On 29 April 2014, the new UK Competition and Markets Authority (“CMA”) and the Serious Fraud Office (“SFO”) published a new Memorandum of Understanding (MoU).

Building on the previous MoU between the OFT and the SFO, dated October 2003, the new MoU sets out the basis on which both agencies will co-operate to investigate and prosecute criminal cartels in the UK.

The new MoU places greater emphasis on the sharing of intelligence and information between the agencies and ensuring that systems are in place to improve lines of communication and co-operation.

As with the previous MoU, both agencies retain the ability to prosecute criminal cartels, with the SFO to take the lead in circumstances where the case meets it entry criteria. The MoU places clear obligations on each agency to ensure effective decision-making in respect of leniency and immunity, when such decision may impact on other investigations.

Today heralds a new criminal cartel offence in the UK introduced by section 47 of the Enterprise and Regulatory Reform Act 2013 (“ERRA 2013”).

The Competition Commission and the OFT are now merged into the Competition and Markets Authority (“CMA”) and the CMA will have primary responsibility for the investigation and prosecution of criminal cartels.  It has published a number of guidance documents describing how it will exercise its powers, reiterating publicly that the approach to enforcement does not differ fundamentally from that taken by the OFT. The CMA today released a statement setting out its 5 strategic goals.

The main change to the previous offence is  that for cartel conduct occurring after 1 April 2014,  the prosecution no longer needs to prove dishonesty to secure the criminal conviction of an individual.

The new cartel offence, like the old one, can be committed regardless of whether the illicit agreement is actually implemented. However, the new offence is defined to exclude agreements that are made openly. Under a new section 188A of the Enterprise Act, the cartel offence will not be committed where, under the arrangements:

1. customers are given relevant information about the arrangements before entering into agreements for the supply to them of the product or service affected; or
2. in the case of bid-rigging arrangements, the person requesting bids is given relevant information about the arrangements before or at the time a bid is made; or
3. relevant information about the arrangements is published in the London Gazette before they are implemented.

The exclusion of agreements that are made openly reflects the Government’s intention to target only the most serious cartels. In addition to the exclusions in section 188A, section 188B provides the following defences to the cartel offence:

1. At the time of making the agreement, the individual did not intend that the nature of the arrangements would be concealed from customers or from the CMA; or
2. The individual took reasonable steps, before making the agreement, to ensure that the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining advice on them before their implementation.

The CMA’s Cartel Offence Prosecution Guidance of March 2014 states that the phrase “professional legal advisers” is intended to cover both external and in-house legal advisers who are appropriately qualified. For this defence to succeed, an individual must have made a genuine attempt to obtain legal advice about the arrangement, including making full disclosure of all relevant facts to the professional legal adviser.

The UK Government’s position is that the requirement to prove dishonesty in the previous offence prevented more cases being prosecuted. Since the implementation on the criminal cartel offence in June 2003, only two cases have come to court, one resulting in convictions. By contrast, in Ireland, where dishonesty is not required, over the same period, there have been 38 criminal convictions from 6 separate cases.

The Competition and Markets Authority (CMA), which will take over the functions of the OFT on 1 April 2014, has launched a consultation about how the CMA will work in practice and how it will interact with businesses and individuals.

This includes the publication of draft prosecution guidance on the criminal cartel offence. The guidance sets out some of the considerations that the CMA will take into account when deciding whether to prosecute the cartel offence, in particular in relation to the new exclusions in section 188A and defences in section 188B of the Enterprise Act 2002 (as amended by section 47 of the Enterprise and Regulatory Reform Act 2013). It is worth noting that the CMA takes the view that the term ‘professional legal advisers’ in the legal advice defence in subsection 188B(3) refers to both external and in-house legal advisers. The guidance states that an individual must show that they have made a genuine attempt to seek legal advice about the arrangement, but there is no mention of whether the advice needs to be followed.

The guidance also sets out a number of considerations that the CMA will take into account when deciding whether it is in the public interest to prosecute:

• The seriousness of the offence;
• The level of culpability of the suspects;
• The impact on the community; and
• Whether prosecution is a proportionate response.

In parallel, the Department for Business, Innovation and Skills has published draft secondary legislation in relation to the UK’s competition regime. This includes a draft Order for the publishing of relevant information under section 188A of the Enterprise Act 2002. The draft Order specifies that relevant information is published if it is advertised once in any of the London Gazette, the Edinburgh Gazette and the Belfast Gazette.

The consultations close on 11 November 2013.

Sonya Branch, the OFT’s Executive Director, Enforcement and Mergers (and soon to be Director of Enforcement at the newly formed CMA), has highlighted some of the challenges in bringing successful criminal cartel prosecutions under the Enterprise Act 2002 (the EA), what the organisation is doing to address these and what the outlook is for the CMA when it takes over from the OFT in April 2014. In a speech at the Law Society, she revealed that a major contributing factor to the fact that there have been so few prosecutions of the criminal cartel offence has been the requirement to prove dishonesty.

The heart of the problem is in the two-pronged Ghosh test for dishonesty, which requires the OFT not only to show that the conduct was objectively dishonest but also that the defendant subjectively realised that his conduct would be regarded as such. The fact that cartel cases do not usually have clear victims, and that defendants often do not gain personally from the cartel conduct, makes this particularly difficult to prove to a jury. Branch also referred to studies which have shown that up to 40% of the general public do not consider price fixing to be dishonest, meaning that juries may be persuaded by arguments that defendants have acted with well-meaning intentions, such as to preserve jobs. The high uncertainty surrounding convictions has, according to Branch, been a major factor in the OFT’s decision to close several criminal cartel investigations without taking enforcement action.

As a result, the OFT has moved towards a more ‘intelligence-led’ approach to cartel detection with the aim of increasing deterrence through better detection rates and delivering criminal cartel investigations and prosecutions more efficiently. This is proving successful – almost half of the new cartel cases opened over the last three years have been intelligence-led rather than coming to the OFT’s attention through leniency applications.

On 1 April 2014, the Enterprise and Regulatory Reform Act 2013 will come into force and the CMA will take over the role of investigating and prosecuting criminal cartel conduct from the OFT. At the same time, the requirement of dishonesty will be removed from section 188 EA, a move intended to make the offence easier to prove in court. The CMA will publish prosecutorial guidance on the new offence later this year. The Government has also allocated extra funding to support the CMA’s cartel enforcement after 2015 and enable it to improve the scale and sophistication of its criminal cartel enforcement activities. It remains to be seen whether these changes will be sufficient to increase the number of criminal cartel prosecutions, of which there have been just two (only one of them successful) since the offence was enacted in 2002.