THE SERIOUS FRAUD OFFICE (SFO) SUFFERED A BLOW in July, when its criminal prosecution of five companies and nine executives for price-fixing collapsed. The SFO's case, that the companies' conspiracy to fix the prices of the blood-thinner warfarin and penicillin-based antibiotics amounted to a criminal conspiracy to defraud, was fatally undermined by the House of Lords' finding in the separate Norris v Government of the United States of America & ors [2008] case, that a straightforward price-fixing agreement did not necessarily constitute a criminal conspiracy to defraud.
The SFO's investigation, codenamed Operation Holbein, commenced in 2000 and led to dawn raids on more than 30 homes and offices in 2002. On 5 April 2006 the SFO announced that it was beginning criminal proceedings. As the alleged pricefixing took place prior to the entry into force of the Enterprise Act 2002, which criminalised hardcore cartel behaviour in the UK for the first time, the SFO was forced to base its case on the common law offence of conspiracy to defraud. As noted above, this approach proved to be misguided when, in March this year, the House of Lords conclusively ruled that price-fixing, of itself, did not amount to a conspiracy to defraud under common law. Rather, in order for an offence to be committed by parties to a price-fixing agreement, aggravating factors, such as dishonesty, misrepresentation, fraud or violence, must also be present.
Although the SFO sought to amend its case in the light of the Norris judgment, referring to the fact that the defendants had allegedly made false statements to the authorities about their activities as an aggravating factor, on 11 July 2008 Pitchford J, sitting in Southwark Crown Court, refused the application to amend. Pitchford J made an order banning the reporting of his reasons for rejecting the SFO's case and denied the SFO permission to appeal against his decision. The SFO has stated that it will seek leave to appeal this judgment direct from the Court of Appeal, in a last-ditch move to save its case.
Meanwhile, the Norris case rumbles on. Notwithstanding the House of Lord's judgment that Mr Norris could not be extradited to the US for participating in a cartel before the introduction of the cartel offence, a district judge at the City of Westminster Magistrates' Court ruled on 25 July that he can be extradited to face the related charge of obstruction of justice. In reaching this decision, the judge will have relied on the House of Lord's conclusion that, in assessing whether the charge of obstruction of justice met the 'double criminality test' for extradition, the Court needed to identify the UK offence that best reflected the essence of the alleged conduct, and assess illegality accordingly, rather than simply assessing whether the specific conduct in question (the alleged destruction of documents potentially relevant to a US investigation) broke UK law. In other words, a charge of obstruction of a US criminal investigation should be treated, for the purposes of assessing its legality in the context of an extradition request, as equivalent to a charge of obstruction of a UK criminal investigation, which is punishable in the UK by up to 12 months imprisonment. The UK Home Secretary, Jacqui Smith, has 60 days to review the Magistrates' Court ruling before deciding whether to authorise the extradition. Any decision to proceed with extradition is almost certain to be appealed.
In a further development, two of the three businessmen sent to prison in the UK for their role in a global marine hose cartel are appealing against their sentences. The 11 June 2008 decision to sentence the individuals concerned to between two and a half and three years in jail marked the first UK convictions for cartel offences and represented a major boost for the Office of Fair Trading's criminal enforcement activities. The Court of Appeal is expected to hear the case before the end of the year. Given recent news reports that the OFT will bring criminal charges against four past and present senior employees of British Airways for participating in a price-fixing agreement with rival airline Virgin Atlantic, cartel enforcement looks destined to remain a key issue for UK companies in the months ahead.
BY BECKET McGRATH, partner, Berwin Leighton Paisner LLP
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