Wanted! (for conspiracy)

Recent extradition cases against UK business figures have thrown up an important question on the scope of the common law crime of conspiracy to defraud

The Journal, April 2007, page 22

“The new criminal offence will send out a strong message to the perpetrators, their colleagues in business, the general public and the courts”, said former Secretary of State for Trade and Industry, Patricia Hewitt, in the second reading debate on the Enterprise Act 2002.

In almost four years of operation, however, there have been no prosecutions and only one tentative investigation under the Act, involving fuel surcharges by BA and Virgin. The United States Department of Justice (the “DOJ”) is leading the way in its aggressive pursuit of cartels globally, and has recently been exporting its enforcement across the Atlantic. By extending its long arm in the ongoing extradition case of British businessman Ian Norris, the DOJ has been testing the boundaries of English criminal law to determine whether price fixing, occurring before the 2002 Act came into force, was, in fact, already criminal prior to the Act and now capable of giving rise to extradition. It seems from the latest appeal judgment (Norris v United States [2007] EWHC 71 (Admin)) that the assertion might, in England at least, have been correct under the old common law offence of conspiracy to defraud. An issue that remains unanswered is whether the Scottish courts would adopt a similar approach.

Norris: the background

Ian Norris was a longstanding employee of Morgan Crucible Co plc, a leading international manufacturer of carbon products, and was CEO in 1998 until 2002. Three years prior to his retirement, the DOJ began investigating two of Morgan’s US subsidiaries for an alleged infringement of the Sherman Act 1890, which criminalises price fixing. The group eventually agreed to pay $11 million in fines, with most of the directors and employees being given immunity from prosecution as part of a plea bargain. Norris, however, was not given immunity. In 2003, a federal grand jury filed an indictment charging Norris with conspiracy to price-fix between 1989 and 2000, as well as obstruction of justice. A year later, the former CEO found himself at an extradition hearing before Bow Street Magistrates Court, which would mark the beginning of a cautionary, although not entirely straightforward, tale for UK business executives.

The 2003 Act regime

The attempt to extradite Norris is taking place under a new and controversial regime created by the Extradition Act 2003. Under previous legislation, requests for extradition required to be made on the basis of prima facie evidence. The new Act, however, has lowered the threshold to “information only”. This change springs from an EU Framework Decision on the European arrest warrant, introduced in the aftermath of the 11 September attacks. By extending the European “information only” scheme to non-EU extradition partners, the government essentially gave effect to a new Extradition Treaty, which it negotiated with the US in 2003.

The Treaty has been heavily criticised because when the UK seeks to extradite from the US, it must show “probable cause”. The DOJ’s use of the Extradition Act against the “NatWest Three” and Ian Norris for alleged white collar crimes has been questioned on the same grounds. Industry leaders, in particular, have claimed that the rules governing which jurisdiction is best placed to prosecute are unclear, and the fast-track procedure for non-terrorism related offences unfair. Lord Goldsmith, the Attorney General, recently agreed with US prosecutors a set of guidelines. Whether the measures will resolve disputes over cross-border investigations remains to be seen.

What is clear, however, is that Ian Norris’s alleged conduct could only be extraditable if the principle of dual criminality, enshrined in s 137 of the Extradition Act, is satisfied. In effect, his alleged conduct must have constituted an offence punishable by at least 12 months’ detention under the law of the relevant part of the UK, and the law of the requesting state, at the time it was committed. At the outset the DOJ, therefore, faced the significant legal hurdle of establishing price fixing as criminal behaviour at common law, despite there never having been a conviction in the UK.

Criminal behaviour?

Since the beginning of the case, the US Government, supported by the UK’s Serious Fraud Office (SFO), has maintained that if the circumstances of the alleged cartel agreement could have been regarded as dishonest and prejudicial to another, it would be capable of constituting conspiracy to defraud. The SFO has a wider interest in the case because it is seeking to prosecute a number of individuals for conspiracy to defraud by price fixing against the NHS, allegedly also before the Enterprise Act entered into force.

In the latest round of extradition proceedings, the High Court considered the fraudulent aspects of anti-competitive behaviour. A whole host of civil cases were cited by Norris’s defence team against the idea that anti-competitive agreements could be a candidate for the criminal common law. Auld LJ, however, held that “the critical point is not one of law as to the applicability or otherwise of the common law offence of conspiracy to defraud to price-fixing agreements, but one of fact or evaluation on a case by case basis as to the presence of dishonesty”.

English conspiracy to defraud is, in its widest sense, an agreement to do something dishonestly prejudicial to another. The court upheld the two stage test for dishonesty pronounced in the long established case of R v Ghosh [1982] QB 1053 as conduct that is: (1) dishonest according to the standards of ordinary people; and (2) known by the accused to be dishonest to those standards. Norris’s defence team argued that Ghosh dishonesty was far more than the “secretive” characteristics of a cartel agreement. The court took the view that any difference between the concepts of dishonesty and secrecy is difficult to discern, not least for jurors. Instead, dishonesty will be inferred from the defendant’s efforts to keep the cartel secret and whether he had an “actual and dishonest appreciation” of the loss third parties might suffer (Wai Yu-Tsang v R [1992] 1 AC 269 (PC)).

Aside from the issue of whether case law supports the proposition that price-fixing constitutes conspiracy to defraud, Norris contended that the development of statutory competition law excluded the application of the common law. The court rejected the argument and held that previous legislation was not intended to restrict prosecution; conspiracy to defraud was expressly preserved by Parliament in its legislative reforms.

Scots law conspiracy to defraud

In Scotland, the common law offence of conspiracy to defraud is committed where two or more persons agree to bring about a practical result by false pretences. In most cases, cartels are formed in secret. The Scottish courts might take the view that cartels create an implied pretence that a product is worth more than its true market value. The practical result sought by price fixing could be viewed as being unlawful gain. Conspiracy (rather than plain fraud) is relevant because the heart of a cartel is the anti-competitive agreement. Furthermore, the widespread effect of a cartel would make proving fraud against individual consumers impracticable and the entangled nature of each part played by the cartelists difficult to separate.

In England & Wales, the Law Commission and the Home Office have been debating reform of the law on fraud for many years. The Fraud Act 2006 entered into force in January 2007 and introduced a new statutory offence of fraud, which can be committed by making a false representation, failing to disclose information or abuse of position. The Act, however, makes no provision about the common law offence, leaving it alongside the possibility of statutory conspiracy to commit fraud.

The way forward

Ian Norris is set to appeal to the House of Lords. If he fails, the possibility of a conspiracy to defraud charge will also sit alongside the Enterprise Act. Conspiracy to defraud is, in some respects, much wider than the Enterprise Act’s cartel offence, which only criminalises the hardcore infringements of competition law (price fixing, limiting supply, limiting production, market allocation and bid rigging), and in Scots common law carries a maximum penalty, on indictment, of life imprisonment (10 years in England under the Criminal Justice Act 1987), as opposed to five years under the Enterprise Act. Furthermore, unlike the cartel offence, a company can commit conspiracy to defraud against other companies as well as individuals.

The possibility of cartel activity being charged as conspiracy to defraud raises several questions. For instance, the statutory offence allows for “no action” letters to be issued to cooperating individuals who would otherwise be charged under the Enterprise Act. Would the same approach apply (using public interest discretion) to those charged with conspiracy to defraud?

Another unexplored question is whether anti-competitive behaviour, characterised as fraud, would be sufficient for the purpose of the European arrest warrant’s list of crimes that do not require dual criminality for extradition. The UK, Ireland and Belgium are among a few countries to have criminalised cartel conduct and, even although the concept of conspiracy is relatively unknown in many civil law jurisdictions, others look set to follow suit. However, in the meantime those involved in cartels might find themselves extradited to the UK, even from European countries without criminal sanctions.

The Norris extradition will make uncomfortable reading for some British business executives of multinational corporations and now, potentially, their European colleagues.

Catriona Munro is a partner and Chris Cooper a trainee solicitor in the EU, Competition & Regulatory Department of Maclay Murray & Spens LLP