Regulation On Fines, An Illusion Or A True Harmonization With The EU Law? - Antitrust, EU Competition

Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse of Dominant Position ("Regulation on Fines" or "Regulation") has 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 regulates financial fines to undertakings or members of undertakings who engage in anti-competitive activities, which are banned under competition law. Article 27 of the Competition Acts stipulates that ,the Competition Board ("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 210/2¹ ("2006 Guideline" or "Guideline") was benefited from for the preparation of the Regulation on Fines.

The 2006 Guideline is the second Guideline pertaining to the financial fines imposed on undertakings in EU. The first Guideline with this regard was prepared in 1998² ("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, and 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, 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 to ensure compliance 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 is formally noncompliant with the 1998 and 2006 Guidelines.

From the Turkish law perspective, the usage of a term not mentioned under the Competition Act in the Regulation on Fines and imposing sanctions upon cartels violates the "nulla crimen sine lege/ no crime and punishment without law" principle.

With Regards to the Individuals Infringing Competition

The Regulation on Fines regulates that both the undertakings and association of undertakings, and their directors and employees who retain "determining impact" on the action violating competition may be subject to administrative fines. While the "determining impact" is not defined thereunder, the Board decisions define the persons having "determining impact" as persons engaging in correspondences and interviews within the scope of the action which violates competition. Nonetheless, it would have been appropriate for the criteria of "determining impact" 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 informed of which acts would result in fines.

The 2006 Guideline regulates the administrative fines to be imposed on undertakings and association of undertakings only. Each member state shall regulate the fines to be imposed on individuals separately. 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 the fines is similar to the practice in the EU. The base fine is initially determined, and adjusted with the mitigating and aggravating factors to decrease or increase the amount of basic fines.

Basic Monetary Fine

Article 4 of the Regulation on Fines, similarly to Article 16 of the Competition Act, foresees that the base fine may not, in any event exceed "ten percent of the gross revenue of the undertakings, and associations of undertakings or the members of such associations to be fined, generated at end of the fiscal year preceding 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 gross revenue of the undertaking or the revenue of the undertaking in the relevant product and geographic market shall be taken into consideration for the calculation of the fine. Nevertheless, the 2006 Guideline specifies that the revenue to be taken into consideration for the determination of the administrative monetary fine is the revenue generated from the "relevant good market in which the infringement takes place". Therefore, the Regulation on Fines clearly fails to achieve uniformity with the EU acquis.

Nonetheless, the Board may not fill this legal gap in the Regulation on Fines pursuant to the EU acquis. The Board takes the total gross revenue of the undertakings in calculation of the administrative monetary fine. In addition to the noncompliance with the EU acquis, this situation constitutes a violation of the "principle of proportionality" inherent in criminal law. This way, the undertakings are imposed fines based on their gross revenue for violations of competition concerning a very small portion of their revenue. In such an event, the administrative monetary 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 treatment to those under the same circumstances. An undertaking, which operates in various business will be subject to a fine calculated based on its gross revenue rather than the revenue in the relevant business, while another undertaking, which may be operating in one particular branch of business will be subject to fine based on its revenue from that relevant branch of business where it commits the violation of competition.

It should 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 revenue" system under 1998 Guideline would not have been amended to "the total revenue generated from the relevant product market" under the 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 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 ..." 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 consequences of this provision of the Regulation of Fines, which is akin to the 1998 Guideline, are 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 undertakings, which violate the competition may be subject to administrative monetary 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 monetary fines shall be determined "between two percent and four percent[...]of the annual gross revenues [...]which shall be determined by the Board". In other words, the Regulation on Fines sets a minimum and maximum limit to the administrative monetary 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 2003/1³, determines that the administrative monetary 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 administrative monetary fines; whereas the Regulation on Fines amends this provision of the Competition Act. Nonetheless, secondary legislation may not supersede, but may only elaborate on 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. 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 which therefore generated an unjustified profit for a 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. 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 deemed sufficient by the EU, which adopted a more "just" system with the 2006 Guideline.

Mitigating and Aggravating Circumstances

The Regulation on Fines does not provide an exclusive list of mitigating and aggravating circumstances. Therefore, the Board may take into consideration different mitigating and aggravating circumstances depending on the specific characteristics of each case.

Situations such as incentives by public authorities or oppression by other undertakings regarding a violation are considered among mitigating circumstances. Also active cooperation is considered as another circumstance for decreasing fines.

Repetition of competition violations, continuation of cartels after the date of notification of an investigation are considered among aggravating circumstances.

This practice of the Regulation of Fines is in line with the 2006 Guideline. Nevertheless, the Regulation of Fines did not have to specifically mention the active cooperation. As a matter of fact, leniency is regulated under a separate regulation and such regulation already specifies the amount of decrease of fines under certain circumstances⁴. Active cooperation is not mentioned among mitigating circumstances under the 2006 Guideline either. Nevertheless, the regulation on active cooperation entered into force several months after the 2006 Guideline⁵.

Administrative Monetary Fines to be imposed on Directors and Employees

Directors and employees may be subject to a fine provided that the undertaking is imposed an administrative monetary fine. Article 8 (1) of the Regulation on Fines regulates that directors and employees, having a determining impact on the competition infringement may be subject to a fine amounting 3% to 5% of the administrative monetary fine imposed on an undertaking. However, Article 16 (4) of the Competition Act foresees that directors and employees may be subject to an administrative monetary 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 regulations may not introduce different provisions than laws. Therefore, the Regulation on Fines violates the Competition Act.

Mitigating and aggravating circumstances enable the Board to adequately and appropriately determine the administrative monetary 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 specifically regulated.

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;
While the EU acquis foresees that the base fine shall be calculated based on the undertaking's turnover in the relevant business where the infringement of competition occurs. However, the Regulation on Fines foresees that the base fine shall be calculated based on the whole turnover of the undertaking;
For the calculation of the base fine, the EU acquis takes the turnover of the enterprise for the last year in which it engaged in the competition infringement into consideration, whereas the Regulation on Fines foresees that the turnover of the undertaking of the fiscal year preceding the year when the decision is given shall be taken into consideration;
While the EU acquis does not impose any other limitation other than a maximum limit of 10%, 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;
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, whereas the Regulation on Fines introduces an unfair system whereby undertakings engaging in short or long-term violations are imposed the same proportion of fines.

The provisions introduced by the Regulation on Fines further violate the Constitution with respect to the effects of the turnover and the duration of the infringement on the base monetary fine, violate the Competition Act with respect to upper and lower limits of the administrative monetary fines and also contravene with the general principles of criminal law by not determining the mitigating and aggravating factors on the administrative monetary fine to be imposed on the directors and employees of an undertaking.

Footnotes

Please see the following link to access the 2006 Guideline

1. 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/Resources/Yonetmelikler/yonetmelik10.pdf (accessed on: 18.01.2013).

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).

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.

Turkey: Regulation On Fines, An Illusion Or A True Harmonization With The EU Law?