[Part I]

Enterprise Bill – in a Public Bill Committee on 23rd April 2002.

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[Mr. Nigel Beard in the Chair]

Amendment proposed [this day], No. 36, in page 132, line 11, leave out

'to imprisonment for a term not exceeding 5 years or'.

Question again proposed, That the amendment be made.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford 4:30 pm, 23rd April 2002

With this it will be convenient to take the following amendments: No. 90, in page 132, line 12, leave out 'five' and insert 'three'.

No. 37, in page 132, line 12, leave out 'or to both'.

No. 39, in page 132, line 13, leave out

'to imprisonment for a term not exceeding six months or'.

No. 40, in page 132, line 14, leave out 'or to both'.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

The Under-Secretary assures me that she concluded her remarks, but I seem to remember her quietly subsiding back to her seat. I apologise if I missed some concession in her last few sentences.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I confirm that I made no concession in my last subsiding sentence to the hon. Gentleman.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Why break the habit of a lifetime?

There are still significant concerns about the provisions, several of which we discussed. My hon. Friend the Member for Huntingdon (Mr. Djanogly) mentioned that there could be an unlimited fine on an individual on indictment. The Under-Secretary did not touch on that in her response, but I assume that that is correct. Hon. Members are nodding. I do not know whether they agree with my summation, or whether she referred to the issue.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The hon. Gentleman is right on both counts: I did not touch on the matter, and the fine is unlimited. I was talking to the hon. Member for Huntingdon about that before the Committee.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I was not privy to that side discussion. The unlimited fine is yet another concern, but we will not make much headway at this juncture. It may be a matter for Report, or for another place. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I beg to move amendment No. 38, in page 132, line 17, leave out from 'Office' to end of line 18.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

With this it will be convenient to take the following amendments: No. 140, in page 132, line 17, leave out 'or'.

No. 141, in page 132, line 18, leave out 'by or'.

Mr. Waterson: The amendments would all have the same effect, limiting ability to instigate the new criminal offence in clause 179 to the Serious Fraud Squad, and to remove the criminal investigatory powers from the Office of Fair Trading. That was not my idea originally, but the Government's. In their response to the consultation in December 2001, they said that they had decided that the SFO should be the lead prosecutor. We agree with that, and so does the joint committee of the Law Society and the Bar which was good enough to draft the amendments. The Bill does not seem to reflect the Government's statement, as it gives equal power to the OFT and the SFO. It also gives the OFT extensive criminal investigatory powers. Some of the legitimate concerns of business, industry and Opposition Members have already been graphically described.

The powers of the OFT to investigate company infringements under the Competition Act 1998 are different from the criminal powers under the Bill and from criminal law in general. The rights of defence differ, as do the procedures. It seems to the Opposition, the Law Society and the Bar that giving the OFT both sets of powers will lead to confusion, especially as, in reality, most criminal investigations are likely to stem from an initial investigation under the 1998 Act. Neither is it appropriate that the chairman of the OFT, who has no experience of criminal investigations or prosecutions, should authorise surveillance on application by one of his officials under the Regulation of Investigatory Powers Act 2000. That is why we tabled the amendments, which I commend to the Committee.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

The concept of fairness and transparency is a paramount consideration in the administration of justice, and relates to the attitude that business and outsiders will have towards the OFT and how it conducts itself. It is undesirable for the OFT to be able initiate proceedings. It is a regressive step. It is some years since the police could decide to initiate prosecution. That was stopped because the system of having one agency carry out the investigation, consider the evidence and then decide to initiate a prosecution proved ineffective. Indeed, it is not used in most parts of the world. It led to unfair prosecutions and a lack of balance. It did not separate the judgment of the two issues concerned. It continually led to prosecutions being initiated on the basis of inadequate evidence. Yet here we are in 2002 proposing to go back to that system in some ways.

It is no secret that the SFO has had its problems in recent years. It has been discussed in the press and reviews have been ongoing. It has not had a successful conviction record and perhaps that is why the Government now propose that the powers of the OFT should be increased to match those of the SFO. I should be interested to hear the Under-Secretary's opinion on that. If that were the reason, it would be sad in many ways. To my mind, it would lead to less good justice and possibly to a series of human rights claims.

On a more mundane basis, such a move is also wrong because the OFT needs the confidence of

business if it is to operate effectively. In some ways, we will get so bogged down with the concept of criminalisation and what can be prosecuted that we will not be able to see the wood for the trees. In practice, most companies deal fairly readily with the OFT. They hand over documents freely and have meetings with the OFT, perhaps to describe the marketplace in which they operate for the purposes of a quite separate OFT investigation. They will talk to the OFT about pre-clearances on deals that they are considering.

These provisions could affect the whole nature of that relationship. It would be a disaster for the OFT to be seen as a wing of or an alternative to the SFO. Companies might not want to talk to the OFT as they have in the past, or to advise it on markets and so on, unless forced to do so by measures such as these. We have explained why criminalisation is wrong generally, but it is specifically inappropriate in relation to the clause.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I speak only briefly in support of the proposal made by my hon. Friends the Members for Eastbourne (Mr. Waterson) and for Huntingdon. By being given these additional powers, particularly being in tandem with the SFO, there is a risk that the OFT could become a judge and jury. My hon. Friend the Member for Huntingdon rightly pointed out that the ideal role of the OFT would be as an advisory body for companies that might worry that their links and co-operation with other bodies might fall foul of some of this cartel legislation. A company's long-standing practical and commercial relationship with the OFT could be undermined if it found itself subject to an investigation initiated by the OFT. If the powers were in the hands of one body—the SFO—yet the OFT had equivalent powers, it might be seen as somehow trumping the SFO's powers. The measure might then be viewed as particularly serious or of a particular type, which could be dangerous. Does the Under-Secretary know of instances in which the OFT, in preference to the SFO, might initiate such an investigation?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I remarked this morning that the expectation of the Government, the SFO and the OFT is that the SFO will carry out all prosecutions initially. The SFO has the resources and experience of criminal prosecutions of a similar type. For many years, it prosecuted white-collar crime such as insider dealing.

The hon. Member for Huntingdon asked about the SFO prosecution record. SFO conviction rates, measured against the number of defendants, have risen from an average of 63 per cent. in the first five years of its operation, from 1988 to 1993, to an average of 87 per cent. in the past five years, from 1997 to 2002. That is a good record, giving rise to no concerns on my part of the sort that he expressed. With the figures now in front of him, he may feel reassured.

It may be appropriate at some time for the OFT, whose initial role will be as investigator, to take on a prosecutory role. That might happen if the number of

cartel prosecutions created a conflict with other SFO priorities, although we do not expect a large number of prosecutions. The OFT would have to develop the necessary capability and resources to take on the role of prosecution.

No one will be judge and jury in all this. The OFT will investigate offences and pass suitable cases to the SFO, which will take the lead role in prosecution. The two bodies have already worked extensively on the practical arrangements and a memorandum of understanding is in preparation. There is no question of undermining the OFT's role—it is co-operative working to draw on the strength and expertise of both authorities.

If we were not proposing this division of roles, I could envisage members of the Committee asking why we were duplicating existing roles and functions. We have made the right choice: if we had made a different choice, we would face a different line of criticism. Our choice here is cost-effective and draws on the strength of each organisation.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

Will the Under-Secretary explain the Department's thinking on subsection (2)(b)? As presently worded, it states:

''by or with the consent of the OFT.''

Do the Government intend that the OFT should always be required to give consent? If so, the presence of the word ''or'' at the end of paragraph (a) defeats the object. If not, why would the SFO director require the consent of the OFT, given that his power is absolute under paragraph (a)? I simply do not understand the words

''or with the consent of''.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Perhaps I can come back to that point in a moment. In Scotland, the Lord Advocate is responsible for prosecutions—I realise that the hon. Gentleman is well aware of that—and he will consider a report from the OFT carefully before taking any decision.

It was a matter of interest this morning how many Scottish qualified lawyers are employed at the OFT. We do not have the figures and it will take some time to get them, but the hon. Gentleman will agree that the real issue is that the OFT has access to Scottish legal advice—and it certainly does. It has access to the advice of the officers and solicitors of the Advocate-General. A long tradition exists of making such advice available to all UK Government bodies at an early stage. Good communication channels with the Crown Office are also open. The Crown Office can provide the OFT with immediate practitioner advice on Scottish legal matters at any stage of an investigation.

The OFT is also a named prosecutor to allow for the possibility that it may be appropriate for it to take on a prosecution role in future. The prior consent provision is necessary to enable the OFT to prevent any prosecution, by a third party, of individuals who have been granted leniency. The reason for the phrase

''with the consent of the OFT''

is to allow private prosecutions and to close down other options.

I have explained that we envisage a prosecution being brought by the SFO, except in Scotland. Third-party prosecutions may normally be brought for any offence where the legislation does not exclude them. The amendment would restrict the bringing of prosecutions for the cartel offence to the SFO, but I do not believe that there are grounds for doing so. To ensure the proper working of the leniency regime, it is important that a private prosecution can be brought only with the OFT's consent. I have now said quite a lot about the leniency provisions, so I shall not say anything further at this stage.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change) 4:45 pm, 23rd April 2002

I may be missing something blindingly obvious. The Under-Secretary keeps going on about private prosecutions, but I do not see how there could be private prosecutions for these offences, because they may be instituted only under the two options in the provision.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I will come back to that in a moment, if I may. I should like first to deal with the point about scrutiny by surveillance commissioners. The Regulation of Investigatory Powers Act 2000 requires that there be prior approval by a surveillance commissioner. Someone alleged that the decision would be by the OFT, but that would not normally be the case. It would happen only in an urgent case, which I think would be very rare in a cartel investigation. In those circumstances, however, there is a provision in the 2000 Act for the authorising officer—in this case, the OFT chairman, I guess—to issue a notice that grants authorisation and explains the urgency that justifies going ahead. Then the surveillance commissioners, who exist under that Act, would be there to scrutinise immediately after the fact in any event.

Prior scrutiny is the norm under the provisions. As I have said, I expect matters of urgency to be very rare. Complaints and appeals can be directed to the investigatory powers tribunal set up under the 2000 Act. There are plenty of safeguards. In some circumstances, however, it will be necessary to resort to the measure that I have described.

I shall now deal with the meaning of the phrase

''by or with the consent of the OFT''.

First, it allows private prosecutions, and secondly, it enables the OFT to close down prosecutions. The point is to permit private prosecutions. I hope that, having heard what I have had to say, Opposition Members will be happy for the amendment to be withdrawn. If not, I urge hon. Members to resist it.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I am content for the moment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

Before we move on, it is appropriate to say a little more about the clause, if only because we have not discussed subsection (3), for lack of an amendment. Clearly, many issues have been raised about the penalty and prosecution procedures, and I for one am not particularly comfortable with the

clause. This comes down to the fact that, by attempting to stand tough, we risk hurting the procedures of the courts, undermining human rights and not doing things to the standard that we expect in this country.

The offence in subsection (3) extends to agreements that are implemented, or intended to be implemented, in the United Kingdom. The exception is for agreements made outside the UK that are not implemented in the UK. If I understand that correctly, two UK companies could plot in Paris to implement an agreement in Germany without being criminals. However, they would be criminals if they missed their train and did their plotting in London instead. I would be grateful for the Under-Secretary's clarification.

I understand from the Under-Secretary's comments that the EU Commission has seen the Bill and is happy with it. I would like to know whether it considered the provisions, which would not work in a European-friendly way. What message does it send to foreign companies that our guys can operate cartels abroad, but that anyone operating a cartel here will go to prison? Cartel operations can be blatant, but they can often be complicated, as we discussed. They can also be immensely hard to prove, because what the OFT considers to be a cartel operation may not be seen as such by the companies concerned. If companies discuss international volumes of supply or international prices at a sector conference, at what point does that conversation become price fixing? Under the provisions, a foreign company is eventually likely to decide that it does not like the way things work and will not invest in this country.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

Those remarks prompt me to make a brief observation about subsection (3).

The Under-Secretary was at pains this morning to emphasise that the essence of the defence is the dishonest agreement. It is curious that in subsection (3) the emphasis is differently put on implementation. I appreciate that that will not be fatal to the creation of the offence or the founding of jurisdiction. However, in the interests of completeness and neatness, some reference to the perfection of the agreement would be appropriate.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Under the offence, prosecutions may be brought for agreements that are implemented, or intended to be implemented, in the UK. That includes agreements that are reached abroad and intended to be implemented in the UK. However, subsection (3) requires that in those circumstances, some subsequent action must have been taken to implement the agreement in the UK. That action could be no more than a clear instruction by telephone or e-mail into the UK to implement the agreement. It would be for the courts to determine whether such action had been taken. Those are the arrangements envisaged in the clause.

The hon. Member for Huntingdon mentioned other states. We make legislation that impacts on business that is conducted in this country or on matters that relate to this country, so his point would not be relevant to the Bill. It is a bit of a novelty to listen to

Conservative Members arguing that we are being insufficiently European in our approach.

Question put and agreed to.

Clause 181 ordered to stand part of the Bill.