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An open letter to the motor industry,
You may recall that last year Mercedes-Benz and five of its commercial vehicle dealers were fined for engaging in unlawful cartel activity. You can read about the investigation here.
What you need to know
Cartelists deprive consumers and other businesses of the benefits of fair competition. In the long run, cartels also undermine competitiveness in the wider economy. With the help of industry bodies including the SMMT, the Competition and Markets Authority (CMA)1 is keen to work with the British motor industry to ensure it remains vigilant against cartel activity, and that everyone in the industry understands what they need to do to comply with the law.
In this particular case, businesses sought to limit competition for the sale of vans or trucks. For example, in one instance two dealers agreed that they would include a ‘substantial’ margin in quotations to customers based in each other’s area. In another, two dealers agreed that they would not prospect customers from each other’s area.
I would like to highlight three important points from this case:
The consequences for involvement in cartel activity can be severe. Businesses can incur fines of up to 10% of global turnover. Individuals can be imprisoned for up to 5 years and risk unlimited fines; directors may face disqualification from managing a company for up to 15 years. In this particular case, the penalties totalled £2.8 million and wiped out up to 18 months’ profit after tax of the dealers involved.
(1 On 1 April 2014, the CMA took over the Competition Commission and the competition functions of the Office of Fair Trading).
What you need to do
Of course, we know that most businesses want to abide by the law. Not only because it is the right thing to do, but also because it is in their commercial interests to do so. That is why it is so important to ensure that everyone in your company understands what they need to do to stay on the right side of the law. The CMA has published a range of guidance, and a brief case summary. Trade associations such as the SMMT can also assist you with education and training.
Also, if you have information about a cartel, please let us know.
The message from this case is clear and unequivocal: make sure that you comply with the law and that you instil a culture of compliance within your business. And if you believe your company is already involved in any form of cartel activity, make sure you tell the CMA about it – before someone else does.
Senior Director – Cartels and Criminal Enforcement
Cartel Enforcement:Lessons from the Commercial Vehicles Case
In 2013 Mercedes-Benz and five of its commercial vehicles dealers were fined over £2.8 million for taking part in unlawful cartel activity.
What are cartels and why are they harmful?
Simply put, a cartel is an agreement between businesses not to compete with each other – usually secret and often informal. Typically, cartel members may agree on prices, output levels, discounts, credit terms, which customers and areas they will supply or who should win a contract (bid-rigging). A cartel may also arise where businesses exchange commercially sensitive confidential information.
Cartels deprive consumers and other businesses of the benefits of fair competition. In the long run, cartels undermine competitiveness in the wider economy
What are the lessons from this case?
1. It can be easy to cross the line between legitimate and illegitimate contacts. Competition law requires competing businesses – including franchisees of the same manufacturer – to set their business strategies independently. Discussing future pricing intentions is particularly problematic.
2. You can break the law even if your involvement is relatively limited. In this case, one company was fined largely because an employee had attended and was involved in organising a single meeting where an anti-competitive arrangement was reached.
3. Smaller businesses do not get a ‘free pass’ on competition law. The CMA will take firm action against cartels, irrespective of the size of the companies or the geographic scope of the case.
Being involved in a cartel can have serious consequences. Businesses can be fined up to 10% of their worldwide turnover and individuals may face disqualification from being a director for up to five years, and/or jail. For the dealers involved in this case, the penalties wiped out up to 18 months of profit after tax. However, one of the dealers avoided a penalty altogether by being the first to confess and apply for leniency.
What can you do?
● Create a culture of compliance – everyone in your business must understand what they need to do to stay on the right side of the law, and stick to it.
● Report a cartel (which you are not involved in) to the cartels hotline.
● Apply for leniency if you think you have been involved in a cartel.
Cartels hotline 020 3738 6888 email@example.com
Leniency advice and guidance www.gov.uk/cma