The IoD’s Information and Advisory Service (IAS) outlines the main illegal practices and recommends a way to minimise your firm’s risk of prosecution
The Competition Act 1998 and Enterprise Act 2002 are designed to deter businesses from forming cartels that put other players in their market at a disadvantage and deny consumers a fair deal. Yet firms have a limited grasp of these laws, according to a survey by the Competition and Markets Authority (CMA) last October. For instance, only 57 per cent of respondents knew that price-fixing is illegal.
What is a cartel?
A cartel is a pact between two or more firms to carve up a market, share customers, fix prices, rig contract bids and/or share sensitive data that might limit competition and inflate prices. Such agreements don’t have to be in writing – you can break the law simply by talking informally to another business, even if no collusion results.
What are the penalties?
If found guilty of anti-competitive practice, a firm can be fined up to 10 per cent of its worldwide turnover, even if its senior managers are found to be unaware of these activities. Individual offenders risk a maximum jail term of five years, an unlimited fine and disqualification from serving as a director for up to 15 years.
The CMA has imposed fines on cartels totalling more than £150 million since 2015. Competition law applies to businesses of any size and type, although the watchdog notes that the manufacturing, recruitment, construction and property management sectors are particularly susceptible. A notable recent case involved five Somerset estate agents, which were fined £370,000 for fixing minimum commission rates. A sixth cartel member was spared punishment, as it was the first to confess.
How to protect your business
The CMA and the Institute of Risk Management recommend a four-step process to minimise your firm’s risk of prosecution under competition law:
• Identify the danger areas. Work out where the risks of a breach are highest in your business by considering a number of questions. For instance, do people often move between competing employers in your market? Do your employees have contact with competitors at industry events and so on? Do they seem to have information about rival firms’ plans? Are some of your clients also your competitors?
• Evaluate each of the risks quantitatively and qualitatively. Classify every cartel risk in terms of both the likelihood that it will transpire and its potential impact, including lasting reputational damage as well as the direct financial hit.
• Manage the risks. Training your employees in competition law and implementing a code of conduct is crucial, regardless of the level of risk. Some firms have found it useful to stress to all staff that anti-competitive activity is a disciplinary matter and to establish a system by which people can report any concerns internally.
• Re-evaluate the above steps at least once a year to maintain your compliance safeguards.
If you suspect that anti-competitive activities are occurring inside or outside your organisation, you should inform gov.uk/stopcartels. If you are the first member of a cartel to make a disclosure, you may be treated leniently.
How the IAS can help you
• The Business Information Service (BIS) is accessible by email (firstname.lastname@example.org) or phone: 020 7451 3100
• The Directors’ Advisory Service (DAS) can give guidance by appointment, either face to face at 116 Pall Mall or over the phone: 020 7451 3188
• The legal helpline can answer quick queries about a vast range of issues: 0870 241 3478*
• The tax helpline can give callers advice on both commercial and personal tax matters: 01455 639110†
IoD members are entitled to 25 enquiries a year to the BIS; four sessions with a DAS adviser; and 25 calls to both the legal and tax helplines. For further details, visit iod.com/information or email email@example.com
* Quote your membership number
† Quote your membership number and reference number 33337
Become a member of the IoD
The IoD has a range of memberships for directors, founders and co-founders, providing all the resources and facilities needed to enhance your business. To find out more about membership offerings and to join today, visit iod.com/membership