In conversation with the CMA – businesses still unclear of the dangers of breaching competition law

Gary Yantin, Director of Best Practice
Gary Yantin, Director of Best Practice at VinciWorks

In a webinar on competition law, I interviewed the Competition and Markets Authority’s (CMA) David Harper and Kwadjo Adjepong. During the interview, they covered price fixing, market sharing and cartels. You can download the full interview and webinar, together with useful competition law compliance resources, here.

Lack of knowledge on competition law

In a recent study conducted by the CMA, most businesses were unclear of the dangers of breaching competition law, with a third of businesses unaware that it is illegal to fix prices. Head of Investigations and Intelligence David Harper cited that a lot of companies are more concerned with money laundering regulation, with half of businesses not even knowing it was illegal to discuss prices with other businesses in their industry. While the vast majority of companies want to do the right thing, they find all the legislation difficult to work through. David sees a big part of the CMA’s role as supporting competition to allow businesses and consumers to benefit from competition law.

The CMA’s role in enforcing competition law

The CMA is the UK’s primary competition law enforcer. It promotes competition and brings forward legislation. Assistant Director of Cartels within the Enforcement Directorate Kwadjo Adjepong told me he feels the CMA “has an important role in putting the UK on par with US competition law legislation. The CMA aims to educate businesses in competition law and how to enforcing best practice, as well as support whistleblowers. Of course, the CMA’s role is likely to increase post-Brexit.

Competition law and Brexit

When asked about the effect Brexit will have on UK competition law, David said that while it will be “business as usual” in terms of the CMA continuing to educate businesses, Brexit is likely to have an impact on UK competition law. Post-Brexit, The European Commission is more likely to look into cases that are intermember state, such as Germany and UK. If the UK is outside the EU, the CMA will investigate in partnership with the Commission. However, this is still to be worked out between the UK and the EU.

How are directors being held accountable?

Company directors are responsible for ensuring their staff have undertaken competition law training and have the right policies in place. Directors, in particular, can be held accountable if their business is found to have been involved in foul play. Those found guilty can face fines of up to 10% of global turnover, up to five years in prison and director disqualification, not to mention the reputational damage that would be caused. Junior staff should also undergo training and must understand the need to take competition law seriously. Nusinesses must have the correct reporting procedures in place and whistleblowers should not be made to feel that by making a report they risk their position in the company. Having a culture of compliance is led from the top down and is very important part of mitigating the risk. Further, the CMA reassures anyone who has information to report that whistleblowers will be taken seriously and that they will be protected. In some cases, staff who report any wrongdoing could receive a financial reward.

What are the red flags to look out for?

While any business, big or small, could be involved in price fixing, market sharing or cartels, there are some circumstances that increase the chance of businesses engaging in illegal activity:

  • When market conditions are tough and/or businesses are losing profits
  • A small number of participants in the market
  • A small numbers of suppliers for the product
  • Homogenous products that can easily be replicated by others
  • High barriers to entry into the market

Only 25% of businesses felt they understood competition law well and they are working to improve that number.

Who is affected by cartels?

A cartel is an agreement between competitors which results in anti-competitive activities. This could include an agreement to fix prices, share markets, rig bids or limit output at the expense of the interests of customers and without any countervailing customer benefits. They tend to be conducted in secret and when they occur they can raise prices to the end user by up to 30%. This then has a ripple effect on the economy because the buyers then don’t have money to spend on other purchases. With the CMA’s leniency programme, if you are involved in a cartel, a competitor you are fixing prices with can report you to CMA and give evidence that will allow the CMA to pursue the company and present fines. In such a case, that competitor would receive immunity from prosecution. In a recent case, two estate agent bosses in Burnham-on-Sea were disqualified for forming a cartel. They fixed their commission fees at 1.5%, meaning homeowners could not negotiate lower moving costs.

The future of competition law enforcement in the UK

Competition law enforcement is increasing, with a lot of investigations currently underway. The CMA has fined businesses a total of £150million to date and they are trying to move to a place where they will actively consider disqualification orders in all cased. Moving forward, the CMA expects larger and more complex cases because of Brexit and more use of the CMA’s power, such as disqualification orders and potentially prison sentences. Lawyers have a valuable role in clamping down on competition law and they need to report any suspicious behaviour, as well as educate people on competition law and the repercussions of breaking the law. Further, as encourage directors to come into the CMA and apply for leniency. In cases where two large companies merge, the CMA will consider launching an investigation.

How to report suspicions to the CMA

There are two main ways reports get to the CMA. When internal processes show there may be a breach of competition law, they should be in touch with a law firm, who would have specialist processes for taking the issue further. In cases where a whistleblower does not think their company will deal with the issue properly, the CMA has a cartels hotline. When necessary, the CMA may conduct dawn raids on the businesses involved. The CMA has clear guidance on their website on reporting a competition or market problem. Further, VinciWorks’ whistleblowing portal can help businesses ensure their staff can easily and anonymously report any suspicions of misconduct. You can learn more by completing our short form.