From community service to director disqualification: UK CMA gets tough

CMA secures director disqualification for competition law breach

Unlike our September 2015 report on a rather lenient sentence of 120 hours of community service, the CMA has now secured the first disqualification of a director of a company found to have infringed competition law.

Daniel Aston, managing director of the online poster supplier Trod Ltd, has given a disqualification undertaking not to act as a director of any UK company for 5 years.

The Competition and Markets Authority (CMA) may, under the Company Directors Disqualification Act, seek the disqualification of an individual from holding company directorships where that individual has been director of a company which has breached competition law.

This is the first time the power has been used for competition law breaches since it came on the statute book.

The disqualification follows the CMA’s decision of 12 August 2016 that Trod breached competition law by agreeing with one of its competing online sellers that they would not undercut each other’s prices for posters and frames sold on Amazon’s UK website. The CMA found that the agreement was implemented using automated re-pricing software. The CMA fined Trod £163,371.

As Mr Aston was the managing director of Trod at the relevant time, and because he personally contributed to the breach of competition law, the CMA considers that his conduct makes him unfit to be a company director for a specified period.

Michael Grenfell, Executive Director for Enforcement at the CMA, said:

Breaking competition law can harm consumers, businesses and overall economic performance. In this case, people shopping online were entitled to believe retailers were competing on price, whereas, unknown to them, the companies had colluded not to undercut each other’s prices.

The responsibility to ensure that companies don’t engage in illegal anti-competitive practices is an important one, and company directors should not shirk that responsibility. The business community should be clear that the CMA will continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, we are absolutely prepared to use this power again.

Under the disqualification undertaking, Mr Aston undertakes that for a period of 5 years, he will not ‘without the leave of the court be a director of a company or act as a receiver of a company’s property; or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company; or act as an insolvency practitioner.’ On 6 October 2016, the CMA served Mr Aston with a notice pursuant to section 9C of the Act setting out the grounds and evidence on which it proposed to rely in a claim for a disqualification order. Mr Aston has made oral and written representations on the proposed claim. On 21 November 2016, the CMA determined to bring proceedings in the event that no disqualification undertaking were given.

Under the Company Directors Disqualification Act, the CMA has the power to apply to the court for an order disqualifying a director from holding company directorships or performing certain roles in relation to a company for a specified period if a company of which he or she is a director has breached competition law. The Act also allows the CMA to accept a disqualification undertaking from a director instead of bringing proceedings. A disqualification undertaking has the same legal effect as a disqualification order.  Sections 9A to 9E of the Company Directors Disqualification Act 1986 as amended by the Enterprise Act 2002, which came into effect on 20 June 2003, gives the CMA the power to apply to the court for a disqualification order to be made against a director for a maximum of 15 years where a company of which he is a director has breached competition law and where his conduct as a director makes him unfit to be concerned in the management of a company.

The disqualification undertaking is available on the CMA’s web page.

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Court goes easy on CMA accused: 120 hours of community service for ‘cartel offence’

Courtesy of the Competition & Markets Authority in the United Kingdom

Nigel Snee was today sentenced to 6 months’ imprisonment, suspended for 12 months, and ordered to do 120 hours community service within 12 months.  While the law would have permitted issuance of a monetary fine, he was spared that as well, and likewise is allowed to continue serving as a company director in the future.

The sentencing hearing at Southwark Crown Court followed a criminal cartel investigation by the Competition and Markets Authority (CMA).

Mr Snee, the former Managing Director of Franklin Hodge Industries, had previously pleaded guilty to dishonestly agreeing with others to fix prices, divide up customers and rig bids between 2005 and 2012 in respect of the supply in the UK of galvanised steel tanks for water storage.

The tanks are used to store water for sprinkler systems in buildings.

Mr Snee was arrested in 2012 at the start of an investigation begun by theCMA’s predecessor, the Office of Fair Trading.

Mr Snee cooperated with the investigation and, after pleading guilty to the cartel offence in January 2014, was a witness for the CMA at the subsequent trial of two further individuals, who were acquitted in June. As is usual in such cases, the extent of Mr Snee’s cooperation was reported to the trial judge in order that it could be taken into account in his sentencing decision.

In explaining the approach to sentencing, His Honour Judge Goymer remarked that “the economic damage done by cartels is such that those involved must expect prison sentences”.

The judge indicated that his starting point in this case was that a prison sentence of 2 years was appropriate. Taking into account Mr Snee’s early guilty plea, his personal mitigation and the extent of his voluntary cooperation as a witness, the Judge reduced his sentence by the “higher end” discount of 75%, and concluded that it was appropriate in the circumstances of this case for the resulting 6 month sentence to be suspended.

Bullet point summary:

  1. On 24 June 2015, following a trial at Southwark Crown Court in the same case, two directors, Clive Dean of Kondea Water Supplies Limited and Nicholas Stringer of Galglass Limited, were acquitted of the same charges under section 188 of the Enterprise Act 2002.
  2. The case was brought under the law as it applied to conduct before April 2014, under which the cartel offence was only committed where the individuals concerned acted dishonestly. Following a change in the law, for conduct after 1 April 2014, it is no longer necessary for the CMA to prove that individuals acted dishonestly to commit the cartel offence.
  3. The CMA is also currently conducting a related civil investigation into whether businesses have infringed the Competition Act 1998. No assumption should be made at this stage as to whether the Competition Act has been infringed.
  4. The CMA operates a leniency programme for parties who want to admit their involvement in a cartel and also, in certain circumstances, offersfinancial rewards for cartel informants.

DOJ Antitrust Division announces criminal fines for FY 2014

ANTITRUST DIVISION ANNOUNCES FISCAL YEAR TOTAL IN CRIMINAL FINES COLLECTED

The Department of Justice collected $1.861 billion in criminal fines and penalties resulting from Antitrust Division prosecutions in the fiscal year that ended on Sept. 30, 2014. Contributing in part to one of the largest yearly collections for the division, five of the companies paid in full penalties that exceeded $100 million, including a $425 million criminal fine levied against Bridgestone Corp., the fourth-largest fine the Antitrust Division has ever obtained.  The second-largest fine collected was a $195 million criminal fine levied against Hitachi Automotive Systems Ltd.  The three additional companies that paid fines and penalties exceeding $100 million were Mitsubishi Electric Corp. with $190 million, Toyo Tire & Rubber Co. Ltd. with $120 million and JTEKT Corp. with $103.2 million. The collection total also includes penalties of more than $561 million received as a result of the division’s LIBOR investigation, which has been conducted in cooperation with the Justice Department’s Criminal Division. In addition, in the last fiscal year the division obtained jail terms for 21 individual defendants, with an average sentence of 26 months, the third-highest average ever.

“The size of these penalties is an unfortunate reminder of the powerful temptation to cheat the American consumer and profit from collusion,” said Assistant Attorney General Bill Baer for the Antitrust Division.  “We remain committed to ensuring that corporations and individuals who collude face serious consequences for their crimes.”

Germany’s Andreas Mundt rejects idea of criminal sanctions for antitrust violators

Germany won’t join jurisdictions with criminal competition penalties

The head of the federal cartel office, the Bundeskartellamt’s Andreas Mundt, reportedly dismissed the idea of introducing criminal sanctions for competition-law offences.  Speaking at the GFR Society for Law and Policy’s event, he called imprisonment a “severe weapon” that had no place in the “rarely [] crystal clear matter” of cartel violations, where “the lines are often blurred.”

Among the countries that do have a criminal antitrust regime (usually only for “hard-core” offences, such as price-fixing or bid-rigging and market allocation among horizontal competitors), the most well-known is of course the United States, whose Sherman Act made cartel violations a criminal felony as far back as 1890.  Among the more recent acolytes of criminal penalties are newer competition-law jurisdictions, such as South Africa and Kenya.

International precedent-setting institutions and enforcers’ recommendations tend towards identifying the positive effect of criminal antitrust penalties:

OECD, 3rd Hard-Core Cartel Report (2005):

  • Recommends that governments consider the introduction and imposition of criminal antitrust sanctions against individuals to enhance deterrence and incentives to cooperate through leniency programmes.

U.S. Department of Justice, Tom Barnett (2008):

  • “Jail time creates the most effective, necessary deterrent.”
  • “[N]othing in our enforcement arsenal has as great a deterrent as the threat of substantial jail time in a United States prison, either as a result of a criminal trial or a guilty plea.”

Cornerstones of a successful criminal antitrust regime commonly include the following:

  • Crystal-clear demarcation of criminal vs. civil conduct
  • Highly effective leniency policy also applies to individuals
  • Standard of proof must be met beyond a reasonable doubt
  • No blanket liability for negligent directors – only actors liable
  • Plea bargaining to be used as an effective tool to reduce sentence
  • Clear pronouncements by enforcement agency to help counsel predict outcomes

Demarcation of criminal vs civil antitrust conduct in U.S.

Why are compliance programmes treated differently (competition vs. anti-bribery laws)?

In this post, Michael Volkov compares the “carrot” approach to FCPA compliance programmes to the lack thereof in antitrust enforcement, asking the pertinent question: “why do antitrust enforcers not reward compliance efforts like their anti-bribery counterparts do?”

Worth a read.

White Collar Crime Resource Guide: Statute of Limitations

Grand Jury Target

Some issues in white collar criminal defense arise over and over. I’ll periodically post Resource Guides to cover those issues. Feel free to suggest other Resource Guide topics in the comments.

Click here for a printable version of this statute of limitations Resource Guide.

Default Statute of Limitations

Generally, there is a 5-year statute of limitations for federal criminal matters. 18 U.S.C. § 3282.

Longer Statutes of Limitations

Although five years is the default statute of limitations, many federal crimes have a longer period.

Capital offenses, as an extreme example, have a limitation period that never expires. If a federal crime is punishable by death, the government can bring an indictment on that crime at any time after the crime has been committed. 18 U.S.C. 3281.

Congress has specifically extended the statute of limitations for a number of white-collar crimes.

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Plus ça change, plus c’est la même chose: Revised EU de minimis notice retains % thresholds, clarifies per se rule

Nothing new: the newly-revised de minimis Notice of the European Commission isn’t that novel

The revised Notice (after its 1997 and 2001 predecessors) retains the 10% and 15% market-share thresholds for agreements between horizontal and non-horizontal competitors, respectively, which create a safe harbor from EC prosecution for an Art. 101(1) violation.  The document merely adds formal color and substance to the issue of what types of agreements fall within its “safe harbor” and which fall outside that umbrella.

Unsurprisingly, the Staff Guidance paper accompanying the Notice explains the prohibited hallmark per se (or “by object”) category of agreements succinctly as follows, also adding minimum-RPM, bid rigging, collective boycotts and particularly injurious information-sharing arrangements:

The three classical “by object” restrictions in agreements between competitors are price fixing, output limitation and market sharing (sharing of geographical or product markets or customers).

Not binding on Member States

Importantly, as its predecessors, the Notice does NOT have binding effect on EU member states’ competition authorities, but ONLY on the EU Commission and its DG COMP.  As the European Court of Justice held in its Expedia judgment (case C-226/11):

27      It also follows from the objectives pursued by the de minimis notice, as mentioned in paragraph 4 thereof, that it is not intended to be binding on the competition authorities and the courts of the Member States.

28      It is apparent from that paragraph, first, that the purpose of that notice is to make transparent the manner in which the Commission, acting as the competition authority of the European Union, will itself apply Article 101 TFEU. Consequently, by the de minimis notice, the Commission imposes a limit on the exercise of its discretion and must not depart from the content of that notice without being in breach of the general principles of law, in particular the principles of equal treatment and the protection of legitimate expectations (see, to that effect, Joined Cases C‑189/02 P, C‑202/02 P, C‑205/02 P to C‑208/02 P and C‑213/02 P Dansk Rørindustri and Others v Commission [2005] ECR I‑5425, paragraph 211). Furthermore, it intends to give guidance to the courts and authorities of the Member States in their application of that article.

29      Consequently, and as the Court has already had occasion to point out, a Commission notice, such as the de minimis notice, is not binding in relation to the Member States (see, to that effect, Case C‑360/09 Pfleiderer [2011] ECR I‑0000, paragraph 21).

30      Accordingly, that notice was published in 2001 in the ‘C’ series of the Official Journal of the European Union, which, by contrast with the ‘L’ series of the Official Journal, is not intended for the publication of legally binding measures, but only of information, recommendations and opinions concerning the European Union (see, by analogy, Case C‑410/09 Polska Telefonia Cyfrowa [2011] ECR I‑0000, paragraph 35).

31      Consequently, in order to determine whether or not a restriction of competition is appreciable, the competition authority of a Member State may take into account the thresholds established in paragraph 7 of the de minimis notice but is not required to do so. Such thresholds are no more than factors among others that may enable that authority to determine whether or not a restriction is appreciable by reference to the actual circumstances of the agreement.

 

China blocks P3 Shipping Alliance from Steaming Ahead

Shippers hit Chinese iceberg: MOFCOM blocks JV outright

Møller-Maersk A/S, MSC Mediterranean Shipping Company SA and CMA-CGM SA have abandoned plans to enter into a long-term operational vessel-sharing agreement of about 250 cargo ships, servicing worldwide container liner shipping routes.

According to a Maersk statement,  the decision came on 17 June 2014, causing the partners to abandon the deal scheduled for completion this fall.  The agency has also given the parties the right to appeal the decision, but that seems unlikely at this stage.

MOFCOM suprises yet again

The blocking decision – only the second outright refusal after MOFCOM’s 2009 derailment of a Coca-Cola transaction involving a Chinese drinks manufacturer – is yet another example in the ongoing antitrust saga of Chinese unpredictability.

After obtaining clearance from the EU’s DG COMP earlier in June and likewise from the United States Federal Maritime Commission in March 2014, the three shipping giants apparently perceived a greater chance of their alliance being approved by regulators worldwide.  Yet, the MOFCOM ruling has put a full halt to the joint venture:

“The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators’ concerns,” according to the CEO of Maersk Nils Andersen.

MOFCOM, one of China’s three antitrust enforcement bodies, is said to have concluded that the proposed JV would have enhanced the market power of the P3 members and increased barriers to entry.

Maersk states disappointment

“In Maersk Line we have worked hard to address the Chinese questions and concerns. So of course it is a disappointment. P3 would have provided Maersk Line with a more efficient network and our customers with a better product. We are committed to continuing to be cost competitive and offer reliable services,” says Vincent Clerc, Chief Trade and Marketing Officer of Maersk Line.

 

Brussels bar for U.S. American lawyers: “independent” or “employee”?

American attorneys practicing in Brussels/Belgium do not have to switch from employee to independent status

Why is this antitrust-relevant?  Because many U.S. antitrust/competition lawyers practice in Brussels and become members of the so-called Brussels bar “B-List,” or “liste B”…

This piece of news may (1) not be news to some, but is relevant (2) to all who may be directly or indirectly affected by various Brussels bar rules (e.g., as hiring partners considering hiring U.S. attorneys for their BRX office, or directly as American associates or of-counsel etc. moving abroad):

 The [perceived] Belgian prohibition against attorneys having an “employee” status in a law firm – and hence the important, although implicit, requirement that all associates or other non-partner lawyers must be so-called “independents” under Belgian bar rules – does not exist for American lawyers practicing in Belgium.

As long as you are an “American attorney” member of either the E- or B-lists of the BRX bar, you can actually be an employee:  See para. 5 of Art. 6 in Annex 9 (“CONVENTION CONCLUE AVEC L’AMERICAN BAR ASSOCIATION LE 6 AOÛT 1994”) to the Recueil des règles professionnelles (www.barreaudebruxelles.be/pdf/brochures/recueil2010.pdf), copied below (– let me know if you interpret this differently).

Article 6 : CONDUITE ET PRIVILÈGES

5. L’indépendance des avocats américains étant garantie par les règles professionnelles qui leur sont applicables comme membre des barreaux des Etats-Unis, il ne leur sera pas interdit, par le fait de l’inscription à l’une des listes des avocats étrangers ou pour d’autres motifs, d’avoir le statut d’employé dans un cabinet ou une association.

This may have implications for all U.S. firms hiring or moving American associates or of-counsel to their Brussels location.  Previously, as I have understood past practice, firms have required their U.S. non-partner attorneys to become ‘independents’ under the Brussels bar rules, which may be a wholly unnecessary (and HR-costly) step.

If you have questions, e-mail me.

Almunia: EU Antitrust damages directive “most significant”

St. Gallen International Competition Law Forum Remarks Highlight Civil Competition-Law Enforcement & Cartel Victims’ Access to Evidence as Top-of-Agenda for Outgoing Commissioner

Joaquin ALMUNIA, Vice President of the European Commission responsible for Competition policy & enforcement, made the following (excerpted) remarks at the 2014 International Competition Law Forum held in St. Gallen.

From a practitioner’s perspective, the Commissioner’s emphasis on cartel victims’ access to evidence, his subtle reminder that the Directive merely sets a “minimum standard“, and the parallel observation that the upcoming collective redress Recommendation will be applicable across all policy (and legal) fields are important highlights of the prepared remarks.

I will start with the Directive on antitrust damages actions, which I regard as one of the most significant developments in the competition-policy domain in the current mandate.

Infringements of EU competition law are not only bad for the competitiveness of our economy. They also harm companies and consumers directly.

We recognise that every individual consumer and business has the right to be compensated for this damage. However, given the legal systems of EU countries, only a few victims obtain compensation in practice.

The time has come to translate our principles into actual practice.

Last year the Commission tabled a proposal to remove existing obstacles in national rules and make it easier for victims to obtain compensation across the EU through private enforcement.

The European Parliament and the Council have seized the opportunity and reached a political agreement with remarkable speed.

The Parliament voted the final text by an overwhelming majority, and the formal approval by the Council is expected before or shortly after the summer.

This outcome is a major success for a number of reasons.

First, from the perspective of victims, the Directive will make it easier for them to get hold of the evidence they need to prove the damage, because national courts will be empowered to order disclosure of relevant evidence.

The Directive also allows victims to rely on decisions taken by national competition authorities when these find an infringement.

Moreover, it introduces clear rules on several aspects of competition litigation, thus reducing the existing uncertainties, which have a cost for all parties.

From the perspective of the internal market, the Directive sets a minimum standard in all Member States, which means more legal certainty and a more level playing field throughout the EU.

Finally, from the perspective of competition authorities, the Directive fine-tunes the interaction between their work and the compensation claims by private parties. This is thanks to rules that preserve the incentives of companies to cooperate in antitrust investigations.

In parallel to the Directive, the Commission has also adopted a Recommendation inviting Member States to introduce collective redress mechanisms at national level by mid-2015.

The Recommendation includes basic principles that would ensure fair, timely and affordable procedures across the EU. The Recommendation is not limited to competition law but covers all policy fields.