By Jack Mendel
The UK’s competition watchdog should be concerned by a 70 per cent drop in whistleblowing on illegal cartels in the last five years, top lawyers have said.
A freedom of information (FOI) request from law firm RPC showed the staggering drop in reporting, down from 1,442 calls in 2017 to just 427 in 2022, City A.M. can exclusively reveal.
This comes after theCompetition and Markets Authority (CMA) raised the amount whistleblowers receive for lifting the lid on illegal activity, up from £100,000 to £250,000.
A cartel is when there is an agreement between companies not to compete in order to keep their prices high, and it is illegal.
Those involved face being fined 10 per cent of their turnover, and individuals looking at five years behind bars, while company directors can also be disqualified or banned for lengthy periods.
The drop showed an increasingly reluctant tendency for whistleblowers to come forward, with the pandemic year of 2020 where millions were stuck at home being a spike as people felt safer.
Despite the figures, it is understood the CMA is not worried, and that it acted across a number of industries in the last five years.
This comes as the watchdog has come under pressure for being too interventionist, including with the Microsoft-Activision Blizzard deal. In July INEOS chair Sir Jim Ratcliffe lashed out at Britain’s competition watchdog for being “increasingly hostile” to business – after it blocked a $1bn deal involving his firm.
The FOI doesn’t show which industries it is most prevalent in, but cartels have been uncovered in sectors such as construction and healthcare.
On the prevalence of cartels in the construction industry in particular, the sector had been fined £136m across six cartel cases since 2017.
In March of this year, 10 firms were fined around £60m, for fixing bids, and disqualification of three directors of firms, it was revealed.
It is understood the CMA has no plans to review the amount it rewards – whistleblowers are not always motivated by money.
It declined to comment on this issue specifically, and pointed to prior remarks made by Michael Grenfell, the executive director of enforcement at the CMA, after it increased the amount it paid out to whistleblowers, in June.
He said “cartels can cause serious damage to their customers, whether businesses or individual people, weakening price competitiveness – a particular concern at a time of cost-of-living pressures.”
Ross added that the spike in reporting in 2020, up to nearly 1,000, “could be explained by employees, for the first time, having a physical distance from the office and therefore feeling freer to make these whistle-blowing claims.”
Chris Ross, a partner in RPC’s competition litigation team, said “whistleblowers might be fearful over finding employment again in the same industry after reporting wrongdoing, becoming financially insecure or causing damage to their reputation.
“Some do not find the potential reward great enough to compensate the potential fallout that could upturn their lives after speaking out – however much is offered.”
He said the impact of the increased reward means “one would expect that the CMA would carry out more investigations and that might subsequently lead to the uncovering of more findings of cartel activity.
“Once there is evidence of cartel activity, anyone affected by that has a right to bring a claim and so we would also expect a rise in the number of claims on the back of that.”
Alex Haffner, a specialist competition lawyer and partner at UK law firm Fladgate, said the CMA should be worried by the decline in reporting however.
Askeed if the watchdog should be concerned, he said “yes. It relies on third-party informants to help it uncover hidden practices. If there is less whistleblowing activity this by implication cuts off an important source of intelligence and makes it harder for the CMA to find out about potentially unlawful behaviour.”
He however agreed with the CMA on rewards, saying “likely it is not the amount of the potential fee which is the issue here as much as sufficient knowledge about the opportunity in the first place.
“There was a good deal of publicity generated by the scheme when it was first announced, but that “halo” effect has now dissipated and likely more needs to be done to promote it again.”
On the construction industry in particular, Arash Rajai, construction partner at law firm RPC, explained “cartel activity disrupts fair competition within the industry, for example by fixing prices, rigging bids, or agreeing to share markets.”
“Innocent firms may miss out on work they may be best placed to undertake or are forced to reduce their profit margin to secure work. In an economy that saw a 25.7 per cent increase in construction business insolvencies across the UK in 2021, it makes the environment in which law-abiding companies operate even tougher to succeed in.”
