for legitimate reasons. This makes it very difficult to convince a jury of dishonesty to the required criminal standard (beyond reasonable doubt) and is the reason – Prof Stephan suggests – why only 3 individuals were imprisoned for cartel behaviour between 2003 and 2016.
Stephan’s research on public attitudes to price fixing and cartel offences has also produced some other interesting findings, particularly in terms of national public perceptions. Using an online survey, Stephan was able to find that most members of the British public agree that cartel behaviour is harmful but not necessarily criminal, with the vast majority preferring naming and shaming as the most suitable punishment. Fraud and theft, for the majority, were seen as worse crimes. In 2014, further survey work in the UK, Germany, Italy and the US revealed that public awareness that cartel conduct is illegal in those countries was low, despite the fact a strong majority of respondents everywhere recognised that cartels engaged in harmful conduct that should be punished. This suggests very little information about the law and its enforcement is reaching ordinary members of the public.
Stephan is one of the UK’s non-governmental advisors to the International Competition Network (ICN) which promotes good practice among competition agencies around the world, as well as being a member of the ICN's Advocacy Working Group (AWG). A survey was produced within the AWG in 2013 to help promote and encourage competition culture, for which Stephan helped design the questions and drafted the final report. This report provides assistance to economies with less developed systems of competition law enforcement and will help them strengthen those systems.
June 2015 saw Stephan work as an expert advisor to a defendant accused of price fixing and bid rigging for the UK supply of galvanised steel tanks. This was the first criminal cartel trial to be put before a jury in England by the Competition and Markets Authority (CMA). Drawing on his research, Stephan argued the defendants’ actions could have been motivated by factors other than dishonesty, such as a desire to avoid bankruptcy or improve safety standards.
“There also wasn’t an awful lot of secrecy surrounding the meetings between competitors –some of which were at the behest of an industry body – and the primary motivation appeared to be averting crisis, not greed."
The defendant and his co-accused were acquitted, to which Stephan commented: “The CMA focused on proving that meetings between competitors took place and that they resulted in increased margins. However, they failed to demonstrate that the alleged conduct was dishonest or objectionable enough to attract criminal liability. Any upward pressure on prices occurred during a period when steel costs soared and new manufacturing standards were introduced, making it difficult to pin down the extent to which prices might have increased as a result of the arrangement.
“The CMA’s case was significantly weakened by the largely flat testimony of its witnesses. Some said they did not consider the practices to be really dishonest and there was even a suggestion that the cartel may have saved lives by ending a period of very aggressive competition, when there was a danger that quality standards would be compromised.”
The end result of this case is a reflection of Prof Stephan’s research into criminal dishonesty and how a jury may come to interpret cartel conduct. Furthermore, Stephan’s research has helped change law for cartel offences as The Enterprise and Regulatory Reform Act 2013 have removed the requirement of dishonesty for conduct occurring after April 2014, and replaced it with the more straightforward question of whether the conduct was entered into openly. Stephan suggests this is a more appropriate test as attempts to hide their activity suggests those responsible know what they are doing is wrong.
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