Competition Law and Criminal Enforcement (on either side of the Atlantic)

Competition law is one of the major reasons why this blog is called Business Behaving Badly, and why I try to focus on naughtiness, harms and wrongdoing rather than corporate (or white collar) crime. In Europe, competition law is largely a regulatory scheme based on fines, and with a few individual carved-out exceptions, is not ‘criminal’ law. However, in other jurisdictions, notably the US, criminal enforcement of competition law is far more widespread.

This reminds us that crime is ‘socially constructed’; that we have to think very carefully about what conduct we want to consider as criminal; and the fine distinctions between systems that can yield different results.

Here, we’ll simply look at the competition/criminal law interface either side of the Pond, and I’ll speculate as to why those differences exist.

The US

The US is the granddaddy of competition law – the law that regulates practices contrary to the market competition that is fundamental to a capitalist system[1].

According to the US Department of Justice (DOJ), cartelists are ‘generally prosecuted criminally’, whereas those who, in EU parlance, abuse a dominant position are generally dealt with in civil law. Criminal prosecutions can lead to corporate fines of up to $100million (or twice-the-gross-gain resulting from the violation), individual fines up to $10million, and up to 10 years in jail (I often wonder what the world would look like with a base-12 counting system).

In the US in 2010, the average jail term for these offences was 30months, and a total of 26,046 days were spent in federal jails for antitrust violations, equivalent to 71 people spending their whole year in jail. Fines reached $555million, down from $1billion the year before.

The UK and the EU

In Europe, criminal law plays a far smaller role. The European Commission is the major competition law enforcer, and it does not impose criminal sanctions. Instead, it administers fines (or sometimes behavioural and structural orders) to companies that violate the relevant provisions.

Member states still have a role to play, and indeed, the national competition authorities (NCAs) increasingly work better with each other and with the Commission. And some states have criminal sanctions available.

The UK has one – the Cartel Offence. It originally provided that an individual who dishonestly agrees to engage in hard-core cartel activity (price fixing, bid rigging, etc) could face five years in prison, and/or an unlimited fine. So far, there has only been one successful prosecution, in R v Whittle (Peter) [2008] EWCA Crim 2560, and in that case, all three defendants admitted guilt. In fact, the case is more interesting in looking at difficulties where actors violate competition laws of different countries. In Whittle, the three defendants had been arrested in the US, and had made plea bargains there. The dishonesty element is being scrapped, which we’ll talk about next time.

Why the Differences?

So why are the Americans keener on criminalisation? I will suggest four reasons, all quirks of history. No doubt other reasons could be found.

1. The US got their first. The DOJ says, criminalisation is the best deterrent to cartelists. The global trend in enforcement is to states using ever tougher deterrent. It is unsurprising that the first big economy to deal with competition law got to the fiercer deterrents first.
2. The EU. The EU is the prime actor in European competition law, but it doesn’t have competence to create and enforce criminal law. This stems from the EU’s history as an economic union, and so certain issues of political sovereignty have not been ceded. Criminal law is one of the most sensitive. Instead, various countries have begun their own piecemeal processes; but they have not been the prominent enforcers in the past, and there remains concern about how varying offences can co-exist in the EU – both as to consistency and the problem of double (or multiple) jeopardy.
3. Criminalising culture. The US is more predisposed to locking people up. It has, by far and away, the highest rate of incarceration in the world. Land of the Brave, maybe, but a lot of US ‘homes’ aren’t all that fussed with ‘freedom’. That may or may not be a good thing.
4. The US has more private enforcement – my Uni notes say that in the US, 90% of competition cases are not brought by the regulators, versus about 15% in the EU. This must affect the balance of enforcement, and maybe pushes the state away from adding fines to damages, and instead encourages penal enforcement.

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[1] That is sweeping. The economics underneath competition law is complicated, and some argue competition law is contrary to the guiding hand of a true free market. Less extreme positions still challenge some competition law rules, which, it can be and is argued, actually chill or prevent competition and could harm consumers. In a quiet moment, I'll try and summarise competition law on here.