Aziz Rahman of Rahman Ravelli
Aziz Rahman, of award-winning business crime solicitors Rahman Ravelli, examines and explains cartel behaviour and advises companies about its risks.
Everyone in business wants to be a success. Making the best of your skills and maximising your returns are the name of the game. Outdoing your rivals can be a necessary part of that life.
And yet sometimes it pays to have good relationships with those you are competing against. It can be mutually beneficial if you and someone else in the same line of business share information about what you do and how you do it. Sales techniques, general customer preferences and general advice on what works and what doesn’t can be discussed between two parties in a way that helps both improve the quality of service that they offer.
This can be seen as constructive and legitimate dialogue between two individuals or companies who are looking to work alongside each other rather than against each other. What it cannot be allowed to be, however, is cartel behaviour.
Enterprise Act 2002
So what is cartel behaviour? The Enterprise Act 2002 states that cartel behaviour includes practices such as price fixing, arrangements to share markets, rigging bids and deliberate restrictions on the production or supply of items.
If that doesn’t sound serious, it is worth remembering that directors and employees can be held personally, criminally liable for committing the offence. The Enterprise Act carries a maximum penalty of five years imprisonment for individuals found guilty of such an offence.
It is also worth pointing out that, under the Competition Act 1998, the Competition and Markets Authority can fine a company up to 10% of its global turnover for such behaviour.
It is, therefore, worth taking steps to avoid becoming involved in such activity. If need be, take advice from solicitors with relevant expertise. Such expertise can help any company introduce workplace procedures that remove the potential for any cartel behaviour and the problems that it can bring.
Essentially, preventing cartel behaviour is about ensuring there is no collusion between companies: no secret, underhand agreements to distort the market in which they operate. Discussions and dialogue between companies, as mentioned earlier, are perfectly acceptable. But when such talks develop into collusion to carry out the activities outlined in the Enterprise Act, things have gone too far.
Earlier this year, five modelling agencies and their trade association, the Association of Model Agents (AMA), were fined a total of more than £1.5m. The Competition and Markets Authority (CMA) ruled that the agencies and the AMA had been guilty of collusion.
Instead of competing on prices for modelling services, they shared information regarding particular customers, the prices they would charge and the way they had conducted negotiations. This had led to the agencies agreeing on minimum prices or pricing scales. This, it was argued, was not open and constructive discussion – it was collusion on pricing.
Some companies have argued that knowing what their competitors charge for the same product or service is essential if they are to make sure that they price what they are selling appropriately. This argument is based on the idea that by doing this they do not undercut their rivals by setting their prices too low (thus harming the market) or charge too much, which can damage their business prospects.
There is possibly some logic to this argument. But if such knowledge and any related discussions lead to agreements on pricing or other trading arrangements, this will be considered collusion. As the modelling agencies found out to their cost.
There is scope for granting criminal immunity to individuals. This can mean that if you report your cartel behaviour and are prepared to co-operate with the authorities, the CMA may decide not to prosecute you. But it is far safer and simpler to make sure that you never find yourself in a position where you have to rely on such leniency.
Aziz Rahman is founder of Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides.
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