Sergiy Glushchenko of Asters in Kiev looks at the new antimonopoly fine regime
In response to criticism about the lack of transparency in how and when The Antimonopoly Committee of Ukraine (the AMC) would fine, on September 15 2015 the AMC published guidelines (the guidelines) outlining its fining regime.
The guidelines are aimed at enhancing transparency, predictability and impartiality of the AMC’s fining policy.
Under the guidelines, fines will now be based on the principles of proportionality, non-discrimination and reasonableness. Yet, as discussed below, when considering how fines are calculated, the use of these principles is more declarative than real.
Though the guidelines are rather brief, they are of general application to all substantive (i.e. unilateral and multilateral cases, putting into effect problematic mergers without clearance) and procedural infringements (withholding and supplying incorrect information, obstructing the AMC’s investigations, putting into effect non-problematic mergers without clearance, etc).
The guidelines allow the AMC to depart from its methodology. Firstly, the AMC is free to set higher fines in exceptional cases to achieve deterrence. Secondly, the AMC may apply a symbolic fine, although it must explain its reasoning.
Methodology of the guidelines
Fines are determined through a two-stage process. First, the AMC determines the basic amount after assessing the infringement. Then, the AMC adjusts the fine upwards or downwards based on factors specific to each undertaking.
The main innovation of the guidelines is that a fine for infringements will normally be based on the percentage of the relevant sales (net of rebates, VAT and other taxes) to which the infringement relates.
The concept of relevant sales does not necessarily relate to the relevant product market, as the AMC may also take into account the sales belonging to another product market if they are influenced by the infringement. However, the guidelines are not sufficiently clear on what these indirect sales mean in practice. Potentially, they may be relevant in the context of the products affected by: the upstream cartel, tying cases, complementary products, or spill-overs into upstream or downstream markets in problematic mergers.
Duration is integrated into the determination of relevant sales, as they will generally be calculated for the period starting from the outset of the infringement until its voluntary termination/the day the prohibition decision is adopted by the AMC.
Notably, the fine for putting into effect a substantively problematic merger without clearance will also be calculated over the period of the infringement. First, this means that not filing at all should naturally attract higher fines than jumping-the-gun. Second, taking into account duration in such cases suggests that the AMC may now consider these infringements to have a continuous – rather than singular – nature. If this is indeed the case (which is yet to be clarified), then the five-year limitation period for non-notified mergers should start from the day when the infringement is brought to an end (e.g, by obtaining the AMC's merger clearance or by giving up control), rather than the day when the infringement was committed (i.e. when the transaction is closed without the AMC's clearence).
Relevant sales will be calculated by the relevant territory of Ukraine. This does not mean, however, that the guidelines preclude the AMC from using extra-territorial calculation methods.
For example, where there are no sales in Ukraine (e.g. worldwide market sharing cartel), there is sufficient latitude in the guidelines to allow the AMC to take into account the undertakings’ turnover in the relevant geographic area – wider than Ukraine – as a proxy for calculation of the hypothetical Ukrainian sales.
Theoretically, the AMC may also base the fine on internal sales of cartelised products to a non-Ukrainian undertaking if these are then transformed into finished products and sold to independent third parties within Ukraine. Yet, this somewhat stretched approach may be challenged on the ground that intra-group sales are screened by the Ukrainian competition law for the purpose of the merger control analysis.
Having determined the relevant sales, the AMC determines the percentage of these sales to reflect the gravity of the infringement. However, it follows that the only factor which is relevant for this exercise is the nature of the infringement. On that basis, the guidelines categorise the gravity of an infringement as:
Other potentially relevant circumstances of the case (e.g, size of the undertaking, combined market share, number of undertakings involved, implementation, nature of the product, dynamics of the market, legal framework, etc.) are not taken into account by the AMC when deciding the percentage.
In most cases, it appears there is no selection of percentage of relevant sales as such. Namely, in contrast to the EU, where the Commission's discretion is involved in selecting the figure within the range from 0 to 30% of the relevant sales – the AMC will mechanically use fixed flat-rates of 5% in some medium cases, 30% in all serious cases and 45% in all very serious cases. Essentially, such mechanisation lowers the standard of proof in the sense that the decisions of the AMC contain no actual reasoning to explain the basic amount of the fine.
Relatedly, failure to take into account the size of the undertaking coupled with the aforesaid fixed flat-rates may also raise proportionality/discrimination concerns in cases involving mono-product companies active mainly in Ukraine, as they will likely pay a higher price for an infringement than an equally-culpable, large multinationals. This is because the fine imposed on such local mono-product companies will represent a higher percentage of their total (global) turnover than similar fines on larger multinationals selling a variety of products across the globe.
Under the guidelines, if aggravating factors are present, the basic amount should not exceed two-thirds of the statutory threshold set for the respective infringement (e.g, 10% of the total consolidated global turnover in very serious cases), which implies that the AMC unreasonably considers the statutory threshold as a mere cap, rather than the maximum fine.
If aggravating or mitigating factors are present, the basic fine may be further adjusted upwards or downwards.
The non-exhaustive list of factors that the AMC may take into account to increase the fine by 50% include: (i) the role of instigator or leader, (ii) obstruction of justice and (iii) refusal to cooperate.
(i) The guidelines do not explain the notion of instigator and leader. However, some clarity is present in the AMC’s 2012 Leniency Notice1. The latter defines the leader as an entity that initiated, coordinated or gave instructions in relation to actions required to align competitive behavior and/or controlled their performance and/or coerced other undertakings to participate in the conduct.
(ii) Given that the guidelines expressly limit obstruction of justice as an aggravating factor to cases, other than stand-alone procedural infringements (i.e, refusing to submit to an inspection, preventing the AMC from sealing premises, etc), it is not quite clear what actions may aggravate substantive infringements. Theoretically, this may happen when an undertaking, regardless of the AMC's investigation, obstructs justice by keeping the infringement in action extending its duration. On the other hand, using this as a ground for an uplift may raise double-jeopardy concerns, as duration is already taken into account in the relevant sales calculated over the period of the infringement.
(iii) Likewise, the guidelines are not straightforward on what may amount to a refusal to cooperate. At the same time, refusal to answer to the AMC’s questions during investigation framed in the way that solicit self-incriminatory replies should reasonably not be treated as an aggravating factor.
Apart from that, the guidelines allow the AMC to increase the fine by 100% for repeat offenders in all cases, except the informational infringements (withholding and supplying incomplete or incorrect information). Yet again, the guidelines are silent on the limitation period for this rule, as well as whether infringements of the different nature (e.g, multilateral versus unilateral cases) are sufficiently similar to find recidivism.
The non-exhaustive list of factors that the AMC may take into account to decrease the fine by 50% include: (i) termination of the infringement; (ii) compensation of the damage caused by the infringement; (iii) removal of the factors that abet the infringement, (iv) deviation from a cartel by adopting a competitive conduct on the market; (v) effective cooperation within investigation; (vi) actions encouraged by public authorities or when the offender is in economic dependence; (vii) corrective merger filing submitted to the AMC before an infringement case is opened.
Notably, existence of a competition compliance programme is not included in the above list. On the other hand, the guidelines have an additional provision saying that, in addition to the aforesaid factors, the AMC may also decide to reduce the fine when an undertaking 'performs any actions that mitigate the negative effect from the infringement'. It remains to be seen if the effective compliance programme will reduce the fine with reference to the above provision.
On the one hand, the guidelines are good as they shed some light on what is taken into account by the AMC and by which method the fine is calculated. On the other hand, the fundamental step of the calculation in the proposed methodology is based on mechanical judgement devoid of any human reasoning, which lowers the standard of proof and makes the guidelines disproportionate to local mono-product companies vis-à-vis their multinational competitors.
This manifests in the recent practice of the AMC, which creates an impression that determining the basic amount of a fine is nothing more than a rubber stamp for the agency. What the EU Commission may explain on 10 pages2, the AMC considers unnecessary to dedicate even a sentence to, let alone provide grounded step-by-step reasoning that leads to the amount of the fine. Essentially, by publishing the guidelines the AMC self-discharged any discretion in relation to setting the percentage for the basic amount of the fine and further need to explain this in its decisions.
One of the underlying reasons behind this defect is that the guidelines do not equip the AMC with sufficient factors that would justify the movement within a possible percentage range. In particular, except the nature of the infringement, no other potentially relevant factors (e.g. size of the undertaking, combined market shares, number of undertakings involved, implementation, nature of the product, dynamics of the market, legal framework, etc) are taken into account by the AMC to determine the basic amount.
In this context, failure to take into account the size of the undertaking may be particularly controversial, as this raises proportionality/discrimination concerns and may encourage appeals against the amount of fines by local mono-product companies.
1. Regulation of the Antimonopoly Committee of Ukraine (AMC) on the Procedure for Release of Liability No. 399-p of 2012.
2. Case COMP/39406 - Marine Hoses, paras 416-456.