First criminal cartel convictions under the Enterprise Act

29 September 2008

Louise Banér

The OFT has recently announced the first ever convictions for cartel offences under the Enterprise Act 2002. Almost five years after the introduction of criminal sanctions for cartel activities, three UK businessmen have been sentenced to imprisonment for periods of between two and a half and three years. All three pleaded guilty to dishonestly agreeing to allocate markets and customers, restrict supplies, fix prices and rig bids relating to the supply of marine hose and ancillary equipment in the UK. The three defendants were also disqualified from acting as company directors for between five and seven years.

In May 2007, the OFT announced that it was carrying out a number of on-site searches in the UK and launching an investigation under the Enterprise Act into a possible worldwide cartel conspiracy between several company executives to rig bids, fix prices and allocate markets in the supply of marine hoses. Marine hoses are commonly used in the oil and defence industries to transport crude oil and petroleum products between tankers and storage facilities. Amongst the UK customers was the Ministry of Defence.

In coordination with the OFT’s investigation, the US Department of Justice (DoJ) announced in May 2007 that a number of company executives, including the three UK businessmen, had been arrested following a cartel meeting in Houston (Texas) and that it was launching an investigation into suspected cartel activities in relation to the supply of marine hoses in the US. All three pleaded guilty to participating in a cartel conspiracy in violation of the Sherman Act. They filed plea agreements with the DoJ, agreeing to serve minimum prison sentences of between 20 and 30 months and paying fines of between US$75,000 and US$100,000, in order to return to the UK to serve their sentences.

The three businessmen were arrested on arrival in the UK in December 2007 and charged with the cartel offence under section 188 of the Enterprise Act, for the period between 20 June 2003 (when section 188 came into force) and 2 May 2007 (when the arrests took place in the US). The OFT made a point of stressing that the US plea agreements applied exclusively to the US proceedings and therefore did not affect the three defendants’ rights under UK law. The defendants, however, pleaded guilty in the Crown Court in accordance with their US pleas.

In parallel, the European Commission is carrying out an investigation into suspected breaches of Article 81 EC Treaty, and confirmed in early May 2008 that it has issued a Statement of Objections against the companies involved. Should the companies be found to have infringed Article 81, they could be fined up to ten per cent of their annual worldwide turnover.

A large number of leading global marine hose manufacturers were involved in the cartel, including Dunlop Oil and Marine Ltd (‘Dunlop’), Bridgestone Corporation, Yokohama Rubber Company Limited, Parker ITR S.r.l., Manuli Rubber Industries SPA and Trelleborg Industrie S.A. Two of the businessmen convicted of the cartel offence worked for Dunlop: Bryan Allison, the Managing Director, and David Brammar, the company’s Sales Director. The third individual, Peter Whittle, was an independent consultant who in practice worked exclusively as a coordinator for the cartel participants, allocating contracts and fixing prices.

Pursuant to section 190(1)(a) of the Enterprise Act, a person guilty of an offence under section 188 is liable to imprisonment for a term of up to five years and/or to an unlimited fine. In this case all three defendants were disqualified from acting as company directors and sentenced to imprisonment:

  • Peter Whittle was sentenced to three years imprisonment and disqualified as director for seven years;

  • David Brammar was sentenced to two and a half years imprisonment and disqualified as director for five years; and

  • Bryan Allison was sentenced to three years imprisonment, disqualified as director for seven years and ordered to pay £25,000 costs.

Costs for Peter Whittle and David Brammar are to be decided on 1 July 2008, together with the confiscation proceedings.

Tackling serious cartel conduct has been one of the OFT’s priorities for a number of years. These three unprecedented convictions confirm that the OFT is determined to make full use of its criminal enforcement powers to investigate and prosecute cartel activities more aggressively. It is interesting to note that in handing down its judgment, the Crown Court warned that future sentences imposed for cartel offences are likely to be higher than those imposed in the present case. Although in this instance the Court only took into account cartel activities carried out after the introduction of the cartel offence when determining the sentences to impose, it commented that future defendants would not be able to use as a mitigating factor the fact that the cartel predated the Enterprise Act.

Also the parties to the hearing identified the price increase derived from the cartel and the value of the resulting damage on the UK market. This is likely to help those who have suffered loss as a result of the cartel to quantify their loss and bring successful damages actions against the companies involved.

Source: OFT press releases 72/08