Even if the OFT has found a firm guilty, they can still nail the directors – with a prison sentence and colossal fine. And individual liability is a growth area
The Office of Fair Trading’s decision on bid-rigging has proved to be a double-edged sword for directors and managers who approved or participated in anti-competitive behaviour. The OFT found that some unsuccessful bidders received compensation payments of between £2,500 and £60,000 from the successful bidders. This takes cover bidding, and the seriousness of the infringement, to a new level. Indeed, the individuals concerned may be counting themselves lucky that they have not been prosecuted under the Enterprise Act.
Anyone contemplating participating in anti-competitive behaviour needs to be aware that they, and not just their company, may face serious consequences. There has been a clear trend in recent years for legislators to fix individuals, as well as businesses, with liability for behaviour that is regarded as contrary to the public good.
Any individual found to have dishonestly engaged in price fixing, bid-rigging or market sharing commits the “cartel offence”. He or she faces imprisonment for up to five years and/or an unlimited fine. The first the individual is likely to know about this is when the Serious Fraud Office comes knocking at their front door at 5am with a search warrant. This will make an OFT raid on the company seem like a walk in the park.
You don’t have to be a director for these provisions to apply. Like other criminal offences, if you have been dishonest and committed the cartel offence, it won’t help you that others in the company are also guilty.
As can be seen from a cartel involving Marine Hoses and the currently contested British Airways fuel surcharges case, these powers are used. In the former, three individuals are serving between 20 and 30 months in prison after pleading guilty to the cartel offence. This is in addition to being fined by the US authorities between $75,000 (£47,000) and $100,000 (£63,000) each. You have been warned!
This is not the only penalty for individuals. Directors face up to 15 years disqualification if their firms are convicted of infringing UK or EU competition rules, and if a court feels the director’s conduct makes them unfit to carry on. This provides more scope for directors to escape liability, for example by showing there was a compliance programme in place that had been ignored by others.
The OFT is consulting on whether to extend the circumstances when it can seek a disqualification order. For example, it proposes to eliminate the requirement that a competition authority must establish the breach. Also, at present, the OFT will not apply to disqualify a director if the company has successfully applied for leniency. The OFT is considering limiting this to cases where full immunity has been granted. The OFT also aims to increase the incentives on company directors to take responsibility for competition law compliance and tackle behaviour that harms competition.
Is the OFT going to seek to disqualify directors of firms that have been fined in the cover pricing case? Not until all avenues of appeal have been exhausted. By that time, the deterrent effect of the disqualification is likely to have passed and some directors may have retired. By then the OFT may also feel that there are better things to devote its resources to. However, it remains to be seen.
Breach of the competition rules is not the only area where individual liability can arise. Earlier this year, Ian Kerr was fined £5,000 and ordered to pay £1,187 costs for breaching the Data Protection Act by operating a secret blacklist of 3,213 construction workers on behalf of 40 firms.
Other extensions to individual liability are on the horizon. The Bribery Bill proposes to impose liability if the offence takes place outside the UK and also increases the maximum penalty from seven years’ imprisonment to 10. It also proposes a new offence by businesses of negligently failing to prevent bribery by someone in the organisation. There will be a defence if the business is able to show that on the balance of probabilities it had adequate systems to prevent bribery by its employees and agents.
The lesson is that firms need a comprehensive, top down compliance policy to ensure breaches of competition rules do not occur. Since a compliance policy is only as good as the commitment to maintaining it, companies, directors and others need to ensure, in their own as well as the company’s interest, that they do so.
Martin Baker is a partner in the competition team at Taylor Wessing