Dawn raids brought home

Competition authorities in Brussels, US and the UK announced recently that they have conducted a series of raids in connection with a suspected cartel in the marine hose sector.  With a dawn raid carried out on a private residence in the UK and the arrest of several company executives in the States, some important issues have been raised in connection with the conduct of cartel investigations.

Background

31st May 2007

Competition authorities in Brussels, US and the UK announced recently that they have conducted a series of raids in connection with a suspected cartel in the marine hose sector.  With a dawn raid carried out on a private residence in the UK and the arrest of several company executives in the States, some important issues have been raised in connection with the conduct of cartel investigations.

Background

On 3 May, the Office of Fair Trading (the OFT) announced that it had carried out searches at various sites as part of a criminal investigation into suspected cartel activity in relation to the market for supply of marine hoses.  This was part of a coordinated effort by the European Commission (the Commission), the US Department of Justice (the DOJ) and national competition authorities in other Member States, all of which were conducting investigations into alleged bid-rigging, price-fixing and market allocation in the US, UK, France, Italy and Spain. 

Criminal proceedings

An important distinction to be drawn between the US and European proceedings is the criminal nature of the US authority's inquiries – cartel investigations by the US DOJ tend to be conducted on a criminal basis, involving the detention of executives who can be connected with the alleged cartel activities and with the ultimate aim of indictment and conviction of the executives whenever possible.

The DOJ announced on 2 May that it had arrested eight executives at sites in Houston and San Francisco, including directors from the UK, France, Italy and Spain.  The executives have been charged for their role in a conspiracy in bid-rigging, price-fixing and the allocation of markets for US sales of marine hoses. 

The DOJ alleges that the suspects met in Florida, Bangkok and London to discuss price-fixing arrangements, adopting codenames to conceal their identities and the nature of their communications.

In Europe, while the Commission can only impose financial penalties on undertakings involved in cartel activity, the OFT does have the power in the UK, under the Enterprise Act 2002, to charge an individual with the criminal offence of involvement in cartel activities (resulting in a possible five years' imprisonment and/or an unlimited fine).

The OFT's marine hose inspections have been carried out under its Enterprise Act criminal investigation powers, so the options of detention and indictment of any individuals involved in this investigation remain open to the OFT.

Private residence

The 2 May dawn raid carried out by the OFT constitutes the first time that the OFT has carried out a search under the Enterprise Act at a private address. 

The OFT's powers to enter the private residence of a company director has been presumed to be largely in keeping with the Commission's powers in this area.  The Commission is entitled to conduct a dawn raid investigation at a private home address, but there must be some evidence to support the idea that company documents are kept at that address.  For instance, some of the company's business may be conducted from that address.

Despite the long-standing presumption that the OFT has the power to conduct a search of a private residence, this is the first time that the OFT has actually executed its powers in this way.  This investigation is certain to be observed keenly to see what, if any, implications there might be following on from the raid of a home address.

A sign of things to come?

For now, the investigations will continue and it remains to be seen what action will follow on in the UK from these raids.   While this may or may not be a sign of the OFT beginning to flex its criminal investigation muscles, what is certain is that the competition authorities at European, Member State and US levels have demonstrated both their ability and willingness to conduct highly coordinated, high profile investigations in their pursuit of cartelists.