For the first time the Antimonopoly Committee of Ukraine (AMCU) has adopted clear rules for calculating fines. It also simplified the procedure for obtaining permission for mergers and acquisitions of companies, increased the financial threshold, above which businesses should apply to the AMCU for permission. This allowed to investigate more economically and socially important cases. Experts from the German and Lithuanian competition authorities consulted the Antimonopoly Committee on improving its work and aligning Ukrainian competition law with EU standards under the EU Twinning project. Read more about the new rules for protecting economic competition here.
To bridge gaps in the system, the AMCU develops a framework for implementing the proposals of international technical assistance of the European Union.
In December 2016, the Antimonopoly Committee of Ukraine imposed a record UAH 431 million penalty on Tedis Ukraine, the largest distributor of cigarettes in our country. Its market share, according to the AMCU, is over 99%. The company appealed to the court in the hope of appealing the imposition of the penalty, but failed to win the case. Today, Tedis has already paid the most part of the penalty, in particular UAH 300 million.
Over the past years, the Committee had many such cases against the largest monopolists in Ukraine. Surely, such decisions do not bring instantaneous results because the arrival of new market players requires time. But one thing is indisputable: the agency began to dictate new market rules.
New rules of the game
Nobody knew for a long time how exactly the AMCU determines the amount of penalties for violating the competition law. This provided an opportunity for abuse and selective approach, when the AMCU could impose different penalties in similar cases. But in September 2015, the Committee first adopted clear rules of the game for everyone: the amount of penalties, the rules for their determination in different cases, the mitigating and aggravating circumstances that may affect the amount of the fine.
“Adoption by the AMCU of the Methodology for Determining the Amount of Penalties is a very positive step, which has increased legal certainty for business. Previously, the law envisaged only a maximum limit of penalty. For example, up to 5% or 10% of the volume of sales of the violating company per year. It was unclear why in one case the penalty amounts to UAH 1, and in the other – hundreds of thousands of Ukrainian hryvnias for the same violation. The methodology enshrined the basic principles in calculating penalties and factors that are taken into account,” notes Anastasiia Usova, Head of Antimonopoly Law Practices at Redcliffe Partners.
In general, thanks to the EU Twinning technical assistance project, six new guidance documents for the application of modern competition law, which fully comply with the standards of the European Union, have emerged.
“However, new approaches need further improvement. For example, the recommendation for preliminary conclusions in the case (the document on the basis of which the AMCU decision is made – Editor’s note) does not indicate the expected amount of the penalty and the factors on the basis of which it is calculated. In particular, the size of the company’s income in the market where there was a violation, aggravating and mitigating circumstances. This would allow companies to provide the AMCU with timely comments or clarifications concerning these circumstances and avoid mistakes in determining penalties – this is how the procedure works at the European Commission, which enables companies to better protect themselves, and the agency – to investigate the circumstances in the case in detail and more impartially,” adds Anastasiia Usova.
In addition, they started to apply penalties as the main tool for the protection of competition more often. According to the Chairperson of AMCU Yurii Terentiev, in 2017-2018, the Antimonopoly Committee collected more penalties than for the previous ten years. According to the information of the department, with its own budget amounting to UAH 132.5 million, the AMCU imposed fines in the amount of UAH 277 million in 2018.
For example, in a case against Kyivstar, a mobile operator, the committee fined the company for UAH 21 million for misleading billing calls. The operator told its clients that it applied per-second billing, and in fact it debited the cost of the full minute of a phone conversation already in the first second. It is clear that it is unprofitable for the consumer, because they may not utilize the entire minute, but they must pay for it. It is unclear from the billing information provided by Kyivstar. As a result of the decision by the AMCU, the operator is forced to abandon such a policy – to inform consumers correctly about the billing procedure.
The economic effect of the AMCU’s cases in 2018 amounted to UAH 4 billion – that was the market price the agency “repaid” to the consumer.
However, there is room for improvement in terms of the scales of AMCU’s penalties. European experience shows that this policy can be more aggressive. For example, in 2014, the German competition authority fined the so-called sausage cartel, in particular 22 sausage producers and 33 responsible persons for EUR 338 million for concerted action in the process of pricing.
Not fines alone
“From my own experience, I will say as follows: previously, when I approached the Committee, the approach of the staff was quite formal. For example, if you applied for concentration (for example, by merging or acquiring companies – Editor’s note), the documents should have been stitched in a certain way, with a certain mark,” says advocate Yurii Rudenko, a lawyer in the field of antimonopoly law. Applications can now be sent by e-mail. “Nobody will refuse the consideration of your application if it is not stitched with a certain thread.”
Anastasiia Usova clarifies that submission of the application in paper form is still required – in accordance with the requirements of the Regulation on Concentration, it is required both in paper and in electronic form.
It is interesting that individuals and companies submit complaints and applications to the AMCU much more often than abroad. Accordingly, there are more decisions made. “We receive about 6 thousand complaints, and we make decisions in approximately 2.5 thousand cases. In France or Romania, they make 50 to 200 decisions,” says Terentiev.
And how does it affect businesses?
At first glance, a strong emphasis on penalties may seem aggressive. But the truth is that the Committee works not only by the method of stick, but also the carrot. For example, one of the most positive decisions by the AMCU for business was the harmonization of control over concentrations with the best practices of the EU. It is about the permission or prohibition of the antimonopoly agency for mergers or acquisitions of companies, if this could lead to monopolization or a significant restriction of competition in the market.
Until recently, it was extremely difficult to obtain such permission due to the complexity and incomprehensibility of the procedure. The EU project has also helped simplify this procedure, adopt new rules for assessing such agreements by the Committee. In fact, the business got its single clear rules of the game, when and how it is worth applying the AMCU for permission for a deal.
Since May 2016, financial thresholds with the excess of which businesses need to apply for permission have been substantially raised. It immediately reduced the number of applications for concentration by 30% (from 962 to 666 per annum).
And what’s next?
However, it is too early to talk about the successful completion of the “reform of the AMCU”. There are several problems whose addressing is still at the development stage.
First of all, a large part of AMCU’s decisions on imposing penalties are appealed in court. Very often, a court makes a decision not in favour of the Committee, and the company does not pay a penalty. For example, the AMCU lost its Sanofi trial in December 2018.
In November 2017, the Committee acknowledged that contracts entered into by such distributors of medicinal products as Optima-Pharm, Ltd and BadMM, on the one hand, and Sanofi-Aventis Ukraine LLC provided for such a pricing mechanism that could lead to restricting competition in the drug market for cheaper substitutes. The decision of the Committee was appealed by both distributors. BadMM will not pay the penalty of UAH 28.79 million, and Optima-Pharm – in the amount of UAH 40.76 million.
In accordance with the law, there are certain grounds for appealing the decision of the Committee. They occur when it either failed to prove the circumstances of decision-making or did not fully study them, violated the rules of substantive or procedural law, which led to the wrong decision-making. Given the sufficient set of facts in the evidence base, clear cause and effect relationship in the case, and compliance with all procedures, there would be no grounds for appealing the Committee’s decision.
Secondly, there are many other ways to avoid paying a penalty. The First Deputy Head of AMCU Mariia Nizhnik explains: “Sometimes the violating company is a subsidiary company. And the amount of penalty we impose on it is not essential to business.” Another example is when a company knows that the court will make a decision on a penalty not in its favour, so it artificially shows a greater loss to minimize the penalty. All these things certify gaps in the system.
But the Committee is working to bridge them. Thus, for example, it is developing a framework for implementing one of the proposals of the EU international technical assistance Twinning. It is about the principle of subsidiarity, when a parent company bears responsibility for violations by the subsidiary.
But a certain solution can be found for any problem only when there is a political will to solve it.
By Samira Abbasova