Miss Johnson: That should be done carefully. I appreciate the hon. Gentleman's concerns, but the difficulty should not be exaggerated. We just need to ensure that everything is done carefully and the right procedures are carried out for the right cases. Careful discrimination is necessary about which route is to be pursued.
I move on now to the regulatory impact and compliance costs. The hon. Member for Eastbourne, surprisingly, mentioned significant extra compliance costs, but we do not accept that they will arise.
Mr. Field: That is a complacent approach. The compliance costs will not just be the direct costs to the OFT or to Government Departments, but will embrace internal training, for example. In the past, when large companies or near-monopoly-type organisations were subjected to similar merger or cartel investigations, internal training programmes were seen as a necessity and they took up countless hours of management time. Companies know that if they face another OFT investigation, the first question they will be asked is what internal network they have put in place. It should never be underestimated that the biggest single cost is often setting up the internal mechanisms, which cost so much in management time. Clause 179 is likely to result in more of the same for the companies that will be affected by it.
Miss Johnson: The hon. Gentleman chooses to forget that companies currently need to ensure that their staff are fully trained on the impact of legal anti-competition measures, including the 1998 Act. Further issues relate not to the operation of the business, but to individuals' dishonest behaviour, and cannot be covered, but I doubt whether much additional time would need to be spent over and above the general training that companies already provide.
Another upside, which Opposition Members left out in their discussion of the issue, is that a better-operated market without destructive, anti-competitive behaviour is good for business and will benefit legitimate concerns. I promised that I would not say that we were creating a level playing field—although it is an indispensable expression—but that is what we are doing. It is important for legitimate business and the measure will help to ensure that that is the case.
The Secretary of State has signed a statement saying that the Enterprise Bill is compatible with the European convention on human rights. Civil and criminal proceedings will be kept separate; the criminal
Column Number: 173evidence must be of a higher standard and with the appropriate safeguards. Clauses 188 and 189 provide protection against self-incrimination.
Mr. Carmichael: Will a Scottish arm of the Office of Fair Trading be established? When terms such as the Police and Criminal Evidence Act, which is not part of Scots law, are being thrown around, there is massive scope for confusion between the systems.
Miss Johnson: I had not given much thought to that point, but, as always, I will think further about questions asked in Committee. I cannot give the hon. Gentleman any undertaking either way. Earlier in the debate, he asked about the degree of consultation on Scots law in relation to the clauses. We have consulted the Scotland Office and the Crown Office at every stage and they are content with the Bill. I do not think that there are further issues to be addressed.
I want to return to cartels and vertical agreements. In response to a question from the hon. Member for Eastbourne, the repeal of the exclusion of verticals in the Competition Act 1998, which is proposed in the White Paper, is still under consideration. The issue is on our agenda.
It is most important to have a transparent leniency programme, which is an essential element in successfully cracking and prosecuting cartels. The hon. Member for Eastbourne has recognised the role that leniency played in the Sotheby's and Christie's case that he mentioned earlier. Informants often provide vital evidence, which can be used in prosecution and punishment of a ringleader and others. Leniency is cost-effective; it provides for prosecution without a long and expensive investigation. The US experience shows a good combination of the stick of criminal sanctions and the carrot of leniency, which can be used together to defeat cartels.
The OFT no-action letters are subject to a set of conditions; for example, not being a ringleader, admitting guilt, co-operating fully and so forth. They certainly do not give carte blanche to those who are guilty to get away with it. If the conditions of the letter are broken—for example, if the holder of the letter turns out to have been a ringleader—it will be void and prosecution may follow. The OFT will issue detailed guidance about the terms for leniency, including pro forma, no-action letters.
Mr. Carmichael: Is the Under-Secretary aware that in Scotland, when the police issue a warning or give an indication that no proceedings will be taken, that is not subsequently binding on the procurator fiscal? Has consideration been given to that matter in respect of the OFT?
Miss Johnson: As I said a moment ago, if the conditions of the letter are broken—for example, if the holder of the letter turns out to have been a ringleader—the letter will be void. It is certainly possible to revisit the matter in specific circumstances.
Mr. Carmichael: My point was that for the police as an investigating authority to say that no action will be taken does not bind the procurator fiscal; he is entitled to disregard that. If the Office of Fair Trading said
Column Number: 174that no action was to be taken, would the procurator fiscal be entitled to disregard that?
Miss Johnson: The Lord Advocate will prosecute the new offence in Scotland and will not be formally bound by the OFT no action letter. However, as I have mentioned, there are effective working relationships between the OFT, the Serious Fraud Office and the authorities in Scotland. That should avoid inconsistency in practice. Indeed, Customs and Excise uses a related leniency procedure, and the same theoretical problems apply, but they are dealt with in practice through the good working relationship between Customs and Excise and the Scottish authorities.
I think that I have covered most of the points that needed to be made on leniency. I have mentioned that there will be guidance on the OFT website and in leaflets. That will make it clear that leniency will be granted on the basis of an individual's need and only in so far as is necessary to gain evidence with which to investigate and prosecute cartels. Leniency will not go beyond that. An appropriate leniency programme is an important part of being able to make progress and take cases before the courts with evidence that will back up the likelihood of a conviction.
With regard to criminal prosecutions in cases where the EC is taking civil action, the individuals in large global or EC cartels could still be targeted. We will pursue such cases. ''Company'' and ''individual'' are separate legal entities, and the OFT will collect separate evidence to criminal standards. Close working relationships between the OFT and the EC authorities will also continue on that score.
Mr. Field: I should be interested to hear the Under-Secretary's thoughts on what would happen in practice if a civil case in the European Union were taking place simultaneously with a criminal case in the United Kingdom. If a civil case were going on in the EU and there was a desire to extradite to the UK a domiciled national who was involved in an interstate cartel arrangement, how would the OFT or, indeed, the Government persuade the EU that they should be extradited to face criminal charges in the UK?
Miss Johnson: That is a matter for each arrangement. We have working relationships with authorities in other countries that deal with related issues, so these arrangements will no doubt be in force with regard to this relationship, too. A criminal case will not be prejudiced by any prior EC civil proceedings. Defendants might argue that the EC civil case publicity had prejudiced their chance of a fair trial, but we do not believe that that would be persuasive. The cases would be heard in different jurisdictions and before different legal persons, so we do not believe that that would cause a serious problem.
A question was asked about the relationship between honest business people and the criminalisation of the cartel offence. Honest business people have nothing to fear. The new offence has been drawn to cover only clear-cut cases of hard-core cartel activity. Bona fide business agreements are not entered into dishonestly. On the point made by my hon.
Column Number: 175Friend the Member for Hemel Hempstead, arrangements in subsection (2) about dishonest agreements are always qualified by the reference to dishonesty in subsection (1). I think that that answers my hon. Friend's point at least partly, but I shall continue to reflect on it.
Mr. McWalter: I shall write to my hon. Friend the Under-Secretary to try to disambiguate what I believe is an ambiguous clause.
Miss Johnson: I look forward to receiving that letter.
Of course there will not be any scapegoating—I am not sure whether ''scapegoatism'' is a word—of companies. The OFT and the Serious Fraud Office will investigate and prosecute on the seriousness of the cartel. It will be based on the role of individuals and the question of evidence. They will have to go through the same process for assessing whether there is sufficient evidence to bring a prosecution as for many related issues.
It is important to have widespread support for our proposals. Michael Cutting, a partner at Linklaters & Alliance, wrote in the New Law Journal in July last year:
These changes will have a deterrent effect and make people change the culture in which some of these otherwise dishonest activities take place. We have a number of substantial experts on our side. Irwin Stelzer, the director of regulatory studies at the Hudson Institute and an adviser on competition policy said that
Professor Michael Porter recently confirmed that he thought that it was no good simply having fines for hard-core cartels; we needed the imprisonment option, too. Finally, I make the point that the US has not exactly suffered as a result of the measures that they have in place. As of today, those measures are used in highly appropriate circumstances.
I turn now to a few unrelated points. The hon. Member for Huntingdon spoke about the comparison with the civil bankruptcy restriction orders. It is a question of measure for measure. Hard-core cartels are wide-scale theft and should not be seen in the same light as bankruptcy. BROs might be for serious failure to keep proper financial records. They are there to protect the public and other businesses. The criminal penalties for the dishonest cartel offence is of quite a different order of seriousness, as we all accept. I was asked whether the UK would be able to pursue individuals where the EC authorities were taking civil action against the company in parallel. I think that I
Column Number: 176have already answered that point. Yes, they will be able to, as they are separate legal entities and the OFT will need to collect evidence to the standard of criminal proof.
In conclusion, there is a clear lack of a deterrent effect in the 1998 Act, as shown by the degree of ongoing cartel investigations. Experts agree with us about the importance of the deterrent effect of criminal sanctions against the individuals, including prison sentences. As well as having a deterrent effect, criminal sanctions punish those who have committed a serious theft against consumers, individuals and other legitimate businesses.
Question put, That the clause stand part of the Bill:—
The Committee divided: Ayes 11, Noes 5.
Division No. 2]
Clause 179 ordered to stand part of the Bill.
Clause 180 ordered to stand part of the Bill.
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