Executives Beware – The Government Has You in its Sights
23 April 2007 Rod Fletcher
Rod Fletcher of Russell Jones & Walker explains how criminal law is encroaching upon the boardroom.
Of the 600 separate pieces of criminal legislation enacted by this government, many have been targeted specifically at the business community.
In addition to the cartel offences considered below there are now a multitude of areas where the criminal law is attacking the boardroom in an unprecedented way. Most obviously:
- The Anti-Terrorism Crime and Security Act 2002 extended the UK criminal jurisdiction to prosecute corrupt acts (individuals and companies) even if they have occurred overseas
- The Fraud Act 2006 has simplified the definition of fraud
- The Corruption Bill seeks to update and extend measures combating corrupt business practices
- The number and nature of the criminal and administrative offences in the Financial Services and Markets Act 2000, including the civil standard of proof in the market abuse regime
- By the Corporate Manslaughter Bill the government still hopes to render more companies and executives liable to prosecution
Add to that the extensive powers provided to investigators under the Proceeds of Crime Act 2002, the complexity and seriousness of the anti-money-laundering laws, the proposals for some fraud trials to take place without a jury, and the provisions giving immunity to witnesses in return for their cooperation and it becomes clear that businesses and their executives must ensure that they are fully informed on all the implications of developments in this area of the law.
It is the field of cartel crime which illustrates most dramatically these developments. The Enterprise Act 2002 (in force since 20 June 2003) created, for the first time, a statutory criminal offence in respect of individuals engaging in cartel activities.
The criminal offence is targeted at directors and employees and prohibits dishonest agreements by individuals to fix prices, limit supply or production, divide markets or rig bids. Whilst companies are not caught by this new offence, individuals face prison for up to five years in the UK, and the prospect of extradition from to the US (where the maximum sentence is ten years), as illustrated by the Norris case which is considered further below.
Until the enterprise act came into force competition law in the UK was governed by articles 81 and 82 of the EC treaty and the competition act 1998, which came into force in March 2000. The EC cartel enforcement system is, in essence, administrative in nature.
The European Commission can impose fines of up to 10% of a company's annual turnover; since 2000 fines totalling €4.5bn have been imposed on some 200 businesses or undertakings. The recent investigation into the 'big four' lift manufacturers has resulted in the largest ever fine of €992m.
THE NORRIS CASE
Mr Norris, a UK national and resident, has been engaged for some time in challenging his extradition to the USA to face charges of conspiracy to fix prices and obstructing the course of justice.
The American indictment alleges that between 1989 and 2000 Morgan Crucible (of which Mr Norris was CEO) and various companies based in France, Germany and Austria had agreed to suppress and eliminate competition by fixing the prices of carbon products which they manufactured and sold.
In order to constitute an extradition offence in the UK under the extradition act 2003, the court had to be satisfied that the price fixing conspiracy alleged against him constituted the criminal offence of common law conspiracy to defraud.
Mr Norris's lawyers argued that until the Enterprise Act came into force in June 2003 any anti-competitive agreements did not in themselves constitute a criminal offence at common law. Such anti-competitive agreements had always been policed by civil law sanctions in the UK under the regime of successive restrictive trade practices legislation.
They also argued that it would be unfair to impose retrospective criminal liability in relation to price fixing through the common law offence of conspiracy to defraud. It was common ground that there had never been a price fixing case prosecuted in any UK court as a conspiracy to defraud.
Both a district judge and the administrative court have found against Mr Norris and decided that price fixing agreements can amount to conspiracy to defraud. The case is likely to be considered by the House of Lords in due course and there will be further detailed arguments in unrelated cases shortly to come before the courts.
Argument in those cases is likely to emphasise that decades of restrictive trade practices legislation and precedent had specifically excluded cartels from criminal sanction, that no one concerned with the introduction of the enterprise act considered that cartel agreements were already caught by the criminal common law, and that the creation of the cartel offences in the enterprise act represented a wholly new and fresh approach.
It will no doubt also be emphasised that the court in Norris was addressing the issue as to whether the conduct alleged in the American indictment was capable of constituting an offence under UK law. That court had not been concerned with whether it was proper for an English prosecutor to resort to a common law conspiracy charge which had never been used before.
It might be considered to be a basic right that everyone engaged in business is entitled to have clarity and certainty as to the line between legitimate business practices and serious criminal offences.
It might also be thought to be uncontroversial that the new approach to cartels under the enterprise act should not be used to justify the backdating of criminal liability. Neither our domestic law nor European law (article 7 of the ECHR) allows conduct which did not contravene the criminal law at the time it took place to be retrospectively classified as criminal.
THE EXTRADITION RISK
For the time being however the effect of the ruling in the Norris case is that prosecutions alleging anti-competitive agreements may be commenced in respect of allegations not just post the enterprise act but going back ten to 20 years.
There must also be an increased risk of extradition proceedings being commenced against UK business people, bearing in mind in particular the increasingly aggressive international anti-trust / cartel enforcement regime.
Whatever the final outcome of the Norris case and the pending cases referred to above, it is clear that businesses must have detailed training and compliance systems in place to ensure that they are up-to-date with the implications of cartel investigations and extradition proceedings. This applies equally to the ever increasing stream of new criminal law, breach of which has potentially serious personal and corporate consequences.