Directors to face tougher penalties for competition law breaches

The extension would considerably widen the scope of OFT enforcement action and could expose many more directors to disqualification for cartel activities.

The OFT already has the power to disqualify directors when they are directly involved in competition law breaches.  Those directors can be disqualified for up to 15 years.

Although the OFT has not actually exercised those powers to date, it is now consulting on changes to its guidelines that will allow it to apply for Competition Disqualification Orders (CDOs) for directors who ought to have known about and acted to prevent anti-competitive behaviour.

"Under the OFT's current Guidance the greater the degree of the director's responsibility for, or involvement in, the breach of competition law, the more likely the OFT or Regulator is to apply for a CDO," said the OFT's consultation.

"The OFT and Regulators believe that the current Guidance does not maximise the deterrent effect of CDOs and we are therefore minded to publish revised Guidance," it said. "We are concerned that [the current] approach may not sufficiently encourage directors to take positive steps to uncover potentially anticompetitive behaviour or monitor their companies' competition law compliance."

"We wish to ensure that CDOs operate as an effective deterrent for directors of larger companies as well as those of small and medium-sized enterprises (who are more likely to be directly involved in the day-to-day business activities of their companies)," it said.

"The OFT and the Regulators may be more likely to apply for a CDO in cases where there is evidence … that the director had reasonable grounds to suspect the conduct constituted the breach but took no steps to prevent it and in cases where the director did not know, but ought to have known, that the conduct constituted the breach," it said.

The OFT said that it was taking the action because director bans are such an effective mechanism for deterring executives from anti-competitve behaviour.

"The OFT believes that CDOs act as an important deterrent to anti-competitive behaviour because they provide a sanction affecting the individual or individuals responsible for the breach," said the OFT's proposal. "In this respect CDOs complement the OFT's and Regulators' other civil enforcement powers, which principally penalise companies and their shareholders."

The regulator said that the changes fitted with its view that all company directors should have some knowledge of competition law.

"The OFT and Regulators expect that every director of every company ought to know that price fixing, market sharing and bid-rigging agreements are likely to breach competition law," said its proposal.

Alan Davis, a competition law expert at Pinsent Masons, the law firm behind OUT-LAW.COM, said that the OFT was expecting quite a lot from directors.

"It's not unreasonable for the OFT to say that it is a company director's responsibility to have some basic competition law knowledge," he said. "But the OFT is really raising the bar as to what it expects directors to do in terms of pro-active monitoring and enforcing a culture of competition law compliance in a company."

"It also signals an intention by the OFT to start exercising its powers to disqualify directors and that includes where directors have turned a blind eye to suspicious activity within the company," he said.

"An example given by the OFT is that a director signing off expense claims where the director might suspect that the employee was using those funds to meet with competitors for anti-competitive purposes should take active steps to enquire into that activity and stop it. That is quite an onerous obligation on directors," said Davis.