This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

Cartels and abuses of market dominance are very detrimental to consumer welfare. They should therefore be a top priority in competition law enforcement.

Ukraine's fight against these practices has been anything but impressive in the past. Even though the Ukrainian competition authority upped its efforts in 2009, there are several points that still need to be addressed for public enforcement to be on a par with Western European countries.

State of the art regimes of enforcement of competition rules are based on two pillars: The imposition of heavy sanctions to deter cartels and the consistent, effective and efficient investigation of cartel behaviour. On both points, enforcement by the Ukrainian competition authority (similar to its CEE counterparts) has deficiencies.

Sanctions For Competition Law Infringements

The Ukrainian Antimonopoly Committee (AMC) is entitled to impose the following fines on undertakings for breaches of competition law:

  • a fine of up to 10% of the respective undertaking's group turnover, if the profit from the respective behaviour accounted for less than 10% of the group turnover of the implicated undertaking;
  • if the unlawful profit accounted for more than 10% of the total group revenues of the infringing undertaking, the fine may amount to up to a triple of this profit;
  • the amount of the unlawful profit can be calculated by the AMC also by way of evaluation. If the respective undertaking did not achieve any turnover or does not provide turnover information upon request of the AMC, a fine of up to UAH 340,000 (ca. EUR 29,000) may be imposed (if necessary, the AMC may also set the fine on the basis of information from other sources).

The AMC does not make use of these maximum fines. Rather, the sanctions imposed regularly do not have any deterrent effect. On average, individual fines even for severe anti-competitive behaviour have been below EUR 1 mln, whereas it has become standard in Western Europe that such practices entail fines of tens of millions of Euros. This perception appeared shattered at the beginning of 2009 when the AMC levied a record fine on four undertakings of some UAH 265 million (ca. EUR 26 mln) for abuses of market dominance. It was expected that this decision would mark the beginning of a general raise in the level of fines in Ukraine. However, in subsequent decisions in 2009, cartelists were fined less than EUR 100,000 for hard-core infringements.

Heavy fines are only a means to an end. The actual goal of prosecuting anti-competitive behaviour is to change the behaviour of undertakings. With its current fining practice, the AMC will struggle to achieve this.

Detection Of Cartels

The low level of fines is the main reason for another shortcoming of public enforcement in Ukraine. Leniency programmes have proven a very successful tool as they offer an undertaking which is first to report an infringement of competition rules immunity from fines. Put differently, deploying an effective leniency policy usually provides an incentive for undertakings to come forward with insider information in order to benefit from immunity. Ultimately, an effective leniency policy has a deterrent effect on cartel formation and destabilises the operation of existing cartels as it seeds distrust among cartel members.

Ukraine adopted a leniency programme seven years ago. In view of the low level of fines, coupled with a rather lax enforcement record, it comes as no surprise that undertakings have not made much use of it. In fact, the AMC communicated the first leniency application only in early 2008!

Perspectives For 2010

The AMC's fight against severe infringements must be further fostered. Signs of improvement can be seen in the increasing number of cartel investigations and the increasing amounts of fines. In addition, the AMC will most likely obtain the status of a law enforcement agency, which will broaden its investigative powers. Signs of the AMC upping its fight against severe hard-core infringements can be inferred from the AMC's enforcement priorities, which it announced recently. In particular, the AMC will focus on:

  • fighting cartels, especially on socially oriented markets; and
  • detecting other concerted actions and restoring the status quo prior to the infringement (e.g. via dissolution a monopolistic undertaking or initiation of proceedings for illegal transactions to be declared null and void).

The AMC has also drafted a legal concept for the protection of competition. According to the concept, the AMC proposes, inter alia:

  • conferring on the AMC the status of a law enforcement agency (which would broaden its investigative powers, particularly as regards the collection of evidence);
  • creating independent task forces for the protection of competition within the Ministry of Internal Affairs and the Security Service of Ukraine; and
  • introducing criminal liability for executives of undertakings that have engaged in severe cartels.

Other proposed changes relate to merger control rules (e.g. increasing the low turnover thresholds that trigger a filing obligation) and organisational changes, which all aim at freeing up resources within the AMC that can then be used for public enforcement of competition rules.

The AMC is expected to submit a draft to the Parliament by the end of 2009.

Undertakings that have engaged in severe anti-competitive conduct do not have to tremble with fear of the Ukrainian competition authority. Usually, fines are low and enforcement is slack. The competition authority has, however, taken steps indicating that this will change.

Undertakings that have engaged in severe anti-competitiva conduct do not have to tremble with fear of the Ukrainian competition authority. Usually, fines are low and enforcement is slack. The competition authority has, however, taken steps indicating that this will change.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

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.