Section 47 of the Enterprise and Regulatory Reform Act 2013: A Flawed Reform of the UK Cartel Offence

AuthorPeter Whelan
DOIhttp://doi.org/10.1111/1468-2230.12125
Publication Date01 May 2015
LEGISLATION
Section 47 of the Enterprise and Regulatory Reform Act
2013: A Flawed Reform of the UK Cartel Offence
Dr Peter Whelan*
On 1 April 2014, section 47 of the Enterprise and Regulatory Reform Act 2013 (ERRA) entered
into force, ensuring significant changes to the UK cartel offence. The criminal offence, contained
in section 188 of the Enterprise Act 2002, was enacted to secure the deterrence of cartel activity
affecting the UK. Following almost ten years of enforcement, the cartel offence had failed to live
up to expectations. Consequently, following a public consultation, it was reformed in substance.
Section 47 ERRA, removed the (controversial) definitional element of ‘dishonesty’ from the
offence, created a number of ‘carve outs’ from the offence, and created three additional defences.
This article examines in detail the specific reforms of the cartel offence and argues that, although
considerable improvement has been made, the UK offence is fundamentally flawed and unwork-
able in practice. Further reform is therefore advised.
INTRODUCTION
The concept of ‘cartel activity’ refers to the making or implementing of an
anticompetitive agreement, concerted practice or arrangement by competitors to
fix prices, make rigged bids, establish output restrictions or divide markets by
allocating customers, suppliers, territories or lines of commerce.1Cartel activity
is generally perceived to be harmful to society in that it reduces competition in
the marketplace to the detriment of consumers.2The potential effects of cartel
activity include an increase in prices for consumers, a reduction in output, quality
and innovation, and the existence of ‘deadweight loss’ (ie, a situation where
consumers who would have purchased goods at the competitive price are unable
to purchase those goods at the cartelised price). Article 101(1) of the Treaty on
the Functioning of the European Union (TFEU) prohibits cartel activity which
has an effect on trade between EU Member States. While, as a result of Article
101(3) TFEU, an exception to the prohibition in Article 101(1) TFEU is legally
possible, provided strict criteria are fulfilled,3in practice it is very unlikely to be
*Associate Professor in Law and Deputy Director, Centre for Criminal Justice Studies, School of Law,
University of Leeds.
1 Organisation for Economic Cooperation and Development (OECD), ‘Recommendation of the
OECD Council Concerning Effective Action Against Hard Core Cartels’ 25 March 1998,
C(98)35/final, at [2(a)].
2 S. Bishop and M. Walker, The Economics of EC Competition Law: Concepts, Application and
Measurement (London: Sweet & Maxwell, 2010) 163.
3 See Case T-17/93 Matra Hachette SA vCommission [1994] ECR II-595.
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© 2015 The Author. The Modern Law Review © 2015 The Modern Law Review Limited. (2015) 78(3) MLR 493–521
Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
provided for cartel activity.4In fact, the European Commission, in enforcing the
cartel prohibition, regularly imposes large administrative fines on companies.
Importantly, it cannot impose criminal sanctions, such as custodial sentences, on
individuals.5That said, EU law does not prohibit the EU Member States
themselves from enforcing the cartel prohibition in Article 101(1) TFEU, or
indeed any cartel prohibition in their own national laws, through individual
criminal sanctions, including imprisonment.6In fact, some Member States do
enforce EU and national competition law through personal criminal sanctions.7
In the UK a statutory criminal offence centred on the concept of cartel
activity has been in existence for a number of years, the UK cartel offence. In
2001, following a public consultation on the issue,8the UK government
decided to introduce a criminal cartel offence into law in order to create a
‘real deterrent’ concerning cartel activity.9The Enterprise Act (EA) was passed
in 2002, with the relevant section containing the UK cartel offence coming
into effect on 20 June 2003.10 Accordingly, under section 188 EA (as origi-
nally drafted), it is a criminal offence for an individual to dishonestly make or
implement or cause to be made or implemented a cartel agreement between
horizontal competitors. A cartel agreement in this context is confined to
agreements relating to price-fixing, market or customer sharing, output restric-
tions and bid-rigging. The cartel offence is a stand-alone offence which does
not require proof of a violation of Article 101(1) TFEU.11 Although the cartel
offence has been on the UK legislative books for more than ten years, to date
there have only been two successful criminal prosecutions (both of which
4 See eg European Commission, Xth Report on Competition Policy (Brussels, 1980) at [115]; Com-
mission Regulation (EU) No 1217/2010 of 14 December 2010 on the Application of Article 101(3) of the
Treaty on the Functioning of the European Union to Certain Categories of Research and Development
Agreements [2010] OJ L335/36, Art 5(1); and Commission Regulation (EU) No 1218/2010 of 14
December 2010 on the Application of Article 101(3) of the Treaty on the Functioning of the European Union
to Certain Categories of Specialisation Agreements [2010] OJ L335/43, Art 4(1).
5Council Regulation (EC) No 1/2003 of 16 December 2002 on the Implementation of the Rules on
Competition Laid down in Articles 81 and 82 of the Treaty [2003] OJ L 1/1 (Regulation 1/2003), Art
23(5).
6 See eg Regulation 1/2003, Arts 5 and 12(3); P. Whelan, The Criminalization of European Cartel
Enforcement: Theoretical, Legal, and Practical Challenges (Oxford: OUP, 2014) 144–145; and W.
Wils, ‘Is Criminalization of EU Competition Law the Answer?’ in K. Cseres, M. P. Schinkel, and
F. Vogelaar (eds), Criminalization of Competition Law Enforcement: Economic and Legal Implications for
the EU Member States (Cheltenham: Edward Elgar, 2006) 90–92.
7 See eg M. O’Kane, The Law of Criminal Cartels: Practice and Procedure (Oxford: OUP, 2009)
325–327.
8 Department of Trade and Industry, A World Class Competition Regime Cm 5233 (2001).
9 Department of Trade and Industry, ‘Productivity and Enterprise – A World Class Competition Regime’
Government’s Response to Consultation (2001) 20–24.
10 EA, s 188. On the UK cartel offence, see generally M. Furse, The Criminal Law of Competition in
the UK and in the US: Failure and Success (Cheltenham: Edward Elgar, 2012) ch 4; and A.
MacCulloch, ‘The Cartel Offence: Is Honesty the Best Policy?’ in B. Rodger (ed), Ten Years of
UK Competition Law Reform (Dundee: Dundee University Press, 2010).
11 M. Furse and S. Nash, ‘Partners in Crime: the Cartel Offence in the UK’ (2004) 15 ICCLR 138,
141.
Section 47 of the Enterprise and Regulatory Reform Act 2013
© 2015 The Author. The Modern Law Review © 2015 The Modern Law Review Limited.
494 (2015) 78(3) MLR 493–521

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