Aziz Rahman of award-winning business crime solicitors Rahman Ravelli outlines what constitutes cartel behaviour and the problems it can bring.
Five banks being fined more than €1bn (circa £883m) for rigging the foreign exchange market may not, at first glance, seem to have immediate relevance to most of the business world.
But the fines totalling €1.07bn (circa £935m) were imposed by the European Commission for what amounted to cartel behaviour. And that is very relevant to business.
Four banks in what was known as the "Banana Split" cartel - Barclays, RBS, Citigroup and JP Morgan - were fined €811m (circa £716m) while those in the so-called "Essex Express" cartel - Barclays and RBS again, plus MUFG - were fined €258m (circa £228m).
The penalties imposed on the banks show the possible costs of cartel behaviour. But it is important to note that cartel behaviour in business and the hefty penalties it can attract are not limited to the major banks. Any individual or company can come under investigation if they are suspected of being involved in cartel behaviour. The important thing, therefore, is to be aware of what cartel behaviour is – and then take steps to ensure that nothing you do could be construed as amounting to it.
This may sound obvious. But businesses have been prosecuted for cartel activities when they thought they were acting in a lawful manner. It can make sense to be on good terms with your commercial rivals, sharing expertise and discussing business experiences. But there needs to be an awareness that genuine dialogue cannot reach the point of cartel behaviour.
Defining cartel behaviour
Under the Enterprise Act 2002, cartel behaviour includes activities such as price fixing, arrangements to share markets, bid rigging and deliberately restricting the production or supply of items.
Directors and employees of a company can be held personally, criminally liable for the offence, which carries a maximum penalty of five years' imprisonment for individuals. Under the Competition Act 1998, the Competition and Markets Authority can fine a company up to 10% of its global turnover for such behaviour.
Such penalties emphasise the need for those in business to take great care to ensure that nothing they or their company does could be considered cartel behaviour. As I mentioned earlier, an awareness of what constitutes cartel behaviour should be accompanied by the introduction of preventative measures to ensure that such behaviour does not occur.
Solicitors with the relevant business crime expertise can assess a company’s workplace practices, examine the market in which it trades and then devise procedures that remove the potential for any cartel behaviour.
To put it in the simplest terms, the prevention of cartel behaviour is about ensuring there is no collusion between two parties - no secret deal to distort the market in which the two parties do business. While discussions between commercial rivals are both acceptable and legal, they cease to be legal if the talks reach the stage where the two parties are colluding to carry out the activities that the Enterprise Act covers.
Collusion is generally defined as some sort of fraudulent, secret agreement between supposed opponents. It could be the case that companies accused of cartel behaviour in relation to pricing say that they are not colluding - they are simply finding out what their rivals charge for the same item or service so that they know that they are selling it at an appropriate price. This, they say, ensures that they are not massively undercutting their rivals on price by charging too little or setting their prices too high.
This argument is understandable. A company does not want to do the market in which it trades long-term damage by massively undercutting all its rivals. It also does not want to put itself out of business by overcharging in comparison to its competitors. But what could be considered the tipping point into collusion is when any market-related discussions between two parties then lead to agreements on pricing or other trading arrangements.
It is worth noting that when it comes to cartel behaviour there is scope for individuals to be granted criminal immunity. If you report your cartel behaviour and you are prepared to co-operate with the authorities, there is the possibility that you will not be prosecuted. But that can certainly not be viewed as some sort of magic escape route from the problems that cartel behaviour can bring.
The most trouble-free approach is to take both the necessary advice to ensure that you know what cartel behaviour is and all possible steps to avoid being implicated in it.
Aziz Rahman is founder of Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides. www.rahmanravelli.co.uk
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