Turkey: Banking Investigation And The Implementation Of The Monetary Fines Regulation

Last Updated: 4 May 2011
Article by Bulut Girgin

Banking Investigation of CA

Turkish Competition Authority (CA) concluded its investigation in banking industry regarding "gentlemen's agreement" between 8 banks. The investigation has been launched in August 2009, and hearing before the Competition Board took place on March 1, 2011. The short version of the decision, which declares the conclusions and administrative fines imposed on 7 banks, is announced on March 8, 2010. The reasoned decision of the Board is expected to be published within couple of months. In terms of Turkish legislation, the payment and appeal prescriptions start from the notification date of the reasoned decision.

A significant majority of banks in Turkey have been investigated and they have been accused of entering into an anti-competitive agreement regarding limitation of promotions offered to private and government companies for the procedure of the salary payments. Salary payments of a company constitutes an important marketing tool for banks, as this privilege provides a direct access to a significant number of potential clients of credit cards and consumer credits. On the other hand, cumulated amount of the salaries is an important interest income for these banks, since this amount can be used for a few days before the due payment date of the salary.

Taking into account the importance of this privilege, banks usually provide important benefits both to public institutions and private companies. On the other hand, public officers or employees of private companies benefit from special advantages such as exemption from account and/or credit card fees and reduction in credit rates and commissions, if they use private banking products of the bank which has the privilege of salary payment.

The main allegation imposed on the banks was a "gentlemen's agreement" which has the aim of limitation of promotions offered to private companies. It is also announced that the banks have agreed on not offering a proposal to institutions or companies, which already has a protocol with one of these banks.

Competition Act is in force for 14 years, however, for the first time in Turkish competition law practice, a hearing has been subject to a live broadcast in TV channels. Even though there was not a live broadcast from the hearing itself, news agencies participating to the hearing continuously reported the main arguments of defense. Besides legal counsels, almost all of these banks have been represented at the highest level, i.e. by their CEOs, before the Competition Board, which made the hearing much more interesting for both news agencies and investors.

As the news about the investigation was on the live broadcast in the business channels; some insights from the defenses that the companies made were also mentioned. The defenses were mostly based on the fact that promotions distributed for the salaries cover a very small portion of their budget. The defendants also made discussions on the economic stability of the country. The banks argued if the Authority orders a large amount of fine, the Turkish financial sector may face a crisis and large amount of foreign investment may leave the country.

The investigation was not only on the Television but also on the newspapers. During the investigation, some of the columnists argued that the Competition Authority has no authority on the banking sector, since there is a regulator for the sector and it is also unethical to raid the banks and "ransack" the emails and documents of this crucially important industry. All these discussions are showing us that, role of competition law and the Competition Authority is still not clear in the public opinion after the 14 years past. The interest of the press was also a good test for Turkish business society on their awareness of the competition rules. As it is seen, the arguments made by the press during the investigation are not on the grounds of competition law and competition policy. That means there is still a long way to make these discussions to be built on a solid basis in Turkey.

Implementation of the Monetary Fines Regulation

The amounts of fines are calculated within the scope of the Monetary Fines Regulation (Regulation) published by the Competition Authority and entered into force on February 15, 2009. The Regulation deals with the amount of fines that are to be imposed by the Competition Authority. As per the regulation, the Competition Board sets a so-called "base fine" in terms of percentage. The Board is entitled to set up to 10 percent of the turnover of the previous year of an entity.

The margin of the base fine for cartels is between 2 percent and 4 percent and for other violations it is between 0.5 and 3 percent. In defining the base fine within the given margins, the Competition Board takes into account the market powers of the companies which participated to the infringement and the possible harms to the society. The Regulation also obliges the Board to set the base fine one half higher if the given infringement lasted more than one year and to double the base fine if it lasted more than five years. After determining the base fine, the Board applies the mitigating and aggravating facts separately to the "base fine" and so the final fine is defined.

In consideration of the aggravating facts, the base fine is increased;

  • In recurrence of the infringement for every recurrence,
  • Continuing the cartel after the delivery of the investigation report,
  • Failing to comply the settlements made to the CA, from one half up to two times of the base fine, and in;
  • Obstructing the investigation up to one half,
  • Forcing other entities to the cartels up to one quarter.

In consideration of the mitigating facts, the base fine is mitigated from 1/4 to 3/5 in the following circumstances;

  • Assisting the investigation,
  • Incentive of the public authorities in the infringement,
  • Compensating the injured parties,
  • Ceasing other violations,
  • Concerned activities taking a small portion in the entities turnover.

These mitigating facts are not numerus clausus, which means that the Competition Board reserves the rights to mitigate the fine to be imposed to the entities that infringe the competition rules other than the above-mentioned facts.

In the Banking investigation, the Competition Board set the fines 0,4 percent for five banks and 0,3 percent for the other two banks. The amounts shows that the Competition Board didn't consider the gentlemen's agreement between the banks as a cartel and set a base fine around 1 percent or lesser, since the minimum base fine for cartels should be 2 percent of the previous year's turnover.

There is also a discussion on the determination of the previous year turnover on which the fines are to be imposed. In most of the cases, the parties argue that, the turnover of the affected market should be taken into account while calculating the amount of fine, not the entire turnover of the entity. Although article 16 of Competition Act No. 4054 regulates that the fines should be imposed on the entire turnover of an entity; there are some decisions of the Competition Board where the fines are imposed on the turnover of the relevant market or on turnover of the relevant business branch of the concerned entity. This point is not clear enough in the banking investigation because the reasoned decision is not published yet. However, this is a very important fact for the entities since it alters the nominal amount of fine essentially.

Finally, in the banking investigation Competition Authority imposed fines totaling approximately 73 million TRY1 which is the largest fine in terms of monetary value in its 14 year history. This investigation also shows a great importance since it is the first competition investigation held on the Turkish banking industry. Also live TV coverage of a competition investigation is another big step forward for increasing the awareness of the society to the importance of the compliance with competition rules.

Footnote

1. Approximately 33 million Euros.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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