Turkey: A Groundbreaking Change In Fine-Setting System Under Turkish Competition Law

Last Updated: 25 February 2009
Article by Guner Law Office

On 15 February 2009, the Turkish Competition Authority (TCA) published a "Fine Regulation"1 and "Leniency Regulation"2 which follow various amendments in 20083 to the fining provisions of the Turkish Competition Act. Together, this legislation makes welcomed and important clarifications to the fine-setting system which applies to Turkish competition law violations.

This Article summarises the nature and characteristics of this new system and shows how it goes some way towards dealing with criticisms of the old system.

Compliance with EU legislation?

The new Regulations introduce "sentencing guidelines" and a "leniency program" to the Turkish competition law enforcement system. This ensures further compliance with the recommendations of the Organisation for Economic Co-operation and Development (OECD) and the relevant legislations of United States of America and European Union (EU), who require an effective fining system for competition violations, especially for cartels.

Turkey, as part of its EU membership process, aligns its competition law with EU legislation. Therefore, the Turkish Competition Act, in parallel with relevant European Council (EC) Regulations4, provides that the Turkish Competition Board (TCB) can impose an administrative fine of up to 10% of the last fiscal year's turnover of a relevant undertaking which violates Turkish competition law.

The new Regulations, again in parallel with EC legislation, attempt to clarify how this administrative fine will be applied by the TCB. However, they do not exactly reflect the latest EC position, introducing a fine-setting system which is a mix of old and new EU legislation5. Therefore, although the Regulations go some way towards greater compliance with EU legislation, they do not go the whole way.

Scope of the Regulation

The Fine Regulation introduces a fine-setting system which the TCB can impose on undertakings which violate Turkish competition law by creating cartels or abusing their dominant position. This system also sets out fines which can be imposed on managers or employees of these undertakings who are involved in such violations.

The Leniency Regulation introduces new rules to be applied to undertakings and their managers or employees who actively cooperate with the TCA by providing information in relation to cartels in the Turkish market. This Regulation does not apply to violations of Turkish competition law which result from (a) the abuse of a dominant position in the relevant market; or (b) vertical agreements which breach competition rules.

The Regulations do not establish a fine system for monopolisation as a result of mergers and acquisitions in the Turkish market. They also do not set forth rules in relation to fines which can be applied for the following procedural violations:

  • submitting misleading information when making exemption or negative clearance notifications or merger and acquisition notifications to the TCA;
  • making mergers and acquisitions without the TCB's consent when such transactions are subject to the TCB's approval;
  • not providing the documents and information required by the TCA during an investigation or providing misleading information; or
  • preventing the on-site investigations of the TCA.

As specific rules are not set out in the Regulation for these procedural violations, the general fine percentages set out in the Turkish Competition Act will apply6.

Finally, the Regulations do not cover periodical fines7 which are imposed for (i) non-compliance by relevant undertakings to commitments/obligations arising from injunction or final decisions of the TCB; (ii) the prevention of on-site investigations; and (iii) delay in provision of required documents and information to the TCB.

Narrowing the TCB's discretion in determining fines

The most important change brought by the new Regulations (which implement the latest amendments of the Turkish Competition Act) is that they clarify and narrow the TCB's discretion in the determination of fines for the violation of Turkish competition law. They do this by basing the TCB's discretion on more relevant competition law principles and setting out detailed provisions on the types of fines that can be made so that fines are more appropriate to the relevant violation.

Before the new system was introduced the TCB's discretion in determining fines was based on criminal law principles (such as the intention of the undertakings violating the competition law, the degree of their fault, their power in the relevant market, and the degree of potential damages). However, under the new system the TCB's discretion is applied to principles which are based on competition law practice (such as the repetition of the violation and its duration; the power of the undertaking/association of undertakings in the relevant market; the influence of the undertaking in the decision-making process which led to the violation of competition law; an undertaking's compliance with any conditions imposed on it by the TCB; and the importance of the current or potential damage).

Previous TCB fines had been criticised for not being appropriate to the relevant violation and Turkish competition legislation was criticised because it did not contain clear, transparent and objective rules for the determination of fines by the TCB8. For example the TCB had previously:

  • in general issued fines of 1-3% of turnover to undertakings violating competition legislation (despite the 10% threshold).
  • imposed relatively low fines on:
    • long-term cartels in iron-steel sector despite the relevant undertakings in this sector having very high turnovers9.
    • undertakings which breached very serious provisions of competition law (such as an abuse of a dominant position in the relevant market)10.

The new fine-setting system in the Regulations responds to these criticisms as the TCB will now apply a focussed, objective criteria for each violation of competition law. This will also ensure transparency for the undertakings who are subject to fines as they will be able to foresee and calculate the fine that could be imposed on them.

Therefore, the previous fine-setting practice of the TCB (which in the 12 years prior to the Regulations was heavily criticised as being inefficient) has ended. The TCB will now have to apply specific rules for each competition law violation, regardless of the relevant undertaking's turnover.

The new fine system

Article 4 of the Fine Regulation sets out the main principles for the determination of fines by the TCB which are as follows:

  • each act resulting in violation of competition law will first be subject to a basic fine (the Basic Fine) which is a percentage that will be increased or decreased depending on whether there are aggravating or mitigating circumstances.
  • More specifically, the initial percentage of Basic Fine will first be increased if there are any aggravating circumstances. Then, if there are any mitigating circumstances, either the initial percentage of Basic Fine or the increased Basic Fine as a result of the aggravating circumstances will be decreased (depending on the relevant clause of the Fine Regulation).
  • any fine will be capped at 10% of the last fiscal year's turnover of the relevant undertaking.
  • a fine on an association of undertakings will be calculated on the turnover of each undertaking (as opposed to previous practice which was based on the turnover of the association of undertakings).
  • any fine calculated by the TCB under the Fine Regulation will also be evaluated under the Leniency Regulation.

Article 5 of the Fine Regulation sets out the rules for calculation of the Basic Fine:

  • in making this calculation the TCB shall consider the market power of the undertakings, the degree of the damages, and other competition law criteria.
  • undertakings creating a cartel will have a Basic Fine of 2-4% of their turnover, whereas undertakings which have made other competition law violations will be subject to a fine of 0.5-3% of their turnover.
  • the Basic Fine will be increased depending on the duration of the violation. The Basic Fine will be increased by 50% for violations of 1-5 years and it will be increased by 100%11 for violations which have persisted for longer than 5 years. For example, the basic fine for undertakings creating a cartel of 5 years will be 4-8% of their turnover.

Article 6 of the Fine Regulation sets out aggravating factors which may/shall increase (as some of the increases are at the discretion of the TCB whilst others are mandatory) the Basic Fine. Under this Article the Basic Fine:

  • shall be increased by 50-100% if an undertaking repeats or continues violations despite the initiation of an investigation by the TCA;
  • may be increased by 25% if an undertaking is a "leader" of a violation;
  • may be increased by up to 50% if an undertaking does not assist the TCA during its on-site investigations; and
  • may be increased by 50-100% if an undertaking does not comply with any conditions imposed on it by the TCB.

Article 7 of the Fine Regulation sets out mitigating factors which may/shall decrease (as some of the decreases are at the discretion of the TCB whilst others are mandatory) the fine. Under this Article:

  • the Basic Fine may be decreased by 25-60% if any undertaking (i) assists the TCA with its investigation; (ii) was forced by other undertakings to commit such competition law breaches; (iii) was encouraged by public authorities to behave in breach of competition rules; (iv) has indemnified other undertakings facing damages; (v) stops violations other than cartels; or (vi) proves that its turnover in the relevant market is insignificant in proportion in its total turnover;
  • the increased Basic Fine as a result of any aggravating circumstances (as relevant) shall be decreased by 25% if an undertaking informs the TCA of a cartel that it was not previously aware of (even if this undertaking cannot benefit from the Leniency Regulation); and
  • the increased Basic Fine as a result of any aggravating circumstances (as relevant) shall be decreased by 15-25% if an undertaking accepts the violations other then cartels and actively cooperates with the TCA.

Article 8 of the Fine Regulation sets out fines which will be applied to managers or employees of the relevant undertakings. This fine has no minimum level, except for in the case of cartels where the minimum level will be 3% of the fine imposed on the undertaking. It is capped at 5% of the fine imposed on the undertaking.

The newly introduced leniency system

As mentioned above, any fine calculated by the TCB under the Fine Regulation will also be evaluated under the Leniency Regulation. The Leniency Regulation enables undertakings who actively cooperate with the TCA (and their managers/employees) to be exempt from fines or have their fines reduced.

Actively cooperating undertakings will be exempt from fines if they:

  • report a cartel to the TCA (before the TCA is aware of it); or
  • submit evidence which enables the TCA to prove a violation (whilst an investigation is going on and which the TCA would not be able to find in such an investigation).

Only the first undertaking (and their managers/employees) which makes such a report or submits such evidence will be exempt.

Actively cooperating undertakings will have their fines reduced if they submit relevant evidence during an ongoing cartel investigation by 50% (if they are the first undertaking to submit such evidence); 25-35% (if they are the second such undertaking); or 15-25% (if they are the third or subsequent such undertaking). This leniency system also applies to managers or employees of a relevant undertaking but the upper limit of the reduction is 100% (rather than 50%) so as to incite managers/employees to provide such evidence.

A relevant undertaking, manager or employee (the Applicant) will only benefit from the exemptions or reductions described above in relation to cartels if it submits the names of undertakings which are party to that cartel and other relevant documents which are set out in further detail in the Leniency Regulation. The Applicant should also:

  • not hide or destroy any relevant evidence;
  • cease to be a party to the cartel (unless otherwise requested by the TCA);
  • keep the submission of evidence confidential (unless otherwise requested by the TCA); and
  • continue to actively cooperate with the TCA until it renders its final decision.

Therefore the TCA has the ability to keep an Applicant in a cartel so that this Applicant can continue to provide evidence to the TCA about the cartel and its operations. Please note that an Applicant who is the "leader" of a cartel can only obtain a fine reduction and not an exemption.

A special unit, headed by the TCA's Vice President, was established on 19 February 2009 in order to deal with such applications/submissions by an Applicant. Applications need to be made to the TCA in writing (but in certain cases the TCA will accept verbal declarations as long as they are registered by the TCA) and following the submission of evidence, the TCB shall render its decision on the relevant exemption/reduction and apply this to any fine.

Application of the Regulations

The Regulations apply to all future TCA investigations. They also apply to ongoing TCA investigations but will not apply to ongoing investigations where an investigation report has been submitted to the TCB. Therefore the practical impact of the Regulations will be evident within this year (as there are currently newly-initiated ongoing TCA investigations which are subject to the Regulations).

Conclusion

The Regulations will result in higher monetary fines being levied against undertakings which violate Turkish Competition Law, and this will bring Turkey in line with other EU countries. This will answer critics of the previous fine system under Turkish competition law. It will also ensure greater compliance with Turkish competition law as undertakings (mindful of the potential fines, which they can now calculate more easily) take active or even preventative measures to ensure that they comply.

However, uncertainties remain in relation to how the TCB will determine fines for competition law violations by undertakings which form a single economic entity (for example groups of companies). Under the new system (as under the previous system) fines are calculated on the overall turnover of the relevant undertakings (whereas in the EU the calculation is based on the turnover of the undertakings in the relevant market). Therefore, further clarity is needed as to how the TCB will determine which legal entity amongst various legal entities forming a single economic entity will be subject to fine as an undertaking violating the competition law. For example, if a holding company is involved in several product markets, it is possible that the fines are imposed on undertakings belonging to this holding who are not involved in the relevant market where the violation has occurred. In addition, if there is no legislative clarity on which undertaking is subject to the fine, it is difficult for the TCB to determine which undertaking is repeating any given violation.

Nevertheless, as the system introduced by these Regulations is clearer and more comprehensive than the previous system, it will help in improving the competition culture in Turkey and through the Regulations Turkish Competition law has made progress and become more effective.

Footnotes

1. "Regulation on Monetary Fines for Abuse of Dominant Position and/or Restriction of Competition via Agreements, Concerted Practices or Decisions of Association of Undertakings"

2. "Regulation on Active Cooperation for Revealing Cartels"

3. Amendment to the Law No. 4054 on the Protection of Competition (the Turkish Competition Act) by the Law dated 23 January 2008 and numbered 5728. For the brief information about this amendment see the article; "Turkey: The Turkish Update - 1st Quarter, 2008" published by Guner Law Office.

4. Article 15 (2) of EC Regulation No 17 and Article 23(2)(a) of the EC Regulation No 1/2003.

5. The "sentencing guidelines" were introduced to the EU legislation in 1998 (Guidelines on the method of setting fines imposed pursuant to Article 15 (2) of Regulation No 17 and Article 65 (5) of the ECSC Treaty. Official Journal C 9, 14.01.1998). The Guidelines were amended in 2006 (by the Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003. Official Journal C 210, 1.09.2006, p. 2-5).

The "leniency notices" was introduced to the EU legislation in 1996 by the Commission Notice on the non-imposition or reduction of fines in cartel cases, which was amended in 2002 and 2006 (amendment by the Commission notice on immunity from fines and reduction of fines in cartel cases).

6.This percentage is five per thousand of the revenue in the case of prevention of on-site investigations and one per thousand for other violations.

7.This percentage is five per ten thousand of the undertaking's turnover for each day that the violations continue

8. An article prepared by the Competition Experts of the TCA excellently criticises this situation. Please see "The Determination of the Monetary Fines applied by the Competition Board to Cartels", M. Haluk Ari, H. Goksin Kekevi, Esin Aygun,

9. Decision dated 14.10.2005 and No 05-68/958-259. In this decision, the maximum amount of fine imposed on the undertakings party to the cartel in iron-steel sector was only 1,5 per thousand of their turnover, even though this cartel existed for 10 years and caused serious damages.

10. Turk Telekom decision dated 19.11.2008 and No. 08-65/1055-411. In this decision, a monetary fine was imposed on Turk Telekom over its turnover in the relevant product market instead of its total turnover. The decision does not mention the percentage applied for calculation of the fine.

11. The increase and decreases of Basic Fine under the Regulations are described in the Regulations as being on a fractional basis (e.g.1/2 of the Basic Fine) but in this article for ease of reference we state them in percentage terms.

Guner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy and TMT practices in Turkey. Guner Law Office is headed by Ece Guner and works with international law firm Denton Wilde Sapte.

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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