One of the most important changes introduced by ZPOmK-2[1], which came into force last year, was the introduction of a unified administrative procedure for establishing infringements and imposing administrative sanctioning.[2] The unified procedure has completely replaced the offence procedure as it existed under the previous ZPOmK-1[3], in which the Agency, unless ZPOmK-1 provided otherwise, applied the Minor Offence Act (ZP-1[4]) and imposed fines. ZPOmK-1 did not lay down specific rules for the assessment of fines, therefore (prior to the introduction of administrative sanctioning) fines for offences for breaches of ZPOmK-1 and ZKme-1[5] were determined and assessed in accordance with the general rules for the assessment of sanctions (Article 26 of the ZP-1).
The provisions of ZPOmK-2 regarding the assessment of administrative sanctions are relatively scarce – Article 92 of the ZPOmK-2 provides that all the circumstances of the case are to be taken into account in determining the amount of the administrative sanction and lists certain aggravating as well as mitigating circumstances.
The administrative sanctions for infringements of the provisions of ZPOmK-2 and ZKme-1 are prescribed in a range depending on the percentage of the annual turnover of the undertaking which infringed the relevant provisions of the abovementioned laws. This system allows for the individualisation of the administrative sanction and increases the likelihood that the administrative sanction will have a deterrent effect. However, the ranges of administrative sanctions are quite broad,[6] which instils a large degree of unpredictability. Additional uncertainty is also present in the fact that the Agency has a discretionary power in determining the administrative sanctions, which allows for a wide discretion in the assessment of administrative sanctions.
The Guidelines, which set out a general methodology for the determination of administrative sanctions, are therefore a welcome addition to what has so far been a relatively broad framework for the determination of administrative sanctions. In particular, the Guidelines will make an important contribution to greater transparency and predictability in the setting of administrative sanctions.[7]
Notwithstanding the above, we would like to point out that the Agency retains discretion both regarding the possible modification of the content of the Guidelines and the consistency of their application. In exceptional cases, the Agency may, taking into account the specific circumstances of the case, determine the administrative sanction in a different way, but the method and the reasons for the determination of such sanction will only be defined in the decision.
Below we briefly outline the content of the Guidelines, which largely follow the European Commission’s Guidelines on the method of setting fines but offers further elaboration on certain criteria.
The procedure for imposing administrative sanctions consists of two steps:
- initially, the Agency determines the basic amount of the administrative sanction for each undertaking or association of undertakings according to the relevant turnover and taking into account the gravity of the infringement[8],
- in the second step, the Agency adjusts the amount according to the circumstances of each individual case (described in point II.).
I. DETERMINATION OF THE BASIC AMOUNT
I.1. Infringements of provisions relating to restrictive practices
The basic amount of the administrative sanction in the case of restrictive practices is the proportion of the relevant turnover multiplied by the duration of the infringement, adding a deterrent amount.
In determining the basic amount, the following is taken into account:
- Relevant turnover: the value of the relevant turnover is defined as the value of the annual turnover[9] directly or indirectly related to the infringement in the relevant geographic area.
- Where the infringement of an association of undertakings relates to the activities of its members, the value of the relevant turnover shall, as a rule, be determined as the annual turnover of each individual member active on the market to which the infringement relates.
- The geographical area is not limited to the market of the Republic of Slovenia.
- Gravity of the infringement: According to the Guidelines, up to 30% of the relevant turnover is taken into account in the calculation of the basic amount. The percentage depends on the gravity of the infringement – in the case of the most serious infringements (horizontal agreements on price fixing, market sharing and output restraints), the percentage will be at the upper end of the range.
- The duration of the infringement: The percentage of relevant turnover is multiplied by the years of duration of the infringement.
- Deterrence amount: Irrespective of the duration of the undertaking’s involvement in the infringement, the Agency may, for deterrence purposes, add a deterrence amount of 15-25% of the relevant turnover (in particular in the case of the most serious infringements, but may also be applied in the case of other infringements).
I.2. Infringements of provisions relating to merger control
The value of the relevant annual turnover represents the annual turnover of the undertakings concerned in the concentration together with the other undertakings in the group.[10] Normally, the last financial year of the company’s involvement in the infringement is taken into account.
- In the event of delayed notification or failure to notify, the basic amount of the administrative sanction shall be determined as a percentage of the relevant turnover, which should be no less than 0.025% (the gravity of the infringement is taken into account in determining the percentage), multiplied by the number of months or days of delay in notification.
- In the case of unauthorised implementation of the concentration, failure to implement corrective measures or conduct contrary to the measures taken to remedy the effects of the concentration, the basic amount shall be determined as a percentage of the relevant turnover, taking into account the gravity of the infringement, the percentage being as a general rule not less than 0.08 % of the relevant turnover.
I.3. Illicit practices in the food supply chain
The relevant turnover is determined by the value of the buyer’s annual turnover,[11] in particular the definitions of sole proprietorship, partnership and associated enterprise created by the buyer in the previous year.
Depending on the gravity of the infringement, the basic amount shall be set as a percentage of the relevant turnover, which shall normally be no less than 0.0025% multiplied by the duration of the infringement.
I.4. Procedural infringements
- Administrative sanctions in the form of a lump sum: the relevant turnover is the annual turnover (in accordance with the provisions of ZPOmK-2). The sanction is limited to a maximum of 1% of the relevant turnover. In assessing the amount, the Agency takes into account, in particular, the nature and gravity of the infringement, the duration of the infringement, the undertaking’s cooperation in the infringement procedure, the size of the undertaking and the undertaking’s previous conduct.
- Administrative sanctions in the form of a periodic amount – the Guidelines refer in this part in full to Articles 85(4) and 85(5) of the ZPOmK-2 – which do not, however, lay down any criteria for the assessment of the amount of the sanction.
II. ADJUSTMENT OF THE BASIC AMOUNT
In the second step of determining the administrative sanction, the Agency may adjust the basic amount accordingly – either increasing or decreasing it according to the mitigating or aggravating circumstances. The Guidelines list typical examples of such relevant circumstances (although the list is open-ended).
Large undertakings in particular should also pay attention to the Agency’s commitment to increase the deterrent effect of administrative sanctions – in particular, it may increase the administrative sanction for undertakings with particularly high revenues outside the sales of the goods and services related to the infringement. The Guidelines also contain a commitment by the Agency to take into account, when assessing an administrative sanction, that the amount of the administrative sanction exceeds the amount of the unlawful gains derived from the infringement.
POSSIBILITIES TO OBTAIN A REDUCTION OF THE ADMINISTRATIVE SANCTION
The Guidelines also briefly mention other options that allow administrative sanctions to be reduced:
- In the case of participation in leniency programme, the administrative sanction imposed on companies may be reduced by up to 50%.
- In the event of a settlement, the administrative sanction may be reduced by up to 20%.
- On the basis of a reasoned proposal from the undertaking, the amount of the administrative sanction may be reduced by the Agency if the undertaking provides sufficiently clear and objective evidence that the administrative sanction would be likely to seriously jeopardise the economic viability of the undertaking and cause its assets to lose all their value.
CONCLUSION
The Guidelines are a welcome novelty that will help to increase transparency and objectivity in the determination of administrative sanctions. They can also make an important contribution to reducing uncertainty by bringing at least some additional clarity regarding the assessment of administrative sanctions (regardless of the fact they were issued by the Agency’s Council and are not a legislative act).
Businesses can also expect a more efficient and quicker process of determination of administrative sanctions.
Despite the increased predictability, it is worth noting that the Agency may in exceptional cases deviate from the application of the Guidelines and that, even if the Guidelines are followed, infringers of the relevant provisions of the ZPOmK-2 and the ZKme-1 are still exposed to high administrative sanctions. Ensuring business compliance is therefore still the safest way to remove uncertainty and avoid administrative sanctions.
[1] Prevention of Restriction of Competition Act (in Slovenian: Zakonu o preprečevanju omejevanja konkurence, Official Gazette of the RS, No 130/22, “ZPOmK-2”).
[2] We have written about this and other changes of the new ZPOmK-2 in the following article: http://jadek-pensa.si/en/new-prevention-of-restriction-of-competition-act-shall-become-applicable-what-key-changes-should-undertakings-be-aware-of/.
[3] Prevention of Restriction of Competition Act (in Slovenian: Zakonu o preprečevanju omejevanja konkurence, Official Gazette of the RS, No 36/08, as amended, “ZPOmK-1”).
[4] Minor Offences Act (in Slovenian: Zakon o prekrških, Official Gazette of the RS, No 29/11 as amended, “ZP-1”).
[5] Agriculture Act (in Slovenian: Zakon o kmetijstvu, Official Gazette of the RS, No 45/08, as amended, “ZKme-1”).
[6] Pursuant to Article 85 of the ZPOmK-2, infringements of the provisions relating to restrictive practices and infringements of concentration rules are subject to an administrative sanction of up to 10% of the annual turnover of the undertaking in the preceding business year. In case of infringements relating to unlawful practices in the agri-food supply chain, the administrative sanction is limited to 0,25 % of the annual turnover of the buyer in the preceding business year.
[7] Access to the Guidelines: http://www.varstvo-konkurence.si/informacije/novica/smernice-za-dolocanje-in-odmero-administrativnih-sankcij-za-administrativne-prestopke/.
[8] The gravity of the infringement takes into account a number of factors, e.g. the nature of the infringement, the combined market share of all undertakings concerned, the geographic scope of the infringement and whether or not an infringement has been executed.
[9] Indent 10 of Article 3(1) ZPOmK-2 – the value of the net turnover generated by the undertaking in the preceding business year from the sale of products and the provision of services in the ordinary course of business.
[10] Indent 11 of Article 3(1) ZPOmK-2
[11] In accordance with the Annex to Commission Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises.
