UK competition authority continues to penalise individuals for competition law infringements

Introduction

On 31 July 2019 the Competition and Markets Authority (CMA) publicised the disqualification of three individuals from acting as directors as a consequence of their company's involvement in an infringement of UK competition law.

This announcement, together with the recent public statements of senior CMA officials:

• reiterates that the CMA will continue to hold directors personally responsible for competition law compliance;
• confirms that individuals risk personal penalties in the United Kingdom, including director disqualification for up to 15 years where organisations infringe UK or EU competition law; and
• emphasises the CMA's expectation that directors will implement and maintain effective competition law compliance procedures within their organisations.

This article considers the role of personal penalties within the CMA's enforcement activities and the extent of the CMA's director disqualification powers.

It also outlines the benefits of an effective compliance culture and the steps that the CMA considers directors should take to create and maintain an effective culture of competition law compliance within their organisations.

Personal penalties in the United Kingdom for competition law infringements

In recent months, senior CMA officials have confirmed the authority's intention to ensure that directors continue to face personal consequences for infringements of UK or EU competition law committed by their organisations.

In May 2019 the CMA's director of litigation, made clear that:

we now consider whether to pursue director disqualification in all cases where competition law has been broken - scrutinising the responsibility of individual directors to see whether they contributed to the breach, or had reason to suspect it but failed to stop it, or ought to have known about it.(1) (Emphasis added.)

Similarly, in June 2019 the CMA's executive director of enforcement, stated that:

we have - as we said we would - ramped up our activity in seeking the disqualification of directors… We are determined to… send a clear message about the personal responsibility that business people have for ensuring compliance with competition laws.(2) (Emphasis added.)

To put into context this increase in the CMA's activity since it began actively using its director disqualification powers in late 2016:

• 12 individuals have each given a legally binding competition disqualification undertaking (CDU) which the CMA has accepted with periods of director disqualification ranging from one-and-a-half to seven-and-a-half years;
• nine of these individuals have given CDUs during the seven-month period from 1 January 2019 to 31 July 2019; and
• one individual currently faces an application by the CMA to the court seeking to obtain a competition disqualification order (CDO) against the individual in question.

Details of these 12 CDUs are summarised in the table below. The differing durations of the CDUs reflect the different facts of each case, including the differing extent of the individuals' involvement in the infringement in question.

Importantly, although director disqualification has been a focus of the CMA's recent enforcement activities, this is not the only penalty individuals may face.

The CMA can also prosecute individuals under the criminal cartel offence(5) in relation to specific competition law infringements. Where individuals are convicted of the cartel offence on indictment, they face a maximum of five years' imprisonment, an unlimited fine or both. Notably, reforms to the cartel offence made in April 2014 have reduced the evidential burden on the CMA, with the aim of increasing the number of successful criminal prosecutions brought.

CMA's director disqualification powers

The CMA(6) can apply to the court for a CDO against an individual, or otherwise accept a legally binding CDU offered by an individual, with the maximum period of disqualification being 15 years.

Applying to court for CDOs

Under the Company Directors Disqualification Act 1986, the CMA can seek the disqualification of an individual from holding company directorships, where that individual is a current or former director of a company that has infringed UK or EU competition law.

For the purposes of the act:

• a 'director' includes an individual holding the position of director (irrespective of their title) and includes the position of a shadow director, as well as a de facto director;(7) and
• the definition of a 'company' includes companies registered in the United Kingdom under the Companies Act 2006, as well as unregistered companies (which may include companies registered outside the United Kingdom).(8)

The act also applies to building societies, incorporated friendly societies and NHS foundation trusts,(9) as well as to limited liability partnerships.(10)

If the CMA's application succeeds, the individual may be prevented for up to 15 years(11) from:

• being a company director;
• acting as a receiver of a company's property; or
• being concerned directly or indirectly with the promotion, formation or management of a company, without first obtaining permission from the court.(12)

Significantly, an individual commits a criminal offence if they breach a CDO.(13) Further, where an individual is engaged in the management of a company in breach of a CDO, they will be personally liable for the relevant debts of that company.(14)

Circumstances in which CDOs must be made against individuals

Following an application, the court must make a CDO against an individual where:

• an undertaking which is a company of which the individual is a director has infringed UK or EU competition law;(15) and
• the court considers that an individual's conduct as director makes them unfit to be concerned in the company's management.(16)

In assessing the individual's conduct, the court must consider whether:

• the individual contributed to the infringement (irrespective of whether they knew that the company's conduct was infringing UK or EU competition law);
• the individual, while not contributing to the infringement, had reasonable grounds to suspect that the company's conduct was infringing UK or EU competition law, and took no steps to prevent this; or
• the individual did not know, but ought to have known, that the company's conduct was infringing UK or EU competition law.(17)

The court may also consider the conduct of the individual's conduct as a director of a company in connection with any other breach of competition law.(18)

CMA's powers to accept CDUs from individuals

Under the Company Directors Disqualification Act, director disqualifications can also be effected by the CMA accepting a CDU offered by an individual.

The CMA may proceed to accept the CDU instead of making (or progressing) an application for a CDO(19) where:

• the CMA thinks that an undertaking which is a company of which the individual is a director has infringed (or is infringing) UK or EU competition law and the conduct of the individual as a director makes them unfit to be concerned in the management of a company; and
• the individual offers to give a CDU to the CMA.(20)

An individual can offer a CDU at any time. If the CDU has acceptable terms, the CMA will generally consider reducing the disqualification period.(21)

If the CMA accepts a CDU, the CDU will have the same legal effect and consequences as a CDO, and may be accepted for a maximum of 15 years.(22)

Culture of competition law compliance

Where an organisation has an effective culture of competition law compliance, this can serve to protect the organisation, its staff and its directors, including by:

• first and foremost, preventing infringements of UK or EU competition law from occurring; and
• if an infringement has occurred, ensuring that this is promptly brought to the attention of senior management, who can then take appropriate action to manage the risks resulting from this incident. This may include seeking to obtain immunity by self-reporting the infringement. For example, where an organisation is granted immunity under the CMA's leniency programme, it will receive:
  • immunity from financial penalties;
  • immunity from criminal prosecution for any of its cooperating current or former employees or directors; and
  • protection from director disqualification proceedings for all of its cooperating directors.(23)

CMA's risk-based approach to competition law compliance

As an advocate of competition law compliance, the CMA has jointly published Competition Law Risk: A Short Guide with the Institute of Risk Management, which is intended to help businesses comply with competition law.(24)

The publication promotes a proactive risk-based approach to compliance, tailored to the individual activities of each organisation and underpinned by a top down commitment to compliance.

In this context, the CMA makes clear that while the board and senior management have overall responsibility for instilling a commitment to compliance, managers at all levels of an organisation must also demonstrate this commitment.(25)

Building on this top down commitment, the CMA advocates a four-step, risk-based approach to competition law compliance:

• Identify the risks – identify the key competition law compliance risks facing the organisation, which will depend on certain aspects, including the organisation's activities, its size and the characteristics of the sectors in which it is active.
• Analyse and evaluate the risks – assess the seriousness of the identified risks, including determining which employees are engaged in high-risk areas.
• Manage the risks – establish appropriate training, policies and procedures to ensure that:
  • the identified risks do not occur; or
  • if they do occur, they are detected and addressed.
• Monitor and review – regularly review the organisation's commitment to compliance, as well as the actions taken under steps one to three in order to ensure that there is (and remains) an effective culture of competition law compliance.(26)

In relation to directors, the publication provides that directors are responsible for ensuring that their organisations have taken adequate measures to ensure that relevant staff know, and are regularly reminded that:

• the organisation must comply with competition law, with staff understanding what this means; and
• staff must report any incidents or suspicions in relation to competition law compliance to a designated, independent and trusted individual within the organisation.(27)

Engaging with compliance concerns at early stages

In view of the CMA's commitment to enforcement actions and to ensuring that directors are held personally responsible for competition law compliance, individuals and organisations should:

• proactively consider the extent of any potential exposure they may face, including with regard to the robustness and effectiveness of their compliance culture and approach to competition law compliance; and
• take appropriate action and advice at the earliest opportunity to ensure that relevant risks are effectively managed and minimised.

Endnotes

(1) Radke, J "Director disqualification: an increasing risk", CMA Blog, 22 May 2019 is available here.

(2) Grenfell, M, "UK Competition Law enforcement: the post-Brexit future", speech given at City & Financial Global 'Future of UK Competition Law' summit on 11 June 2019, speaker's notes available here.

(3) Date of the CMA's announcement of the CDU being accepted; the date of acceptance is not publicly available.

(4) Ibid.

(5) Please see Section 188 of the Enterprise Act 2002.

(6) In addition to the CMA, the following specified regulators are also able to exercise these powers:

• the Office of Communications;
• the Gas and Electrical Markets Authority;
• the Water Services Regulation Authority;
• the Office of Rail and Road;
• the Civil Aviation Authority;
• NHS Improvement;
• the Payment Systems Regulator; and
• the Financial Conduct Authority (see Section 9E(2) of the Company Directors Disqualification Act).

?(7) Please see Sections 22(4) and 9E(5) of the Company Directors Disqualification Act.

(8) Please see Section 22(2) of the Company Directors Disqualification Act.

(9) Please see Sections 22A to 22C of the Company Directors Disqualification Act.

(10) Please see the Limited Liability Partnerships Regulations 2001 (SI 2001/1090), Regulation 4(2).

(11) Please see Section 9A(9) of the Company Directors Disqualification Act.

(12) Please see Section 1(1)(a) of the Company Directors Disqualification Act. In addition, during the period of the CDO, the individual will be unable to act as an insolvency practitioner (please see Section 1(1)(b) of the Company Directors Disqualification Act).

(13) Please see Section 13 of the Company Directors Disqualification Act.

(14) Please see Section 15(1) of the Company Directors Disqualification Act.

(15) Chapter I Prohibition or Chapter II of the Competition Act 1998; or Article 101 of the Treaty on the Functioning of the European Union (TFEU); or Article 102 of the TFEU.

(16) Please see Sections 9A(1) to (3) of the Company Directors Disqualification Act.

(17) Please see Section 9A(6) of the Company Directors Disqualification Act.

(18) Please see Section 9A(5) of the Company Directors Disqualification Act.

(19) Please see Section 9B(2) of the Company Directors Disqualification Act.

(20) Please see Section 9B(1) of the Company Directors Disqualification Act.

(21) Please see CMA 102, "Guidance on Competition Disqualification Orders", 6 February 2019, Paragraph 3.7.

(22) Please see Section 9B(5) of the Company Directors Disqualification Act.

(23) Please see, for example, www.gov.uk/guidance/cartels-confess-and-apply-for-leniency.

(24) Please see the joint publication by the CMA and the Institute of Risk Management, "Competition Law Risk: A Short Guide Version: 2.0", available here.

(25) Please see "Competition Law Risk: A Short Guide Version: 2.0", Page 19.

(26) Please see "Competition Law Risk: A Short Guide Version: 2.0", Page 19.

(27) Please see "Competition Law Risk: A Short Guide Version: 2.0", Chapter 7.

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