Fines Imposed by the Antimonopoly Committee of Ukraine
Over the past several years the Antimonopoly Committee of Ukraine (the AMCU) has significantly strengthened its punitive pressure on businesses in Ukraine. Such cases are numerous, especially in politically sensitive or socially important areas of the Ukrainian economy (e.g. food, retail, electricity & fuel) where the sums of fines have reached millions of EUR1.
In 2013 the AMCU imposed UAH 744 million worth of fines (approximately EUR 46 million) for violations of competition laws, which is 1.8 times higher than in 20122.
Fines are different and vary depending on the industry and types of violation. For instance, in 2013 as a punitive measure for anti-competitive concerted practices in the oil sector3 the maximum fine was imposed in the amount of UAH 210 million (approximately EUR 13 million) in the oil sector.
Another example is a fine of UAH 77 million (approximately EUR 5 million) imposed on two truck dealers due to a cartel in a public tender. A number of other fines were significantly lower, varying in the range of approximately EUR 10,000 — 100,000.
It is hard to foresee whether or not AMCU fines will rise further. The uncertainty of AMCU fines and unpredictability for businesses are within a global legal dimension characterised by a deficit of statutory regulation and practice.
Statutory law has always granted the AMCU vast freedom to decide the amounts of fines4. By now there has been no official procedure for calculating fines in Ukraine. Moreover, the AMCU has never issued any guidelines in this respect.
Statutory law sets only maximum caps for fines, which are different for different types of infringements. For example, the maximum fine for abuse of a dominant position or anticompetitive concerted actions is 10% of the revenues of the undertakings found guilty. AMCU branches in the regions can impose fines of up to UAH 68,000 (approximately EUR 4.250); higher fines can still be imposed on a territorial level by so-called temporary AMCU administrative commissions created ad-hoc to consider “complicated cases”.
The leniency procedure adopted in 2012 made it possible to considerably decrease the amount of fines (to several thousand or even hundreds of EUR) in a limited context of anti-competitive concerted actions.
In practice the AMCU applies the checkbox principle based on several criteria. For example, the fines may be reduced significantly in case the company (i) voluntary discloses the violation, (ii) recognizes the violation prior to the AMCU decision,
(iii) actively cooperates with the AMCU5, (iv) has never committed violations in the past6, (v) experiences a difficult financial situation7. These criteria, however, are not incorporated into any law.
The AMCU’s approach is very similar to the approach suggested in the commentary to the Ukrainian Commercial Code8. According to the commentary, the main circumstances which should be taken into account when calculating AMCU fines are:
materiality of the impact of the infringement on competition;
amount of profit obtained due to the infringement;
amount of damages incurred as a result of the company’s misconduct;
whether company commits the infringement for the first time;
duration of the infringement;
behavior of the company after the misconduct was detected by the AMCU;
financial situation of the infringing company; etc9.
All the above criteria may only be considered as a soft law, which are in any case not binding for the AMCU or courts. It is still up to the AMCU whether or not to follow the above criteria in each particular case.
The practical need of fixing such criteria in statutory law is obvious to make the AMCU practice foreseeable for businesses and transparent.
As a matter of current court practice, Ukrainian courts are generally rather reluctant to overrule AMCU decisions. Moreover, commercial courts are not allowed to re-consider fines imposed by the AMCU10.
In certain very recent cases courts seem to be more favorable to businesses when AMCU fines reach the maximum level permitted by statutory law. In such cases courts send back the files to the AMCU to reconsider amounts of fines in view of their obvious excessiveness or non-proportionality with due account to mitigating circumstances.
In the above-mentioned “furniture” case, for example, the Kiev Commercial Court cancelled the AMCU decision in the part relating to determination of the fine based on the principle of fairness because when calculating the fine the AMCU simply took the maximum of what was allowed by the law and failed to take into account, inter alia, the “general foundations of juridical liability” and the principle of proportionality of the penalty11.
The problem may not be completely solved by courts until there is a binding procedure of fine calculation or at least AMCU guidelines of what can be taken into consideration when defining a fine.
According to the Association Agreement between EU and Ukraine, which is likely to be signed soon, the Parties shall recognise the importance of applying their respective competition laws in a transparent, timely and non-discriminatory manner, respecting the principles of procedural fairness; any sanctions or remedies shall be imposed or reviewed at the person’s request by a court or other independent tribunal established under that Party’s laws12.
Furthermore, in accordance with Article 256 of the Association Agreement, Ukraine is expected to bring into line its competition laws and enforcement practices to the Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty.
In contrast to regulations in existing Ukrainian law, Clause 3 of Article 23 of the above EU Regulation clearly requires that in fixing the amount of the fine, regard shall be paid both to the gravity and to the duration of the infringement.
In 2006 new EU Guidelines were issued, refining the method for calculating the fines used by the Commission, imposing fines on undertakings that violate the provisions of Article 101 of the Treaty on the Functioning of the European Union and abuses of dominant position (Article 102 the Treaty). In accordance with EU Guidelines, greater weight is to be given to the duration of the infringement when calculating the level of a fine. Fines also include an amount simply for committing the infringement, regardless of its duration, and higher fines are imposed in the event of re-offending.
EU Guidelines apply a two-step methodology when setting the fine: the Commission determines the basic amount of the fine and adjusts it upwards or downwards13. The basic amount is calculated as a percentage of the value of the sales of products connected with the infringement, multiplied by the number of years the infringement has been taking place. The upwards or downwards adjustment will be applied in case of aggravating circumstances or mitigating circumstances.
The aggravating circumstances under the EU Guidelines are the repeated infringement; the refusal to cooperate with the Commission; the role of leader or instigator of the infringement, etc.
The mitigating circumstances are the termination of the infringement as soon as the Commission intervened; the infringement has been committed as a result of negligence; the limited involvement in the infringement and adopting competitive conduct in the market; cooperation with the Commission; the anti-competitive conduct of the undertaking has been authorized or encouraged by public authorities or by legislation.
According to EU Guidelines, the inability to pay the fine can be taken into account in exceptional cases and in a specific social and economic context. A reduction could be granted in the event that the fine would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value.
Ukrainian competition law clearly lacks normative guidelines on fines determination and respective criteria, which would be mandatory for the AMCU. The AMCU still defines fines on a case by case basis and such practice is unpredictable for businesses.
Under the current procedural rules Ukrainian courts are unable to fill these gaps and carry out an effective judicial review of penalties imposed by the AMCU. This situation leads to negative outcomes for businesses and creates a bad image for a country whose legal system is based on supremacy of statutory laws, rather than the doctrine of case law.
The good news is that Ukraine may soon have to adopt a document explaining the principles to be used in the setting of any pecuniary sanctions imposed for infringements of competition legislation, which is a requirement of the Association Agreement between EU and Ukraine.
It is highly recommended that, when developing these principles and guidelines, the AMCU should use the help of law practitioners who are familiar with best practices of other countries.
1 A good example is the famous 2012 “furniture” case, in which the AMCU had initially imposed a fine of UAH 400 million for an anticompetitive market accord in a public tender between several wood processing companies.
2 See the 2013 Annual Report of the AMCU, available at http://www.amc.gov.ua/. Violations in the form of anti-competitive concerted actions triggered
UAH 382 million worth of fines; second goes the abuse of monopoly (dominant) position with UAH 291 million of fines.
3 See the 2013 Annual Report of the AMCU, p. 23.
4 E.g., see Article 19 of the On Limitation of Monopolism and Elimination of Unfair Competition Act of Ukraine of 18 February 1992 (not in force any more); Article 30 of the On Protection against Unfair Competition Act of Ukraine of 7 June 1996; Article 52 of the On Protection of Economic Competition Act of Ukraine of 11 January 2001; Article 251 of the Commercial Code of Ukraine of 18 January 2003.
5 See, inter alia, Decision of the Zhitomir Regional AMCU Department of 12 March 2013, No. 16/11-р. available at http://www.amc.gov.ua/
6 The 2012 Report of the Vinnitsa Regional Department of the AMCU, available at http://www.amc.gov.ua/.
7 The 2012 Official Report of the AMCU, p.47, available at http://www.amc.gov.ua/ .
8 Scientific and Practical Commentary to the Commercial Code of Ukraine: 2nd edition / edited by H.L. Znamensky, V.S. Sherbina. — Kyiv, 2008. — 720 p. — p. 417.
9 See supra.
10 See Clause 20.1 of the Resolution of the Board of the High Commercial Court of Ukraine No. 15 of 26 December 2011.
11 See decision of the Kiev Commercial Court, of 18 February 2013, in case No.5011-76/11613-2012, available at http://www.reyestr.court.gov.ua/.
12 See Clause 3 of Article 255 of the Association Agreement between EU and Ukraine initiated by the government of Ukraine.
13 See Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 available at http://eur-lex.europa.eu/.