This article – which you can find here – looks at attempts to impose individual sanctions for breaches of competition law in the UK. These sanctions include the recently amended criminal cartel offence – which can lead in imprisonment of up to five years – and the NCA’s power to apply for a competition disqualification order.

Famously, the UK’s record in the enforcement of these sanctions is mixed (see below). To explain this state of affairs, the author identifies a tension between the economic theory of deterrence – which underpins the regime – and regulatory theory on the effectiveness sanctions – which, the author claims, has been ignored. The author points out that traditional deterrence theory relies on a combination of probability of detection and severity of punishment to create a perception of sufficiently high costs to deter wrongdoing. Yet when this leads to the imposition of very high penalties in order to counter a low probability of detection and conviction, this can give rise to societal concerns about procedural fairness and justice. The perception that such sanctions are disproportionate can affect the legitimacy of the sanctions and, by extent, their effectiveness – as a result of increased political and judicial scrutiny of the exercise of enforcement discretion, and the perception by cartelists that the sanctions are so disproportionate that they are unlikely to survive judicial scrutiny. Thus, contra mainstream deterrence theory, efforts to increase the effectiveness of sanctions, as a means of preventing proscribed conduct, can be self-defeating by undermining the law’s legitimacy as a result.

The article begins, in chapter 2, with an overview of deterrence theory and of the main criticisms to which it has been subject. It then provides an analysis of the concept of “legitimacy” in regulatory enforcement literature, and identifies concerns regarding the legitimacy of a strategy focused on deterrence theory alone. Chapter 3 analyses specific problems arising from the poor legislative drafting of individual sanctions in English law – including the choice of the “dishonesty” standard to trigger conviction, with its requirement that a reasonable person would have to agree that the conduct is dishonest in order for the criminal sanction to be applied. Chapter 4 looks at the use of enforcement discretion by the competition agencies – and is very critical of the OFT’s choices. It considers that the exercise of discretion is crucial in this context to build the legitimacy of the individual sanctions program – and that the OFT’s first tasks was presumably to identify a case where the evidence was particularly strong, the facts were fairly straightforward, and an injury to some defined group of individuals could be fairly assumed. Instead, the first criminal case revolved around plea-bargains in the exoteric marine hoses cartel, which led to a condemnation under English law longer than that imposed in the same case under US law – a scenario which led to a shattering defeat on appeal -, while the first prosecutions (concerning a cartel between British Airways and Virgin) failed spectacularly. Ultimately, in the 11 years during which the OFT had criminal cartel powers, the OFT secured one uncontested prosecution, suffered a humiliating collapse at trial, opened and closed three investigations, and transferred two investigations across to the CMA on 31 March 2014 which led to plea bargains.

In short, the author’s argument is that while criminal sanctions can provide an important enforcement tool in competition law’s sanction mix, such powers would ideally derive legitimacy from public support for their introduction – but there was (and is) no such support for the present sanctions regime (with surveys indicating that only 10% of the public supported such sanctions a few years ago, but rising over the last few years). The situation is made worse by poor legislative drafting and bad choices regarding when to enforce these provisions, which led to further erosion of the legitimacy of the existing sanctioning mechanisms.

In the light of this, the main challenge is to build up legitimacy of individual sanctions in cartel cases. Chapter 5 argues that, from this perspective, the reform of the cartel offense in 2013 was a spectacular failure (which helps explains the absence of further prosecutions). The reforms removed the dishonesty standard and crafted a revised cartel offence so that it does not sanction cartel arrangements made openly, i.e. arrangements that have been published or announced to customers before being implemented. It also included a number of defences (e.g. where the cartelists lack intent to conceal the nature of the arrangements from customers or the CMA at the time of making the agreement; and, more interestingly, where an individual can show that ‘before the making of the agreement, he or she took reasonable steps to ensure that the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining advice about them before their making or implementation’ (as the case may be). As pointed out repeatedly, there is no requirement that the cartelists follow this advice to trigger the defence).

Finally, Chapter 6 argues that, in order to increase the legitimacy of individual sanctions, the CMA should begin to make significant use of its powers to apply for director disqualification orders (which have greater public support but were hardly ever used, despite their lower thresholds than criminal sanctions), while patiently employing a prudent case selection approach to future cartel offence prosecutions. While this may lead to smaller sentences, it would mean that there would also be an increasing likelihood of individual sanctions being imposed and, hence, an  increase in the level of effective deterrence that these rules would have.

This interesting study goes to the heart of disputes between economic and legal perspectives: the former looks at efficiency / effectiveness, the latter at lawfulness, and mediating between the two are a variety of concerns – one of which is the legitimacy of the rules. Y’m an institutionalist at heart – in the sense that I am suspicious of attempts to impose formal models that work wonderfully in theory and (by necessity) ignore all type of variables that arise in practice. The cartel offence in the UK is a good example of how this can occur – and of how attempts to transplant mechanisms successful in countries with different institutional structures and cultures (I may or may not be thinking of the US here) can easily fail to take root. The paper also includes a number of interesting ideas for consideration by anyone interested in adopting (or advocating for the adoption of) individual sanctions.

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