dawn raids

How will you pay an unlimited fine if you’re breaking rocks on a chain gang?

Would you like to face 5 years inside and an unlimited fine? If you rig bids, price fix, restrict supply or otherwise unfairly distort competition you will. After the spell in prison you’re unlikely to have the same job to come back to as your organisation will be liable to huge fines and dramatic changes to procedure will be forced on them.  Examples include BAs requirement to pay £121.5 million with two employees facing criminal charges following transatlantic flight surcharges. JJB sports was £6.7 million lighter after fixing football shirt prices and is now likely to pay over £20 million in a follow up class action by consumers.

The OFT’s policy is changing with pro-active targeting of specific areas. Airports, construction, banking, pharmaceutical and credit card companies faced costly dawn raids and investigations. Partnership with local Trading Standards has increased the number of raids and breadth of organisations subject to them. Specific areas this year are likely to include media and motor.

Dawn raids

3 golden rules:

• Keep a copy of all documents copied or removed by inspectors. Stamp each one confidential.
  
  
• Accompany each inspector at all times
  
  
• Keep a written record of all oral questions and answers. Unless the respondent is completely certain about the answer ask for the question to be put in writing.

Earlier this year the OFT conducted on-site searches of two UK addresses, including their first search of a home address. This was in response to suspected cartel conduct in the oil transfer marine hoses market, namely an alleged global conspiracy between company executives to rig bids, fix prices and allocate markets worth hundreds of millions of pounds.

In 2006 The European Commission raided some of Europe's biggest utilities, including RWE, E.ON, Gaz de France and Suez, seeking evidence of market rigging.

Past dawn raids by the OFT include two dawn raids on West Yorkshire bus companies, Arriva and FirstGroup. The raids were prompted by the decision of the two companies in question to cancel one route each in areas dominated by the other.

A party under investigation is unlikely to welcome inspectors from the OFT but there are serious consequences for failing to cooperate. Specifically, the OFT can fine a business up to 1% of worldwide turnover for uncooperative behaviour. Additionally it is an offence to destroy, falsify or hide documents and this can result in individual fines and imprisonment.

The OFT can prevent parties destroying evidence by sealing filing cabinets and can require that senior representatives remain with the inspectors during searches.

It would be wise for the party to call in legal advisors to seek assistance in relation to competition law and to also monitor that the investigation does not breach any human rights or other related procedural requirements. Inspectors will usually wait for around 30-60 minutes for lawyers to arrive before insisting on carrying out the investigation.

Avoiding and defending an investigation

Companies with strong market positions or those operating in industries with a history of cartelisation, need to consider the potential business threat that a well argued competition complaint can represent.

On receipt of a complaint, the DGFT will, within an initial period of 30 working days, aim to issue a formal response to a complainant indicating whether or not the complaint will be pursued.

The OFT will normally:

inform the defendant company within this initial period about the nature of the alleged infringement;

allow it to comment on the particular concerns that have been raised; and

be willing to discuss with the company or its advisers the progress of the OFT's own assessment of the complaint.

An exception to the above is cartel cases because of the concern that incriminating evidence will be destroyed if prior notice of an investigation is given.

Where the company's internal investigation does not reveal evidence of infringement, it will nonetheless be important to discuss proactively with the OFT the results of that internal investigation to satisfy it that there is no basis on which to initiate a formal investigation (for example, the complaint may have been made in bad faith or the relevant market may have been defined too restrictively).

If a formal infringement procedure is initiated, the OFT assumes the prosecutorial role previously taken up by the complainant. In terms of managing the defence, this shift to a formal infringement procedure similarly requires a change in gear in defence tactics.

The possibility of an appeal to the Competition Commission Appeals Tribunal should be borne in mind by a defendant company from the outset. It should take note of any procedural defects alongside the conduct of its defence. The Appeals Tribunal can look at both facts and law, annul decisions in whole or part and reduce the amount of any fine.

One way that a company can avoid prosecution by the OFT is by being the first to blow the whistle on cartel activity. This destabilises cartels and creates distrust among participants. However, the leniency policy provides no protection from private litigation.

British Airways (BA) was fined £121.5 million for collusion with Virgin Atlantic on the level and timing of increases to fuel surcharges. Virgin blew the whistle on the arrangement in June 2006 and escaped prosecution under the leniency policy.

OFT emphasis on prioritising high impact investigations

The OFT plan for the financial year 2007/2008 prioritises actions with "high impact". It envisages measuring these impacts so as to meet a target of direct financial benefits of at least five times the OFT's cost to the taxpayer. The OFT's expenditure is about £55 million a year.

S. 188-189 Enterprise Act 2002 – criminal cartel offence

The Enterprise Act introduced into UK competition law a criminal offence for cartel participation. This has brought about the threat of imprisonment for those contemplating or participating in a cartel.

Section 188(1) sets out the main elements of the offence:

An individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements of the following kind relating to at least two undertakings.

According to sub-section (2) the offence can be committed if the type of arrangements intend to:

(a)    fix prices

(b)    limit supply

(c)    limit production

(d)    divide supply

(e)    divide customers

(f)     bid-rig.

Section 189 makes clear that the offence only applies to horizontal agreements and not vertical arrangements. Therefore section 188 only applies to arrangements between undertakings which are operating at the same level of the market.

The section makes particular reference to dishonesty which focuses the offence on individual conduct and intention. What is dishonest is judged according to the standards of reasonable and honest people. The OFT would therefore gather evidence which is sufficiently compelling and understandable to convince a lay jury.

The OFT has wide criminal investigative powers, including the ability to search premises under a warrant and the use of surveillance.

Following a successful prosecution on indictment a court may sentence an offender to an unlimited fine or up to five years imprisonment.