A federal district court in Colorado last week handed the Department of Justice (DOJ) its second victory in its fight to criminally prosecute allegedly unlawful labor agreements, holding that alleged non-solicitation (or “no poach”) agreements among the defendants and their competitors constituted per se violations of Section 1 of the Sherman Act.

The ruling is the DOJ’s second major win in this space in two months. We wrote in December about United States v. Jindal, in which the DOJ prevailed in the face of a motion to dismiss its first-ever Sherman Act wage-fixing prosecution. Now, in United States v. DaVita, the DOJ has again enhanced its ability to tamp down on anticompetitive behavior in labor markets, although based on a slightly different analysis.

Click here to read the full client alert.

The US Court of Appeals for the First Circuit has added its voice to the split among circuit courts regarding the appropriate standard for deciding government motions to dismiss qui tam False Claims Act (FCA) actions after it has declined to intervene. In affirming the district court’s grant of the government’s motion to dismiss in United States ex rel. Borzilleri v. Bayer HealthCare Pharms., Inc., No. CV 14-031 WES, 2019 WL 5310209 (D.R.I. Oct. 21, 2019), the unanimous three-judge panel, in a precedential decision, held that, district courts must grant government motions to dismiss qui tam FCA complaints, unless the relator “can show that the government’s decision to seek dismissal of the qui tam action transgresses constitutional limitations or that, in moving to dismiss, the government is perpetrating a fraud on the court.”1

In so holding, the First Circuit has set forth a slightly different legal standard for assessing government motions to dismiss qui tam actions, but affirms the generally accepted principle that the government has broad – though not completely unfettered – authority to end qui tam FCA actions.

Click here to read the full client alert.

One year after the first criminal indictment for wage-fixing, a Texas federal district court has ruled that an agreement to fix wages is a per se violation of Section 1 of the Sherman Act.

While over the last century the Supreme Court and lower federal courts have developed a robust body of case law interpreting the Sherman Act’s somewhat enigmatic prohibition on “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States,” wage-fixing and so-called “no-poach” agreements have received little attention. The spotlight on wage-fixing has shifted slowly—beginning in 2016 with the joint Department of Justice (DOJ) and Federal Trade Commission (FTC) warning (and related HR guidance) that no-poach and wage-fixing agreements would be prosecuted criminally, a flurry of recent civil litigation, the first criminal indictments, and the Biden administration’s July 2021 executive order pledging to target antitrust enforcement efforts on labor markets.

The court’s opinion denying defendants’ motion to dismiss in United States v. Jindal—the Justice Department’s first-ever Sherman Act wage-fixing prosecution (discussed here)—opens up a new frontier for federal antitrust enforcement, which has traditionally focused more on sellers of goods and services than on buyers of labor.

Click here to read the full client advisory.

The World Bank Group (the Bank) issued its fourth joint Sanctions System Annual Report on October 18, covering the Bank’s fiscal year from July 1, 2020 through June 30, 2021. The report includes updates by the Integrity Vice Presidency (INT), the Office of Suspension and Debarment (OSD), and the Sanctions Board.

Notably, the number of complaints INT received in FY2021 increased significantly compared to FY2020, even though enforcement efforts slightly declined from prior years. INT submitted fewer cases to OSD, and OSD reviewed fewer cases and settlements; meanwhile, the number of cases before the Sanctions Board remained steady.

In addition to its investigative activities, INT focused on formalizing its procedures and enhancing its preventive strategies. In an effort to increase transparency, the Bank also revised its sanctions and debarment list to include a description of the sanctionable practice(s) engaged in by the sanctioned firms and individuals. Additionally, the Sanctions Board’s cases may lead to a new definition of successor liability, and further addressed the Bank’s jurisdictional reach over public officials.


Over the last year, INT underwent some significant personnel and internal structural changes under the leadership of the new vice president, Mouhamadou Diagne. While some of its most senior staff departed or retired, INT also brought new senior staff onboard, such as the new director of investigations, strategy and operations, Alan Bacarese. Also, in May 2021, INT launched a Prevention, Risk & Knowledge function to build a more robust knowledge base and analytic support for integrity risk mitigation in Bank development operations. As a result, INT has increased its advisory support and integrity risk mitigation. The new vice president’s report also emphasized INT’s intention to engage in real time monitoring to identify potential risks of misconduct.

The annual report notes that in FY2021, INT finalized its guidance paper on integrity audits. For the first time, INT articulated the scope of cooperation that is expected during the integrity audit process from entities and individuals subject to the Bank’s inspection and audit rights. This has been, in our experience, an area that has generated significant disagreement between INT personnel and contractors and consultants over the years given the varying scope of contractual audit clauses. The guidance indicates that the rights should include “accessing, examining, evaluating and verifying—in hard copy or electronic format, and through inquiry and interview testimony—financial information, books and records, supporting documents, correspondence, bids, bid preparation documents and calculations, and any other information deemed relevant by INT.” INT notes that any failure to cooperate can result in obstruction allegations—though it did not provide any additional indications on what specific conduct they would view as constituting obstruction beyond what is currently specified in the Sanctions Procedures and Anti-Corruption Guidelines. It seems clear that INT intends to use this guidance to bolster its position in its auditing activities.

Turning back to the annual report, Jamieson Smith, chief suspension and debarment officer of the Bank, noted that in the past year, the World Bank Group has revised its posting practices related to the Sanctions and Debarment list. Since January 1, 2021, the list includes a description of the sanctionable practice for which the firm or individual has been sanctioned. This applies both to debarred and cross-debarred firms and individuals. Consistent with this practice, the OSD updated its Notices of Uncontested Sanctions Proceedings, providing additional information about the underlying sanctionable practice.

In relation to the Sanctions Board, the report notes that FY2021 saw some changes in the composition of the Sanctions Board: the terms of Alejandro Escobar and Olufunke Adekoya came to an end; and Adedoyin Rhodes-Vivour and Eduardo Zuleta were appointed as new members.

Sanctions Board Executive Secretary Guiliana Dunham Irving’s section of the report trumpeted recent legal clarifications emanating from the Sanctions Board’s decisions. One highlighted was an anticipated enhancement to the Bank’s rules on successor liability. The report noted that the Sanctions Board’s observation in Decision No. 101 of the Bank’s lack of definition of the term “successor” resulted in a response by management to fill this gap through an upcoming approval of a definition of the term and clarification of responsibilities within the Bank for successorship determination. Decision No. 101 found that INT had abused its discretion in finding that an entity that had acquired assets from a sanctioned firm was a successor. It will be interesting to see if the new rule, when adopted, moves the responsibility for such determinations either to a specific part of INT, such as the Integrity Compliance Officer (ICO) or to a different part of the Bank entirely.

The report also notes that the Sanctions Board further addressed the reach of the system to public officials in its recent decisions. Consistent with its prior decisions, the Sanctions Board emphasizes that it does sanction “public officials”—individuals taking or reviewing selection or procurement process decisions, but not “government officials,” who remain beyond its remit. In one of its decisions published in FY2021 (Sanctions Board Decision No. 133), the Sanctions Board found that an individual carrying out project management functions under a Bank funded project was a public official, and that the “to influence the action of a public official in the selection process or in contract execution” element of a corrupt practice would be satisfied if the individual solicited and received payments to influence his own behavior.


In FY2021, INT received 4,311 complaints. Despite the significantly higher number of complaints received compared to FY2020 (2,598), INT opened fewer preliminary investigations (347 compared to 429 in FY2020), resulting in 40 new investigations. 1

Once INT completes an investigation and finds sanctionable practices, it refers any case that has not been settled by a negotiated resolution to OSD for a determination on whether formal sanctions proceedings should be opened. It also submits settlements to OSD for approval. In FY2021, INT submitted 17 cases and 18 settlements to OSD—a much lower number than in FY2020 (26 cases and 22 settlements in FY2020).

OSD reviewed 20 cases (including cases submitted in the previous fiscal year) and 18 settlements, resulting in the temporary suspension of 19 entities and four individuals, dropping from 36 cases and 16 settlements in FY2019 to 20 cases and 22 settlements in FY2020. Of those temporarily suspended respondents, eight respondents appealed and submitted an explanation to OSD. As a result, OSD reduced the recommended sanction for five respondents. The remaining 29 respondents did not appeal and were sanctioned by OSD via uncontested determinations.

Overall, OSD rejected two cases that INT submitted based on insufficient evidence on all claims. In seven of the 20 cases, OSD found insufficient evidence for at least one claim. For the remaining 11 cases submitted by INT, OSD found sufficient evidence for all claims. This rate seems to be roughly on par with previous years.

As we have seen in previous years, cases and settlements reviewed by OSD are mainly based on fraud allegations (87%); 24% included collusion allegations, 21% included corruption allegations, and only 8% included obstruction allegations. Consistent with the last four years, OSD did not review any cases of coercion.

The report highlights the fact that two-thirds of all cases referred for sanctions are resolved at the OSD level. Many of these are uncontested cases.

The Sanctions Board issued five decisions as well as one decision on a request for reconsideration of a previous Sanctions Board decision, and convened five times during FY2021. The number of firms and individuals sanctioned increased slightly from seven in FY2020 to eight in 2021. More than half—57%—of cases in FY2021 involved respondents represented by counsel.

As part of INT’s collaboration with national authorities, it made 13 referrals to 13 different recipients, which included information about the allegations, findings of an investigation, and actions taken by the Bank. This referral number is four fewer than in FY2020, and 29 fewer than in FY2019.

Compliance: In FY2021, the ICO provided 58 notices to newly sanctioned parties and engaged with 118 sanctioned parties overall. In addition, the ICO released 30 sanctioned parties from their debarment, compared to 18 in FY2020. Since 2010, the ICO has worked with sanctioned companies in implementing integrity compliance programs consistent with the principles of the Bank.

Timeline of the sanctions process: INT completed 50% of its investigations over a period of more than 18 months; 29% of the investigations lasted between 12-18 months, and the remaining 21% were completed within 12 months.


Overall, the enforcement statistics in FY2021 have decreased somewhat. However, the annual report shows that INT, OSD, and the Sanctions Board continue to maintain their anti-fraud and anti-corruption efforts. Various policy developments and clarification of legal definitions evidence the Bank’s intention to remain diligent about its investigations and sanctions system. With INT’s newly released Integrity Audit guidance and its adoption of more flexible and creative investigative techniques and tools demanded by the pandemic, we can expect INT to be even more rigid and expansive in its audits.

Companies involved in World Bank-funded projects are, more than ever, urged to implement and maintain a robust compliance system to prevent any misconduct throughout the bidding process or contract implementation. Inquiries from INT should not be viewed as ordinary-course audits, but as akin to a law enforcement investigation. As the system becomes more judicialized and prior decisions play an increasingly large role in outcomes, companies need to take steps to ensure they are properly advised and protected should any allegations of misconduct in connection with a World Bank-financed project surface.



1 The 40 new investigations include: nine in East Asia Pacific; eight in Eastern and Southern Africa; seven in Europe and Central Asia; seven in South Asia; four in Central and Western Africa; three in Latin America/Caribbean; one in Middle East/North Africa; and one related to the International Finance Cooperation.

On October 28, 2021, Deputy Attorney General (DAG) Lisa Monaco outlined sweeping changes to the Department of Justice’s (DOJ) prosecution of corporate crime, signaling a tougher stance on white collar crimes than the previous administration. In a speech at the ABA’s National Institute on White Collar Crime, DAG Monaco announced key policy changes at DOJ, including (i) heightened requirements to receive full cooperation credit and focus on individual accountability; (ii) consideration of a corporation’s criminal, civil, and regulatory conduct when evaluating a case; and (iii) potential implementation of corporate monitoring programs.

DAG Monaco announced these changes as part of a larger framework to “invigorate” DOJ’s corporate enforcement program. DOJ will also focus on whether pretrial diversion programs are effective in deterring repeat offenders of corporate wrongdoing, noting that there will be “serious consequences” for companies that violate the terms of any deferred prosecution agreement (DPA) or non-prosecution agreement (NPA). At the same time, DAG Monaco noted that DOJ would devote significant resources to assist with corporate enforcement, announcing the formation of the Corporate Crime Advisory Group to assist in investigations of corporate crime. These key policy changes offer a clear preview of the DOJ’s enhanced corporate enforcement program.

Click here to read the full client advisory.

No-poach and wage-fixing agreements – arrangements between companies seeking to prevent or limit the hiring of each other’s employees, or to suppress the wages and/or benefits of their respective current employees are not only currently under the spotlight in the US, but have also been subject to scrutiny by antitrust authorities in the European Union (EU), albeit to a more limited degree. These antitrust infringement decisions have mostly been taken by EU Member State national competition authorities (NCAs), rather than by the European Commission (EC) (the foremost enforcer of EU competition law). The US antitrust regime will be relevant to companies from third countries that have US subsidiaries or that participate in joint ventures or private equity investments in the US, but this alert focuses on the emerging body of EU and Member State law relating to anti-competitive labour practices and highlights the need for those companies with European operations or investments to take note of them. Potential liability for EU antitrust failings may extend to a number of circumstances, including where the parent holds only a minority stake, potentially coupled with nominee directors sitting on subsidiary company boards, and even where a buyout or private equity firm has no involvement in, or awareness of, the alleged wrongdoing. As with labor-related restrictions in the US, the growing use of fines by EU Member States for violations of competition law through no-poach, no-hire, wage-fixing and staff data sharing calls for increased coordination between sales managers, human resource departments, and antitrust legal and compliance officers.

Click here to read the full client advisory.


Steptoe’s recent quarterly Investigations & Enforcement webinar, held on May 12, included a discussion on Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) enforcement trends. In this blog post we summarize the SEC and CFTC enforcement trends, including developments related to insider trading, Regulation FD, climate and ESG, whistleblowers and other trends. For those who missed the webinar, click here to access the recording.

Continue Reading Quarterly Investigations and Enforcement Webinar Recap – SEC and CFTC Enforcement

On May 12, 2021, US District Judge Nathaniel M. Gorton sentenced former TPG Capital private equity executive William McGlashan Jr. to three months in prison for his part in the “Varsity Blues” college admissions scheme.[1] In addition to the three-month term, Judge Gordon ordered McGlashan to undergo two years of supervised release, 250 hours of community service, and pay a $250,000 fine.[2] McGlashan is the 30th parent to plead guilty in the case.[3]

Continue Reading Former TPG Capital Executive Sentenced to Three-Month Prison Term in Varsity Blues Case

The goal of the Company Directors Disqualification Act 1986 (‘CDDA’) is to protect the public and to deter competition law breaches. This subjects director behaviour to close scrutiny by courts and regulators, whose public enforcement goals differ from those associated with general company law director duties. In recent years the risk of disqualification has also been heightened, with directors being disqualified from being involved in the management of companies for infringements of UK competition with increasing frequency, and for lengthening periods of disbarment.

As the UK Competition and Markets Authority (“CMA”) ramps up its enforcement activity, in this article we summarise the key obligations imposed on directors under UK company law and compare these with the standards of review to which directors will be subject under the CDDA, in each case with particular refence to non-executive directors (‘NEDs’). We also offer practical steps to avert the risk of a career-endangering disqualification order.

Recent developments

We outline below recent cases which provide a clear warning sign that executive directors and NEDs need to demonstrate an appropriate awareness of competition law and an effective degree of oversight at board level, in order to avoid disqualification.

In March 2021, two directors were disqualified by the CMA for periods of eleven and twelve years respectively, for their role in a cartel in which their company was involved in the precast concrete drainage products market. This followed the first contested court ruling in 2020 which determined the issue of director disqualification for a competition law breach, where a merely passive stance resulted in disqualification (CMA v Martin).

Most recently, following the CMA decision in the roofing materials cartel, three directors were disqualified under the CDDA for three, four and six and a half years, respectively, with effect from May 30, 2021. Two of the directors made a court application seeking permission to be allowed to continue acting as directors of certain companies. On  May 13, 2021, the court granted permission, pending a full hearing, subject to strict conditions that not only outline necessary corrective steps but also place reliance on a NED’s independent supervisory role:

  • A named individual is to act as a NED of the companies, with his replacement requiring approval from the CMA.
  • The NED will be responsible for supervising the companies and must report to the boards regarding competition law compliance.
  • A named consultant is to be responsible for monitoring the performance of the corporate group and certain other named directors must remain on the board.
  • All staff employed by and all directors of the relevant companies must engage in annual competition law compliance training.
  • Each company’s email servers will be subject to searches for terms indicative of possible competition law breaches.
  • Competition law compliance matters must be considered and minuted at board meetings.

NED role and oversight

Consistent with the role of independent adviser or supervisor, a NED does not hold executive office but instead helps in the development of a company through external oversight and constructive challenge relying on their experience and expertise. This independent oversight and guidance is typically provided on a part-time basis (likely attending monthly or quarterly board meetings) and with limited exposure to the underlying daily operations of the company.  NEDs are also not considered to be employees of the company.

English company law duties

English company law makes no explicit legal distinction between the legal responsibilities and duties applicable to full-time executive directors and a NED. Accordingly, NEDs face the same legal responsibilities and liabilities as the executive directors and are obliged to act within the terms of their powers, to promote the success and interests of the company (as they perceive it, acting in good faith), to exercise independent judgment, reasonable care, skill and diligence and to avoid (or, alternatively, declare and have approved) conflicts of interest. The discharge of the duty of care to the company is gauged having regard to the higher of two levels of knowledge, skill and experience, namely that which the director should have (given his role) and that actually possessed by the relevant director.  For example, a NED who has had a career in the financial services industry is likely to be expected to have a higher degree of knowledge with regard to financial matters and will be expected to bring such knowledge to bear on matters involving, for example, accounting issues. The director is subject to the duty not to accept benefits from third parties and must also declare any interests in proposed transactions.

As with executive directors, NEDs may be held responsible if a loss should occur due to breaches of their assigned duties.  Similarly, if a company’s board becomes subject to an investigation by a law enforcement agency, such an investigation will likely include the actions or omissions of NEDs.  By way of illustration, a 2010 consultation paper issued by the (then called) Financial Services Authority (FSA) stated that “NEDs have a pivotal role to play in the active governance of firms.  Where it appears to us that executives have persistently made poor decisions, we will look closely at NEDs’ performance if we feel they have not intervened in a timely and sufficient way.  We are concerned that the existing guidance could be misinterpreted and taken to mean that we would not hold NEDs responsible for, for example, failing to intervene and challenge the executive.  This is not the case, as we see such challenge and intervention as a key part of any NED’s responsibilities”.

NEDs should have a proper understanding of the company’s business and show diligence in attending board meetings including by insisting on receiving high-quality information sufficiently in advance of meetings to allow them to make a meaningful contribution. They must take reasonable steps to ensure that they guide and monitor the management of the company and provide constructive and robust challenge to the board, and contribute to the development of strategy, bringing their experience and expertise to bear. Directors (including NEDs) cannot evade their duties by leaving decisions to others, nor should they allow one director to dominate the board. Directors, acting as a board, can delegate executive responsibilities and particular functions to individual directors and to those operating at other levels of management. They can also reasonably assume that those to whom executive tasks have been entrusted will display competence and integrity. However, a director is not relieved from the duty to supervise the discharge of those delegated powers.

There is no universal rule that can be applied in determining whether directors’ duties have been performed and any assessment will be fact-dependent. For instance, whether a NED reasonably relied on the executive directors and management to perform delegated duties honestly and diligently will include an assessment of the degree to which the NED has shown independence of judgment and an appropriate level of supervision.

However, under the UK director disqualification laws, the consequences of poor oversight can be career-endangering and bring about liability, ultimately both criminal and civil.  In particular:

  • Section 13 CDDA provides that it is a criminal offence for any person to act in contravention of a company director disqualification order or undertaking;
  • Section 15 CDDA provides that when a person is in contravention of either they become personally liable for all the debts and liabilities of the company incurred during the period that they were involved in the management of the company.

Powers under the Company Directors Disqualification Act 1986

Under the CDDA, a court has wide powers to make a disqualification order against a person, prohibiting him from acting as a director and from being concerned, directly or indirectly, in the promotion, formation or management, of an English company for a period of up to 15 years. Originally these disqualification powers related to a director’s role in a corporate insolvency. They also arose where serious or persistent breaches of English company law had occurred or if directors were convicted of certain offences. Director disqualification undertakings could also be sought from individuals by the Secretary of State.

Since the advent of the Enterprise Act 2002, it has been possible for the UK competition authority and also for certain regulators with concurrent enforcement powers (in the financial services, health, water, telecommunications, energy, rail and aviation sectors) to apply to the court for a director disqualification order.

The court must make a disqualification order against a person if two conditions are satisfied. The first is that the company of which he is a director has committed certain breaches of UK competition law. The second condition is that the court considers that his conduct as a director makes him unfit to be concerned in the management of a company.

Procedural issues

Section 9B of the CDDA empowers the CMA (or relevant regulator) to seek a disqualification undertaking from a director if the CMA “thinks” that a company has committed a relevant competition law infringement and that a director’s conduct renders him unfit. If the director refrains from offering an undertaking when requested to do so, and if the CMA proceeds to issue a formal notice that it intends to apply to the court for a disqualification order, the CMA can be expected to seek a longer period of disqualification than that offered by means of a director undertaking if the matter is adjudicated in the CMA’s favour. This raises an issue of procedural fairness that was considered by the court in CMA v Martin. However, the court felt it was appropriate to make a seven-year disqualification order. This was a period around double in length to that imposed on other directors involved in the same competition law infringement, who had accepted disqualification undertakings.


In considering whether an individual’s conduct makes him unfit to be concerned in the management of a company, under sub-sections 9(A)(6) and (7) CDDA, a court’s decision will include an assessment of whether:

  1. The director’s conduct contributed to the breach of competition law. It is not necessary or relevant that the director actually knew that the conduct of the undertaking constituted a breach of competition law.
  2. The director’s conduct did not contribute to the breach, but he had reasonable grounds to suspect that the conduct of the relevant company constituted a breach of competition law and he did not take any steps to prevent it.
  3. The director did not know, but ought to have known, that the company’s conduct constituted a breach of competition law.

The court may also have regard to the director’s conduct as a director of other companies relating to any other breach of competition law. If the court is satisfied that the conduct of a director renders that director unfit, it must make a disqualification order. A disqualification order can last for up to 15 years.

The application of the CDDA to competition law breaches is intended to reinforce and enhance boardroom compliance with the requirements of competition law and to deter behaviour harmful to the public, both generally and specifically in relation to all those directors whose conduct has fallen short. It is also intended to maintain and improve the standards of corporate management. The CDDA power of disqualification for competition law infringements has been used increasingly frequently and with ever-greater impact. CMA v Martin, the first contested case in which a court has made competition law disqualification order, provides strong judicial support for disqualification and a broad approach to section 9(A) of the CDDA.

The most recent Guidance on competition disqualification orders issued by the CMA (on 6th February 2019) indicates that when considering disqualification issues relating to a director, it will always consider the statutory factors listed in paragraphs 1 to 3 above. The CMA may take into account factors that include:

  • the nature and seriousness of the infringement;
  • the duration of the infringement;
  • the impact, or potential impact, of the infringement on consumers;
  • the conduct of the undertaking during the CMA’s investigation; and
  • any previous breaches of competition law committed by the ‘undertaking’ (broadly speaking the company and its corporate group).

The CMA will assess the nature and extent of the director’s responsibility for, or involvement in, the competition law breach, when determining director unfitness.

The NED’s role

The CDDA’s requirements and CMA Guidance require NEDs to be aware of what constitutes a competition law breach. The CMA considers that company directors have a responsibility to remain well informed about their company’s activities and to ensure that they comply with competition law. Whilst the skill and knowledge levels required under UK company law are those appropriate to a director’s position and the activities of the company, a NED will be expected by the CMA to understand the most serious forms of infringement of competition law. The conditions (outlined earlier) attached to the interim order enabling directors who had accepted disqualification undertakings to continue to act plainly indicate heightened CMA expectations of NEDs in preventing further transgressions. It is very clear that adopting a merely passive role will not be acceptable.

In CMA v Martin, the defendant was not involved in day-to-day operations (including pricing or sales). He did not initiate, implement, or direct staff to participate in or approve the infringement, nor did he attend meetings at which estate agent commissions were fixed. He took no active steps with respect to the activities that constituted the breach and claimed that he tried to ensure a corporate culture of competitive pricing. However, the defendant saw emails referable to the cartel that the court decided fixed him with knowledge of it. The court held that, in taking no steps to prevent the implementation of the commission-fixing arrangement, he contributed to it. He would also have been caught by the third ground for a disqualification order, namely that he ought to have known that the emails and the meetings that were being convened related to a cartel that constituted a breach of competition law, particularly since he professed to be aware of UK competition law. The court concluded that, since the inactivity of the defendant contributed to the breach, it did not need to determine this issue, but that it would “plainly” have been a ground for disqualification.

The section 9(A) CDDA basis for liability outlined above creates a net with a relatively fine mesh. Evading it will mean achieving a degree of familiarity with the following key provisions of the Competition Act 1998, the infringement of which can trigger a CDDA disqualification order. Although those breaches listed in paragraphs (v) to (viii) below are the usual ones that form the basis for a disqualification order, those in paragraphs (i) to (iv) are also regarded as serious violations that trigger an uplift in company fines and remain a potential ground for director disqualification.

Chapter I of the Competition Act 1998: prohibits anti-competitive agreements. Serious infringements in a supplier and reseller arrangement are:

(i)                 the conferral of absolute territorial exclusivity on a reseller (leaving no prospect of a reseller responding to passive or non-actively solicited enquiries from outside its territory);

(ii)               resale price maintenance (imposing minimum or fixed resale prices on a reseller);

(iii)             a ban on the use of the Internet by a reseller; and

(iv)             prohibiting authorized distributors in a selective distribution network from selling to each other or (if active as retailers) to end users.

In an agreement between competitors, the following would be regarded as serious restrictions:

(v)               price fixing;

(vi)             output limitation (agreeing the volume of products to be put on the market and thereby restricting supply);

(vii)           allocating markets or customers; or

(viii)         an exchange of strategic information (which may result in a collusive outcome).

Chapter II of the Competition Act 1998: prohibits a ‘dominant’ undertaking from abusing that dominance. Abuses are broadly divisible into:

(i)     exclusionary abuses that involve consolidating and/or reinforcing the dominant undertaking’s strength in the market, e.g. a refusal to deal or to license, predatory pricing, exclusive dealing or engaging in market foreclosing rebates; and

(ii)   exploitative abuses, where the dominant undertaking takes advantage of the fact that neither customers nor competitors are able to restrain its commercial behaviour, e.g. excessive pricing.

Company directors should have an understanding of their product and geographic markets (as determined by reference to product substitution and homogeneous conditions of competition respectively). A market share of 50% plus is indicative of dominance but other factors, such as barriers to entry and countervailing buyer power are also relevant. It is only when armed with this knowledge that a NED can have an appreciation of whether the Chapter II prohibition might be being infringed by a particular commercial practice being proposed to the board.

Under the Enterprise Act 2002, as amended by the Enterprise and Regulatory Reform Act 2013, there is the possibility of individuals being criminally prosecuted for hardcore cartels, such as price-fixing or bid-rigging between competitors. This is potentially a ground for disqualification as an indictable offence if a conviction occurs or (which is far more likely), if it is also a breach of the Chapter I Prohibition. The lack of convictions under the Enterprise Act 2002 is notable (they have only occurred where the executive has pleaded guilty). This has spurred the CMA to make far greater use of director disqualifications as a means of deterring individuals from breaching UK competition law and punishing those who do.

The above legal framework will be relevant in determining whether a NED:

  • may have contributed to a breach (irrespective of actual NED awareness);
  • had reasonable grounds to suspect that the company’s conduct constituted a breach of competition law (when he should be taking the necessary steps to prevent it); or
  • ought to have known that the company’s conduct constituted a breach of competition law.

The first of these disqualification grounds is probably most applicable to an executive director. Nevertheless, a number of relevant decisions may require authorisation at board level and will be subject to NED scrutiny. Without an adequate and up to date knowledge of competition law, coupled with a degree of diligence that potentially exceeds that required of him under company law, a NED may find that he has approved a misstep that contributes unwittingly to an infringement.

The existence of reasonable grounds for suspecting a breach will be judged objectively by reference to emails, company records, circumstantial evidence and oral statements. The paper trail, when examined after the event, may not make for comfortable reading if the NED was not knowledgeable and alert to the potential danger signs when they arose. If the NED should reasonably have suspected a breach, his obligations go beyond those of mere inquiry; his subsequent actions should avert the infringement or mitigate any breach that has occurred. An appreciation of the necessary actions, in the form of obtaining privileged legal advice, engaging in further due diligence and possibly submitting a CMA leniency application, will be critical.

The final, broadly expressed, pitfall is the issue of whether a NED ‘ought to have known’ of any violation. This critical question will be assessed subjectively by reference to the level of awareness a director should have possessed, given his role and experience.


The CMA considers that company directors have a special responsibility to maintain adequate levels of competition law knowledge and a suitable awareness of their company’s activities, NEDs will need to apply both in order to ward off threats to competition law compliance and their boardroom roles.

The ruling in CMA v Martin is clearly favourable to the CMA (or any relevant regulator) seeking to obtain a disqualification order or undertaking. It takes a broad view of how passive behaviour can amount to a contribution to an infringement that will trigger liability and acknowledges the relative ease with which the final additional ground for liability can arise, when a director ought to have been aware that that corporate conduct constitutes a competition law infringement.

The CMA takes a case-by-case approach to director disqualification and the OFT guidance issued in 2010 has been withdrawn to enable this further. However, the 2010 OFT Guidance helpfully highlights some pitfalls that directors should avoid:

  • planning, devising, approving or encouraging the infringement;
  • attending meetings, ordering or inducing employees to participate (directly or indirectly);
  • authorizing activity referable to the breach (with knowledge or reasonable grounds for suspecting the violation)
  • once apprised of facts that constitute knowledge or reasonable grounds for suspicion of a breach, failing to take active steps or to demonstrate a response aimed at preventing it or mitigating the breach once it has occurred, including raising the matter with external lawyers in order to determine how best to reduce the risks to the company and to consumers (this may entail an approach to the CMA or relevant regulator)

Directors should be aware that each of them will be attributed with the knowledge he ought to have had, given the role he occupied (including that of a NED), and accordingly each should demonstrate active oversight and supervision, remaining alert to company activities that might call for further inquiry.

In light of the increasing vulnerability of all directors to disqualification, NEDs that remain in doubt whether a competition law breach is in train should consider obtaining legal advice (potentially at the expense of the company) if they consider it necessary to discharge their responsibilities as directors and to protect their reputations.

A court in the Southern District of New York recently issued a noteworthy opinion in addressing a discovery dispute concerning communications between a non-party witness at the center of the SEC’s allegations and her attorneys, to whom she provided false information expecting they would pass it along to the SEC. In denying defendants’ request to examine the witness’s attorneys on these issues, the court held that although certain communications were no longer privileged because the witness waived the privilege and the crime-fraud exception applied, it would limit the extent to which the defendant could examine the attorneys on those communications on the basis of the proportionality requirement under Rule 26. The opinion serves as an apt reminder to defense counsel seeking exculpatory information being withheld as privileged that Rule 26’s proportionality requirement may pose an additional hoop through which to jump, even where arguments regarding the crime-fraud exception and waiver are successful.

Continue Reading Court Invokes Rule 26 Proportionality Requirement as Added Barrier to Discovery in SEC Action