ASSESSMENT OF ADMINISTRATIVE SANCTIONS BY THE COMPETITION PROTECTION AGENCY
Authors: Špela Arsova, Luka Vitamvas
One year has passed since the entry into force of the new Prevention of Restriction of Competition Act (ZPOmK-2)[1]. Among the most important changes brought by the new law is the introduction of the so-called administrative sanctioning which replaced the minor offences procedure under the previous ZPOmK-1[2]. Previously, the minor offences procedure, and thus the imposition of a penalty, was only initiated after the administrative decision finding an infringement of the competition rules had become final. In practice, such a separation proved to be very inefficient, as it often took several years from the initiation of the administrative procedure to the issuance of the infringement decision imposing the fine. Also, in order to ensure that Slovenian national rules are effectively in line with the requirements of EU Directive 2019/1, so that national competition authorities can impose effective, proportionate and dissuasive fines for breaches of competition law, the Public Agency for the Protection of Competition of the Republic of Slovenia (hereinafter: “the Agency”), in accordance with the new ZPOmK-2, decides on an administrative infringement within the administrative procedure and imposes an administrative sanction (i.e. a fine) already in the administrative decision on the finding and termination of the competition law infringement.
Article 92 of the ZPOmK-2 contains some general rules for the determination and assessment of an administrative sanction, listing, inter alia, examples of mitigating and aggravating circumstances to be considered in the assessment of the sanction. In order to define more precisely the methods and principles for the determination of administrative sanctions for the most common administrative offences decided by the Agency pursuant to ZPOmK-2 and the Agriculture Act (ZKme-1)[3], the Council of the Agency adopted on 16 November 2023 the Guidelines for the Determination and Assessment of Administrative Sanctions for Administrative Offences (hereinafter: “the Guidelines”). The range of sanctions that can be imposed by the Agency under the ZPOmK-2 and the ZKme-1 is very wide: from 0.25 % of the annual turnover of the buyer in the case of illicit practices in the supply chain of agricultural and animal products to 10 % of the annual turnover of the offender of the prohibition of restrictive practices set out in the ZPOmK-2, or even up to 10 % of the annual turnover of the undertakings involved in the concentration, together with other undertakings in the group. The Guidelines are therefore undoubtedly a positive additional tool for the Agency as well as for companies and legal advisors, as their application will make the Agency’s conduct more predictable, thereby increasing the level of certainty for companies operating on the Slovenian market.
Method for setting administrative sanctions
The Guidelines initially provide for a general method for determining administrative sanctions, which is then divided into individual chapters according to the different infringements. The assessment of the administrative sanction is carried out in two parts:
- First, the Agency sets the basic amount for each undertaking or association of undertakings. The basic amount of the administrative sanction is determined according to the relevant turnover and depends on the type of administrative infringement.
- The Agency then adjusts the amount to mitigating or aggravating circumstances.
I. Restrictive Practices
a. Determination of the relevant turnover
Restrictive practices under competition law include restrictive agreements between undertakings and abuses of dominant positions. In the case of sanctioning such infringements, according to the Guidelines, the value of the relevant turnover is determined as the annual turnover of the infringer which is directly or indirectly related to the infringement in the relevant geographic area. The relevant geographic area is normally not limited to the market of the Republic of Slovenia, but covers all geographic areas in which the undertaking generates the relevant turnover.[4] In doing so, the share of the individual undertakings involved in the infringement in relation to the total relevant turnover shall also be assessed and taken into account.
The Guidelines also set out the sources of data that the Agency may use to determine the relevant turnover. While the Agency should preferably use the data of the undertaking concerned. However, in the event that the undertaking’s data are not sufficiently reliable, the Agency may also use incomplete data obtained by itself or any other data it deems appropriate. This provision does not fulfil the purpose of the Guidelines to ensure the predictability of the work of the Agency, as it allows it to determine the relevant turnover and thus the basis for the sanction on the grounds of data obtained in a completely arbitrary and unprofessional manner.
b. Determination of the basic amount
The basic amount of the administrative sanction represents:
- a share of the relevant turnover,
- multiplied by the duration of the infringement; and
- increased by the deterrence amount.
According to the Guidelines, up to 30 % of the relevant turnover will generally be considered in the calculation, while the exact percentage will depend on the gravity of the infringement and the following factors: the nature of the infringement, the aggregate market share of all undertakings concerned, the geographic scope of the infringement and whether or not an infringement has been committed. Among the most serious infringements, the Guidelines in point 21 classify agreements between competitors on price fixing, market sharing and output limitation, which are sanctioned at the upper end of the range. Accounting the gravity of the infringement, the percentage of the relevant turnover is multiplied by the years of duration of the infringement, where periods of less than 6 months are considered as half a year and periods of more than 6 months are considered as a full year. Finally, for the purpose of special prevention, the Agency includes in the basic amount a deterrence effect of between 15 % and 25 % of the relevant turnover.
II. Concentrations
a. Determination of the relevant turnover
With regard to infringements of the provisions relating to concentrations, the provisions of the ZPOmK-2 on the calculation of the annual turnover of the undertakings involved in a concentration shall apply to the determination of the relevant turnover. The value of the relevant turnover is thus equal to the annual turnover of the undertakings involved in the concentration together with other undertakings in the group, which, according to the definition of the ZPOmK-2, excludes any intra-group turnover. The ZPOmK-2 also contains certain specificities regarding the calculation of the turnover of credit and financial institutions as well as insurance companies.
b. Determination of the basic amount
The basic amount of the administrative sanction represents:
- a share of the relevant turnover;
- and, in the case of omission or late notification of a concentration, multiplied by the number of months of the delay.
In the case of non-notification or late notification of a concentration, the basic amount of the administrative sanction shall be determined as a percentage of the relevant turnover, which shall in principle not be less than 0,025 %. Again, the assessment of the percentage shall consider the gravity of the infringement (Article 92 ZPOmK-2), after which the percentage thus obtained shall be multiplied by the number of months or, proportionally, by the number of days of delay. In the case of infringements related to the notification of a concentration, the Guidelines do not specify the circumstances which will influence the weight to be attributed by the Agency to a particular infringement, but the Agency has in the past dealt more severely in particular with failures to notify, where undertakings have failed to notify the concentration even after being requested to do so by the Agency, or where the failure to notify is due to the intent or gross negligence of the notifying party.
For the other violation related to concentration procedures, i.e. unauthorised implementation of the concentration, failure to implement corrective measures (i.e. commitments) and conduct contrary to measures taken to remedy the effects of the concentration, the Guidelines provide that the percentage of relevant turnover to be taken into account for the determination of the basic amount shall generally not be less than 0,08 %.
III. Procedural infringements
The infringements referred to in Paragraphs 3 and 4, Article 85of the ZPOmK-2 relate primarily to the obstruction and refusal of the undertaking to participate in the activities of the Agency. The law provides for an administrative sanction of up to 1% of the annual turnover or a periodic administrative sanction of up to 5 % of the average daily total turnover of the undertaking in the preceding financial year.
Pursuant to the Guidelines, in addition to the gravity and duration of the procedural infringement, the Agency will also consider the company’s cooperation in the infringement procedure, the size of the company and the company’s previous conduct when determining the amount of a one-time sanction. As regards the determination of the amount of periodic penalty payments, the Guidelines explain that the average daily turnover of an undertaking is normally calculated by the Agency by dividing the annual turnover of the undertaking in the preceding business year by the number of days in the year. The Guidelines do not provide any further clarification or instructions on the determination of the level of sanctions for procedural infringements.
IV. Illicit practices in the agri-food supply chain
a. Determination of relevant turnover
Illicit practices are defined by the ZKme-1 as practices by which a buyer, by means of its significant market power, takes advantage of a supplier contrary to good commercial practice. In addition to prohibited practices, the Agency may also sanction breaches of the requirement to have contracts in writing in the food supply chain.
According to the Guidelines, the value of the relevant turnover is determined pursuant to the Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, which defines the category of an undertaking in terms of staff headcount and financial ceilings. The annual turnover figures are determined on the basis of the financial statements. Interestingly, in this case, the Guidelines only provide for the use of the accounts of the undertakings concerned and do not allow for the use of other sources of data, as is possible in the case of restrictive practices.
b. Determination of the basic amount
The basic amount of the administrative sanction shall, as a general rule, not be less than 0,0025 % of the relevant turnover determined above, multiplied by the number of months or, as the case may be, in proportion to the number of days of duration of the unauthorised practices. In assessing the amount, the Agency shall take into account, in particular, the effectiveness, proportionality and dissuasive effect of the administrative sanction, having regard to the nature, duration, repetition and seriousness of the infringement.
Adjustment of the basic amount
The Guidelines further specify the mitigating and aggravating circumstances to be considered when adjusting the basic amount. Aggravating circumstances include repeated infringements, refusal to cooperate with the Agency or obstruction of the Agency’s work, and incitement of other undertakings to commit infringements. Mitigating circumstances include in particular conduct which prevents further infringements, such as cooperation with the Agency, restitution of the damage caused by the infringement, immediate cessation of the infringement and participation in the infringement only to a limited extent.
While the Guidelines follow the circumstances that the Agency is supposed to apply in determining the level of a sanction under the ZPOmK-2, it derives from the Guidelines that in restrictive practices proceedings the Agency could potentially apply some of these circumstances twice. Indeed, point 20 of the Guidelines provides that, in determining the basic amount, the share of the relevant turnover is to be assessed on a case-by-case basis, having regard to all relevant circumstances, in particular the nature of the infringement, the aggregate market share of all the undertakings concerned, the geographic scope of the infringement and whether or not an infringement has been committed. It is questionable whether this type of procedural complexity is necessary and whether it may not bring more difficulties than benefits. At most, the possible multiple application of aggravating circumstances may lead to unconstitutional double sanctioning and therefore an additional phase of adjustment of the basic amount does not seem reasonable. The breakdown of aggravating and mitigating circumstances is certainly welcomed, but it would be more appropriate to include them in the stage of determining the basic amount.
In order to have a sufficient deterrent effect on companies with particularly high revenues or to exceed the amount of unlawful gains, the Agency has at its disposal in certain cases a specific increase in administrative sanctions.
Possibilities of remission and reduction of administrative sanctions
The Guidelines also briefly mention the possibility of remission or reduction of sanctions for undertakings involved in cartels that assist the Agency by disclosing evidence and the settlement procedure. As these two procedures are already regulated in detail in separate by-laws[5], they are not dealt with in detail.
Article 92 of the ZPOmK-2 provides that the Agency shall also consider the ability to pay as one of the factors when imposing an administrative sanction. According to the Guidelines, the use of this circumstance for the reduction of a sanction is limited to exceptional circumstances. The Guidelines require that the Agency shall reduce or even waive the sanction for inability to pay only if the undertaking provides clear and objective evidence that the administrative sanction would be likely to seriously jeopardise the economic viability of the undertaking and cause a loss of the entire value of its assets. An unfavourable or poor financial situation alone is not sufficient to justify a reduction. However, the Agency has the possibility under the Guidelines, following a reasoned proposal from the undertaking, to impose favourable payment terms or a combination of favourable terms and a reduction of the administrative sanction.
[1] Prevention of Restriction of Competition Act (Official Gazette of the RS, No 130/22).
[2] Prevention of Restriction of Competition Act (Official Gazette of the RS, No 36/08, as amended).
[3] Agriculture Act (Official Gazette of the RS, No 45/08, as amended).
[4] Article 3, Paragraph 1, Point 10 of the ZPOmK-2 defines “annual turnover” as the net turnover generated by an undertaking during the financial year from sales of products and provision of services falling within ordinary activities.
[5] Regulation on the procedure for the remission and reduction of administrative sanctions against undertakings involved in cartels (Official Gazette of the RS, No 130/22) and Regulation on the procedure for the reduction of administrative sanctions on the basis of a settlement application (Official Gazette of the RS, No 130/22).
