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The jailing of three former Dunlop Oil and Marine Limited executives last week for a sophisticated cartel that conned millions of pounds out of the Ministry of Defence and others for specialist marine hosing has sent a stark message.

UK boardrooms are now on notice that competition compliance matters and that failure to heed will hit individuals’ liberty, not just their pockets.

The prosecution was the first brought under the Enterprise Act 2002 and an important test of that legislation in bolstering competition law.

Southwark Crown Court was told of a long-running illicit price-fixing operation, thought to have inflated prices by up to 18 per cent on global orders of up to £75 million a year. Its worldwide reach and complexity was so great that a full-time “co-ordinator” was needed to ensure that the operation ran seamlessly.

Despite the cartel’s efforts, suspicions were aroused and a joint investigation was launched by the Office of Fair Trading (OFT) and the US Department of Justice.

The operation culminated in the arrests in Houston in May last year of Bryan Allison, 52, then managing director of the Grimsby-based Dunlop Oil and Marine Limited, and the company’s then marketing director, David Brammar, 45. Also arrested was Peter Whittle, 51, a former colleague. At the same time, OFT investigators raided Dunlop’s offices and Whittle’s home, seizing “compelling” evidence.

All three admitted dishonestly participating in a cartel. According to the indictment, the operation involved the allocation of markets and customers, the restriction of supplies, fixing prices and rigging bids for the supply of marine hosing — used to transport oil from tankers to shore — and ancillary equipment.

Investigators believe that the cartel may have been running since the 1970s.

Allison, of Cleethorpes, and Whittle, of Louth, in Lincolnshire, were each jailed for three years, and Brammar, of Humberston, Lincolnshire, received two and a half years. Passing sentence, Judge Geoffrey Rivlin, QC, told them that evidence amply demonstrated that they had been part of a “long-running, entrenched cartel” involving “carefully orchestrated bid rigging”.

The case breaks ground on several fronts — most obviously in being the first test of the law. John Fingleton, chief executive of the OFT, says: “This first criminal prosecution sends a clear message about the seriousness with which UK law views cartel behaviour. The OFT will continue to investigate and prosecute cartels vigorously.”

It also highlights a new co-operation between the UK and US prosecuting authorities that will be welcome — particularly, this week, to the likes of Gary McKinnon.

In an appeal with implications for other British businessmen sought by US prosecutors, Gary McKinnon, a systems analyst, is accused by the US of causing £475,000 damage by gaining access to 97 computer systems belonging to the Pentagon, Nasa and the US military.

His counsel, David Pannick, QC, told the law lords that extradition would be an abuse of process, as McKinnon, 44, had been warned by US authorities that unless he agreed to plead guilty and to extradition he faced a life sentence rather than a couple of years in jail. A US Embassy legal official in the case had also quoted New Jersey authorities as saying they wanted to see McKinnon “fry”, Pannick said. If he did not co-operate, the matter could be treated as a terrorism case — possibly resulting in a 60-year sentence in a US maximum security prison if McKinnon was found guilty on all six indictments, the law lords were told.

So with US prosecuting authorities increasingly breathing down the necks of British businessmen, the Dunlop three convictions can be welcomed because the three men will be serving their sentences here. The trio had faced jail in the US until Peters & Peters, their London lawyers, brokered a ground-breaking deal between the OFT and the Department of Justice (DoJ) last November.

Under this, the men pleaded guilty to the US authorities on the understanding that the DoJ would hand it over to the OFT for prosecution. US prosecutors agreed that the trio would serve time in jail in America only if British courts handed down short sentences, setting a precedent for all transatlantic cartel investigations.

Bea Tormey, competition partner at Freshfields Bruckhaus Deringer, says that the convictions, five years after the Enterprise Act 2002 came into force, had been keenly awaited and indicated the severity with which such offences were going to be regarded.

“Even with full co-operation and guilty pleas at the earliest possible opportunity, sentences towards the upper end of the statutory range were imposed.” Future offences are likely to be dealt with even more severely: the judge had taken account that it was the first prosecution under the cartel offence and that the conduct had began before it was criminalised by the Act. Such mitigating factors, Tormey adds, “would not be available to future defendants”.

But there is a silver lining. The OFT’s so-called leniency regime carries with it significant incentives for whistleblowers. Companies must have effective antitrust compliance measures in place; but, argues Tormey, these must also include confidential internal reporting channels, to encourage employees to report any “problematic behaviour” directly to their bosses. Companies must take every step to ensure that they obtain every benefit of the leniency regime — so as to obtain immunity from criminal prosecutions.

Simon Neill, head of competition at Osborne Clarke, says: “For the US and now the OFT, securing substantial jail sentences for individual cartellists is seen as the single most effective deterrent for cartel behaviour.”

If the UK follows the US, cartellists should be “very worried”, he says. In the US, the percentage of defendants sentenced to jail rose from 38 per cent in 2000 to 87 per cent in 2007 — and the average prison term imposed on foreign defendants in international cartels rose from 3.4 months to 12 months.

If price-fixing is suspected, he says, seeking speedy legal advice and acting quickly to blow the whistle may well be the difference between prison and a get-out-of-jail-free card.

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