1 antimonopoly committee of ukraine guidelines on setting fines imposed for violations of the law on...

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Antimonopoly Committee of Ukraine

Guidelineson setting fines imposed for violations of the law on protection of

economic competition

GENERAL APPROACHES

First Deputy Chairman of the Committee M. Nizhnik

Kyiv, 09 September 2015

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General procedure of setting fines imposed for violations of the law on protection of economic

competition

1. Determination of the basic amount of fine.2. Taking into account aggravating and mitigating circumstances.3. Final determination of the amount of fine with regard to:

the maximum possible value under Article 52 of the Law of Ukraine "On Protection of Economic Competition" and Article 21 of the Law of Ukraine "On Protection of Economic Competition";

Impact of the fine on the competitiveness of the economic entity or the ability to meet consumer demand (possibility of decrease);

Securing the purposes of application of fines in exceptional cases (possibility of increase).

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Direct determination of the basic fine

The possibility of determining the basic amount of the fine as:

Amount of improper advantage (profit), gained from violation

increased by restraining index

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Advantages and disadvantages of direct determination of the basic fine

Advantages :

Provides maximum effect

from removal of illegally

obtained monopoly and

cartel rent

Disadvantages :

The difficulty and in some cases -

the impossibility of determining

the amount of an improper

advantage; discretion of the

AMCU on the choice of fine

calculation method

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The circumstances to be taken into consideration when determining the basic amount of the fine

IN ORDER TOIN ORDER TO

Economic Economic scope of scope of violationviolation

Gravity of Gravity of violationviolation

Deterrent Deterrent effecteffect

Remove illegally obtained rent and cause negative Remove illegally obtained rent and cause negative consequences for the offender for the purpose of consequences for the offender for the purpose of

preventionprevention

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Economic scope of the violation

If the violation is caused by If the violation is caused by sellerseller

Income (proceeds) from sales Income (proceeds) from sales of products (goods and of products (goods and

services) effected upon the services) effected upon the violationviolation

If the violation is caused If the violation is caused by buyerby buyer

Conventional (hypothetical) cost of Conventional (hypothetical) cost of purchase of goods (works, services) purchase of goods (works, services)

occurred upon violation that would be occurred upon violation that would be incurred without any violation and the incurred without any violation and the

purchase would be carried out for specific purchase would be carried out for specific purposespurposes

FEATURESFEATURES

In case, when violation In case, when violation negatively affects competition in negatively affects competition in

the adjacent marketthe adjacent market

In case of violation at auctionIn case of violation at auction ((bid rigging)bid rigging)

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To calculate the basic amount of the fine the income / expenses

shall be taken into account:

in the designated territory, or if such sale / purchase affect or

may affect economic competition in Ukraine;

During the effective time of the violation (if the features are not

provided by explanations).

Spatial and temporal dimension of the economic scope of violation

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The gravity of violation shall be taken into account as a percentage

of violation related income (expenses), which, according to

empirical studies, is normal amount of overpricing (underpricing):

in the case of anticompetitive concerted actions of economic entities

- 15-30 percent;

in the case of abuse of monopoly (dominant) position - 10-15

percent;

in the case of concentrations that lead to monopolization or

significant restriction of competition in the market – 3-7 percent.

Consideration of the gravity of violation

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Ensuring deterrent effect

Ensuring deterrent effect shall be done by increasing the percentage

characterizing the gravity of violation, by surcharge rate inversely

proportional to the probability of detecting violations of a certain type.

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The suggested final value of percent of income / expense level related to the violation based on the gravity of violations considering deterrent effect

45 percent

30 percent

15 percent

5 percent

Horizontal anticompetitive concerted actions betwee

competitors (cartels)

Other types of anticompetitive concerted actions

The abuse of dominant position and non-enforcement

Restrictive practices and breach of the control of concentrations

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The base fine in fixed amount

Fixed basic amount of fines (in the income tax exemption

(personal exemption) is proposed to be set after a formal

breach of moderate severity, namely:

declination to committing violations of the legislation on

economic competition protection;

breach of presenting information;

obstruction of the Committee activities.

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For the purpose to enable the consideration of aggravating

circumstances the basic amount of a fine shall not exceed two-

thirds of the maximum possible amount of the fine, regarding the

application of provisions Article 52 of the Law of Ukraine "On

Protection of Economic Competition" and the Article 21 of the Law

of Ukraine "On Protection Against Unfair Competition“.

Increase of the basic amount of fine

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Aggravating circumstances

In the case of evidence, including the following aggravating

circumstances:

repeated (relapse);

initiate actions (inaction);

obstructing the case investigation.

The list of circumstances is harmonized with EU Guidelines on the

method of setting fines.

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Mitigating circumstances

Proposed non-exhaustive list of mitigating circumstances, for example: voluntary termination defendant actions (inaction); compensation for harm caused by the infringement or eliminate the effects

of abuse in other ways appropriate to the decision of the Committee; eliminate on its own initiative the conditions that contributed to the

commission of violations; committing violations due to negligence; the actual non-compliance of conditions by the member of the concerted

actions and the availability (existence) of evidence that the entity actually competed on the market;

cooperation with the Committee during case proceedings committing violations due to the influence of the executive authority (power) voluntary appeal before start of proceedings case on violation concerning

obtaining permission for merger; Existence of compliance program (?)

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The problematic issue of quantitative measure (indices) that takes into account aggravating and

mitigating circumstances in the calculation of fines

Pro argument :

increased level of legal certainty.

Argument against:• opportunity to determine in advance

(anticipatory) the amount of the fine creates the risk that it will be embedded in monopoly rents (cartel) rent and transferred to consumer;

• limited flexibility and comprehensively assess the circumstances of the case;

• in most jurisdictions set or the total possible amount of increase due to aggravating circumstances, or increase in size for certain aggravating circumstances (usually relapse).

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Proposals for quantitative mechanisms taking into account mitigating and aggravating circumstances

when calculating fines

quantitative consideration of the mechanisms provides only

for certain mitigating and aggravating circumstances;

It is determined or "floating" ("from to") or marginal

("before") aggravating factors impact on mitigating

circumstances of the amount of fine.

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CASE

Case on violation of the law on protection as abuse of monopoly

(dominant) position the market for use of the linen in trains.

Actually fined : 50 million UAH

The amount of revenue (proceeds) associated with violation:

12,781 million UAH

The basic amount of the fine: 12,781 * 0,15 = 1,917 million UAH

Mitigating circumstances: 10 % (as mitigation)

Final calculation of the amount of fine : 1, 725 million UAH

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CASE

Case on violation of the law on protection economic Competition as

implementation of concentration without the prior Committee

authorization the household appliance market.

Actually fined : 105 thousand UAH

The amount of revenue (proceeds) in the market where the infringement

occurred: 577,103 million UAH

The basic amount of the fine: 577 103 868,2 * 0,05 = 28,855 million UAH

Final calculation of the amount of fine : 28, 855 million UAH

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CASE

Case on violation of the law on protection economic Competition as

anticompetitive concerted actions on the retail market.

Actually fined : 203 million UAH

The amount of buyer costs associated with violation: 50 902 million UAH

The basic amount of the fine : 50 902 766 680 * 0,45 = 22 906 million UAH

Aggravating circumstances: 10 % (coordination of committing abuse)

Final calculation of the amount of fine : 25 196 million UAH

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CASE

Case on violation of the law on protection economic Competition as anticompetitive concerted actions on the market of untreated wood, that was realized at specialized auctions.

Actually fined: 419 million UAH

The amount buyers costs associated with violation: 620,26 million UAH

the actual amount of buyers costs : 506,36 million UAH

The basic amount of the fine: 620,26 million UAH*0,45 = 279,12 million UAH

Aggravating circumstances: 17 %

Final calculation of the amount of fine : 326,57 million UAH