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16 | 21sT - 27Th March 2014 | UTILITY WEEK Policy & Regulation Market view P ublic scrutiny of utilities and, in par- ticular energy companies, could be set to rise further when new competition legislation makes it easier to bring criminal prosecutions for cartel activities. From 1 April 2014, the "dishonesty" requirement is due to be removed from the offence, and with grow- ing political interest in the way energy com- panies' prices move in step with each other, there will be pressure to see prosecutions. It is more than ten years since price- fixing and market sharing became a criminal offence in the UK but prosecutions have been rare. The cartel offence is committed when an individual agrees with other persons to make arrangements involving price fixing, supply or production limitation, supply or customer sharing, or bid rigging, where the arrangements relate to at least two undertak- ings providing goods or services at the same level in the supply chain. With the latest changes, the prosecution no longer has to prove dishonesty. For network utilities, competitors have to talk to each other because services can be provided only across networks, backed by codes, interconnection standards and agree- ments. The scope for innocent conduct to appear collusive is, therefore, real. Until now, individuals implementing such agreements had no fear of prosecu- tion because their actions were patently not dishonest. That defence will go from 1 April and` executives need to know what the car- tel offence now involves and how to manage and mitigate the risk. Four exclusions are provided in the new section 188A of the Enterprise Act 2002. The first three of these are "notification" exclu- sions. An individual is judged not to have committed a cartel offence if: • where supply is affected, customers are given relevant information about the arrangements before they enter into agree- ments for the supply; • in the case of bid-rigging agreements, the person requesting bids has been given rel- evant information about the arrangements at or before the time the bid is made; • relevant information about the arrange- ments is published in the manner specified in an order made by the secretary of state. While no order from a secretary of state has yet been made, consultation prosecution guidance by the successor body to the Office of Fair Trading (OFT), the Competition and Markets Authority (CMA), suggests publica- tion should be in one of the gazettes. The fourth exclusion is more straightfor- ward: an individual does not commit the car- tel offence if the agreement is made in order to comply with a legal requirement. Three new defences have also been pro- vided by the new section 188B inserted into Enterprise Act 2002: • the individual did not intend to conceal the nature of the arrangements from cus- tomers before entering into agreements with them; • the individual did not intend to conceal the nature of the arrangements from the CMA; • the individual took reasonable steps to ensure the nature of the arrangements was disclosed to professional legal advisers to obtain advice about them. It is important to note that conduct that benefits from an exclusion or defence for the individual is not necessarily lawful. It may still be prohibited conduct for the business under existing civil competition rules. In practice, the removal of the dishon- esty requirement means businesses and staff in regulated industries need to under- stand what competition law covers and who can commit an offence (individuals, not the company), as well as the available exclu- sions and defences. All individuals need to assess whether their contacts and dealings with people outside the business can be con- strued as offences. Many different members of staff could be at risk, so the compliance team should lead employees in this assessment, advising on the risks they face. The CMA's dra prosecution guidance says that it will follow the code of practice for crown prosecutors and consider the pub- lic interest when deciding to prosecute. But its starting point is not reassuring: if the evi- dential test is met "a prosecution will usu- ally take place unless the CMA is satisfied that there are public interest factors rending against prosecution which outweigh those tending in favour". Compliance teams, therefore, need to consider how best to harness the new exclu- sions and defences. It may be practical in some cases to take advantage of the notifi- cation exclusions, for example, when a cus- tomer transfer protocol is agreed or when an agreement is made to facilitate the provision of a service across a network. Of the defences, disclosure for legal advice may appear attractive, but the indi- vidual charged must be the person who took reasonable steps to seek legal advice for the defence to apply. It may be more helpful to have a company-wide policy of taking legal advice in cases of doubt. The individual is then protected by invoking that policy. A similar approach to notification to the CMA might also be adopted. If companies do not themselves take such measures, they may find that worried employees take matters into their own hands and blow the whistle. A business investigated for cartel behav- iour will need to consider separate legal representation for employees who may have committed the cartel offence. Once an indi- vidual is in the frame, his interests and those of the company may be in conflict. This is not a new problem, but is more likely to occur. The nature of the utility sector, with its requirement for continuing contact between competitors, means the removal of dis- honesty from the cartel offence is likely to increase compliance risks and costs. There are signs the CMA may approach cartel offences with renewed vigour, so utilities must take steps to ensure the corporate and individual risks of this latest legislative change are fully addressed. Catriona Munro is a partner and William Sprigge a consultant in the EU, Competition and Regulatory practice at Maclay Murray & Spens LLP. It was an honest mistake You no longer have to be deemed dishonest to be found guilty of a cartel offence – it's enough that you've broken the rules. Catriona Munro and William Sprigge explain how it works.