The Competition and Markets Authority (CMA) has published a consultation document setting out its draft Guidance and Rules of Procedure for investigation procedures under the Competition Act 1998 (the Guidance and Rules of Procedure). The document is part of a wider consultation about how the CMA will work in practice and how it will interact with businesses and individuals when it takes over the functions of the OFT on 1 May 2014. A previous blog post discussed the draft prosecution guidance on the criminal cartel offence.
The Guidance and Rules of Procedure largely mirrors the current OFT guide to investigation procedures in competition cases, but in addition covers a series of new powers granted to the CMA under the Enterprise and Regulatory Reform Act 2013. These include:
- Giving the CMA the power to interview individuals;
- Replacing the current criminal sanctions for failing to comply with investigations with civil financial sanctions;
- Giving the CMA the express power to publish a notice of investigation, which may name a party or parties to an investigation;
- Lowering the threshold for the CMA to impose interim measures; and
- Introducing new statutory factors to be taken into account in fixing a penalty.
The most controversial of these powers is the new power under section 26A of the Competition Act 1998 to require any individual who has a connection with a business which is a party to an investigation to answer questions on any matter relevant to the investigation. The OFT has said that the new power is designed to make the CMA’s investigations more robust and efficient by enabling it to obtain information orally that it would otherwise either not be able to obtain or only be able to obtain through written requests. However, concerns have been raised that it will be used to carry out ‘fishing expeditions’ for information during investigations and that individuals’ rights may not be adequately protected.
The CMA must provide both the person and the undertaking with a formal notice which will ordinarily state the time and place at which the person must be available for questioning. However, the Guidance and Rules of Procedure state that in certain circumstances the CMA may interview an individual using its formal powers immediately after giving the notice. This is likely to be during a dawn raid where the CMA is of the view that a delay in conducting the interview may compromise the investigation.
A person being formally questioned may request that a lawyer be present. The CMA will only permit a legal adviser who is also acting for the undertaking under investigation to attend the interview if it is satisfied that this will not risk prejudicing the investigation (for example because it would increase the risk of destruction of evidence or reduce the incentive for individuals being questioned to speak openly and honestly). If this is the case, then the person can request another lawyer and the CMA will delay questioning for a reasonable time to allow a legal adviser to attend. However, the Guidance and Rules of Procedure define “a reasonable time” as such period of time as the officer considers is reasonable in the circumstances. The wide discretion granted to the relevant CMA officer raises the possibility that people may be formally interviewed without a lawyer present or without being fully aware of their rights.
The definition of connected individuals is also very wide, covering not only directors and employees, but also consultants, volunteers, contract staff and professional advisers.
The consultation closes on 11 November
The US Justice Department announced on 26 September 2013 that nine Japanese companies and two executives have agreed to plead guilty and pay more than USD 740 million in criminal fines for their roles in a number of conspiracies to fix prices in the car manufacturing sector.
The companies and executives engaged in various price-fixing schemes in relation to more than 30 different car components which affected more than USD 5 billion in auto parts used in more than 25 million cars sold in the US market. The companies and executives have admitted to attending meetings and making telephone calls in the US and Japan to rig bids, set prices and allocate the supply of parts sold to car manufacturers. Those involved took measures to keep their cartel conduct secret by using code names and meeting in remote locations.
The largest fines have been imposed on Hitachi Automotive Systems Ltd., Jtekt Corporation, Mitsuba Corporation and Mitsubishi Electric Corporation (MELCO) who have all agreed to pay in excess of USD 100 million. The two executives, US citizen Gary Walker and Japanese citizen Tetsuya Kunida, will serve 14 and 12 month prison sentences respectively and will each pay a USD 20,000 fine. All parties have admitted to violations of the Sherman Act and agreed to cooperate with the ongoing investigation
The fines are the latest in the Department of Justice’s ongoing investigation into the automotive sector (see previous blog post). The investigation has so far seen 20 companies and 17 executives plead guilty and has cost the auto industry more than USD 1.6 billion in fines and resulted in prison sentences of between a year and a day and two years.
What is now the largest cartel investigation in US history in terms of criminal fines and number of companies and executives under investigation looks set to continue. Eric Holder, the US Attorney General said at a press conference to announce the plea deals “The Department of Justice will continue to crack down on cartel behviour that causes American consumers and businesses to pay higher prices for the products and services they rely upon in their everyday lives”
The US Justice Department announced on 19 September 2013 that a federal grand jury had returned indictments against two executives at Fujikura Ltd, for their role in a conspiracy to fix prices in the car manufacturing sector.
Ryoji Fukudome and Toshihiko Nagashima, both Japanese citizens, are accused of attending meetings to agree to rig bids and allocate the supply of automotive wire harnesses sold to Fuji Heavy Industries for use in electrical systems in its Subaru cars sold in the US, in violation of the Sherman Act. It is alleged that these meetings were followed up with further communications to monitor and enforce the collusive agreements. Fujikara pleaded guilty to its role in the conspiracy in June 2012 and paid a USD20 million criminal fine.
The charges are the latest in the Department of Justice’s ongoing investigation into the automotive sector and follow the indictment entered against G. S Electech executive Shingo Okuda earlier in September 2013 (see previous blog post). The investigation has so far seen 12 companies and 15 executives plead guilty and has cost the auto industry more than USD874 million in fines and resulted in prison sentences of between a year and a day and two years. Substantial fines have also been imposed in parallel investigations in Europe, Australia, Korea, Japan and Canada. An investigation in China is expected to be opened in the coming months.
Scott Hammond, the deputy assistant attorney general of the antitrust division’s criminal enforcement programme, pledged that the Department of Justice would continue to protect US businesses and consumers by “working closely with competition enforcers abroad to ensure that there are no safe harbors for executives who engage in international cartel crimes.”
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.
John Pecman, the recently appointed Commissioner of Canada’s Competition Bureau, has announced a new Criminal Cartel Whistleblowing Initiative to encourage members of the public to provide information to the Competition Bureau about possible violations of sections 45 to 49 of the Competition Act. These provisions criminalise a wide range of cartel conduct including price fixing, allocation of markets, restricting outputs and bid rigging.
The new programme is in addition to the general protection for whistleblowers already provided for in Canadian legislation, and demonstrates the Competition Bureau’s increasing focus on tackling violations of the criminal cartel offence. The Competition Act provides that any person who has reasonable grounds to believe that a person has committed (or intends to commit) an offence under the Act and notifies the Commission as such may request that their identity be kept confidential, and also prohibits employers from taking action against whistleblowers who act in good faith and on the basis of reasonable belief. Canada’s Criminal Code provides a wider protection for anyone who provides information to law enforcement officers with respect to any kind of offence committed by someone in their organisation.
The details of the Criminal Cartel Whistleblowing Initiative show a high degree of protection for the identity of individuals who come forward, with an assurance that any information used to enforce the offence will not reveal the Whistleblower’s identity and a guarantee that while individuals may be asked to testify in court they will not be required to do so.
The Competition Bureau already has immunity and leniency programmes in place to encourage self-reporting, and Pecman said that the new initiative was designed to “support increased reporting of anti-competitive behaviour, while ensuring the protection of individuals who come forward with such information.”
The US Justice Department announced on 12 September 2013 that a federal grand jury has returned an indictment against Shingo Okuda, an executive at G.S Electech Inc., for his role in a conspiracy to fix prices in the car manufacturing sector.
Okuda, a Japanese citizen, is accused of agreeing during meetings and discussions to fix prices and rig bids for speed sensor wire assemblies sold to Toyota between 2003 and 2010, in violation of the Sherman Act. The charges against Okuda are the latest in the Department of Justice’s ongoing investigation into the automotive sector and follow Panasonic’s guilty plea in July 2013. Okuda is the first to be charged in Kentucky, where Toyota has a large assembly plant.
G.S Electech, which manufactures, assembles and sells a variety of automotive electrical parts, was the first of 12 companies to plead guilty to charges in the investigation and was fined USD2.75 million for its part in the cartel in April 2012. The investigation has so far seen 12 companies and 15 executives plead guilty and has cost the auto industry more than USD874 million in fines and resulted in prison sentences of between a year and a day and two years. Substantial fines have also been imposed in parallel investigations in Europe, Australia, Korea, Japan and Canada. An investigation in China is expected to be opened in the coming months.
There is no sign that the probe is set to slow down, with Scott Hammond, the departing deputy assistant attorney general of the antitrust division’s criminal enforcement programme, saying that “holding individuals accountable for their actions is the surest way to deter executives from choosing to collude rather than compete for business.”
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.
On 28 August 2013, Brazil’s antitrust regulatory body, the Administrative Council for Economic Defence (CADE), fined four airlines and seven individuals a total of BRL293 million (approximately USD125 million) for price fixing in the international air cargo sector. The parties were found to have colluded to fix the price and timing of fuel surcharges on freight shipments between 2003 and 2005, during which time they controlled about 60 per cent of the market. United Airlines was also investigated but CADE found that there was no evidence of its participation in the cartel.
The largest fines of BRL145 million and 114 million were imposed on VarigLog, which filed for bankruptcy last year, and ABSA Aerolineas Brasilerias (currently TAM Cargo and a part of Latam Airlines Group SA), respectively. American Airlines and Alitalia-Linee Aeree Italiane received substantially lower fines.
Deutsche Lufthansa AG, Lufthansa Cargo AG, Swiss International Airlines and five individuals were not fined after reporting the cartel to CADE and signing leniency agreements in 2006. Following this, dawn raids were carried out at the offices of a number of implicated airlines and evidence obtained that led to last week’s fines. Societe Air France, KLM and two individuals signed an agreement with CADE in February 2013 in which they admitted unlawful cartel conduct, pledged to cease the practice and paid a fine of BRL14 million (approximately USD6 million).
American Airlines has issued a statement indicating that it disagrees with CADE’s decision to fine the company and that it is evaluating its options to appeal the decision. The fines follow an international crack-down against price fixing in the airline sector. The US Department of Justice, the European Commission and the Canadian Competition Bureau have all issued substantial fines in recent years.
Chile-based LATAM Airlines has been fined C$975,000 by the Ontario Superior Court of Justice after pleading guilty on 20 August 2013 to participating in an air cargo price-fixing cartel from March 17 2003 until February 14 2006.
LATAM stated it had “… cooperated closely with Canadian authorities throughout the investigation process” It is the ninth party to be convicted as part of a Canadian investigation into cargo price-fixing.
“The Bureau’s investigation into the alleged conduct of other air cargo carriers continues.” the Canadian Competition Bureau said in its statement. To date, the Bureau’s investigation into the fixing of fuel and other surcharges has secured more than CA$25 million in fines. Previously, Air France, KLM, Martinair, Qantas, British Airways, Cargolux, Korean Air and Cathay Pacific have also pleaded guilty to fixing one or more air cargo surcharges for shipments on particular routes to and from Canada.
On 16 August 2013, Canada’s Competition Bureau announced the sentences for three individuals found guilty in March for conspiring to fix the price of petrol at the pump. The Bureau’s investigation into price-fixing of retail petrol in certain local markets in the province of Quebec was first made public in 2008. The three individuals were charged on 15 July 2010 and found guilty on 22 March 2013 after a two month trial before the Quebec Superior Court.
Yves Gosselin, an Irving employee, Michel Lagrandeur, an independent dealer under the Shell banner, and Linda Proulx an independent dealer under the Petro-Canada banner have each been ordered to pay CAD15,000. They have not been given custodial sentences. Another guilty verdict was entered on 9 August 2013 against Les Pétroles Global Inc. after a two week trial. The Ontario based company has yet to be sentenced by the court, but the Bureau has indicated that it will be looking for a fine of up to CAD10 million.
The latest verdicts take the total charged in the investigation to 39 individuals and 15 companies. 33 individuals and seven companies have either pleaded or been found guilty. Six people have been given terms of imprisonment totalling 54 months and fines of more than CAD3 million have been imposed. Several defendants have been ordered to make donations to charity rather than going to prison or paying a fine to government.
It is alleged that most of the gas retailers in the Sherbrooke, Magog, Victoriaville and Thetford Mines communities of Quebec participated in the cartel between 2004 and 2006. Charges were filed under the Competition Act after investigators with wiretaps leaned that gas retailers agreed through telephone calls the prices they would charge motorists at the pumps.
While most of the companies and individuals charged are associated with major oil companies including Royal Dutch Shell PLC, Petro-Canada, Irving Oil Corp. and Esso, the Bureau has stressed that the cartel was limited to the four markets in Quebec and that local operators were responsible for the price manipulation.