Being involved in a cartel and participating in illegal price fixing is prohibited by competition law in the UK and considered an offence under the Competition Act 1998 and the Enterprise Act 2002. Cartels and price fixing investigations are carried out by The Competition & Markets Authority (CMA), the Serious Fraud Office (SFO) and the Financial Conduct Authority (FCA).
In this post, we will explore why such anti-competitive behaviour occurs and discuss the sort of price fixing penalties you could face should you be found guilty.
Price fixing and cartel definitions
What is price fixing?
Price fixing occurs when two or more businesses, who should typically compete with one another in the market, conspire to fix the prices of their goods or services at a particular rate. This activity disrupts the normal laws of supply and demand. Businesses may agree to raise, reduce or freeze prices, or they may come to another illicit agreement to artificially set prices.
What is a cartel?
A business cartel is formed when two or more competing businesses agree to undermine competition laws for their own gain. For example, they may collude to fix prices, artificially limit the supply of goods, or share commercially sensitive information with one another.
Why are cartels and price fixing illegal?
Controlling the market conditions through coordinated prices and other anti-competitive means is harmful to consumers. Unbeknownst to them, they will likely see higher prices across the items they buy, while the cartel sees profits increase.
Price fixing is also harmful to the industry – with cartels controlling a larger share of the market, other businesses find it harder to compete and may be driven out of the marketplace altogether.
The Competition Act 1998 was drawn up to maintain healthy market competition by regulating anti-competitive conduct by organisations. Businesses that behave in an ‘abusive’ manner and act without regard to their stakeholders violate competition law.
In the UK, price fixing investigations occur regularly through strict public and private regulators to restrict this offence as much as possible.
What are the penalties for price fixing?
Cartel and price fixing penalties can be imposed on the companies themselves and on the individuals who were involved in the illicit activity.
Potential penalties for the business:
- A fine of up to 10% of the their annual (worldwide) turnover
- Asset seizure
- Paying all legal fees
Potential penalties for the individuals:
- Fines
- A prison sentence of up to five years
- Disqualification from being a director for up to fifteen years
You should also be aware that, outside of the price fixing investigation, customers and competitors can sue anti-competitive businesses for any resultant damages they have suffered.
What factors can influence price fixing penalties?
There are several factors that can influence the severity of price fixing penalties, including the degree of harm (or intended harm) inflicted on the victim/s and your degree of involvement in the illicit activity.
Aggravating Factors:
- Instigating or leading the cartel
- High level of profit from the illicit activity
- Attempt to conceal or dispose of evidence
- Previous convictions
- Any other charges brought against you simultaneously
Mitigating Factors:
- Evidence of remorse
- Cooperation with the investigation
- Mental illness or disability
- Playing a minor role in the offence
Price fixing and whistle blowing
As one of the companies involved in a business cartel, you may be granted amnesty or leniency for whistle blowing.
Examples of price fixing cases
There have been many notable price fixing investigations where companies have been penalised for breaching competition law.
Case 1:
In August 2016, The Competition and Markets Authority fined an online seller £160,000 for breaking price fixing law. The company in question had participated in an illegal price fixing cartel by agreeing with a competitor that neither of them would undercut each other’s prices for their products except where another seller was cheaper on the Amazon UK website.
Case 2:
In August 2007, The Office of Fair Trading imposed a fine on British Airways, which was caught illegally price fixing. Despite BA declaring that their actions were ‘a legitimate way of recovering costs’ given fuel surcharges, they saw a fine totalling £121.5 million after they freely admitted to the price fixing of fuel surcharges on their long-haul flights. The allegation was brought to the Office of Fair Trading’s (OFT) attention by competitor and co-conspirator Virgin Airways when they discovered that their staff and BA’s had been colluding. Virgin Airway’s admission saw the OFT grant them immunity, having been ‘tipped off’ since June 2006. The United States Department of Justice then declared that they would further charge British Airways US$300 million.
Case 3:
Between 2008 and 2015, four estate agents based in Berkshire formed a cartel by agreeing to fix commission fees charged for the sale of properties. These four estate agents handled most property sales in the area and artificially set the minimum commission rate to 1.8% on each sale. One of the members of the cartel, Romans, blew the whistle, prompting the CMA to investigate. Over £600,000 worth of fines were handed out to the various businesses, with the largest individual fine totalling £268,765. By blowing the whistle and fully cooperating with the investigation, Romans avoided any fines and director disqualification.
Competition law barristers
This particular area of law is complex, and price fixing investigations can often be drawn out and take some time to settle in court. If you have been accused or are under investigation for involvement in a cartel or illegal price fixing, it is important to seek legal advice immediately as this can affect the outcome of your case.
If you would like to instruct one of our expert competition law barristers, please get in contact with St Pauls Chambers today.
