The dangers of cartel behaviour

Syedur Rahman and Nicola Sharp, of award-winning business crime solicitors Rahman Ravelli, explain why businesses must take care not to become involved in cartel behaviour. 

At first glance, German car manufacturing and modelling would appear to have little in common.

Yet both have been the subject of investigations into cartel behaviour.

In the case of modelling, the outcome can be viewed as a warning about the dangers of cartels. These dangers are already apparent to German car manufacturers, who are currently responding to reports that they are being investigated for cartel behaviour by the EU.

Both cases indicate the extent to which anyone in business must avoid becoming involved in illegal cartel activity.

Enterprise Act 2002

So what is cartel behaviour? In the UK, the Enterprise Act 2002 created the offence of cartel behaviour. This includes price fixing, bid rigging, market sharing arrangements and deliberate restrictions on production or supply of commodities.

Directors and employees involved in such activity can be held personally, criminally liable for such an offence.  The maximum penalty for the offence is five years in prison – and people have been jailed for it.

This should serve as a stiff warning to those in business to seek legal advice at the earliest opportunity, if they have any concerns that they may be breaching the Enterprise Act.

Collusion

In the modelling cartel case, five agencies and their trade association, the Association of Model Agents (AMA) were fined a total of more than £1.5 million.

The Competition and Markets Authority found that the agencies and the AMA were guilty of collusion, when they should have been competing on prices for modelling services. They shared information regarding customers, the prices they were likely to charge and negotiations that had been conducted. As a result, there were instances where the agencies had agreed on minimum prices or pricing scales.

As we write this, the European Commission has announced that it is investigating a possible German automotive industry cartel after a tip-off about pricing collusion. The investigation centres on whether VW, Audi, Porsche, Mercedes and BMW used German car industry committees to discuss pricing of components and technologies and whether such talks constituted anticompetitive behaviour.

Argument

Many companies accused of cartel behaviour argue that they can only get their pricing right by knowing what their competitors charge. This, they say, ensures they don’t undercut rivals (thus harming the market) or charge too much, which harms them. The authorities, unfortunately, do not take such a lenient view, as the modelling agencies discovered.

The Enterprise Act contains provision to grant criminal immunity to individuals. If you report your cartel behaviour and offer to co-operate with the authorities, the CMA may agree not to prosecute you.

But it is also possible that customers – for example the clients of the model agencies mentioned earlier – may make huge civil claims for damages against those found guilty of cartel behaviour.

If you have been involved in cartel behaviour, therefore, you must proceed carefully and take advice from solicitors with relevant expertise.

But ideally, such expertise should be sought to help introduce compliance procedures to eliminate the potential for cartel behaviour. “Designing out’’ the risk of cartel activity before it can happen will ensure a company will not face the problems we have outlined here.

Syedur Rahman and Nicola Sharp are corporate crime specialist solicitors at Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides.

www.rahmanravelli.co.uk