Criminal cartels: can companies be prosecuted?

On 1 April 2014, a new and improved criminal cartel offence will be introduced in the UK by virtue of s47 of the Enterprise and Regulatory Reform Act 2013 (ERRA13). By removing the requirement for an individual to have acted dishonestly in relation to commercial arrangements which involve deliberate price-fixing, market sharing, bid-rigging and limiting output, the new offence should make it easier for the Competition & Markets Authority (CMA) and Serious Fraud Office (SFO) to launch prosecutions of individuals involved in prohibited hardcore cartels.

However, by omitting to change the cartel offence so that it embraces corporate criminal liability as well, the question remains: Could the CMA or SFO charge a company with cartel crime?

Just as I set out in my article on corporate liability for insider dealing (see link), at first blush the answer is “no” owing to the fact that the cartel offence, as created by s188 of the Enterprise Act 2002 (EA02), applies to individuals and not companies. On this basis therefore so far as principal offenders go, commercial organisations and companies cannot be prosecuted because that was Parliament’s intention.

The position is different however when one considers their corporate criminal liability as accessories or secondary parties. This is because s8 of the Accessories and Abettors Act 1861 provides: “Whosoever shall aid, abet, counsel or procure the commission of any indictable offence, whether the offence be at common law, or by virtue of any Act passed or to be passed, shall be liable to be tried, indicted and punished as a principal offender.” Thus, as the cartel offence is an offence by virtue of the EA02, in an appropriate factual situation a company may be liable as a secondary party for anti-competitive behaviour.

What is aiding and abetting etc? As my earlier article explained, aiding and abetting applies to any person (natural or legal) who may or may not be present at the time of an offence, knows it is likely to be committed and who takes some deliberate or active part in it. Counselling and procuring logically takes place prior to an offence, but it need not be long before it and there is no need for the person to be present.

The overlap with a criminal conspiracy offence is clear because a person who secretly encourages or facilitates (directly or indirectly) a senior manager or other members of staff to agree with others working at the same level in the supply or production chain to fix the price of goods or services, share the market or rig bids, knowing that such an arrangement is intended, is liable as much as a secondary offender as they are as a criminal conspirator.

Can companies and other commercial organisations be liable in criminal law as a secondary party? R v Robert Millar (Contractors) Ltd [1970] 2 QB 54 shows that the answer is “yes”. In that case the evidence showed that the CEO and shareholder of a small company knew that an offence was about to be committed by an employee, deliberately did nothing to stop it and when the offence was then committed found himself, together with the company, as co-defendants in the dock. Both were convicted. Knowledge of the principal offender’s intention to agree a prohibited arrangement (actual or imputed) plus an ability to control his or her actions, coupled with a deliberate decision not to exercise such control, could thus lead a firm to be prosecuted.

But this is limited to small firms, where the ‘directing mind and will’ of a company is shown to have sufficient proximity and involvement in the illegality to make the corporation liable. What about international companies where the Board and senior management might be far removed from the agreement to fix prices, rig bids etc on the ground? Can these behemoths be liable too?

Where the evidence shows that the ‘directing mind and will’ of a company knew of the potential for one of the prohibited anti-competitive behaviour to occur and encouraged it or deliberately omitted to act to prevent it, the same rule applies. Thus, a large organization could be prosecuted.

Is the same true if the Board or senior management who knew of the crime are outside England & Wales or located overseas? R v Smith (Wallace Duncan) (No 4) (2004) 2 Cr App R 17 and DPP v Stonehouse (1977) 65 Cr App R 192 show that the answer is “yes”, provided that the company’s participation in the price-fixing etc here was shown to have a substantial connection with the offence committed here or had such an aim. Thus, even where the Board or senior management of an international company is identified as being a party to the prohibited behaviour but are based overseas, they and their company could still be prosecuted as secondary parties or co-conspirators to cartel crime committed here.

But what if the evidence is that senior management didn’t know of the price-fixing, bid rigging etc? Can a firm still be criminally liable in that situation? As set out in my article on insider dealing, the current position in the UK is “no, unless the context proves that they have either expressly or impliedly delegated the authority act on behalf of the company to someone else in the transaction in question” (Tesco Supermarkets Ltd v Nattrass [1972] AC 153).

Given the public’s growing appetite for companies to be held accountable for market abuse in general, the potential for the CMA and SFO to prosecute a company as well as individuals in relation to the new cartel offence is therefore present and very real.

Robin Barclay is widely regarded as a leading junior in international commercial fraud, financial services & regulatory enforcement.

News 26 Mar, 2014