Caught up in a potential cartel claim? CMA has published some valuable guidance on what to do

Towards the end of last year, the Competition and Markets Authority published guidance on how to address a situation in which you find your business caught up in what might be a cartel situation. Here is what you might want to be aware if cartel concerns arise.

What is a cartel?

A cartel refers to a secret agreement or arrangement between competing businesses to coordinate their activities in a manner that restricts competition. This often involves practices such as price fixing, market sharing, bid rigging, or wage fixing, where the parties involved agree not to compete, either by setting prices at a certain level, dividing markets or customers between them, or manipulating tender processes. Arrangements of this kind are considered illegal because they undermine the principles of a free market, harm customers by keeping prices artificially high, and stifle innovation and efficiency within the market.

CMA has a leniency policy for a business declaring its involvement

The CMA’s leniency policy provides a route for businesses and individuals involved in cartel activity to report their conduct and potentially receive immunity or reduced penalties.

Three types of leniency apply depending upon the circumstances:

Type A Immunity is available if no investigation has started and no other party has applied for leniency.

CMO offers immunity from:

• Financial penalties
• Criminal prosecution for employees
• Director disqualification
• Public procurement exclusion

If an investigation has already started (that may only be known by CMA at the time if no formal publication of the investigation has been made) but no other party has applied for leniency CMA will offer incentives to encourage co-operation leading to:

• Up to 100% reduction in financial penalties (typically less than 75%)
• Possible immunity from director disqualification and criminal prosecution
• Exemption from procurement exclusion if full immunity from penalties is granted

Finally, in Type C leniency this is provided to a co-operating party if another party has already applied for leniency. With this status the party notifying CMA will be offered:

• Up to 50% reduction in financial penalties
• Discretionary immunity from director disqualification and criminal prosecution
• No automatic exemption from procurement exclusion

Conditions to be met if leniency is to be given

To qualify, applicants must:

• Provide all relevant information and evidence
• Cooperate fully and confidentially throughout the investigation
• Cease participation in the cartel (unless directed otherwise)
• Admit involvement if the CMA finds evidence
• Not have coerced others into joining the cartel (required for Type A and B)

CMA assesses the value of the applicant’s contribution to the investigation when determining the level of leniency. For Type B and C, the more helpful the applicant is, the greater the discount.

Taking advantage of the process – here is how it works

• Initial Contact: The business or its legal adviser contacts the CMA’s leniency enquiry line anonymously to check availability
• Leniency Marker: If leniency is available, the CMA grants a marker to reserve the applicant’s place
• Application Package: The business submits documents and a leniency statement detailing the cartel activity
• Investigation Cooperation: The business assists the CMA during the investigation
• Leniency Agreement: If conditions are met, the CMA signs a formal agreement granting immunity or reduced penalties

Can the CMA withdraw its agreement?

Leniency may be withdrawn if the applicant fails to meet conditions. However, if a business has made best efforts to ensure cooperation from its employees or directors, it may retain leniency even if individuals lose their personal immunity.

The takeaways from this guidance are clear. CMA has a clear role in addressing complaints that cartel conduct exists in a given market.

No matter how well managed a business is, individuals in a senior role may be tempted to make arrangements with competitors with the aim of securing better outcomes for the business. Providing training to personnel is an important step for a business to take – individuals may not realise that sanctions can hit individuals personally as well as the business they work for.

The guidelines also serve as a reminder that the consequences of involvement in a cartel can be wide ranging – including the risk of automatic exclusion for a period of time from public procurement competitions – unless Type A leniency is granted.