The uneasy interface: leniency, disclosure and rights of defence in criminal and administrative anti-cartel enforcementJulian M. Joshua, Barrister

Institute of Advanced Legal StudiesEuropean Criminal Law Association

London, 7 October 2010

2

IntroductionIntroduction

1. Enforcement machinery at EU and UK level

2. Role of leniency in investigations and prosecutions

3. The cartel offence

4. Inherent tensions

5. Marine Hose (2007)

6. BA case (2010)

7. Disclosure obligations

8. Lessons and conclusions

3

Hardcore cartels: the global clampdownHardcore cartels: the global clampdown

Up to 20 jurisdictions worldwide now have ‘serious’ anti cartel enforcement

Two main models: criminal and administrative

Increasing trend towards criminalisation (led by U.S. DoJ)

Any cartel uncovered will be subject to serial investigations across the globe

Investigations driven by institution of “leniency”

4

A crowded enforcement environmentA crowded enforcement environment

Uneasy co-existence in Europe of EU, national competition authorities, criminal law systems

Pre-2000: European Commission applied EC Treaty, OFT could not even impose fines

Competition Act 1998

‘Modernisation’ Regulation: 1/2003

Enterprise Act 2002

Interaction with U.S. Sherman Act investigations and prosecutions

5

Tensions inherent in European systemsTensions inherent in European systems

Inherent tensions in UK and European enforcement systems

EC investigates and sanctions companies ‘administratively’ under Article 101

National Competition Authority (NCA)– ‘assists’ Commission in a Commission investigation under Art. 101

– carries out dawn raids on behalf of the Commission (under Art. 101)

– investigates and sanctions suspected cartel itself under Art. 101

– investigates and sanctions cartels under national competition law

National authorities may also have criminal law powers when national law has created a criminal offence

Regulation 1/2003 seek to regulate the EU – national law interface

6

Regulation 1/2003: basic rulesRegulation 1/2003: basic rules

Article 3 (1): Where national authorities or courts apply national competition law to agreementswith a community dimension, they shall also apply Article 101

Article 3 (2): Application of national law may not lead to prohibition of agreements allowed under

Article 101

Article 3(3): Paras.1 – 2 above do not preclude application of national law that ‘predominantly pursue a different objective’ from that of Article 101

Article 11: Commission and NCAs shall apply community competition rules in close cooperation

Commission may ‘call in’ the case from NCAs

7

Regulation 1/2003: Article 12Regulation 1/2003: Article 12

Information exchanged shall only be used in evidence for purpose of applying Articles 101 or 102 and in respect of subject matter for which it was collected

Information exchanged may also be used for application of national competition law where this is enforced in parallel in same case

Information exchanged can be used in evidence to impose administrative sanctions on natural persons where ‘collecting’ agency respects same level of rights of defence as national rules on receiving side

Information exchange can only be used for imposition of custodial sanctions where both systems may impose prison terms

8

The cartel offenceThe cartel offence

s 188 Enterprise Act makes it an offence punishable by up to 5 years imprisonment where an individual dishonestly agrees with one or more other persons to make or implement cartel arrangements of the prohibited kind between at least two undertakings

Designed to operate in conjunction with administrative enforcement against companies under Competition Act 1998 and/or Article 101

Leniency at the core of enforcement efforts: s 190(4)

Leading investigative and prosecution role for OFT

9

Role of criminal prosecution in UKRole of criminal prosecution in UK

Highly policy driven

Reserved for most serious cases to reinforce Competition Act 1998

Parallel or successive administrative/criminal enforcement

Keyword was ‘deterrence’

Leniency to be the main driver of cases

‘Dishonesty’ to play a declamatory role

Advocates of criminalisation foresaw virtuous cycle of leniency applications, open and shut prosecutions, convictions, popular obloquy, condign sentences and deterrence

10

Sweeping investigation powersSweeping investigation powers

Enterprise Act 2002 confers power on OFT to

– By notice in writing require suspect or any other person to answer questions, provide information, produce documents (s 193)

– Enter premises under High Court warrant using reasonable force (s 194)

– Search premises, require explanations and electronic information

– ‘search and sift’ (s 194(5))

– Use compelled statements as evidence in certain circumstances (where defendant has ‘opened the door’)

– Employ intrusive surveillance

Back up criminal law sanctions for false statements, obstruction, etc.

11

Role of leniency in antitrust prosecutionsRole of leniency in antitrust prosecutions

Conceived by DoJ: full pass from Sherman Act prosecution for first company in – plus its cooperating executives

Adopted enthusiastically by other enforcers including EC, OFT

U.S. has unitary system: companies and individuals all prosecuted under same regime (Section One Sherman Act)

Complicated interplay in European systems between administrative and criminal enforcement (and administration of leniency as between the different agencies)

Enterprise Act s 190(4) provides statutory basis for immunity in UK

‘No action letters’: granted only if individuals admit their guilt in interview (Guideline, OFT 513; OFT 803)

Link with corporate leniency: if company gets ‘Type A’ or ‘Type B’ immunity, cooperating individuals covered

12

Turf wars ?Turf wars ?

Prosecution may only be brought by SFO or by or with consent of OFT (s 190(2))

Hammond-Penrose report strongly against ‘in house’ prosecution by OFT, favours SFO (Philips principle)

2004 OFT Guidance (OFT 515) foresaw investigation and immunity by OFT, prosecution by SFO in cases of ‘serious or complex fraud’

Criminal investigation in parallel with administrative investigation of companies by EC or OFT

OFT has prosecuted the only cases brought so far

13

Parallel civil and criminal investigationsParallel civil and criminal investigations

May not be clear at beginning whether criminal conduct involved, so PACE will apply from the start

Suspect may be interviewed voluntarily under caution

Documents seized under s 194 search warrant may be used by OFT in administrative procedure against companies (also CJA 1987)

Documents obtained under CA 98 powers may be used in subsequent criminal prosecution

CA 98 investigation and EA 02 investigations may proceed in parallel

OFT and SFO to consult on timing so CA 98 procedure does not prejudice criminal investigations

OFT and European Commission to ‘coordinate progress’ of parallel investigations

14

Coordination and Evidence Sharing with Coordination and Evidence Sharing with U.S. DoJU.S. DoJ

EC prevented under Regulation 1/2003 from sharing evidence with overseas agencies

Coordination of timing, etc. in EC-US investigations but no evidence sharing (plus ‘pick up the phone’ cooperation)

UK criminalisation in 2003 makes available judicial cooperation instruments (MLAT’s, Extradition)

Enterprise Act Part 9 allows disclosure by OFT to an overseas public authority to facilitate its investigation of crime or bringing of civil and criminal proceedings: no need for MLAT request or judicial ‘sending order’

15

Marine Hose investigations (1)Marine Hose investigations (1)

Coordinated investigations by U.S. DoJ, European Commission and OFT

In England, first EC dawn raids on individual’s home

OFT dual role: ‘assists’ Commission in EC investigation, carves out own criminal investigations under EA 2002

OFT serves both CA 98 warrants for Commission search and EA 2002 s 194 search

Commission carries out investigation first including IP search takes copies pursuant to warrant obtained under Competition Act 1998

Separate OFT criminal team goes in next with EA 2002 warrant and seizes computers

16

Marine Hose investigations (2)Marine Hose investigations (2)

Three individuals arrested in U.S. on occasion of alleged cartel meeting

OFT shares seized evidence with U.S. DoJ under Part 9 EA 2002

Plea agreements reached in U.S., also involving OFT in complex 3-way deal

Agreed sentences of 20, 24 and 30 months; individuals to be returned to UK and plead guilty under s 188 EA 2002

Individuals agree not to advocate for sentences in England lower than agreed U.S. sentences

OFT takes responsibility for the prosecution

17

Marine Hose investigations (3)Marine Hose investigations (3)

Individuals plead guilty, sentenced at Southwark to sentences longer than those agreed in U.S. plea agreement

CA reduces sentences to U.S. levels

CA expresses disapproval of arrangement that ties hands of English Courts:

“We have our doubts as to the propriety of a U.S. prosecutor seeking to inhibit the way in which counsel represent their clients in a UK court but having heard no argument on the subject, we shall express no concluded view”: per Hallett LJ

Case raises several question marks over role of OFT

18

The BA case (1)The BA case (1)

First full prosecution under s 188 EA 2002

Virgin denounces to OFT alleged cartel with BA to fix prices on transatlantic routes

Virgin obtains corporate immunity for company and ‘no action letters’ for executives

Dual track procedure

BA agrees in July 2007 to pay record £ 121.5 fine

August 2008: OFT announces s 188 criminal charges against four BA executives

Potential prejudice of criminal prosecution by BA settlement

19

The BA case (2)The BA case (2)

Numerous preparatory hearings, interlocutory appeals

IB v R [2009] EWCA 2575

Defence claims Crown Court has no jurisdiction to try case with a European dimension

Modernisation Regulation 1/2003 Article 3

Argued that Crown Court not designated as ‘competition authority’ under Article 35

CA holds that for purposes of Reg 1/2003, s 188 is not “national competition law” in limited sense of Article 3, etc.

Cooperation provisions in Modernisation Regulation are concerned with direct enforcement of Articles 101 and 102 and avoidance of ‘limping’ agreements: issue unlikely to arise under s 188 prosecution

20

The BA case (3)The BA case (3)

Extensive disclosure obligations in criminal prosecution

Tension between BA’s administrative settlement and defence rights of individuals in criminal case

Tensions with administration of OFT leniency programme

Tensions between individual VA witnesses and company situation

Tension between OFT role as civil investigator, grantor of immunity and criminal prosecutor

Tensions between OFT, DoJ and EC ‘confidentiality’ provisions

21

The BA case (4)The BA case (4)

Judgement of Owen J of 7 December 2009 (unreported) Core issue: disclosure under Criminal Procedure & Investigations Act 1996 AG’s disclosure Guidelines (Revised 2005)

– Where third party may have material reasonably capable of undermining prosecution case or assisting accused’s case, prosecutor to take appropriate steps to obtain material

– May have to secure witness summons in appropriate case

Owen J holds – Immunity applicants under duty of continuing and complete cooperation

– OFT may revoke immunity if not satisfied cooperation is being maintained and may expect undertaking to waive privilege

– OFT has overriding duty to deal fairly with defence and should press for disclosure, including

a. Privileged material

b. Material from non-witness VAA employees

– Duty extends to relevant material in possession of agencies in other jurisdictions (DoJ)

– Quid, the European Commission?

22

The BA case (5)The BA case (5)

Trial begins on 14 April 2010: more ‘incidents’

OFT has farmed out prosecution disclosure obligations to immunity applicant’s lawyers

70,000 ‘new’ emails appear: the last straw

One email appears to undermine main plank of prosecution opening

On 10 May prosecution offers no evidence, four accused are acquitted on judicial direction

BA says it wants its money back

Virgin in turn denounced by Cathay Pacific

23

The BA case (5)The BA case (5)

Whole process skewed by leniency

Excessive reliance on immunity applicant and its lawyers for disclosure?

Excessive deference to immunity applicants?

The role of dishonesty: admissions and no action letters

Interface between administrative enforcement and criminal trial: prejudice?

24

ConclusionsConclusions

Jurisdictional issues clarified: cartel offence prosecutions outside EU regulatory framework

Unresolved tensions between administrative and criminal enforcement processes

Jurisdictional tensions with U.S. enforcement

Disclosure in particular a battleground

Role of OFT called into question

25

Reconstruction of an OFT – Commission Reconstruction of an OFT – Commission dawn raiddawn raid