Regulation On Fines, An Illusion Or A True Harmonization With The Eu Law?

May 2012

Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse of Dominant Position (the “Regulation on Fines” or the “Regulation”) has entered into force through publication in the Official Gazette dated 15.02.2009 and numbered 27142. The Regulation on Fines was prepared based on articles 16 and 27 of the Act on the Protection of Competition numbered 4054 (the “Competition Act). Article 16 of the Competition Act, to deter undertakings and its members from engaging with anti-competitive activities, which are banned under competition law, levies financial fines on undertakings where appropriate. Article 27 of the Competition Acts stipulates that the Competition Board (the “Board”) is the authorized body to impose such administrative financial fine.

Impact of the European Union on the Regulation

Turkey is a candidate state to the European Union (“EU”). In order for Turkey to obtain EU membership status in the future, it shall adapt its legislation to the EU acquis. The Regulation on Fines has been prepared within the scope of such accession negotiations. Therefore, the Guideline of the European Commission in 2006 published in the EU Official Gazette dated 01.09.2006 and numbered C 210/2[1] (the “2006 Guideline” or the “Guideline”) was benefited from for the preparation of the Regulation on Fines.

The 2006 Guideline is the secondGuideline pertaining to the financial fines imposed on undertakings in EU. The first Guideline with this regard was prepared in 1998[2] (the “1998 Guideline”) and was applied for a period of eight years. In the light of an eight year-long experience, it outlived its usefulness and inevitably, the 2006 Guideline was prepared.

The Scope of the Regulation

With Regards to Actions in Violation of Competition
The Regulation on Fines regulates the administrative fines to be imposed in the event the situations described under Articles 4 and 6 of the Competition Act take place.

Article 4 of the Competition Act governs the anti-competitive agreements (such as price fixing, bid-rigging and market sharing), concerted practices and decisions limiting competition; whereas, Article 6 governs the abuse of dominant position. Nevertheless, Article 8 (1) of the Regulation on Fines includes the term “cartel”. Although the term “cartel” is used by scholars and in Board decisions, it is not explicitly mentioned under the Competition Act. It is seen that the 2006 Guideline does not contain the term “cartel” either. The term “cartel” is mentioned only twice under the 2006 Guideline within brackets in order toensure that the 2006 Guideline remains aligned with the Treaty on the Functioning of the European Union (TFEU), which does not contain the term “cartel”. Likewise, the 1998 Guideline used the term “cartel” only within quotation marks. For these reasons, the Regulation on Fines constitutes nonconformity with the 1998 and 2006 Guidelines due to inappropriate usage of nomenclature.

From the Turkish law perspective, the principle of legality and clear statement requires that; at the time of commitment, if a matter is not governed by a pieceof legislation, it is not possible to impose criminal sanctions for that matter. In other words the Regulation on Fines cannot impose sanctions upon cartels, where the Competition Act does not prescribe an action as an offence, thus the situation violates the “nulla crimen sine lege/ no crime and punishment without law” principle, a well-established maxim of law.

With Regards to the Individuals Infringing Competition
The Regulation on Fines regulates that both the association of undertakings and the directors and employees of the undertaking who retains “decision making authority”- whom it considered to have been responsible for the infringing conduct- on the action violating competition may be subject to administrative fines. While the “decision making authority” is not defined thereunder, the Board decisions define the persons holding “decision making authority” as persons formally appointed to a company and occupying a position, engaging in correspondences and meetings and takes the executive decisions which result with violating competition. Nonetheless, it would have been appropriate for the “decision making authority” role to be defined broader under the Regulation on Fines. As a matter of fact, as a consequence of the clear statement principle, the directors and employees shall be fit to hold such a significant key role concerned in the management of a company and aware of the consequences of breaching competition law, which may result in fines.

The 2006 Guideline regulates only the administrative fines to be imposed on undertakings and association of undertakings. The personal fines to be imposed on individuals or competition disqualification orders left at the discretion of each member state. Therefore, the Regulation on Fines does not contravene with the EU acquis in this respect.

Determination of the Fines Imposed on Undertakings

The method for determining thefines is similar to the practice in the EU. The basic amount of the starting point of fines is initially determined, and adjusted with the mitigating and aggravating factors to decrease or increase the amount of administrative financial fines.

Basic Amount of Administrative Financial Fine (Starting Point)

  • Article 4 of the Regulation on Fines, similarly to Article 16 of the Competition Act, foresees that the basic amount of financial fine may not, in any event exceed “ten percent of the turnover of the undertaking’s last business year, or if that cannot be calculated, by the end of the fiscal year closest to the date of the final decision”. This provision constitutes an incoherent approach to the EU acquis from two aspects:
    • Neither the Competition Act nor the Regulation on Fines explains whether the total turnover of the undertaking or the turnover of the undertaking in the relevant product and geographic market shall be taken as a basis for the calculation of the fine. Nevertheless, the 2006 Guideline specifies that the revenue to be taken into consideration for the determination of the fine is the revenue generated from the “sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area”. Therefore, the Regulation on Fines clearly fails to achieve uniformity with the EU acquis.

Nonetheless, the Board does not fill this legal gap in the Regulation on Fines pursuant to the EU acquis. The Board takes the total turnover of the undertakings in calculation of the administrative financial fine. This situation also constitutes a violation of the “principle of proportionality” inherent in criminal law. This way, the undertakings are imposed fines based on their turnover for violations of competition concerning a very small portion of their revenue. In such an event, the administrative financial fine will be disproportional to the unjustified revenue acquired from the violation of competition.

Likewise, this provision also contrasts with the principle, regulated under the Constitution governing the equal treatments of those under the same circumstances. An undertaking, which operates in many product markets will be subject to a fine calculated based on its turnover generated from all product markets rather than the turnover in the relevant product market affected by the violation of competition. Therefore, even though the product market that was not involved in any competition infringement will be added to the calculation. However, another undertaking, which may be operating in one particular product market will be subject to fine based on its turnover from that relevant product market where it commits the violation of competition.

It must also be stated that, if this system stipulated under the Regulation of Fines had accomplished a desirable and fair purpose in terms of the intended competition policies, the “total turnover” system under 1998 Guideline would not have been amended to “the total turnover of the relevant product market” under 2006 Guideline.

  • The turnover to be taken into consideration in calculating the total fine is specified as the revenue “… generated at the end of the fiscal year preceding the final decision, or if that cannot be calculated, by the end of the fiscal year closest to the date of the final decision …” both under the Competition Act and the Regulation on Fines. Nevertheless, the 2006 Guideline expressly states that the turnover to be taken into consideration is the turnover of the undertaking’s last business year during which the infringement took place. Thus, the Regulation on Fines contrasts with the EU acquis with this respect as well.

The consequence of this provision of the Regulation of Fines, which is akin to the 1998 Guideline, is unfair. The turnover of the undertakings after they have committed the competition violation may increase without any relation to such violation. This situation may result in heavy fines imposed on the undertakings.

  • The Competition Act regulates that undertaking, which violates competition may be subject to administrative fines up to 10% of their revenues. However, Article 5(1)(a) of the Regulation on Fines states that in the event a violation of competition under Articles 4 or 6 of the Competition Act take place, the administrative fines shall be determined “between two percent and four percent […]of the annual gross revenue […]which shall be determined by the Board”. In other words, the Regulation on Fines sets a minimum and maximum limit to the fines to be imposed. Such minimum and maximum limit is not regulated under either of the 1998 Guideline or the 2006 Guideline. The 2006 Guideline, in compliance with the Regulation numbered 2003/1[3], determines the administrative fines shall not exceed 10% of the undertaking’s turnover. Thus, the Regulation on Fines apparently contravenes with the EU acquis.

This provision of the Regulation on Fines also clearly contrasts with the Competition Act. The Competition Act foresees a minimum limit of 0% and a maximum limit of 10% for fine; whereas the Regulation on Fines supersedes this provision of the Competition Act. Nonetheless, secondary legislations may not supersede, but may only elaborate on, or administer the requirements of primary acts, codes and laws.

  • Article 5(2) of the Regulation on Fines foresees the increased amount of fines by half in the event the violation of competition continues for a period of one to five years, and doubling of the amount of fine if the violation of competition exceeds five years. Contrarily, the 2006 Guideline foresees a fine imposed based on the number of years the violation of competition continues and therefore relates the duration of violation with the amount of fine by multiplying number of infringing years. The system foreseen by the Regulation on Fines is clearly not in compliance with the EU acquis. Moreover, this system does not comply with the relative equality principle either, since the time periods set forth for the increase of fines are too broad. In other words, an undertaking having violated competition for a much longer time and an undertaking that violated the competition for a much shorter time will be faced with fines increased to the same extent.

Such an unjust calculation system has not been foreseen even under 1998 Guidelines, the oldest regulation of all. Contrarily, the 1998 Guideline regulated that violations lasted shorter than one year was not subject to any fine increase, that the fines could increase by up to 50% for violations lasting for a period of one to five years, and for each year exceeding five years an additional increase of 10% was possible. Nevertheless, even this system introduced by the 1998 Guideline was not sufficient to meet the policy objectives, it had adopted a more appropriate and “just” system.

Mitigating and Aggravating Circumstances
The Regulation on Fines does not limit the number of mitigating and aggravating circumstances. Therefore, the Board may make the assessment bytaking into consideration of different mitigating and aggravating circumstances depending on the specific nature of a given, in each particular case.

Situations such as incentives by public authorities or oppression by other undertakings are considered among mitigating circumstances. Also active cooperation with investigation is considered another circumstance for decreasing fines.
On the other hand, repetition of competition violations, continuation of cartels after the date of notification of an investigation are consideredamong aggravating circumstances.

This practice of the Regulation of Fines is in line with the 2006 Guideline. Nevertheless, an active cooperation with the investigating body, which enables the enforcement process to be concluded speedily, needn’t to be mentioned specifically under the Regulation of Fines, since leniency is being regulated under a separate regulation and such regulation already specifies the immunity under certain circumstances[4]. Active cooperation is not mentioned among mitigating circumstances under the 2006 Guideline. Nevertheless, the regulation on lenient treatment for undertakings, which come forward with infringing activity information to cooperate with the investigation, entered into force several months after the 2006 Guideline[5].

Administrative Financial Fines to be imposed on Directors and Employees

  • Directors and employees may be subject to personal fine provided that the undertaking is imposed an administrative financial fine. Article 8(1) regulates that directors and employees, being responsible for executing the infringing competition conduct may be subject to a personal fine amounting 3% to 5% of the administrative financial fine imposed on an undertaking. However, Article 16(4) of the Competition Act foresees that directors and employees may be subject to an administrative financial fine up to 5%. In other words, contrary to the Competition Act, the Regulation on Fines introduces a minimum limit.

Nevertheless, as explained in detail above, the secondary legislation may not introduce different or inconsistent provisions than primary legislation. Therefore, the Regulation on Fines – a secondary legislation – does not comply with the Competition Act.

  • Mitigating and aggravating circumstances enables the Board to adequately and appropriately determine the administrative fine to be imposed. However, other than active cooperation, the Regulation on Fines does not introduce any other mitigating and aggravating circumstances. These issues should have been regulated in detail and clarified.

Conclusion

Preparation of the Regulation on Fines is an important step in Turkey’s adoption to the EU accession process. Nevertheless, as explained hereinabove, the Regulation on Fines includes number of non-compliances with the EU acquis from both formal and material aspects:

  • The Regulation of Fines includes the term “cartel”, although it is not included under the 2006 Guideline or in the Competition Act;
  • In terms of method for setting the basic amount of fine (starting point), the EU acquis foresees a method based on the undertaking’s turnover in relevant and geographic market affected by the infringement of competition. However, the Regulation on Fines foresees a method based on the whole turnover of the undertaking, including the product market where competition law is properly conducted;
  • In terms of relevant turnover of the undertaking to set the basic amount of financial fine, the EU acquis regulates that the turnover of the last business year during which an undertaking participates to or engages in the violation of competition shall be taken as a basis. Nevertheless, the Regulation on Fines foresees that the turnover of the undertaking of the year preceding the year when the decision is given shall be taken into consideration;
  • With regards to the level of administrative financial fine, the EU acquis does not impose any other limitation other than a maximum limit of 10%. Nonetheless, the Regulation on Fines introduces a minimum and maximum limit of 2% and 4% in addition to the 10% maximum limit foreseen under the Competition Act;
  • In terms of the duration of infringing activity, the EU acquis introduces a system not resulting any unfair treatment between the undertakings by enabling the calculation of the fines in proportion to the duration of the violation. Conversely, the Regulation on Fines introduces an unfair system whereby undertakings engaging in short or long-term violations are imposed the same proportion of fines.

As it has been explicitly indicated above, the provisions introduced by the Regulation on Fines are not coherent or uniformed with the principles laid down by the Constitution with respect to setting the method and duration of infringement for basic administrative fines. They pose apparent contradiction with the Competition Act with respect to determining level of fine and also contravenes with the general principles of criminal law by over-sighting the mitigating and aggravating factors on the administrative financial fine to be imposed on the directors and employees of an undertaking.


[1] Please see the following link to access the 2006 Guideline
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:210:0002:0005:EN:PDF (accessed on: 30.05.2012).
[2] Please see the following link to access the 1998 Guideline
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31998Y0114%2801%29:EN:NOT (accessed on: 30.05.2012).
[3] Please see the following link to access the Regulation numbered 1/2003
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003R0001:EN:NOT (accessed on: 30.05.2012).
[4] Please see the following link to access the Regulation on Active Cooperation for the purpose of Revealing Cartels
http://www.rekabet.gov.tr/dosyalar/yonetmelik/yonetmelik8.pdf (accessed on: 30.05.2012).
[5] The EU Commission Notice governing active cooperation was published in the EU Official Gazette dated 08.12.2006 and numbered C 298/17. Please see the following link to access the Notice http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:298:0017:0022:EN:PDF (accessed on: 30.05.2012).