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February 27, 2003
Cartel busting on the buses
copyright Phil McDonnell.
Imagine a knock on your door early one morning. You stumble down the hall in your dressing gown and open the latch, expecting to find the postman clutching a parcel that requires your signature.
Instead you are confronted with by a phalanx of inspectors from the Office of Fair Trading (OFT) and the Serious Fraud Office, about to conduct an unannounced search of your home, demanding telephone records, computer files and financial papers.
This dramatic scenario is now a real possibility for directors who engage in such anti-competitive activities as price fixing and cartel formation, following the introduction of the Enterprise Act. This package of Competition Law reforms dramatically extends the powers of the OFT in the investigation of individuals suspected of involvement in illegal cartels.
The OFT was already empowered, under the Competition Act 1998, to carry out dawn raids. Now, in a measure of just how seriously the government takes anti-competitive behaviour, the OFT's powers have been extended to carry out criminal investigations, unannounced, at the homes of the company directors, to seize documents and computer records and even to carry out surveillance and enact covert listening operations in the homes and cars of anyone under suspicion.
Such measures may seem daunting, but the Government insists that 'honest business people will have nothing to fear'. "The Enterprise Act is good news for businesses, consumers and the economy," said Trade and Industry Secretary Patricia Hewitt when the Act received Royal Assent in 2002. "It will open up markets, increasing competitive pressures".
Amidst a number of other changes to financial and trading regulations, the Enterprise Act significantly sharpens the focus of UK competition law. The Act now holds directors personally responsible if they and their firms are found to be engaged in four categories of anti-competitive cartel: market sharing, price fixing, bid rigging and production/ selling quotas. All four are now classed as 'hard core' activities and the directors, and indeed employees, of any companies implicated in those sinister-sounding dawn raids and surveillance operations face the unpalatable prospect of unlimited fines, five-year jail terms and disqualification from directorships for as long as 15 years. The OFT will even be able to request the interception of letters and telephone calls by authorised agencies.
As part of its investigation and enforcement armoury, the OFT can also offer directors 'no prosecution' guarantees if they blow the whistle and co-operate with authorities. Companies have the same rights under the existing leniency programme. Directors and companies are likely to have to make difficult decisions under stressful conditions about what the best course of action is for them individually and corporately.
The UK now has one of the strictest competition regimes in the world and a determined clamp down on cartel activity plays a significant role in the new regime. However, the regime introduced under the Competition Act has barely had time to bed down and both regulator and industry are still getting to grips with the OFT's powers under the 1998 act.
A number of companies in the northwest have felt the sting of the OFT'S powers under the Competition Act. A number of local companies have been raided and fined by OFT investigators. For example, in May 2002 three vehicle component firms in the area were fined after being found guilty of fixing the price of automatic slack adjusters - the brake safety devices used on buses, trailers and trucks. Importer John Bruce (UK) Ltd of Sheffield was fined 3% of relevant turnover, while distributors Fleet Parts Ltd of Warrington and Truck and Trailer Components of Cowley were fined 5.6% and a hefty 24% respectively.
"The Director General takes the view that these agreements had, as their object, the appreciable prevention, restriction or distortion of competition," said a spokesman for the OFT at the time of the ruling. "We regard price-fixing as a serious infringement."
Even before the 1998 act, a lengthy OFT investigation uncovered a price-fixing and market-sharing cartel between as many as 10 bus operators based across Liverpool, Manchester and Stoke on Trent. In a case described by the then OFT legal director Pat Buckley as "an especially damaging examples of cartel agreements which had as their object the denial. of the possibility of cheaper fares through increased competition", each of the 10 companies was forced to desist from their multiple route-sharing and fare-fixing agreements. Mr Justice Buckley said the court regarded these agreements as "blatantly anti-competitive" and "a matter of considerable public concern".
The Liverpool bus cartel constituted infringement of competition law on an impressive scale. But smaller companies are not immune from the rules, as the northwest business community discovered when OFT Director General John Vickers went on record to warn against fare fixing by taxi firms following newspaper reports of such practices in the Bury area. "Small businesses like private cab firms are not immune from the 1998 Competition Act," he said. "The Act outlaws anti-competitive behaviour such as price-fixing by all businesses, whether large or small."
With such risks on the cards, a programme of sensible precautions should be a priority for any businessman. If they can show that they have taken 'adequate steps' to comply with competition regulations, companies may receive a reduction in any fines payable even if they are still found guilty of breaching them. Such measures vary from business to business.
A healthy business environment is at the very heart of a healthy economy. It is up to all of us to ensure that the right balance is struck between the healthy self interest of business and the public interest in fair competition. This includes ensuring that both companies' and individuals' rights, particularly when under intrusive investigation, are fully respected.
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