Overview of the law and enforcement regime relating to cartels
The basic legislative acts in the cartel fi eld are the following: the Constitution of Ukraine; the Law of Ukraine “On Protection of the Economic Competition” as of 11 January 2001 No 2210 (“Competition Law”); the Law of Ukraine “On Protection Against Unfair Competition” (“Unfair Competition Law”); and the Law of Ukraine “On Antimonopoly Committee of Ukraine”.
Investigation, prosecution, decision-making and the imposition of sanctions are all conducted solely by the Antimonopoly Committee of Ukraine (“AMC”) and its regional departments.There is no separate term in Ukrainian legislation for “cartel”, but the rules applicable to cartels are provided in Articles 5-11 of the Competition Law.
Thus, Article 6 of the Competition Law contains a prohibition of concerted actions, which “have led or may lead to denial, elimination or restriction of competition”. Article 4 makes no distinction between horizontal and vertical concerted actions, but does include a non-exclusive list of anticompetitive practices that constitute potential violations. The list covers price-fi xing, market division, restriction of outputs or inputs, discrimination between similarly situated parties and tying; and adds bid-rigging, boycotts and other conduct restraining market entry or exit, and actions designed to impede the competitive ability of other companies “without an objective basis”.
It should be noted that Articles 7, 8 and 9 of the Competition Law create conditional exemptions from the prohibition in Article 6, to protect concerted actions of small and middle-sized companies, contracts concerning the supply and use of goods that do not substantially restrict competition and that enhance the competitive ability of the participating companies, and agreements for the transfer of intellectual property rights.
In some circumstances, the Competition Law allows the AMC to permit actions that would otherwise violate Article 6, and issue individual exemptions that excuse the participants in the specifi ed conduct from liability. The criteria for excusal are: (1) improvements in production or distribution, or to the promotion of technology or economic progress, while conferring a fair share of the benefi ts on consumers; and (2) not potentially eliminating competition in a signifi cant part of the market. Actions may be permitted if the parties prove to the AMC that they led to: the elaboration of the range of acceptable justifi cations; the development of small and middle-size companies; optimisation of export or import trade; development and application of uniform standards; and “rationalisation” of production by the introduction of innovative operational methods.
In granting an Article 10 exemption, the AMC may impose conditions and requirements designed to eliminate or mitigate the negative effects of the proposed actions, and may either specify that the exemption is indefinite or establish a limited term, which ordinarily should not exceed fi ve years. Article 10 also includes a provision under which the Cabinet of Ministers of Ukraine may grant permission on public interest grounds for the applicants to engage in actions that the AMC has refused to permit.
Certain exemptions from obtaining authorisation for concerted actions are stipulated in the requirements for exemption from obtaining authorisation for concerted practices approved by the AMC on 12 November 2002. In particular, the parties may be exempt if their aggregate market share is below 5% of the respective market. The parties may also be entitled to exemption if their Ukraine aggregate market share is below 15% or 20% provided they meet some other qualifi cation requirements (aggregate assets or turnover, etc.).
Overview of investigative powers in Ukraine
The AMC is the “state body with special status” which is guided in its functions only by the laws on competition, and independent from national and local government bodies. There are two mechanisms by which companies can obtain advice from the AMC, in particular: (1) receive an opinion concerning, among others, the concerted actions; and (2) receive a preliminary conclusion about the permissibility of conduct (the documentation to support such an application is substantially less than that required for a formal opinion application). A formal case can be initiated if the AMC detects reasons for prohibiting the concerted actions, or if complicated study or expert consultation is necessary. The applicant is notifi ed about initiation of the formal case and may be required to submit additional information. Consideration of the case may not exceed, generally, a threemonth period. If the three-month period expires without a decision by the AMC, the application is deemed to be approved. Before issuing a decision denying approval, the AMC may advise the applicants of the grounds for denial and invite rebuttal. AMC’s determination to deny permission for a concerted action is subject to judicial review. As an option, the parties may also petition the Cabinet of Ministers of Ukraine within 30 days after the AMC’s decision to deny permission.
To detect violations, the AMC may conduct a compliance check of businesses and government entities, either in person at the premises of the target entity or by written questionnaire. On-site inspections may be either scheduled or announced. During investigations, the AMC can require an entity to provide documents and other information, written explanations and oral responses. The AMC reviews complaints, past enforcement experience, news reports, and other publicly available information in determining which markets to investigate.
Overview of cartel enforcement activity during the last 12 months
2014 was a challenging crisis year for the whole Ukraine and AMC activity is not an exemption. Dramatic developments at the beginning of the year which, in particular, led to dismissal of the AMC’s head and a number of state representatives, and the signing of the association agreement with EU, were the main factors infl uencing enforcement activity during the last 12 months.
Insofar as there is no head of the AMC appointed so far, enforcement policy of the AMC was rather neutral compared to the previous few years. The AMC has turned from a fiscal approach in fi ne-determination and there weren’t any maximum fi nes applied to the respective actions’ participants.
In 2014 the AMC issued approximately 3,000 recommendations aimed at ending breach of the competition laws of Ukraine which include, among others, cartel offences. During 2014 the AMC has been actively investigating agricultural, fuel and pharmaceutical markets as well as mobile service providers and product retailers.
It also should be noted that Ukraine’s biggest product retailers was under investigation by the AMC for unlawful concerted actions during 2013 and 2014, and a decision on this was expected to be approved at the end of 2014.
Key issues in relation to enforcement policy
The AMC is authorised to issue recommendations as a result of preliminary investigation (or complaint). Recommendations can be general in their nature, addressing all the market players, or specifi c and binding for potential violators of the legislation. The recipient of specifi c recommendations is required to consider such recommendations and provide a response to the AMC within the established term. If the recipient agrees to the recommendations, the matter may then be closed without initiation of a case.
If an investigation results in evidence of a violation and no settlement is obtained, the AMC may initiate a formal case. A case may be commenced either on the AMC’s own initiative or in response to complaints received from affected individuals/entities. The AMC commits itself to resolving complaints within 30 days of receipt, whether by initiating a case or by dismissal. Once a case is commenced, a notice is sent to both the defendant and the complainant. Following initiation of the case additional investigatory powers are available to the AMC, including seizure of evidence from business premises and/or arrest of such materials. Other investigating methods (such as wiretapping, video surveillance, recording and interception) are reserved for investigation of criminal conduct and, thus, are not available to the AMC, as competition law offences do not constitute criminal offences. To facilitate these methods, the AMC may, however, cooperate with local law enforcement authorities.
Once a violation case is concluded, the AMC issues the decision that either closes the case
or fi nds a violation, and directs various actions such as termination of unlawful actions,
remediation of the consequences of violation, cancellation of a concerted action permit, or
the imposition of fines.
If the violator in an AMC case fails to comply with the prohibitions or carry out the requirements imposed by the AMC’s decision, the AMC has two enforcement options, which it may conduct individually or simultaneously. It may commence a new case, as non-compliance with a previous decision is unlawful conduct. As another option, AMC may apply to the court asking it to issue the order-termination violation and requiring the party to perform the required actions. Court orders are executed by the State Executive Service, whereas any court orders are transferred by the AMC for execution. In cases where penalties have not been paid, the AMC’s only enforcement option is to commence an action in court.
Key issues in relation to investigation and decision-making procedures
Investigation, prosecution, decision-making and the imposition of sanctions are all integrated into a single body – the AMC and its regional bodies. Two procedures of re-examination of the decisions are available in Ukraine, in particular, via administrative claims and/or via court procedure. Decisions by the AMC or its regional bodies in violation cases, and in permit-application proceedings, may be re-examined by the AMC. The re-examination may be initiated on application by any person or on the initiative of the AMC. Decisions by regional bodies in violation cases, and in proceedings on applications to permit concerted actions, may be reviewed by superior AMC bodies. Such review may be commenced by order of the AMC on its own initiative, or on an application of a party to the proceeding, filed within two months of the decision. The law does not limit the grounds upon which such a review may be commenced.
Decisions by the AMC or its regional bodies may also be appealed to commercial courts.
Initiating the appeal does not stop the order of the AMC automatically. The order may be stopped by the court upon a separate decision. Initiating the appeal (whether via administrative or court procedures) suspends the obligation of the company to pay monetary penalties.
Leniency/amnesty regime
Applicable competition legislation provides for the possibility of being released from liability for anticompetitive concerted actions. The respective norm has been in effect since the adoption of the Law of Ukraine “On protection of Economic Competition” in 2001. However, the absence of detailed procedure on release from liability, the order of information submission or its fi xation, has led to a situation where the respective norm was actually dormant.
The document providing for signifi cantly more developed procedure on release from liability was adopted in June 2012 by a resolution of the AMC (“Resolution on the Procedure for Release of Liability”). The respective document is aimed at removing the shortcomings of practical implementation of the respectiveprocedure which has been formally in force since 2001.
In order to obtain immunity in a cartel case, the party has to comply with all of the following
conditions:
1. to be the fi rst to provide the AMC with the information on violation;
2. submit information which has an essential importance for adoption of the decision
in the case. Such information could be the following: description of the participants
of the cartel; detailed description of the cartel arrangements; essence of the cartel
arrangements; and notes, materials of correspondence, etc; and
3. take effective measures to cease its participation in the cartel.
The respective criteria are applicable only in cases where the applicant was not: (i) an initiator of the anticompetitive arrangements; or (ii) in charge of coordination of the cartel.
However, for the period of two-and-a-half years during which the respective procedure has been in place, there are still no signals of its successful implementation in Ukraine. In fact, the absence of applicants to receive immunity in cartel cases can be principally explained by the following reasons: (i) absence of a clear and public document (guidelines) containing transparent approaches of the competition authority to fi ne calculation; and (ii) full immunity is only applicable, without the possibility of encouragement to a number-two or number-three participant who also decides to cooperate with the authority.
Administrative settlement of cases
According to the effective legislation, no fast-track procedures or administrative settlements
are applicable.
Third party complaints
According to the applicable legislation of Ukraine, third parties who suffer damages as a result of anticompetitive concerted actions may seek compensation by fi ling a respective claim to the commercial court.
Civil penalties and sanctions
The Antimonopoly Committee of Ukraine may apply a fi ne amounting to up to 10% of the annual revenue of each party to the anticompetitive concerted actions. The amount of fine is calculated based on the results of the financial year preceding the year of fi ne imposition.
The main problem in the current AMC practice of fi ne imposition is the absence of a clear and public document containing a transparent approach to fi ne calculation. This problem is of a particularly high priority, since the market players fi ned by the AMC for violation of competition legislation may not technically challenge the amount of fi ne applied by the AMC. There has been a case where the participants in a cartel successfully challenged the amount of fi ne applied by the AMC, however such court practice is rather an exception. In practice, the parties may only challenge decisions of the AMC entirely.
Right of appeal against civil liability and penalties
There are two possible scenarios of appeal of the AMC’s decisions. The fi rst is an internalprocedure in the AMC. The parties may ask for review of the AMC’s territorial division decisions or the decision of a State Commissioner. The respective decision may be reviewed on both procedural and substance matters.
In a case where the decision is adopted by the AMC itself, it may not be further reviewed through internal AMC appeal procedure. In such a case the parties may challenge the AMC’s decision in commercial court. As a matter of practice, the courts do not examine material competition issues which are referred to the exclusive competence of the AMC (e.g. market definition issues) and tend to defer to the assessments of the AMC in such issues. There is a presumption that the AMC shall by itself prove the facts which confi rm the concerted actions of the parties and substantiate the direct infl uence of such actions (omissions) on the
competition environment.
In case the AMC decision is successfully challenged by the parties, the court usually sets aside the decision of the AMC, asking to adopt a new one considering the fi ndings of the court.
Criminal sanctions
No criminal liability is provided for by Ukrainian law. Some years ago, the AMC introduced a draft law providing for criminal liability for bid-rigging during tenders, as well as for forcing other market players into anti-competitive concerted actions. However, this draft did not receive enough support.
Cross-border issues
Ukrainian competition legislation is applicable to relations which affect or may affect economic competition in Ukraine. Therefore in cases where certain practices (e.g. conduct, agreements) of foreign undertakings affect Ukrainian competition, the AMC makes no distinction between national and foreign market players.
However, practically the AMC has little possibility to collect evidence or conduct effective cartel investigation outside the territory of Ukraine. Respective actions have proved to be more effective, at least in cases where the foreign undertaking has a subsidiary company in Ukraine.
Currently the AMC has signed 12 inter-agency agreements with the competition authorities of other jurisdictions and six agreements at intergovernmental level. According to the respective documents, the AMC and other competition authorities may cooperate to promote effective competition, including by way of information exchange. Thus, the AMC may request and exchange information, including confi dential data, with competition authorities of other countries. We are aware of cases where the AMC has cooperated with other competition authorities in conducting joint market researches, and shared respective information within the “Agreement of the Commonwealth of Independent States on Pursuing Coordinated Antimonopoly Policy” in such markets as telecoms and energy. However, considering the current political tensions in relations with the Russian Federation, the level of cooperation within the “Agreement of the Commonwealth of Independent States on Pursuing Coordinated Antimonopoly Policy” is significantly reduced.
The AMC usually takes into consideration the practice of the European Commission as a secondary supportive argument in cases. However, decisions of the European Commission are not binding for the AMC. Moreover, no tools are established by law or by practice to persuade the authority to manage the process so as to follow the EU practice.
Reform proposals
The main vector of reform for 2015 will focus on the implementation of the Association Agreement with the EU in respect of competition compliance.
In particular, regarding developments in this area, it is expected that certain concerted actions which may not have a negative impact on the market will be authorised. Namely, such concerted actions include: (a) vertical agreements for the purchase or sale of goods between non-competing undertakings, between certain competitors or by certain associations of retailers of goods (Commission Regulation (EU) No 330/2010); and (b) agreements for technology transfer (Commission Regulation (EU) No 772/2004).
Another highly anticipated development relates to implementation of transparent and publicly available rules for the AMC. This includes approval of publicly available regulation containing transparent approaches to fine calculation, and imposing an obligation on the AMC to make its decisions on concerted actions-related cases available to the public.