Rod Fletcher examines the increasingly aggressive procedures surrounding the rooting out and prosecution of cartels in both the UK and US



The recent publicity surrounding BA/Virgin's alleged cartel on fuel surcharges - reportedly resulting from a tip-off from Virgin and then announced by BA and triggering a lawsuit in the US against both carriers and other airlines - is a further example of an increasingly aggressive international anti-trust/cartel enforcement regime. Companies and individuals face the prospect of huge fines (the highest in the US to date is $500 million (£268 million)) and civil actions from third parties in separate jurisdictions, while individuals face imprisonment (ten years in the US and five years in the UK) and the prospect of extradition from the UK to the US, as illustrated by the Norris case. And these cartel investigations can ask particularly challenging questions of corporate and defence lawyers.



In the UK, the relevant criminal provisions are found in the Enterprise Act 2002, which came into force on 20 June 2003. Section 188 creates, for the first time, a criminal offence in respect of individuals engaging in cartel activities. The criminal offence is targeted at directors and employees, and prohibits dishonest agreements by individuals to fix prices, limit supply or production, divide markets or rig bids. Corporations are not caught by this new offence, which adds to the torrent of legislation over recent years aimed at individuals rather than corporations.



Until the Enterprise Act was enforced, competition law in the UK was governed by articles 81 and 82 of the EC treaty and the Competition Act 1998, which came into force on 1 March 2000. The EC cartel enforcement system is, in essence, administrative in nature. The European Commission can impose fines of up to 10% of a company's annual turnover - since 2000, fines totalling ¤4.5 billion (£3 billion) have been imposed on some 200 businesses or undertakings. An updated leniency programme providing for immunity from fines or reduction of fines for undertakings was introduced in 2002.



Under the Competition Act, the Office of Fair Trading (OFT) has extensive powers, which include the ability to impose fines, again up to 10% of turnover. The only criminal offences under the Competition Act were directed at obstruction offences, for example furnishing false information to the OFT or obstructing the execution of a warrant to search for evidence.



The new approach to cartels under the Enterprise Act reflects developments in the US Department of Justice (DoJ), whose current vigorous prosecution of cartels can be traced back to the prosecution of the international lysine cartel in 1996. Since then, the US has been instrumental in developing international co-operation through mutual legal assistance treaties, exchange of information, and now extradition.



The DoJ is currently prosecuting 27 foreign nationals from Japan, Korea, France, Germany, Holland, Norway, Sweden, Switzerland and the UK. In 2004, the maximum sentence was increased from three years' to ten years' imprisonment and huge fines have become the norm. The key to the US approach has been to target individual accountability on the basis that prison sentences are the most effective deterrent available. There is a high-profile leniency policy designed to reward self-reporting by corporations - this policy has resulted in more individuals being prosecuted, as fewer senior employees are now included in the deals agreed between corporations and the DoJ.



Countries from at least five continents - including Canada, Japan, Israel, Ireland, Korea, Australia and, of course, the UK - already have, or are in the process of adopting, laws providing for criminal sanctions.



The importance attached to leniency issues in the US is mirrored in the UK in section 190(4) of the Enterprise Act. This section enables the OFT to issue 'no action' letters to individuals who co-operate with the OFT during an investigation. The OFT published a detailed interim note on leniency and 'no action' in July 2005 (OFT 803, available from the OFT's Web site). This note emphasises the importance of those wishing to claim immunity coming forward early.



Where there is no pre-existing civil or criminal investigation, full immunity will be available for the company and all of its current and former employees and directors in return for full co-operation. Where there is a pre-existing civil and/or criminal investigation but the applicant is the first to come forward and the information/ material provided genuinely advances the OFT's investigation, the OFT has the discretion to grant corporate and individual immunity to all current and former employees and directors.



The sooner an undertaking approaches the OFT, the higher the likelihood of immunity being available. Even if the applicant is not the first to come forward, immunity may still be available where the OFT can see substantial value added to its investigation and where the role of the person is peripheral within the cartel.



A number of urgent and difficult decisions will confront corporate and defence lawyers in these cases. International cartels can, of course, take place in several jurisdictions. Corporate and individual clients may require advice in multiple jurisdictions and in respect of criminal, regulatory and civil liability. Information provided to one investigating agency may be passed to counterparts in other jurisdictions. Where applications for immunity are to be made, simultaneous applications may be necessary in all these jurisdictions.



Close co-operation between companies and their senior employees is likely to be in everyone's interests where an application for immunity is contemplated. Such co-operation may also be appropriate for those under ongoing investigation, although separate representation must be the sensible approach in most cases.



There can be no doubt that we should expect more cartel prosecutions in the UK and the continuation of the aggressive enforcement regime in the US. There are likely to be further disputes as to where any criminal trial should take place in respect of a cross-border violation, particularly in the light of the disquiet caused by the extradition of the 'NatWest Three' to the US to face charges arising from the Enron affair.



The immunity programme (now also part of general criminal law in the UK through sections 71-75 of the Serious Organised Crime and Police Act 2005) will no doubt act as an important incentive for whistle-blowers to come forward. It is part of the government's agenda to reduce the number of lengthy trials, to increase the number of convictions, and to reduce the cost of obtaining those convictions.



However, there are dangers in such an immunity programme, which, subject to a few isolated exceptions, is new to English criminal law. It should not be assumed that those coming forward will tell the truth either as to their own role or as to the roles of others. Full and proper investigation must take place, assumptions of guilt must not be made, and defendants in these cases must receive fair trials.



Rod Fletcher is head of fraud and regulatory investigations at London-based law firm Russell Jones & Walker