The uneasy interface: leniency, disclosure and rights of defence

The uneasy interface: leniency, disclosure
and rights of defence in criminal and
administrative anti-cartel enforcement
Julian M. Joshua, Barrister
Institute of Advanced Legal Studies
European Criminal Law Association
London, 7 October 2010
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
Hardcore 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”
A 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
Tensions 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
Regulation 1/2003: basic rules
 Article 3 (1):
Where national authorities or courts apply
national competition law to agreements
with 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
 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
Regulation 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
The 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
Role 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
Sweeping 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.
Role 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
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
Parallel 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
Coordination and Evidence Sharing with
U.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’
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
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
Marine Hose investigations (3)
 Individuals plead guilty, sentenced at Southwark to
sentences longer than those agreed in U.S. plea
 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
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
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
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
 Tension between OFT role as civil investigator, grantor of
immunity and criminal prosecutor
 Tensions between OFT, DoJ and EC ‘confidentiality’
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)
Owen J holds
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
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
Quid, the European Commission?
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
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?
 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
Reconstruction of an OFT – Commission
dawn raid
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