What is a Cartel?

31 October 2018

A tough message to “business cheats”

Last week, the CMA launched a new campaign to raise awareness of business cartels.  The campaign is designed to send a “tough message to business cheats” which features a cartels hotline and also includes potential financial rewards for those who report suspected cartels.

Alongside this campaign, the CMA released the outcome of the ICM competition law survey.  The findings of the telephone survey are based on a sample of 1,200 UK businesses and can be found here.

Lack of awareness

The headlines of the research are that:

  • Only 57% of respondents knew it was illegal to fix prices;
  • Nearly half of respondents either did not know or thought it was legal to discuss prices with competing bidders when quoting for new work (23% said ‘do not know’, and 25% actually thought it was legal);
  • Significantly more than half of respondents (59%) did not know or thought that dividing up and sharing customers with rivals was legal (24% said ‘do not know’ and 35% actually thought it was legal);
  • Two thirds (68%) of respondents say they have a ‘poor’ awareness of the penalties for non-compliance with competition law;
  • (64%) of respondents reported that they do not know who enforces competition law in the UK.

Interestingly, only 18% of respondents were aware that they can gain immunity from admitting to participation in a cartel.

The corollary of the research is that many businesses still have little understanding of competition law – and many businesses are still unaware that criminal offences that can be committed as a result of anti-competitive behaviour. 

So what is a cartel?

In order to address this lack of understanding, as part of its new campaign, the CMA has launched a “Stop Cartels” page. The purpose of this webpage is to simply explain what a cartel is.  The CMA’s message is simple:

Cartels are formed when businesses agree not to compete with each other. Price-fixing, bid-rigging and market-sharing are some of the most serious types of business cartels.

Business cartels are unfair. They cheat customers, who end up paying more for lower quality goods and services. That’s why they are illegal and it’s our job to investigate them.

That’s also why we are giving you useful information to safely report cartels. With your help, we can stop them.”

What is the law on cartels?

Section 188 of the Enterprise Act 2002 introduced the criminal cartel offence which can result in a penalty of up to five years in prison. In addition, Directors can be disqualified from holding directorships for up to 15 years. Moreover, businesses found to have been involved in illegal cartels can be fined up to 10% of their annual turnover.

The CMA campaign states that these penalties can be reduced or eliminated altogether where a business or individual report their involvement in a cartel and co-operates fully with the CMA’s investigation. Witnesses who blow the whistle can receive a reward of up to £100,000.

What is the significance of the CMA’s current campaign?

The CMA’s campaign is a continuation of their increased monitoring and investigation of suspected cartels [see our related blogs]. The CMA clearly hopes that their campaign will lead to greater reporting of cartels, either by immunity applicants, by third parties or whistle-blowers with their message: “If you know of something illegal – do the right thing and tell us about it.”

The significance of this campaign for businesses is twofold.  Firstly, those businesses who become aware of their own wrong doing may wish to give thought to what action they may need to take to reduce their potential liability.  Secondly, businesses may wish to ensure that training on competition law is provided in order to ensure a greater degree of understanding as to what constitutes a cartel.

The consequences of turning a blind eye…?

Individuals who may have committed the cartel offence (as set out above) are vulnerable to being the subject of a criminal investigation by the Competition and Markets Authority (CMA) or the Serious Fraud Office (SFO).  Similarly, businesses can be the subject of a dawn-raid, which can have a significant financial and reputational impact.

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