Investigation by Office of Fair Trading

Can you picture the scene - you've gathered your shareholders around for your annual general meeting, provided the tea and refreshments, settled them down in a plush conference suite of a respectable hotel, and then comes the $64 000 question- Mr Chairman- can you account for the news that the OFT have levied a fine on the company amounting to 10% of our worldwide turnover? Not an easy one to get out of, even if you have scanned all the exit points in advance.

The fact is that the OFT is an organisation who take their work seriously. They are an independent statutory body which exists with one primary goal - to make sure that traders compete properly with their rivals for business and that they deal fairly with their customers. In other words it enforces competition law in the UK. Their objective is to make markets work well for consumers. Markets work well when there is healthy competition between businesses.

Their targets are those unscrupulous traders who, in order to increase their own business profits, engage in anti-competitive practices, such as agreeing with certain other businesses not to compete with each other on matters such as the customers they will supply to, the areas they will supply, prices and who should win a contract (bid rigging). This will often be to the detriment of other local businesses trying to earn an honest living on a seemingly level playing field.

Its open to anyone who is unhappy about this process, and who thinks they may have evidence that its going on, to report the matter to the OFT. Cartel offences can result in heavy fines of up to 10% of the offending companies worldwide turnover and even jail in the more serious cases.

If the OFT think that they have a case they will begin an investigation by gathering evidence from those who have complained and others who may be involved. The first time a company may become aware that they are being investigated is when the Investigators pitch up at the start of the day on the doorstep of head office with a High Court warrant enabling them to seize documents and image computer systems.

The OFT are keen to uproot and deal with any company found to breach anti-competitive legislation. By way of example, the OFT has recently imposed total fines of over £2 million on 13 roofing contractors for colluding to fix prices for car park and flat roofing surfacing contracts in England and Scotland. It also imposed a penalty of over £3 million on a pharmaceutical company for abuse of its dominant position in the market for the supply of certain specified medication in the UK.

At the more serious end of the spectrum, if the OFT suspect that a criminal cartel offence is being committed they will also involve the Serious Fraud Office, who will take a similarly keen role in the investigation and whose powers are equally wide ranging. Nine people were recently charged with cartel type offences in the pharmaceuticals industry, the allegations being that they agreed amongst themselves to fix prices of common drugs supplied to the NHS.

In the old days, and these are offences that originated in the US, and were relatively recently implemented over here, it was difficult to prove cartel activity. Most agreements were made in smoke filled rooms late at night in a JR Ewing kind of way. In an age of e-mail and mobile phone technology, we are becoming much more relaxed about what we send. Nothing ever gets deleted from a computer. It is becoming easier for the OFT to prove the offence.

If the investigation involves US authorities, as does the current investigation involving British Airways, then the implications are far more serious. The Nat West 3 case over here recently resulted in three UK bankers being extradited to the US to face charges over Enron where they will get no access to public funding, and the kind of jail sentences reserved for only hardened criminals here.

So, what exactly does this mean for you if your business becomes the target of the next OFT investigation?

Is your company ready?

Would your staff know what to do if officials from the OFT turned up at reception?

Set out below is a brief guide of what to do in the event of a dawn raid:

1. The OFT officials will arrive at reception and introduce themselves and the purpose of their visit. Your reception staff must then contact the most senior person within the company, if that person is unavailable then the next senior person etc. The receptionist should let that person know that the OFT are in attendance and that they should attend immediately.
2. When that person arrives he/she will need to introduce themselves to the officials and identify their position within the organisation.
3. You should then call your lawyers and request that the inspectors wait until your lawyers arrive. They will normally wait for between 30 and 60 minutes.
4. You will be asked to sign the warrant or search authorisation document. You shouldn't be concerned or worried about signing this as you are only signing to confirm receipt of it.
5. You should however check basic details contained in the letter of authorisation for example that the correct company details are specified on the warrant, you should ask to see the officials ID cards and most importantly the part of the document which details the scope of the investigation. If you have any objections to raise or are unhappy about any of the details you have read, voice them immediately. The officials may proceed regardless but at least your comments will be recorded and, if appropriate, will be addressed later.
6. You must then allow the investigation and search to proceed. If your lawyers have not arrived by this time and the officials are not prepared to wait any longer then make sure you make detailed notes of exactly what the officials do, including copying every document they seize and noting all conversations that pass between the parties.
7. You should assign a member of staff to each official to shadow and accompany that official and to keep a written log of their actions, the documents they seize, the conversations they have, the people they speak to etc.
8. The officials are not entitled to see privileged documents. This will generally cover confidential legal advice from your lawyers. If you think a document may be privileged let them know. If they dispute this, you should insist that the document is kept to one side until your lawyers are present who can then discuss the matter with the officials.
9. If the officials wish to ask you any questions, suggest they do so in the presence of your lawyers.

It is an offence to destroy, falsify or hide documents or to obstruct the officials in the proper exercise of their powers and in fact the company can be fined and individuals may be fined or imprisoned for such an offence.

The bottom line is that if you find yourself on the wrong end of an OFT investigation, co-operate with them, make notes of everything said by any of the officials and do not obstruct the investigation.

In order to avoid mass panic and alarm in the event of a dawn raid, it is advisable to draw up an action plan in advance and circulate this amongst your staff. As unlikely as it may seem, just remember- it could be you.

(This document provides some basic guidance on some of the issues that should be addressed in the case of an investigation by the OFT. It is advisable to obtain comprehensive and detailed legal advice on this issue, in order that an action plan can be prepared by your lawyers which takes into account your company's specific and individual needs.)

This document has been prepared by Sarah Cleary and Sabeeha Khan who are Partner and a senior solicitor of Irwin Mitchells Yorkshire based Regulation and Investigations Group. The Group specialise in all types of Regulatory work and also with high profile serious fraud prosecutions. The team is headed up by Sarah Cleary.

Sarah Cleary Partner
Yorkshire Regulation and Investigations Group

And

Sabeeha Khan
Senior Solicitor - RIG

Irwin Mitchell
21 Queen Street
Leeds
LS1 2TW