Clause 179 - Cartel offence

Enterprise Bill – in a Public Bill Committee am ar 23 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Amendment moved [18 April]: No. 88, in page 131, line 20, at end insert:

'(9) This section shall not enter into force until three years after the entry into force of the European Commission's reforms of Community competition law'.—[Mr. Waterson.]

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 10:30, 23 Ebrill 2002

It is a great pleasure to be here again. We will do our best to tailor our remarks to meet the guillotine, but the prospects of finishing our discussions on this part of the Bill by then are remote.

I shall remind the Committee of what amendment No. 88 would do. It is an imposition on anyone in business to introduce new legislation on cartel offence only a couple of years after 1 March 2000, when the Competition Act 1998 came into force. The amendment would give business a settling down period, allowing that legislation to bed down, and an opportunity to see what will happen in the European modernisation programme of this part of the law. That is a sensible precaution, as the Government are rushing too soon into further legislation. I am interested in what the Under-Secretary has to say.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The amendment would defer the coming into force of the cartel offence until three years after the proposals for the modernisation of European Commission law are finalised and brought into force. We do not know when those proposals will be completed and brought into force, and in the meantime there is no reason to delay the introduction of the cartel criminal offence against the individual.

The criminal offence is separate from, but compatible with, the EC civil regime. The United Kingdom criminal offence targets individuals, while the EC civil regime covers broader competition breaches committed by undertakings. The proposals for the modernisation of the EC regime are not yet finalised. As the negotiations continue progress, we will focus on avoiding any possible conflict with the new offence. In its response to last year's White Paper, the Commission said that modernisation did not preclude criminalisation. There is no inconsistency between EC law, modernisation and the proposed

criminal offence. The offence is being introduced to tackle serious criminal activity, and there is no reason to delay it by awaiting the outcome of the continuing modernisation negotiations. I therefore ask the hon. Gentleman to withdraw the amendment. If he does not, I regret that I shall ask the Committee to oppose it.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

We shall have a much broader debate on the ambit of clause 179 in a moment, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Derek Conway Derek Conway Ceidwadwyr, Old Bexley and Sidcup

For the assistance of the Committee, the Under-Secretary does not have to move the clause, as it is part of a Bill that has been given a Second Reading. Hon. Members may speak at random, and the Minister may conclude, or speak first if that is her wish.

Question proposed, That the clause stand part of the Bill.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

It might assist the Committee if, at least on this occasion, I speak first, as I want to raise several issues on the criminalisation of cartels, especially those issues raised by bodies such as the Confederation of British Industry. It would also help to have the Under-Secretary comment on my remarks.

The clause deserves a detailed debate. A key issue in the Bill is whether it is helpful or necessary to imprison individuals as part of cracking down on cartels. It is perhaps an interesting coincidence that we meet to debate it on the day that the newspapers are full of reports of the sentencing to a year in prison of Mr. Alfred Taubman. He, you will remember, Mr. Conway, as I am sure you frequent that institution, was involved in a price-fixing scheme with Christie's on behalf of Sotheby's, which he acquired some years ago.

I am sure that part of the justification for the Government's wish to bring criminal sanctions, including imprisonment for up to five years, into the cartels regime, is a comparison with the American system, where such sanctions have been in place for some time—hence Mr. Taubman's fate. I suspect that there will be an attempt to draw a parallel between our debate and that case, in which Mr. Taubman, sadly, is about to go to some rather upmarket ''Club Fed''. According to The Times he has the choice of a variety of places. One in Louisiana

''has weight rooms, computer terminals, bingo nights and sunbathing area.''

All in all it does not sound like a particularly arduous regime for Mr. Taubman and other white collar-criminals.

A comparison will be drawn between Mr. Taubman's fate and that of Sir Anthony Tennant, who was also involved in the matter at Christie's. As Sir Anthony is not an American citizen and because, possibly wisely, he has not set foot in America since the investigation began, he is immune from both extradition and prosecution in the US. He would be well advised not to take any holidays there for the foreseeable future. Extradition is an issue that we come to a bit later. I understand that the sentencing judge,

having heard a lengthy plea in mitigation on behalf of Mr. Taubman—not least that he was a substantial donor to charities—rather waspishly remarked that the fact that he had given to the poor did not mean that he could steal from the rich. That is an interesting reversal of the Robin Hood principle.

The Government wish to bring that regime into our system so that a 78-year-old diabetic with a number of other medical conditions would go to prison for a year. I am not quite sure what purpose that would serve. I suppose that the argument is that it would be a deterrent to others. Again, we say that that is another example of the Government's rather superficial affection for the American system. Based on the Sherman Antitrust Act 1890, that attitude is ingrained in the US system. In other respects, as we have pointed out consistently, the United States have a much lighter regulatory touch than we have here.

For the avoidance of doubt, should any mischievous Government Back Benchers want to make an issue of it, our position on cartels is clear. Cartels are a bad thing. They cost consumers money and they also cost good businesses and good business men money. They may affect their market share and even put them out of business. No one is in favour of cartels. The only issue is what is the most effective way to tackle them.

The Library briefing is very helpful on some of the background to cartels. As the clause makes clear, the Government want

''to apply criminal sanctions to individuals . . . where that individual dishonestly''—

that word ''dishonestly'' is important—

''engages in what are described as 'hard-core' cartels.''

The Organisation for Economic Co-operation and Development defines a hard-core cartel as

''an anti-competitive agreement, anti-competitive concerted practice or anti-competitive arrangement by competitors to fix prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce.''

The US competition authorities estimate that cartels, on average, lead to a 10 per cent. increase in the price of goods or services affected. Estimates of the total vary. It is a bit like trying to estimate the effect of crime on the economy: there is what criminologists call the dark figure, which is almost impossible to estimate. Varying estimates of the effect of cartels run to 20 per cent. of the total volume of commerce.

Of course, it is abundantly clear that this country is no less likely to suffer from cartels than America or anywhere else. Only in the past year or two, the Office of Fair Trading has launched investigations into eight possible cartels in markets such as, interestingly, services to local authorities, services to domestic consumers, milk, construction materials and fabricated metal.

In the short debate on amendment No. 88, I mentioned that there was a misunderstanding about whether the measure would bring us into line with other European jurisdictions. Certainly in the US, as I

said, there have been criminal penalties in that regard since 1890. During the 1990s, the US Department of Justice successfully prosecuted an average of 35 people a year for such crimes. That is quite a record, because each investigation must have been massive in terms of resources and cost. The US authorities have also acted against cartels with worldwide effects. In the recent vitamins cartel case, they imposed fines of $500 million and $225 million respectively against a Swiss and a German firm. Incidentally, I think that that problem was brought to light by a whistleblower working for one of the Swiss companies. As I shall say in more detail in a moment, I believe that one side effect of the Government proposals will be that whistleblowers are deterred rather than encouraged.

I said that the concept of dishonesty was relevant. It is a perfectly common concept in English criminal law and should present no particular difficulties. I think that it first surfaced in a major way in the Theft Act 1968 and then in other more recent legislation. According to the explanatory notes—as you know, Mr. Conway, I like to mention the explanatory notes so that those who laboriously prepared them know that someone has read at least some of them—the offence applies only to agreements across the same level of the supply chain: horizontal agreements. I think that the Minister is nodding, which is a good sign. The concept of vertical agreements is not dealt with directly in this legislation, but it might be helpful if she told us at some point about the Government's attitude to them. I understand that there are proposals to amend or scrap regulations on vertical agreements.

Sir Anthony Hammond and Roy Penrose prepared an interesting report on these issues, which set out some of the effects of criminalisation. Since the previous legislation came into effect—the chapter 1 prohibition in March 2000—the OFT has imposed only one fine. Two bus companies in my original home town of Leeds were found to have colluded in a market-sharing agreement on bus routes in the Leeds area, and substantial fines were handed out. Both companies had compliance programmes that were designed to ensure that staff were aware of the law, and they provided internal forms for staff to record contact with competitors. However, no staff member reported the relevant meetings that took place in a hotel in Wakefield. I think that I am right in saying that that was the first fine imposed under the 1998 Act.

The law firm Allen & Overy made some interesting points during consultation about the criminal cartel offence. It pointed out that that did not depend on a prior civil infringement of competition law by the individual or undertaking. The firm was concerned that juries in criminal courts could have to decide what might be complex questions of civil competition law as part of the cartel offence.

Given that cartels are a serious matter and need tackling, what issues arise? First, is it an inherently excessive reaction to introduce criminal penalties? Does the evidence of exploitation justify such penalties? Does foreign experience suggest that they are necessary or successful? As I said in the previous debate, few EC countries have criminal penalties and, even where there are such penalties, prosecutions are

rare. Finally, will disqualification be imposed more frequently than at present under the Companies Act 1989? It is surprising how rare disqualification is.

I have read the briefings and considered the matter from our perspective; there are eight broad concerns about criminalisation, which I shall take in order, to help the Minister to reach a conclusion. First, criminalisation will raise the standard of proof in cartel cases. At present, the OFT applies a standard of proof of balance of probabilities plus, which is slightly higher than the normal standard required in civil litigation. To achieve a criminal conviction, the OFT would have to satisfy beyond reasonable doubt. There is anxiety that that would hamper rather than assist the OFT's investigations and perhaps make action less rather than more likely.

The second concern is that conducting a criminal case against directors at the same time as an administrative investigation may cause problems. A simpler parallel is that of a road accident. There may be a claim for civil compensation as a result, but that must take a back seat—if I may use such a phrase—until a criminal case has been dealt with. I should like the Under-Secretary to say how such a case would work in practice.

Thirdly, the OFT and the European Commission have the power to grant an exemption from the prohibition on cartels, although they do so only rarely. How will that power complicate the prosecution of a cartel? Could the possibility of criminal sanctions depend on the whim of whether an exemption on a prohibition is granted at the time? Could it be given retrospectively or at some time during the conduct of the criminal case?

Fourthly, the interplay between a prosecution and an investigation by the authorities will be even more complex when the investigation is conducted not by the OFT but by the European Commission. How will that work in practice?

The fifth issue, which is related to the fourth concern, is that co-operation between the competition authorities may be compromised. There are already reports that the Commission will be unwilling to supply information about a cartel which could be used for a prosecution in this country. For example, on 21 February, the Financial Times reported:

''Plans to jail British businessmen found guilty of organising cartels are set to hamper vital co-operation between the European Commission and the UK Office of Fair Trading. However, competition investigators in Brussels only enjoy civil powers and say they cannot share evidence with the OFT if it is used to support criminal proceedings''.

The article continued:

''But officials admit that a serious difficulty will come when deciding in advance what penalties may result from an investigation. British investigators are also likely to be wary of passing cases to Brussels if they feel there is sufficient evidence to inflict tougher penalties under UK jurisdiction.''

Clearly, there is anxiety about the matter. At the outset there is a potential effect on co-operation between national and European authorities and a likely drying up of lines of communication and the passing of information backwards and forwards.

My sixth concern is that industry is bound to incur further compliance costs. It is not clear at present how many companies have invested in audit and compliance programmes ensuring that they do not infringe the provisions of the 1998 Act. As the Leeds bus case shows, programmes can be put in place, but still not work. Now there is to be a further bout of requirements on companies to produce yet further procedures. No doubt the prospect of going to jail will concentrate directors' minds even more.

The seventh concern is the human rights issue although, because I do not have the benefit of advice from the Matrix chambers, I cannot go into great detail about that. What about self-incrimination? The implications of that aspect of human rights legislation have yet to feed their way into mainstream British criminal law. How will such legislation affect the criminalisation of cartels?

The eighth concern is about leniency policy. Both the European Commission and the OFT operate a leniency policy that is designed to encourage people to blow the whistle. I cannot imagine many instances in which serious and particularly international cartels between major companies would come to light without someone within those companies—or perhaps a disgruntled ex-employee—blowing the whistle. Inevitably, such matters will be kept securely within the company.

Under the Government's proposals, whistleblowers might be exposed to criminal penalties. That is not the case in the USA; I understand that, unlike Mr. Taubman, who is looking for the right ''Club Fed'' to check himself into, and Sir Anthony Tennant, who apparently cannot go to the USA on holiday, Christopher Davidge, who worked at Christie's, won immunity from prosecution by providing federal investigators with information that formed the bulk of the charges. The Times states that Mr. Davidge

''is reported to spend his time travelling around the world'',

no doubt keeping well away from Mr. Taubman and Sir Anthony Tennant. Is that not the truth of cartels? Cartels will almost never come to light unless someone like Mr. Davidge is prepared to blow the whistle—yet the legislation would have the effect of discouraging that.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry 10:45, 23 Ebrill 2002

Will the hon. Gentleman explain why he believes that the legislation would have the effect of discouraging whistleblowing? He is merely alleging that, without evidence.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Obviously, no one—least of all the Under-Secretary—knows how the system will work in practice, but, in principle, if someone knows that he could be the subject of criminal prosecution for his part in an offence, he might well not blow the whistle. That is the straightforward point that I was making. It is possible, as happened in the US case, that immunity will be negotiated, just as some key players in the Enron saga have negotiated or are likely to negotiate immunity, but there is no guarantee of that. The European Commission has a clear rule that the first person to come out is automatically exempted, and that includes the company. Do the Government and the OFT intend to have a similarly clear policy?

Miss Johnson: I shall outline the details of our policy when I respond because I cannot make a speech in an intervention on the hon. Gentleman. Our provision is parallel to that in the US and provides the same sort of leniency arrangements.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I look forward to hearing the details of those complex matters. The concerns need to be aired, and what else is a Committee stage for if not to allow the Under-Secretary to allay such concerns?

To return to the issue of the European Commission, the CBI states that

''the Commission is planning to share enforcement of the rules with the national competition authorities . . . and the courts of each Member State''.

That involves the laudable aim of ensuring consistent application of the law by, among other measures, setting up a network for passing information backwards and forwards. I have already described how the Bill will affect that. As the CBI states:

''Decentralisation can only work if all Member States 'sing from the same hymn sheet'. Unfortunately, even before the Commission's reforms are in place, one large Member State''—

the UK—

''has—in full knowledge of Modernisation and despite paying lip service to the need for consistent application of the rules—gone off on a tangent by doing its own thing . . . for the UK to adopt a criminal regime may significantly reduce the willingness of NCAs in other Member States to pass information within the network to the UK, for fear that their citizens may be prosecuted.''

I have developed the argument before, so I shall be brief in my citation. Although

''Austria and Ireland have anti-trust regimes which are part-criminal . . . criminal sanctions have hardly ever been used in either jurisdiction . . . Anti-trust violations in Germany are treated by the BKA as civil, not criminal, offences.''

The CBI also touches on the whistleblowing issue, on which we shall hear more from the Under-Secretary later. The European Commission operates a ''first in, no fine'' rule similar to the US system. The first person in the office to blow the whistle can be guaranteed no fine. The CBI continues:

''However, given that the Commission will not be able to guarantee immunity from prosecution in the UK, for the UK to adopt a criminal system could seriously reduce the likelihood that individuals involved in cartels affecting the UK would want to come forward for leniency.''

The CBI is exercised about a related issue:

''the Commission will . . . rightly continue to handle the larger cases—be they 'hard-core cartels' ''

or whatever, but

''given that the EU's regime is civil not criminal, companies which are found by the Commission to have infringed Article 81 will be subject to a civil administrative fine. On the other hand, individuals in the UK involved in breaching Article 81 could find themselves subject to criminal proceedings and imprisonment. We believe this to be inherently unfair.''

The CBI also quotes an article in the Financial Times last August, which was written by the former deputy head of the European Commission's cartel unit, who stated:

''The perverse result in Britain would be that double-glazing salesmen fixing prices in the local pub could go to jail, while the biggest pan-European cartels would at most risk administrative fines on companies. Clearly, justice would fall into disrepute quickly if the smallest cases were the ones receiving the stiffest penalties''.

Running the risk of sending small offenders to prison or fining them heavily, and of subjecting large offenders to civil rather than criminal sanctions makes a nonsense of the deterrence argument.

The CBI's final concern is that the criminalisation of cartels would

''undermine the relationship between the OFT and business by making companies far less willing in future to provide sensitive business information on a voluntary basis''.

Companies might be nervous about whether their arrangements in a particular market were in breach of the legislation and might like to meet the authorities to establish their view on the matter. That would be possible and should be encouraged in a purely civil regime as a means of cutting out possible abuses and sharing information between the authorities and legitimate business men. Why would anyone want to take the risk, however, if criminal sanctions were brought into English law?

I make no apology for spending some time to develop those issues, which are a major concern to us and to legitimate business in the UK, not to mention our friends in Europe who are worried about how the provision will work in practice. The danger is that this country's system will move in a different direction from the European regime. There is no need to rush into it and no need to impose criminal sanctions.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead 11:00, 23 Ebrill 2002

Cartel formation clearly can be theft, and those who are guilty of it on a large scale are guilty of substantial theft. Therefore, I approve of the general intention behind clause 179. However, I am concerned about some of its details. The hon. Member for Eastbourne mentioned the Leeds bus case. That case applies to two bus operators in my constituency—Sovereign and Arriva—who had through-ticketing and timetabling arrangements. Even though one of the companies in the Leeds case subsequently had its fine withdrawn, Sovereign and Arriva dissolved their co-operative partnership following the Leeds judgment.

I am a Co-operative and Labour MP. I am interested in businesses co-operating for the benefit of the public, rather than colluding to defraud and rob them. I am not sure that the clause makes that important distinction. If Sovereign and Arriva each has six buses but needs 10 to serve the needs of Hemel Hempstead at the rush hour on a particular route, it is reasonable for them to get together to provide a regular service. That is better than a situation in which Arriva discovers that Sovereign's bus is due at 9 am and gets a bus there at two minutes to 9 so that it can poach the customers, and Sovereign responds with a reprisal activity. We know that that has happened in other cases of bus competition. In other words, we have had berserk competition that has acted against the interests of consumers, rather than co-operative competition that could enhance the quality of service for consumers.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

There should be common agreement with the hon. Gentleman's remarks. However, we

should go far beyond co-operation among bus companies, which has had a high political profile.

I am interested in what the hon. Gentleman has to say about co-operation between a dominant player in a particular market—perhaps a narrow regional one—and two or three new players to divide the market informally by, say, timetable or geography. That would fall foul of the intention behind the clause. Does he believe that that arrangement could greatly benefit the consumer and should be recognised?

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

I thank the hon. Gentleman for his observations. There is clearly a role for companies to co-operate as well as compete. That applies beyond the bus market, although that market is the object of my concerns. If a co-operative arrangement is recognised, the substantial burden of proof lies in whether it would be permitted because, ultimately, it is in the interest of the consumer. A dishonest arrangement would be one that leads to an overpriced product or a restricted supply of a product, and so acts against the consumer interest. The clause must make the consumer interest more explicit.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

On the narrow issue of buses, the point is surely that it is the job of the regulator to ensure that the service operates at the right price for bus passengers, rather than to say that the clause is flawed because it cannot deal with regulation in a way that would benefit them. Is not the clause perfectly adequate to deal with cartels in the general sense as a criminal offence, which my hon. Friend would support? Focusing on public transport issues may be diverting us from the clause's general importance to the competitive market.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

I thank my hon. Friend for his observations. As a fellow co-operator, I know that he shares my concerns and the general drift of my remarks. I do not want to focus exclusively on buses but, as the hon. Member for Cities of London and Westminster (Mr. Field) acknowledged, I am using this particular case to examine the wider context for business. If my points apply to one specific sector and not another, they may still be relevant in a general sense to other areas.

In the circumstances I described, where 10 buses are needed and both operators agree to provide five to meet the demand, an agreement exists between them, however arrived at, that results in bus company A, which would otherwise have provided six buses, providing only five. In that sense, a limitation of the supply of a product or service by company A exists in the United Kingdom. At first glance, at least, it appears that the bus operators had better be careful about how they conduct themselves.

Subsection (1) provides much of the clause's impetus:

''An individual is guilty of an offence''

not if he agrees with one or more other persons to carry out the actions listed in subsection (2), but if he ''dishonestly'' agrees to do them. Much weight attaches to the word ''dishonestly'', so what counts as a dishonest agreement should be spelt out in the Bill more effectively. The Bill already emphasises the sort of agreements that might give pause for thought, but

as some agreements could have been entered into honestly and for the benefit of the consumer, I am worried that the clause underspecifies precisely what market rigging involves.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I am sorry to be unhelpful to my hon. Friend. I hear his argument about companies supplying five buses each in the interest of the general consumer, but what if I supplied six and my hon. Friend supplied four on a relatively profitable route and we came to another agreement on a different route? Would not that be anti-competitive? The issue may not be at the heart of this highly important clause, so could not public transport be dealt with effectively by regulation in the interest of the passenger? That is preferable to allowing, or even thinking of allowing, a diminution of the provision. My hon. Friend's argument about bus companies co-operating might be best dealt with through regulation.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

I was going to mention the position where a more effective bus service has been withdrawn in favour of a less effective one. I have written to the Under-Secretary of State for Transport, Local Government and the Regions, my hon. Friend the Member for Northampton, North (Ms Keeble) on this matter, about which I feel passionately, but I found her response less than reassuring.

I conclude that what counts as a dishonest, as opposed to an honest, co-operative or consumer-oriented agreement should be specified more fully in the Bill. I generally support the criminalisation of theft such as cartel fixing. I hope that my hon. Friend the Under-Secretary will reflect constructively and act on my remarks so that I can be more confident that the Bill will support co-operative arrangements that benefit consumers.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

I want to make a few general remarks about cartels, which we largely agree are, in principle, a bad thing. However, the devil is likely to be in the detail, and in this and subsequent clauses we shall try to tease out of the Government precisely how the Bill will work in practice.

The hon. Member for Hemel Hempstead (Mr. McWalter) made some narrow comments on the bus issue, although I appreciate that they related to matters far beyond it. We want an integrated transport policy and, as the hon. Member for Wolverhampton, South-West, said—

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

That shows how at sea we Tories are. We go 180º from one direction to another. The hon. Member for Wolverhampton, North-East (Mr. Purchase) spoke about getting a regulator to determine matters. I would be uncomfortable with that, as it would not be in the interests of business. It would make far more sense if there were co-operation between bus and train companies and the local authorities that set up cycle tracks, for example.

I appreciate that the core issue in respect of cartels is dishonesty. Co-operation is not dishonest, but there may be concerns about large profits being made in a particular region if there are relatively few players in the field and interlinked shareholdings between

transport companies. What might be seen as dishonest may merely be sensible co-operation between companies in the interests of a designated and small consumer group.

In business terms, I am on the side of the angels. I want businesses to be able to co-operate in a sensible way without the implication that they are engaging in illicit cartel activity.

Photo of Andy Burnham Andy Burnham Llafur, Leigh

Does the hon. Gentleman agree that we are concentrating on the bus market because it shows the flaw in the policy of his party, which deregulated it? Buses are an essential public service, and the market, left to its own devices, is unable to come up with a system that will benefit consumers.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

The hon. Gentleman will not expect me to agree with that utterance. However, I accept that bus deregulation was a massive issue in the mid–1980s. At that time, I was an undergraduate in Oxford, where the streets, especially the Cornmarket and the High street, were packed with buses from four or five competitive companies, which drove prices down in the short term. I went up to London on several occasions and paid only £3 for a return journey. However, in a short time, some of those companies went out of business or decided not to run buses on similar routes, and there was an inexorable rise in the fares. That would concern us. In certain matters, I accept that the market does not necessarily have all the answers.

I want to make a few general comments without getting bogged down by the bus issue; if I were in a Standing Committee debating transport, I could wax lyrical about buses, trains and so on. We can understand the background to cartels by looking at what happened in the United States at the end of the 19th and the beginning of the 20th century. There was a deep-seated view about trusts, as they were known; hence the expression ''anti-trust''. Legislation came into force during the presidency of Theodore Roosevelt, who clamped down upon the perceived protectionist power of very big business. The undesirability of monopolistic or neo-monopolistic power is deeply entrenched in the corporate world of the United States.

An equally intrusive model in Europe in recent years has focused on a different test, that of ''dominant position''. As my hon. Friend the Member for Eastbourne pointed out, in recent months there has been an unprecedented run of decisions from the European Commission, which has imposed record fines on companies involved in price-fixing arrangements. As my hon. Friend rightly commented, one of the interesting developments has been the co-operation between the whistleblowers—companies or individuals—and the European Commission, which has led to large civil sanctions not being imposed on the first and even second of the groups that have decided to co-operate with the authorities.

Hoffmann-La Roche has been fined £530 million. In Germany, as I am sure the Minister will know, there has been widespread concern about commission-fixing, and five German banks have been fined. Several manufacturers of carbonless paper throughout Europe and brewers in Belgium and Luxembourg have been found guilty of price-fixing and market-domination agreements. One feature of that development has been the way in which lawyers for companies that discover that their employees have been involved in a cartel arrangement have managed to get discounts on their fines.

Even in this country the OFT has the power under the Competition Act 1998 to impose fines of up to 10 per cent. of a company's total UK turnover in a three-year period. That makes for a large potential upside for those co-operating early with the authorities in more complex hard-core cartel arrangements. That domestic system of fines has existed only a short time. The concern of many of the business organisations, which contact us more regularly than they might contact Labour Back Benchers, is that that Act has not yet bedded down and so it is too soon to see whether it is right to proceed with what could be quite draconian measures.

The seventh of my hon. Friend's eight tests related to human rights. Given that some three fifths of our trade is with the European Union, the larger scale and more blatant cartel arrangements will inevitably have an interstate element. Many of our more talented business executives, particularly in sensitive areas such as pharmaceuticals, may decide that it is more dangerous to be based here in the UK and opt for an easier life in Frankfurt, Paris or wherever. There could be a brain-drain if we had a system that was manifestly different. I am concerned that European law may apply to the exclusion of national legislation. In view of the reluctance of many European countries to extradite their nationals on a whole range of issues that I suspect would apply under this provision, it is difficult to see how the new cartel busting could operate on the larger and more complex price-fixing arrangements that have a strong interstate element.

In discussions about the issue of cartels and the thinking that underlies part 6—this also applies to the Government's high-profile press releases on much of what is in the Bill—it has become fashionable to argue that modern competition law requires politicians to be taken out of the process as much as possible. That is slightly illusory, however. Perhaps the Under-Secretary will speak at some length later about the strategy behind the Bill.

In a sense, the hon. Member for Wolverhampton, North-East let the cat out of the bag in the earlier discussion about regulation. To a large extent, it boils down to a choice between those who think that market failure can be left to the market—again, I take on board the intervention of the hon. Member for Leigh (Andy Burnham)—and those who believe in bureaucratic intervention. Ultimately, that is a political choice, and it is a little disingenuous of the Government to suggest that they will be stepping out of the process on cartels. If anything, with the Government not directly involved but hovering

slightly above that process and much of the mergers legislation or regulation, their involvement could act as even more of a control on many of the companies that might be subject to an OFT-type inquiry.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East 11:15, 23 Ebrill 2002

The hon. Gentleman said that I had let some cat out of the bag. In fact, I only reaffirmed that, in a competitive society, it is necessary to have rules. To have a rule such as the one that we are considering, but nothing to back it up—such as in this case the creation of a criminal offence—would be to say, ''We don't really approve of cartels, but you might as well get on with them.'' Perhaps the hon. Gentleman does not share my view, but we cannot proceed on that basis. The example that was given of American anti-trust law shows that the system that I have described simply has not been strong enough.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

In all fairness, I do not have enough knowledge about the American situation to go into great detail about whether it would be right or wrong. Clearly, a particular time and its culture brought into play much of that anti-trust legislation.

There is no question of our saying that we want carte blanche for companies to establish price-fixing arrangements and complex cartels and to rip off the customer. We shall come to some of the more nitty-gritty consumer issues later, but it would be wrong to caricature our position in that way. However, it is important to ensure that whatever legislation is enacted operates correctly.

At a fundamental level, it seems somewhat odd to be considering a new tranche of legislation a very short time after the Competition Act 1998 came into force. In addition, we may be a step ahead of the game in the European Union at the very time when, to make the single market work effectively and given the interdependence of the larger-scale cartels that are likely to come into being, we should be looking for an integrated policy. A different policy could cause large-scale difficulties and, frankly, would be unenforceable. Nothing would be worse than a number of high-profile cases going to court and beginning to collapse because of the complexity of human rights legislation or otherwise.

I am interested to hear how the Under-Secretary feels that the issue could be taken further forward at a strategic level. I know that I have spoken for some time and other hon. Members wish to speak, so I shall await her comments with interest.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I have no objection to the creation of a cartel offence in the broadest principle. As the hon. Member for Hemel Hempstead said, the formation of cartels is merely a new species of dishonesty and I have little difficulty with criminal sanctions against them. However, I have several reservations about the clause and I share many of the concerns expressed by the hon. Members for Cities of London and Westminster, for Hemel Hempstead and for Eastbourne. Like the hon. Member for Eastbourne, I have had the benefit of the CBI briefing, but I will not follow him in quoting lengthy passages verbatim into the record.

I thank the Under-Secretary for her prompt and full answer to the point that I raised last week on criminal

attempts. I do not wish to make great play of that, but as we are discussing the clause, it is timely to raise the point. In her letter, which is available to members of the Committee, she explains fully the circumstances in which attempts at the offence might be charged or indicted but does not make a case that the existing words remain necessary. That does not in any way contradict my original point. Indeed, a conversation that I had at the weekend with Anne Keenan, the deputy director of the Law Society of Scotland, reinforced that; her initial reaction was the same as mine. My concern is that unnecessary words might trip up someone later and lead to inelegant legislation.

Another concern that arises from the Under-Secretary's letter is the impact of the Bill on the law of Scotland and the extent to which that law has been taken into consideration. In her letter of 22 April, the Under-Secretary refers to the Criminal Attempts Act 1981 which, as she may know, does not extend north of the border, where the area of criminal attempts is regulated by common law. Until recently, there were significant differences in the law on attempts—particularly in relation to a fairly obscure part of the law on impossible attempts. The differences may not be significant, but I would be greatly reassured if I felt that they had been considered. The fact that the letter makes no reference to the different situation in Scotland concerns me, particularly in the light of proposals elsewhere in the Bill on the obtaining of warrants, which are simply wrong. What input have the Scotland Office and the office of the Advocate General had in preparing the legislation? Has the Under-Secretary consulted the staff of the policy unit at the Crown Office in Edinburgh who are normally the conduit for the prosecution service in making representations on such legislation?

My principal concern about the substance of the clause relates to the interaction between criminal and civil proceedings, especially in a case where a public body has gathered the same information that is then used in civil or criminal proceedings. It is at least desirable that primary consideration be given to criminal proceedings, and that civil proceedings are resorted to only if criminal proceedings are deemed inappropriate, or have been attempted and were unsuccessful. The hon. Member for Eastbourne made a comparison with road traffic accidents, which clearly illustrated the point.

I am also concerned that we are talking about the criminalisation of activities, something that the 1998 Act substantially dealt with in the civil context. The CBI shares my concern that we have not allowed the civil proceedings envisaged under the 1998 Act to bed down properly. Severe penalties are now available and proceedings have been brought in only a limited range of cases. It would be better to introduce the legislation once we have full and extensive experience of how the 1998 Act has worked. We would not be leaving the position unregulated, as we have the civil provisions. The remedies under the civil proceedings are extensive, and would be severe.

I do not understand the rush to legislate on criminalising the offence, nor the difference in

principle between soft-core and hard-core cartels, although the hon. Member for Hemel Hempstead gave us a good example. It struck me that it is possible under the clause to act in accordance with the instruction of a regulator, such as the one to which the hon. Member for Wolverhampton, North-East referred, and still be guilty of an offence. That part of the Bill would be much improved if a clause on defence were inserted. I commend that to the Under-Secretary for her later consideration.

The interaction with EU competition law is a potentially massive pitfall for the Bill. As a general rule, I would adhere to the principle of subsidiarity in relation to that law. If we apply subsidiarity, the appropriate level is a UK level in some circumstances, but an EU one in others. As the hon. Member for Cities of London and Westminster pointed out, there are often substantial interstate aspects to such cases. However, there is insufficient specification in the Bill to make that clear. The hon. Member for Hemel Hempstead highlighted the contradiction that the largest and most involved cartel operating throughout the EU could be dealt with on an EU level and given a civil penalty, whereas a minor soft-core cartel operating in the UK and prosecuted in the UK could be subject to criminal sanctions and imprisoned. I cannot square the logic of that position, which could bring the criminalised cartel into disrepute.

My final concern is the protection of whistleblowers. Because of the interaction of EU and UK law, it will be difficult to protect whistleblowers who are protected on one level but open to prosecution on another. What protections does the Minister envisage in respect of whistleblowers? The concerns about this clause are so substantial that we have a long way to go before we can confidently say that it achieves the objective and will be workable.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 11:30, 23 Ebrill 2002

My hon. Friends the Members for Eastbourne and for Cities of London and Westminster and the hon. Members for Orkney and Shetland and for Hemel Hempstead have already made a comprehensive case and shown not only that the clause will not work but that it might be counter-productive to the intention of stopping cartel activity. I shall not repeat earlier arguments, but I would like to add a few further points and elaborations.

The hon. Member for Eastbourne concisely explained the complex inter-relationships between UK and EU law, between the Bill and existing legislation and the many unresolved issues that arise from them. Many businesses and the CBI, which responded to the clause, have noted that while some countries have criminal liabilities for cartel actions, they are rarely enforced in practice; particularly in other European countries. In comparison with our European neighbours, this country has a history of active involvement, which might put UK companies at a competitive disadvantage. That is an important and valid point.

The hon. Member for Hemel Hempstead rightly argued that the concept of criminalisation and whether a cartel exists are often highly complicated issues. It can be clear cut, but more often than not, identifying a cartel—deciding at what point a series of actions constitutes a wrong—is complex. Different interests—of consumers, companies, creditors and other parties—are at stake, and in some circumstances they coincide. Often, however, they do not, which is a problem that we have to struggle with throughout the Bill. It is not a straightforward matter and if we make a mistake, the implications for business and for consumers could be disastrous. If companies start to go bust and fewer people are in the market, prices are unlikely to become more competitive. Quite the opposite; the impact of regulation could increase prices.

On the basic concept of criminalisation, my hon. Friend the Member for Eastbourne is right that we need more time to assess how the penalties in the 1998 Act work out in practice. Some hon. Members have implied that the penalties are not onerous enough. We do not yet know, but companies can be fined up to three times 10 per cent. of their UK turnover, and the highest penalty would destroy most companies. The present penalties can be extreme, with the threat of the loss of business and jobs; I would not say that they are not tough. As my hon. Friend the Member for Eastbourne said, so far there has been only one case under the existing penalties. That area of the law needs to be developed, and we should see how it works before jumping into the unknown, as the matter has serious implications for other aspects of the law, which have been mentioned in the debate.

It is valid to mention concerns about how the concept of criminalisation would work in practice in larger companies. Many multinational global companies have many layers of management throughout the world. It would be difficult to discover when and where the price fixing occurred and who was responsible for it, and extremely hard to get to the bottom of the complicated matter of liability and culpability.

My hon. Friend the Member for Eastbourne mentioned Sotheby's and Christie's, but that case is probably as simple as it would get as they are relatively small companies with few layers of management, where decision-taking is relatively easy. In larger companies, the concept of criminal liability would become increasingly complicated.

We are worried that the proposal is a manifesto for scapegoatism. If a large, multinational company with many layers of management were threatened with extinction, what would be easier; taking the civil route, with the possibility of extinction, or finding a poor manager or director of subsidiary number 53 at the bottom of the pile to take the rap? My fear is that companies will take the latter option, and that PR machines will go to work and do deals with Government Departments rather than there being a significant fine for the whole company. I should be interested in the Minister's views on those implications.

I am anxious, too, that criminalisation may discourage whistleblowers. The Under-Secretary asked my hon. Friend the Member for Eastbourne to explain why that should be so, as the proposed system worked well in the United States. However, there is a massive difference between this country and the United States, where the culture of criminalisation—

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The hon. Gentleman is misrepresenting what I said, and I shall repeat my remarks later. I asked the hon. Member for Eastbourne to substantiate his allegation that, in relation to leniency in the UK, there had been a failure to pick up the provisions that made those in the US work.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 11:45, 23 Ebrill 2002

I thank the Under-Secretary for her clarification but it does not affect my point, which is that it is a cultural issue as much as anything else. The US has had these provisions for a long time. But, more importantly, it has a different legal culture which encourages deals being done with prosecuting agencies and permeates the whole criminal system from federal agencies right through to bog-standard criminal courts. Plea-bargaining is part of the culture of the USA; it is certainly not part of ours. Criminal barristers say that there is enormous confusion and inconsistency here. The policy of the Crown Prosecution Service is that deals are not done here.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Among other things the hon. Gentleman is leaving out of the mix are the leniency arrangements in the case of the Leeds bus companies, which also led to a significant reduction of fines. A leniency regime was operated in that case, and it operates in other circumstances. The hon. Gentleman seems to be taking no account of that.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I certainly shall. Indeed, it also would be fair, from the Under-Secretary's point of view, to mention that there are proposals in clause 181(4) to put in place a plea-bargaining type of system in this country. We will come on to that.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Does my hon. Friend agree that the essential difference is that in America, where they have had similar legislation since the late 19th century, a substantial body of practice has grown up, so that lawyers advising potential defendants are well able to advise on the likelihood of plea-bargaining and how they are likely to be treated, particularly if they are whistleblowers? There is no such set of precedents in this country.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Exactly. I thank my hon. Friend for that comment. In America, someone acting for a defendant knows that he can approach the prosecution and talk about a deal. He may not come to a deal, but he knows that that is how the system works. In this country, criminal barristers worry as much about whether it would be suitable for them to approach the prosecution to talk about a deal as about whether there would be a deal. It is commonly felt in this country that if a barrister approaches the prosecution, it will automatically be thought that the plea should be switched to guilty. If we are moving to a system of whistleblowing, how can the Under-Secretary assure us, and the wider legal profession in general, that we

will also move to a totally different culture that will be similar to that in the USA?

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

Is the hon. Gentleman arguing that the measure is complex and a bit of an import so we ought not to do it, or that it is complex and a bit of an import so we should revamp it to make it more effective?

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Neither of the above. I am explaining why criminalisation is not right. I am attempting to show how there are many more issues involved in going down the route of criminalisation than simply saying, ''The Americans do it, so let us do what they do.'' It is not quite so straightforward, not only in terms of what is in the various bits of legislation, but in terms of the culture of the system.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

On the differences in American culture, I wonder if my hon. Friend has thought about not only the differences in their legal system and approach to whistleblowing but the fact that the economy as a whole is much more lightly regulated. Obviously, that has an impact on the nature and the type of cases that go through their anti-trust or monopolistic legislation.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

My hon. Friend makes a fair point. Whistleblowing is encouraged in the American culture. If one approaches the prosecution with information, one is not made to feel that one will be prosecuted oneself, as would happen in this country.

Another important concern is that there is something of a presumption that criminal sanctions are necessarily a more effective way of remedying the problem of cartels than civil penalties because people would be more frightened of the implications of criminal penalties. I am not sure that that is the case. We are talking about cases involving cartel offences in which juries in criminal courts will have to decide beyond reasonable doubt what could be enormously complex areas of competition law.

The current movement is away from criminal towards civil penalties; for example, there have been a relatively tiny number of prosecutions under the insider dealing legislation. The main reasons cited for that are because the evidence is so hard to get and the burden of proof means that the Crown has lost most of those few prosecutions. Criminal prosecution in such cases simply does not work, not least because juries must discuss and consider what are often commercial rather than criminal issues in the traditional interpretation of criminality.

The general move is towards getting rid of criminal sanctions on insider trading and making it a civil offence with a lower burden of proof, with the objective of creating a faster court process and an increased ability to come to settlements. That applies in other areas of law. The Companies Act 1989 is under review; the Government propose to abolish section 151 of that Act, which deals with the legal financial assistance given by companies.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

Does my hon. Friend agree that, in regard to the high-profile trials that have taken place in related areas such as financial assistance and insider dealing—and which will take place on cartels if they are criminalised—one of the difficulties is in

persuading the juries in such cases that someone should go to prison if convicted? Juries regard such offences as serious commercial matters for which a fine is appropriate, and criminalising individuals results all too often in cases collapsing; cases that seemed strong when they went to court result in acquittal.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Without derogating the more humorous aspects of ''Club Fed'', as referred to by my hon. Friend the Member for Eastbourne, a jury should take a serious attitude towards conviction when an individual's liberty is at stake. One of the implications of criminalisation is that trials become longer. The Guinness or Maxwell trials are examples that, it was subsequently argued, should have been conducted on a civil basis to facilitate the process. I wish I had statistics on the number of failed insider dealing cases, as these would show how criminalisation often does not work in practice.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

On a related point, my hon. Friend the Member for Eastbourne mentioned an acid test earlier. With a two-twinned approach, it would make sense logically to start with the criminal route first, followed by the civil route. Uncertainty would surround the alleged cartel in the commercial sector for a period. Would it not be better to avoid the criminal trial and go straight to a fully-fledged civil investigation? The civil investigation could take place with great gusto, with a view to establishing whether the charges should be upheld, and criminal proceedings could take place subsequently.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I certainly agree with my hon. Friend about moving straight into the civil proceedings.

In many aspects of law, we are moving away from criminalisation, but the Bill is reversing that, for unsubstantiated reasons. I look forward to hearing what the Under-Secretary has to say in that regard. I provided examples, such as section 151 of the Companies Act 1989, which the Government are proposing to abolish as a criminal offence. Another example appears in the Bill. Clause 246 deals with the new civil bankruptcy restriction orders, which are aimed at protecting the public from dishonesty. Here, the Government are moving away from criminalisation. I quote from the White Paper:

''The high evidential requirements of the current criminal sanctions means that very few bankrupts have action taken against them. The civil BRO regime''—

the proposed new bankruptcy restriction orders regime—

''with its lower standard of proof will allow for greater protection of the public and business.''

That says it all. The Government are absolutely right. If that is conceptually right for bankruptcy restriction orders and that is the way in which other legislation is moving, why are we embracing criminalisation in this clause? I support my hon. Friends. These measures are not well thought out and are being introduced too early. They might even work in favour of cartels rather than against them.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

We have entered deep philosophical waters and we have seen a clear divide between one

side and the other. Far from letting the cat out of the bag, we have heard all the cats that we would ever want to hear. If we are going to drift from criminal to civil law, something must be said about that. Personally, I do not support that drift. Civil law has played an honourable part in the development of civilised relationships in this country, but it is erroneous to believe that civil law alone can regulate the activities of cartels, trusts and monopolies, and deal with anti-competitive practices. At some point, there must be consensus in society that such practices are wrong and that criminal proceedings must deal with them. My hon. Friend the Member for Hemel Hempstead was speaking almost of grand theft when he talked about what multinational corporations can do.

Theft is theft. The hon. Member for Huntingdon (Mr. Djanogly) said that the difference between the United States and Britain was largely cultural as to whether civil or criminal proceedings were brought or plea-bargaining was made. He may be right. I would go some way to support the idea that in the United States there is cultural acceptance of behaviour that, frankly, I find abominable. When Woody Guthrie was called to give evidence—or, more accurately, was pilloried—by the House Un-American Activities Committee, he was asked what he understood by ''a capitalist society''. One must remember that it was the 1940s. He replied that, in his experience, it was a society in which a banker could rob a farmer, but a farmer could not rob a banker. We will go down that route if we take note of, and act on, the sentiments expressed by the hon. Member for Huntingdon. He says that the differences are cultural, and that the activity that we are discussing should not be considered criminal. He also says that plea-bargaining is used in the United States. We do not do that here; thank goodness we do not, or not on the scale to which he referred in the United States.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 12:00, 23 Ebrill 2002

Am I to take it that the hon. Gentleman will not support the Government's provision that provides for a plea-bargaining process?

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

The hon. Gentleman will see me vote in favour of the clause, which provides for criminal proceedings to be brought against cartels. I had the pleasure—not quite—of intervening on my hon. Friend the Member for Hemel Hempstead when he talked about bus companies. We must stand foursquare behind the clause, as we have to send out the appropriate messages. That is how we create a culture. We do not say that it does not matter if someone wants to take such a case to a civil court. We must state our belief that theft on such a scale is wrong and must be dealt with in the same way in which any other theft is dealt with. That is why criminal proceedings must be brought.

There is a plaque in Westminster Hall commemorating the famous Catholic, Sir Thomas More, who said that he would give the benefit of the doubt to the devil himself for his own safety. All the measures are in place to ensure that the man or woman accused of theft while engaged in the activity concerned has the benefit of the doubt and the

opportunity to defend themselves properly. The hon. Member for Huntingdon says almost nonchalantly that the burden of proof is lower in a civil court. It certainly is, because a civil offence is less serious. If an offence is criminal, the burden of proof must be beyond reasonable doubt.

Nothing is perfect, and we must stand foursquare behind the clause if we want a decent society. We recognise that capitalism must be regulated. I am not opposed to capitalism; it is a way forward to a more civilised society. We can see around the world that civilisation advances to higher and better forms where capitalism develops. I am saying merely that if we want a civilised society, we must regulate capitalism and ensure that unfairness is ironed out. Ultimately, people have to understand that if they do not play by the rules, society will not only frown on that, but will act to prevent it from happening.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

In responding to this lengthy and detailed debate, I can best help hon. Members if I talk about the provision initially and then deal with individual points. I fear that we shall troop backwards and forwards otherwise. If hon. Members allow me, I shall group my remarks by topic, and not by those hon. Members who have spoken.

It is important to be clear at the outset that, unlike the existing civil competition law, this offence targets individuals, not undertakings. That point is being lost in many contributions. We all agree that cartels do real harm to consumers, other businesses and the wider economy. The criminal offence is intended to discourage individuals who might be otherwise tempted to become involved in such activity. I shall return to deterrence later, because it is a key element of what I have to say.

The offence targets individuals who reach agreements that, if implemented by their undertakings in the way the individuals intended, would result in certain forms of serious anti-competitive activity. I shall describe those for the sake of clarity. An offence will have been committed whether or not the agreement reached between the individuals is implemented by the undertakings as the individuals intended. As I have said, the offence targets individuals who reach agreements. That would be undermined by a need to prove that implementation took place.

The first form of serious anti-competitive activity to which the intended agreement must relate is price-fixing. I think that the hon. Member for Orkney and Shetland (Mr. Carmichael) asked what exactly was meant by the phrase ''hard-core cartels'', and it relates to these areas. Price-fixing means agreements whereby undertakings that would otherwise be competitors at the same level in the market agree the selling price of certain of their products or services. Direct and indirect price-fixing are covered. Indirect price-fixing might include arrangements such as relative prices, discounts and rebates that achieve the same anti-competitive effect as a direct agreement to sell the products or services at a certain price.

The second form of serious anti-competitive activity is limitation of production or supply. Those

agreements restrict or stop completely the production or supply of certain goods or services. Typically, one undertaking would restrict the production or supply of one product or service, in return for another undertaking doing the same for another product or service.

The third form is market-sharing. That refers to agreements under which two or more undertakings agree which of them will supply products or services to a certain market or customers.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

In this exhaustive list of what amounts to hard-core cartels, will the Under-Secretary say what would amount to a non-hard-core cartel and therefore be outside the ambit of the Bill?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I have not finished describing what constitutes hard-core cartels. In addition, the hon. Gentleman's point is addressed through the Competition Act 1998 and a range of measures under European Union and competition law. Those measures cover a wide range of offences that might loosely be described as soft-core cartels. I am talking about practices that need to be prohibited under competition policy, but which are not covered by the phrase ''hard-core cartel''; perhaps I should not use the word ''cartel'' in that context.

When the hon. Gentleman interrupted me, I was giving an example of market-sharing. A manufacturer might agree not to sell its products in the north of England in return for another not selling in the south. Two food manufacturers might agree which supermarket chains each would supply, or which products they would offer to a specific supermarket chain. All those situations allow the producers or the suppliers to increase the price by reducing competition. Obviously, there can be cartels of every size and scale of operation. Hon. Members have made assumptions about their being large or small, but a cartel can cover any scale of operation that fits with the criteria.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

This strikes me as a rather simplistic approach. Take, for example, agricultural produce, which is likely to rot quickly. Two companies might have an arrangement to ensure that, on certain days, one company delivered its goods to a particular supermarket and the other company delivered later on in the week. Clearly, from what the Under-Secretary said, that would be seen as a cartel and would come under the auspices of the Bill. Common sense suggests that consumers would not be put to any disadvantage in that regard and it may in their interests to ensure that choice remains relatively high.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

That does not go to the core of the clause. It is about the criminalisation of cartels. It is not about what constitutes cartels except in relation to their criminalisation. It is not about the areas that are currently covered by anti-competitive measures, such as the anti-competitive activities that the hon. Member for Eastbourne mentioned, such as vertical agreements, the crisis cartels that are authorised to save a failing industry or other arrangements for research and development. There is no reason why honest co-operative arrangements that do not fall foul of the measures should not continue to exist. Only

dishonest activities fall under the provision. I trust that the hon. Gentleman accepts that it is important that these measures are addressed. The offence will bite only on the most serious of those arrangements.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I can see that I will make most points by answering interventions.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

In my eternal quest to be helpful, I wanted to ask the Under-Secretary to confirm whether the exemption for vertical agreements will be ended. If so, when and how?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I will come back to that later. I will finish on the fourth point because we are losing the thread of the debate. Bid-rigging means agreements between parties who are responding to a tender for goods or services, so that either one party does not bid, or one or more parties bids at a price agreed with the others. Typically, one party would withdraw from one tender or enter a high bid, in return for being given a clear run in another. The whole purpose of a competitive tender is undermined, to the detriment of the tendering organisation.

The clause has been drafted to cover not just the obvious cases—where, for example, two parties fix the price for a particular product—but other permutations. It covers agreements between more than two parties, as is common in cartels and agreements that include more than one of the four activities I have described. It covers the type of agreement whereby one party withdraws from the production of a certain product, in return for the other party withdrawing from the production of another product. It also provides for a variant of this example, whereby one or both parties agrees not to enter into production of a product that is currently produced by the other. The offence does not extend to forms of anti-competitive activity other than those I have described. For instance, it does not extend to vertical agreements. The offence is targeted at the most serious forms of anti-competitive activity, which do real damage and which deserve severe penalties.

I will return to the point about the links with the EC regime in a minute. The criminal offence is separate from and compatible with the EC civil regime. The UK criminal offence targets individuals; the EC civil regime covers broader competition breaches committed by undertakings. Some hon. Members suggested that we should await the outcome of the EC modernisation proposals before we introduce the criminal offence for cartels. However, we do not know when those proposals will be brought into force and there is no reason to delay the introduction of the offence in the meantime. I trust that that sets the scene.

On the specific matters raised in the debate, first, may I correct the impression given by the hon. Member for Eastbourne that there were eight ongoing cartel investigations? There are 10 such investigations in which the Director General of Fair Trading has reasonable grounds to suspect an

infringement of the Competition Act, one of which involves a so-called multiple cartel. Three of the 10 investigations came to the OFT'S attention as a consequence of leniency applications and some involve major companies.

It is insufficient simply to target companies. Therefore, it is necessary to target the individual. I will come to the relationship between the company and the individual in a moment. However, there is not enough of a deterrent effect as a result of the 1998 Act. Opposition Members may say that it has been in force for only a relatively short period, but it has been around for considerably longer—about three to four years. There has been a lot of time for people to respond to the fact that that legislation is on the statute book, and to know that what they are doing is unacceptable and illegitimate. The number of cartels and the investigations being carried out suggest that there is an ongoing problem that is not being addressed. Part of that problem is the relationship between the individual and the company—hence the move to criminalise cartel agreements and to prosecute the individual.

It is true that the only pure cartel offence so far has been the Arriva and First Group market-sharing cartel—in shorthand, the case of the Leeds bus company. However, substantial fines have been imposed recently on companies such as NAPP Pharmaceutical Group, whose fine was set after appeal at £2.2 million. NAPP had abused its dominant position by supplying sustained-release morphine to patients in the community at excessively high prices. The prosecution has resulted in an estimated saving to the national health service of £2 million a year.

Aberdeen Journals abused its dominant position by engaging in predatory pricing with a view to eliminating a competitor from the local newspaper market and was fined £1.3 million. That decision was recently set aside on procedural grounds by the Competition Commission appeal tribunal, but none the less the prosecution went forward. In addition, the OFT accepted informal interim assurances from Robert Wiseman Dairies and negotiated amendments from the Film Distributors Association. I am citing only recent cases in the United Kingdom, but if hon. Gentlemen tempt me, I could cite a set of case studies from the European Union and the United States, and lots of information about the prosecution of cartels.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 12:15, 23 Ebrill 2002

I am trying to assist the Under-Secretary. Opposition Members are not suggesting that cartels do not exist or that they should not be rooted out and dealt with. The issue is whether there should be criminal sanctions on individuals. Does the hon. Lady believe that Mr. Taubman was deterred by the possibility of a criminal sentence?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

It would appear not. Who can tell what Mr. Taubman was doing? We only know the outcome of the court hearings and what the evidence presented revealed. Yesterday, he was given a sentence of a year and a day in prison and fined some £5 million.

We are going for criminalisation because of the need to deter individuals from entering into such agreements. What Mr. Taubman did or did not do is irrelevant. There will always be individuals who ignore the deterrent because they believe that they will not be caught. The hon. Gentleman was a lawyer in a previous life, so I am sure that he will not tell me that the law is ineffective because some individuals break it. As my hon. Friend the Member for Wolverhampton, North-East said, the law is there to highlight messages about certain behaviour that society wants to give individuals, in order to bring about a culture in which some things are acceptable but others are not. There will always be individuals who decide to go against that, but the legislation will be a deterrent to many individuals who would otherwise act differently.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Is the message more important than whether the provision works?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

No. I was making the point that the message is important, as it is part of the working of the provision. Of course, the message is useful if it causes few cartels to be created. It is as simple-minded to assume that there will be no cartels after they are criminalised as it is to think that no murders will be committed because murder is a statutory offence. That will never be so. However, there is an important relationship between an offence on the statute book and a deterrent. The current measures do not have that deterrent effect, as they do not deal with individuals, but allow them to hide behind companies. There are commercial trade-offs for companies between fines that they may receive for entering into such arrangements and any commercial gain that, as we all accept, they may receive from cartels.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

On that point, I assume that the Government considered the possibility of introducing such provisions on a civil rather than a criminal basis. Will the Under-Secretary explain why the Government decided to opt for criminal rather than civil proceedings?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I will discuss one or two comparators in a moment. For serious offences, prison is obviously the sanction used for individuals. There are parallels with insider trading and similar offences.

My hon. Friend the Member for Hemel Hempstead mentioned co-operation agreements. They are currently the subject of correspondence and discussion and, given my ministerial responsibilities, it might not be appropriate for me to comment on them at great length. I am well aware that co-operation agreements may be entered into legitimately; they affect my constituency as well as my hon. Friend's. They would never breach the provision, as they are honest by nature. Dishonesty is an important part of the provision, as I have emphasised and members of the Committee have accepted. I agree with my hon. Friend that cartels are theft. We must not lose sight of that important point.

Several hon. Members made comparisons with other EU countries and other regimes. There are a few points to make. Four EU countries—France, Ireland, Germany, and Austria—currently make the

forming of cartels a criminal offence. In Ireland, the maximum prison sentence is five years. In France, only suspended sentences have been passed so far, the highest of which was for 13 months. The offence of fraudulent conspiracies in France carries a maximum prison sentence of four years. In Germany, the criminal offence is bid-rigging, which carries a maximum prison sentence of five years. The point is not about how many people we send to prison. We do not want to have any cause to send anyone to prison for anything. However, if people break the law and the law states that a prison sentence is necessary, that is what they will receive. We would rather that people did not end up operating cartels, but it is important if they do that we send a message, both to the individual and to society, that that is unacceptable and a serious offence.

On the interplay with the EC regime, under the exemptions from article 81 of the treaty, there is no Community law requirement for an exact correspondence between EU competition law and the criminal offence. However, as far as possible, we should seek to ensure that the two operate consistently in practice. That will be achieved on the one hand by prosecutorial discretion—for example, the OFT and the SFO will not prosecute where genuine possibility of compatibility with Community law on the agreement between undertakings exists—and, importantly, on the other by the need to prove dishonesty.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

Obviously, I agree with much of what my hon. Friend says but I am concerned to clarify what is meant by dishonesty. As the clause is drafted, one could argue that if someone commits one of the offences listed in subsection (2), he has behaved dishonestly; in other words, engaging in those actions is a sufficient condition for exhibiting dishonesty. In that argument, ''dishonest'' is not a substantive qualifier of ''agrees'' and goes on to be merely spelled out in subsection (2). The phrase is amphibolous. That interpretation is different from the one that implies that one could engage in those activities honestly; in that interpretation, ''dishonestly'' becomes a substantive qualifier. I am not sure whether my hon. Friend the Under-Secretary has given proper weight to my invitation to reflect on that matter.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I assure my hon. Friend that I always give his remarks proper weight. I will reflect on his point but I do not want to be drawn into the discussion because it deals with a specific case.

On the reaction of the European Commission, Mario Monti said in September:

''Cartels are cancers on the open market economy''

and that they

''undermine the competitiveness of the industry involved, because they eliminate the press from competition to innovate and achieve cost efficiencies.''

The Commission has said about our legislation that

''The European commission is aware of the UK debate on the proposed changes to its competition law. UK national law is of course a matter for the UK, but the Commission also knows that part of the debate is on the interaction with Community law.

It is very important that the interface between Community and national law is carefully worked out. We are pleased that the UK has been working closely with the Commission to ensure that this is the case.''

The Commission therefore has no concerns on that front.

On the interplay with the regimes of other member states, the criminal offence applies to cartels that are implemented or intend to be implemented in the UK and therefore there is no conflict with civil proceedings in other member states. If more member states introduce or make use of criminal penalties, we will need to work with them on an appropriate allocation mechanism for assigning cases, but that is merely to implement the routine methods of working together that exist in parallel situations.

On the interplay of leniency with the EC regime, the OFT can grant leniency for the UK jurisdiction. Where the cartel activity affects interstate trade, the OFT already advises potential whistleblowers to approach overseas competition authorities, including the EC authorities in parallel, and will continue to do so. The OFT will continue to work closely with colleagues in DG COMP to ensure effectiveness of the competition regimes including leniency programmes at national and EU level.

On the relationship of the modernisation of the EC regime with the primacy of EC law and the implementation by member states, the proposals are not finalised, but as they proceed, we shall focus on avoiding any possible conflict with the new offence. The Commission has said that modernisation does not preclude criminalisation, so we have no reason to await the outcome of the modernisation process, which would only delay us from putting our own house in order in the UK.

As to the interplay of civil and criminal proceedings, the OFT's role in civil proceedings is in the investigation of a criminal offence designed to ensure a streamlined approach. That makes good sense. The OFT will, of course, need to collect evidence to different standards according to whether it is dealing with a criminal or civil case.

In criminal cases, the OFT will need to follow procedures in the Police and Criminal Evidence Act 1984, caution suspects before taking statements and so forth. Obviously, it will be different under the civil regime. The Serious Fraud Office will undertake prosecution of criminal cases.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change) 12:30, 23 Ebrill 2002

What protections will the Under-Secretary put in place to ensure that cases are not lost in criminal prosecutions because evidence was obtained by using civil procedures in the 1998 Act, which are not admissible in criminal cases?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I may return to that point later and perhaps write to the hon. Gentleman. My current understanding is that if evidence is acquired through civil arrangements, it cannot then be used for criminal purposes. That acts as a safeguard to some extent and

the right decisions must be taken about which route should be pursued.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

It is a safeguard to an extent, but it is a potential pitfall for prosecutions. The Under-Secretary, as well as the hon. Member for Wolverhampton, North-East, has spoken about sending messages. The worst possible message to send, following the criminalisation of cartels, is that any prosecutions that are brought will subsequently be unsuccessful. It is inherently difficult when a single public body is in the business of evidence gathering and it also has to decide under what procedures that evidence was obtained and how it should be applied in the courts.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

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.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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

evidence must be of a higher standard and with the appropriate safeguards. Clauses 188 and 189 provide protection against self-incrimination.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

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.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

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?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

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

that no action was to be taken, would the procurator fiscal be entitled to disregard that?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

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?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.

Friend 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.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

I shall write to my hon. Friend the Under-Secretary to try to disambiguate what I believe is an ambiguous clause.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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:

''Criminalisation of cartels . . . will cause companies and their managers to review their attitude to competition law compliance and risk . . . Criminalisation on even a narrow basis will send a clear message about the seriousness of competition law.''

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

''in the case of price-fixing conspiracies, big fines are a less effective deterrent than small jail sentences. In America, it is the threat of a stretch as a guest of the government that keeps many an executive out of a smoke-filled room . . . Britain has no such deterrent . . . It will be a long time before mere fines will destroy the culture of price-fixing.''

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

have 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.

Rhif adran 2 Adults Abused in Childhood — Clause 179 - Cartel offence

Ie: 11 MPs

Na: 5 MPs

Ie: A-Z fesul cyfenw

Na: A-Z fesul cyfenw

Question accordingly agreed to.

Clause 179 ordered to stand part of the Bill.

Clause 180 ordered to stand part of the Bill.