The cost of cartels

With three construction firms having been fined millions for breaching competition law, Aziz Rahman of award-winning business crime solicitors Rahman Ravelli explains the importance of making sure your business does not become involved in cartel behaviour.

Just a few weeks ago, three construction firms were fined a total of £36m for price-fixing.

The Competition and Markets Authority (CMA) said that from 2006 to 2013 the three companies agreed to fix or coordinate their prices, shared the market by allocating customers and exchanged competitively sensitive information on a regular basis.

The activities of FP McCann, Stanton Bonna Concrete and the CPM Group were in breach of competition law. As a result, they have paid the price: FP McCann has been fined more than £25m, Stanton Bonna has to pay £7m and the CPM Group £4m.

Stanton Bonna and the CPM Group received reduced fines, as they admitted breaking competition law. But nobody could argue that even these smaller penalties are minor. The fines imposed on all three firms show the possible costs of cartel behaviour.

Cartel behaviour and the penalties it can carry, however, should not be thought of as being limited to the construction business or companies of a particular size.

If a company or an individual is suspected of being involved in cartel behaviour then they will be investigated – which is why everyone in business has to know what cartel behaviour is and how to avoid becoming embroiled in it.

There have been cases of businesses being prosecuted for cartel behaviour when they genuinely believed they had acted legally. But while it can be worthwhile to be on good terms with your business rivals, care must be taken to make sure that any dialogue does not go as far as to be considered cartel behaviour.

What is Cartel Behaviour?

Under the Enterprise Act 2002, cartel behaviour covers activities such as the rigging of bids, price fixing, making arrangements to share markets and the deliberate restriction of the production or supply of items.

Directors and employees of a company can be prosecuted for the offence; which carries a maximum penalty of five years imprisonment for individuals. Under the Competition Act 1998, the CMA has the power to fine a company up to 10% of its global turnover for such behaviour.

These penalties alone are a good enough reason for those in business to take all possible steps to make sure that they or their company does nothing that could possibly be viewed as cartel behaviour by the authorities.

But to do this requires a knowledge of what cartel behaviour is and the introduction of appropriate preventative measures to reduce the potential for such behaviour to be carried out.

While certain trade and commerce sectors may be more vulnerable to cartel behaviour than others, the penalties that can accompany it make it imperative that everyone in business is aware of the risks.

If a company or individual is unsure how to proceed there are solicitors with the right expertise who can analyse working practices, assess the relevant business sector and devise and introduce procedures to remove the possibility of cartel behaviour.

Preventing Cartel Behaviour

Cartel behaviour is prevented by making sure two parties do not have the opportunity to collude. Collusion is defined as a fraudulent, secret agreement between parties who are supposed to be opponents.

While business rivals are fully entitled to discuss matters relevant to the sector in which they operate, the law is broken when such discussions reach the point where the parties concerned collude to carry out the activities that the Enterprise Act forbids.

If companies are accused of cartel behaviour regarding pricing they may well argue that it is not collusion, it is simply a case of researching what their rivals charge so that they can be sure they are not overcharging or setting prices too low.

This is understandable: no company wants to do long-term damage to the market it operates in by hugely undercutting rivals and neither does it want to miss out on custom by charging far more than its competitors.

But if market-related discussions between two parties result in agreements regarding pricing or other trading arrangements then that search for trade knowledge can then be classed as collusion.

There is scope for individuals to be granted criminal immunity when it comes to cases of cartel behaviour. Putting it simply, if you report your cartel behaviour and will co-operate with the authorities, a prosecution may be avoided.

But taking such an approach and hoping for leniency is far from the best option. The best course of action is to take appropriate advice so that you know what cartel behaviour is and are then able to take all the steps necessary to avoid ever becoming involved in it.