New UK Government to take responsibility for criminal cartel offence away from the OFT

(by Andreas Stephan) The UK’s new governing coalition between the Conservatives and the Liberal Democrats released its new programme for government today. In it they announced:

“We take white collar crime as seriously as other crime, so we will create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading.” (p9)

This is an idea that the Conservatives had talked about before the election, creating a new super-agency bringing together a critical mass of experienced prosecutors. Currently, responsibility for prosecuting white collar crime is divided between six different agencies including the OFT.  Only weeks before the OFT’s British Airways trial collapsed, the Chancellor of the Exchequer in waiting (George Osborne) told the Sunday Telegraph, “we are very bad at prosecuting white collar crime”.

What the new agency will gain in prosecutorial expertise, it may lose in competition policy proficiency. There will also be the question of how the OFT will carry out a civil investigation against colluding firms, while their employees are prosecuted on the basis of much the same evidence in a criminal process, by a different body. However, the BA trial demonstrated the difficulties of a civil investigator turning their hand to criminal prosecutions. The taking away of responsibility for the cartel offence from the OFT does at least suggest an intention to keep the criminal offence and to enforce it. In the same newspaper interview the chancellor commented, “…because [white collar crime] takes place behind a computer screen or at the end of a telephone, it doesn’t get followed up and prosecuted”.

However, it is notable that the new Business Secretary (Vince Cable) was one of the dissenting voices in Parliament when the UK’s cartel laws were criminalised in 2002. His comments on cartels, recorded in Parliament, are worth repeating here:

By accident, I uncovered a cartel operating in my constituency. A constituent of mine, who was a leaseholder in a block of flats for which the council was the freeholder, challenged some building work on the roof that cost £5,000. On obtaining the tenders submitted to the council, we discovered that they were all within £5 of £5,000—a clear, prima facie case of a cartel.

I asked for a proper investigation, and although there was clear circumstantial evidence, nothing could be proved. All who were involved denied ever having spoken to each other. Of course, such a case would not stand a cat in hell’s chance in a cartel investigation, because it would not meet the standard of criminal proof. There has to be whistleblowing, and a culture in the British and European systems that encourages it. Criminalisation of itself will not solve the problem.

[…]

My basic point about cartels is rather different, however. What is a cartel? In her introduction, the Secretary of State said that she will provide a very tight definition, but there is a commonsense one. A cartel involves companies getting together to raise prices and restrict services. In addition to the highly proscribed cartels that the Government are going to act against, others are operating under their noses. I wonder whether the Government or the competition authorities have thought of looking at the Association of Train Operating Companies, which meets next week to take a collective decision to increase the price of the network card by £10, thereby devaluing it for anybody who lives within 35 miles of London. A group of business men is acting together to raise prices collectively and restrict a service—a cartel by any definition. However, it is operating under the Government’s nose; indeed, I believe that the Government talk to it.

Another example—in many ways, it is more topical and important—is the banking system. As I have repeatedly pointed out in debates with the Secretary of State and the Chancellor, and as the Cruickshank report showed, in effect, the banking system operates as a cartel. However, I doubt whether anybody expects Mr. Barrett to go behind bars. The banking system is accepted as a legitimate structure, but the Government need to be more careful about distinguishing between small cartels—gentlemen in dirty macs in the back room of a pub who are subject to criminal sanctions—and legitimate cartels that operate in the heart of the business establishment and are totally free not only from criminal sanctions but from effective regulation. That gap in credibility needs to be bridged.

V Cable, House of Commons Debates, Hansard, 10 April 2002, col. 63-68

Dr Cable is a very well respected economist and former academic. The points he made in 2002 were entirely valid – especially given that the OFT had only prosecuted one cartel case at the time.   There is still more work to be done in rooting out a wider set of business practices that appear to be sanctioned cartels.  Hopefully the successes the OFT and European Commission have enjoyed in civil cartel cases since 2002, will have persuaded the Business Secretary that stepped up cartel enforcement is worthwhile, despite these perceived gaps in credibility.

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