Comp Law: British Airways to pay record £121.5m penalty in price fixing investigation

Tom Young

The below is copied off the UK OFT website.

It highlights the ever increasing influence of EU and international competition policy and law in the environments in which business is undertaken. The crippling effect of competition law infractions and collusion can be seen below, and the US DoJ hasn't commented as yet.

Note: Fyffes Plc, Irish case, while not being a specific competition case in the sense of the below, does indicate a movement in the Irish context towards more law and economics schools of jurisprudence and attention to the EU articles 80/84.

British Airways to pay record £121.5m penalty in price fixing investigation
113/07 1 August 2007

British Airways has admitted collusion over the price of 'long-haul passenger fuel surcharges' (surcharges) and will pay a penalty of £121.5m to be imposed by the OFT, thus enabling the OFT to close its civil investigation and resolve this case. The penalty will be the highest ever imposed by the OFT for infringements of competition law, and demonstrates the determination of the OFT to deal vigorously with anti-competitive behaviour.

British Airways has admitted that between August 2004 and January 2006, it colluded with Virgin Atlantic over the surcharges which were added to ticket prices in response to rising oil prices. Over that period, the surcharges rose from £5 to £60 per ticket for a typical BA or Virgin Atlantic long-haul return flight.

Virgin Atlantic is not expected to pay any penalty as it qualifies in principle for full immunity under the OFT's leniency policy. Under this policy, a company which has been involved in cartel conduct and which is the first to give full details about it to the OFT will qualify for immunity from penalties in relation to that conduct. In addition, any company staff involved in the price fixing disclosed will qualify for immunity from criminal prosecution in relation to that conduct. The OFT's investigation was prompted after Virgin Atlantic came forward with information about price fixing with BA over the surcharges. British Airways has also provided full co-operation with the OFT's investigation under the leniency programme and this is reflected in the penalty announced today.

British Airways accepts the OFT's finding that on at least six occasions the two companies discussed and/or informed each other about proposed changes to the level of the surcharges, rather than setting levels independently as required under clear and well-established competition law principles.

The OFT's investigation was conducted in parallel with a similar case brought by the United States Department of Justice (DoJ). The investigations by the OFT and DoJ were separate but the two agencies have consulted each other closely throughout.

In addition to the investigation into British Airways' corporate conduct under civil competition law, the OFT is also conducting a criminal investigation into whether any individuals dishonestly fixed the levels of the surcharges - an offence under the Enterprise Act. The corporate admission by British Airways that it infringed civil competition law does not imply that any individuals dishonestly fixed prices contrary to the Enterprise Act. The criminal investigation is ongoing and no conclusions have been reached as to whether criminal proceedings against individuals can or should be brought.

The OFT's infringement decision against BA will be taken and published in due course. It will record the full findings in this case and the basis for the calculation of the penalty to be imposed on British Airways.

Philip Collins, OFT Chairman said:

'This case, and the substantial penalty imposed, will send an important message to corporate boards and business leaders about our intention to enforce the law, and serves to remind companies of the substantial risks involved if they are found to engage in such behaviour. It also illustrates how the OFT's leniency programme enables companies to eliminate or reduce their exposure to penalties by taking prompt and effective action. On a broader front, the OFT is committed to strong and effective competition law enforcement, especially in relation to price fixing and other hardcore infringements. Our commitment to enforcement emphasises the importance of effective and comprehensive competition law compliance led by boards and senior management and supported by effective risk management systems and corporate governance.'

NOTES

1. Fuel surcharges, when set independently, do not infringe competition law. Such surcharges were first introduced by each of BA and Virgin Airways in May 2004. The earliest evidence of collusion between the companies dates from August 2004.

2. The OFT confirmed its investigation into price coordination in relation to long haul passenger flights to and from the UK on 22 June 2006.

3. The OFT's investigation was conducted under the Competition Act 1998 which gives the OFT the power to impose penalties on companies of up to 10 per cent of their worldwide turnover for price fixing and other forms of anti-competitive behaviour.

4. The Competition Act 1998 prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK. The Chapter I prohibition covers anti-competitive agreements and concerted practices, that have the object or effect of preventing, restricting or distorting competition in the UK (or a part thereof). Its European counterpart, Article 81 of the EC Treaty, covers equivalent agreements or practices which affect trade between EU Member States.

5. The Enterprise Act 2002 prohibits price-fixing and other cartel agreements made dishonestly by individuals. The facts and matters requiring to be proved are substantially different between the civil and criminal competition law regimes. The corporate admission by BA does not imply that individuals have committed criminal offences.

6. Under the OFT's leniency policy an undertaking may be granted immunity from penalties or a significant reduction in penalty in return for reporting certain categories of Competition Act infringement and assisting the OFT with its investigation. Virgin Atlantic is expected to be granted immunity from penalties as it informed the OFT of the infringement before the OFT had commenced its investigation; BA has been granted a reduction in penalty.

7. In calculating financial penalties, the OFT takes into account a number of factors including the seriousness of infringement, the relevant turnover and any mitigating and/or aggravating factors. The basis of the OFT's considerations are set out in OFT's guidance as to the appropriate amount of a penalty. (pdf 146 kb)

8. The penalty will be payable following issue of an infringement decision to be published in due course. The full details of the penalty calculation will be included in the infringement decision. The level of penalty reflects not only the granting of leniency to BA but also the additional co-operation BA has agreed to provide to enable the case to be resolved more speedily and effectively.

9. Anyone who has reason to suspect that a cartel is operating, should telephone the OFT's cartel hotline 020 7211 8888 or email enquiries@oft.gov.uk. Companies or individuals that wish to apply for leniency should contact the Director of Cartel Investigations on 020 7211 8117.

10. Information about the US Department of Justice is available on their website.

Trojan911

And on top of that £150m ($300m) to the US Dept of Justice......


TJ911...

Tom Young

Yes, its in note 10. I posted this before the DoJ spoke.

I just ran up a mountain in Wicklow and while dodging a few muddy puddles, asked myself whether our glorious mobile telephone companies in Ireland, which without question have largest revenues for mobiles in the EU are also colluding?

Duffman

It would be nice to see someone go to prison over this. Just for a little while. Y'know, just to test out all those shiny new criminal reforms

Tom Young wrote:

Yes, its in note 10. I posted this before the DoJ spoke.

I just ran up a mountain in Wicklow and while dodging a few muddy puddles, asked myself whether our glorious mobile telephone companies in Ireland, which without question have largest revenues for mobiles in the EU are also colluding?

I'm sure they're engaging in all kinds of anticompetitive behaviour. This doesn't necessarily mean they're doing anything illegal, of course. You're talking about what is probably the most difficult kind of collusion to prove. The only reason the Commission has a case against BA was because Virgin was a whistleblower. Can't imagine the same thing happening with the mobile networks in Ireland, they seem too comfortable.

Rhonda9000

Duffman wrote:

It would be nice to see someone go to prison over this. Just for a little while. Y'know, just to test out all those shiny new criminal reforms



I'm sure they're engaging in all kinds of anticompetitive behaviour. This doesn't necessarily mean they're doing anything illegal, of course. You're talking about what is probably the most difficult kind of collusion to prove. The only reason the Commission has a case against BA was because Virgin was a whistleblower. Can't imagine the same thing happening with the mobile networks in Ireland, they seem too comfortable.

Isn't there a rule by which the first party involved in the cartel to inform on their co-conspiritors is immune from penalties - in an effort to incentivize informing and discovery of said anti-competitive behaviour?

Duffman

Yep, that's the one. Virgin were just as complicit as BA but they went to the authorities first.

Well, it's more of a policy than a rule. Informing the Commission doesn't mean the party hasn't acted illegally. The Commission just promises not to pursue them or in some cases to fine them significantly less.