Prison sentences for marine hose cartelists

The Office of Fair Trading (OFT) has finally used the sharpest instrument in its cartel-busting toolkit, with the first prison sentences being passed against three British businessmen (a combined term of over eight years) under the cartel offence. Fines will be levied and each of the men have been disqualified from acting as company directors for five to seven years.

Competition partner Simon Taylor says, "The real prospect of substantial prison terms will grab attention in the board room in a way that company fines never could and should push competition compliance up the agenda."

The investigation relates to the marine hose market, where pipes are used by the oil and defence industries for linking tankers with storage facilities. The OFT has claimed that the cartel "affected contracts worth hundreds of millions of pounds." It is reported that the victims of this cartel, going back 40 years, includes notably the UK Ministry of Defence and the US Department of Justice.

The sentence results from a carefully orchestrated operation on both sides of the Atlantic: US officials arrested the suspects at an "industry conference" in Texas, whilst UK officials carried out raids at their business and home addresses in the UK. Following a plea bargain in the US, they returned to the UK in December 2007 to face arrest on charges of dishonestly bid rigging, market sharing and price fixing. The men pleaded guilty as charged.

The European Commission is also investigating the companies involved for infringement of Article 81, which could result in fines of up to 10% of annual worldwide turnover.

OFT Chief Executive John Fingleton warned yesterday that "this first criminal prosecution sends a clear message to individuals and companies ... The OFT will continue to investigate and to prosecute cartels vigorously, with the aim of ensuring strong competition within the UK economy".

The OFT also took the opportunity to remind the public that it pays rewards of up to £100,000 for information leading to a cartel bust and operates a leniency programme designed to encourage whistle-blowing in return for a reduction in fines.

The marine hose prosecutions were brought following covert recording of cartel meetings in the US. The OFT has similar surveillance powers and will not hesitate to use them.

This case signals a new era of international cooperation and enforcement of cartel laws. While the defendants in this cartel were permitted to do their time in the UK, others may face extradition and prison in the US.

Simon adds, "Cartels are too unstable and the consequences of being found out too severe for anyone to engage in or permit this sort of conduct in their organisation. This coup for the OFT may also snowball whistle-blowing as companies already implicated in cartels take stock of their options."