As you read this, OTC will be in full swing – which reminds me of one of the more unexpected events at last year’s Offshore Technology Conference in Houston.
Three UK executives attending the conference were arrested on charges of cartel activity – Bryan Allison and David Brammar, directors of Dunlop Oil and Marine Ltd, and Peter Whittle, an independent contractor.
In all, a total of eight people from the UK, France, Italy and Japan were arrested over two days of raids across the US and Europe following a combined investigation by the UK’s Office of Fair Trading (OFT), the European Commission and the US Department of Justice (DOJ) into an alleged cartel for marine hose.
Marine hose is used in both the oil and defence industries to transport oil between tankers and storage facilities and the cartel was alleged to have affected contracts worth at least £122million between 1999 and 2007.
I commented at the time that perhaps I shouldn’t have been surprised: like the construction sector, the oil industry supply chain is quite concentrated in some areas and supplies some high-value but relatively standardised items where prices are fairly transparent – just the kind of conditions where economists tell us that cartel activity can flourish.
The regular stream of decisions of the EU authorities imposing significant cartel fines on the construction sector suggests that for us in the oil& gas sector this may be just the tip of an iceberg.
The UK introduced a criminal offence of engaging in cartel activity because the risk of fines did not seem to the authorities to be putting people off to any great extent. Well, if anything could demonstrate the dangers of being involved in a cartel, it is that each of the “OTC Three” will serve at least 20 months in prison.
Within months of their arrest, the OTC Three had been charged and pleaded guilty in the US in return for being tried under UK law – they were each sentenced to between 20 and 30 months.
They were then returned to the UK, where the OFT arrested and charged the three under the UK’s cartel offence – used for the first time since its introduction in the Enterprise Act 2002.
The men were then released on bail for trial soon – if found guilty, they face an unlimited fine or up to five years’ imprisonment and disqualification as directors.
Under their US plea bargain, if they plead guilty then any time spent in a British prison will count towards their US sentences, though they will have to serve any remainder in the US.
However, if they plead innocent then their US deal is off and they could be extradited and face longer sentences in the US to be served after any UK prison term.
In addition to the reputational damage, Dunlop Oil and Marine and any other companies involved now face significant fines (up to 10% of worldwide turnover under EU law) for their actions and, very probably, also third-party action for damages.
While damages actions are still relatively infrequent in the UK, this cartel operated in the US where there is a long history of such actions, and it seems very likely that affected oil companies, and possibly also the US Navy, may sue.
As for Europe, damages actions are already on the increase as a trickle of cases such as those involving replica football strips and airline tickets proves that recovery is possible.
In addition, the EU has recently published a paper proposing changes to make such actions easier, although the commission is currently not supporting a move towards the treble damages available in some US cases.
Cartel investigations are usually prompted by disclosures made by a whistle-blower from among the cartel members keen to benefit from the so-called “leniency policies” which many competition authorities operate to encourage whistle-blowing.
If they are first through the door of the authorities, companies can gain immunity from fines for themselves and immunity from prosecution for the executives involved, although not from other consequences such as the unenforceability of anti-competitive agreements and third-party damages actions.
This creates a strong incentive to be the first to blow the whistle as those who then hold their hands up will likely receive only limited immunity.
In addition, the OFT has recently added to its armoury a scheme to award informants who are not themselves part of the cartel with up to £100,000 for information.
In the face of these risks, all businesses should:
Make sure their competition compliance policy and procedures are up to date.
Even more importantly, to reduce the risk of rogue employees choosing to ignore the policy (as happened last year with British Airways and its attempt to fix fuel surcharges), give regular training to ensure that staff take the message fully on board.
Ensure their staff know what to do if the authorities arrive to carry out a dawn raid – EON was recently fined 38million euros for breaching an official commission seal fixed during a dawn raid in May, 2006, to secure documents.
For more information on competition law issues, contact my partners, Judith Aldersey-Williams in Aberdeen (email@example.com) or Sue Hankey in London (firstname.lastname@example.org).
Penelope Warne is head of energy at CMS Cameron McKenna LLP