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04 May 2012

Corker Binning partner comments on reform of criminal cartel offence

In an article in New Law Journal, “Not such a bad idea”, NLJ 4 May 2012, David Corker, partner, Corker Binning, advocates removing the dishonesty element from the criminal cartel offence.

Not such a bad idea?

David Corker advocates removing the dishonesty element from the criminal cartel offence

On 15 March 2012, the department for business, innovation and skills (BIS) published its plans for an overhaul of the UK’s competition laws and enforcement arrangements. One aspect of these plans concerns the reform of the criminal cartel offence created by s 188 of the Enterprise Act 2002. The key proposal is to remove the dishonesty element, so that the offence would be committed by those who agree to price-fix, bid-rig or limit supply with another without revealing this to the public.

A matter of persuasion

BIS has plainly been persuaded by the Office of Fair Trading (OFT), the agency responsible for the investigation and prosecution of this offence, that the inclusion of dishonesty has made the successful prosecution of alleged cartellists almost impossible. According to the OFT, this is the reason why there have only been two prosecutions in respect of the offence since it was introduced–despite the fact that its investigations have uncovered a plethora of instances of “hard-core” cartels. Moreover, in many of those instances the suspects have admitted their knowing participation in a cartel but nonetheless pleaded lack of dishonesty.

This proposal to remove dishonesty has been widely criticised by competition and criminal lawyers, who have denounced it for its apparent illiberality and injustice. Despite this opposition, BIS’s proposal is sensible. The OFT’s view, on the other hand, that the paucity of its prosecutions is all the fault of dishonesty, is not. There are other problems which explain its disappointing record, most notably its reliance on accomplice evidence in framing its case. The cause of its defeat in the BA-Virgin prosecution was the fact that it relied far too greatly on such an inherently wobbly foundation.

The reality is that a cartel offence containing a need to prove an accused’s dishonesty was never going to succeed. Including that element, coupled with the stricture that the offence could only be committed by individuals, doomed the offence from the outset. The near-insuperable difficulty encountered when seeking to prove dishonesty is that the benefit of the alleged crime always flowed only to another person who could not be joined as a co-accused, the company or firm. So an accused middle-manager could always seek to show—no matter how deceptive he was—that he was not dishonest because he had no expectation of any significant personal gain. When we think about someone being dishonest with money, we invariably tend to employ a criterion of whether they thought they stood to personally gain.

In addition, as “dishonesty” is such a vague and fact-specific legal concept, it was always going to be difficult for a trial judge to manage the trial by being unable to rule that particular proposed lines of defence (including the calling of expert evidence) were irrelevant and thus inadmissible. So for example, I admit the facts but I was not dishonest because I wanted to save co-workers from redundancy and my honest belief about that evil is buttressed by a report by Professor X. In most criminal cases, the defendant does not have the ingenuity and resources to dream up such possible defences but the interlocutory arguments in the BA-Virgin case manifested this phenomenon. The trial judge there held that it would be permissible for the defence to introduce economic impact arguments in order to show lack of dishonesty. Of course, they were never tested.

Principal consent

Interestingly, an argument not run by the defence lawyers in that case was a “consent of principal” one, ie could a middle-manager be dishonest if his principal authorised the proscribed action which he took? In the vast majority of cases, such employees would have been so authorised (not just believed they were). When we think about employees being dishonest, we tend to employ a criterion of whether there was a betrayal of trust or breach of duty.

The OFT’s disappointing record as a prosecutor of this offence is not primarily, as the critics argue, the fault of its low quality and resource-starved investigators. Neither is it fair to contend that the change is simply about widening the offence in order to be seen to lock up some errant directors. Dishonesty has never been a necessary element of analogue offences steeped in the history of English criminal law. Since about 1910, a jury has only been required to be satisfied of whether an alleged bribe was accepted in corrupt circumstances for corruption to be proved. That is an amorphous legal concept but the courts established then that it did not require the agent or principal to have been dishonest; what was needed was secrecy and breach of duty.

These are all good reasons which support BIS’s view that the dishonesty element in paradigm cartel cases makes it very difficult to secure convictions. It is nonetheless essential that a cartel offence (especially one created by statute which therefore does not evolve) contains a discrete mens rea element. It must become one of virtual strict liability. Neither must we be lulled into lazily thinking that prosecutorial (ie OFT) discretion is the best means of ensuring that the offence is only prosecuted against the most egregious alleged cartellists. A cartel offence must not be ambiguous for fear that it would stifle innovation and risk-taking and it must be reserved to conduct which a sensible jury will regard not as merely wrong but immoral. There is already a developed corpus of competition law at national and EU levels to address conduct which is or may be anti-competitive and it is essential that criminal law does not trespass there. Ambiguity as to breadth of criminal conduct would also engage disastrously with the UK’s onerous regime of money laundering reporting requirements created by the Proceeds of Crime Act with the result that the Serious Organised Crime Agency would be overwhelmed by defensive reporting.

Testing moral turpitude

So, what would work instead of dishonesty as an adequate test of moral turpitude? Secrecy is not sufficient; BIS’s proposal places the emphasis on this feature by creating a defence of prior publication in relation to the alleged cartel. But criminal offences should begin at a higher threshold than that. People need a better guide to their potential criminality than whether or not they act in secret, bearing in mind that so much of legitimate commercial life has this trait. Intention to deceive is surely a better alternative?

An intention to deceive is not to be conflated with deliberate concealment, although that feature may be present. It is a stronger and, above all, a subjective test which requires more than secrecy. An alleged intention to deceive must be proven. There are many means of doing so absent a suspect’s confession; for example, did the alleged cartellists resort to mask and disguise when communicating (codes or hieroglyphics), did they apply exceptional measures to ensure that information otherwise disseminated was suppressed (use of pay-as-you-go mobiles, meetings in McDonald’s on the A12) and did they purport to their customer that they were in competition while they colluded (certifying in the tender that there was no contact)?

The attraction of an intention to deceive is that it avoids the problems of proving dishonesty and does not require proof of actual deception, although this could of course buttress a prosecution. The vice is the intention irrespective of effect. A stronger prosecution case would normally be where there was an identified customer who was the intended target. One would expect criminal cartel investigations to be focused where there was such a victim, allowing the civil law to deal with other more generalised anti-competitive agreements. However, as with the insider dealing offence, this element would not exclude a prosecution where the alleged victim is no more discernible than “the market” or “potential consumers”. While a jury could have more difficulty in accepting an allegation that the accused intended to deceive the market as a whole, if the evidence was there to suggest that the accused resorted to (or intended to) deception in order to keep the price of milk artificially high, a jury would surely be willing to convict.

It is essential that the cartel offence be enforceable. Using dishonesty as the means to create a juridical distinction between forms of anti-competitive behaviour has failed and so BIS’s rethink is justified. But criminal law in a democracy and freemarket economy must be restricted to defined or discrete conduct which is regarded by most as immoral. The danger here is one of overkill and BIS’s current proposal for reform would extend the scope of the offence far too far.

David Corker, partner, Corker Binning.