Enterprise managers risk EUR 500 thousand fines for participating in price fixing arrangements

The draft amendment of the Act on competition and consumer protection prepared by the Office of Competition and Consumer Protection seems appropriate, considering its general purposes, still it raises doubts concerning legal guarantees

Warsaw, 12 December 2012 The planned amendment of the Act on competition and consumer protection strengthens the position of Office of Competition and Consumer Protection in combating cartels. It introduces a lot of advantageous solutions, allowing enterprises to discuss business concentration planned before the Office issues its decision. The new regulations will also simplify and shorten the proceedings. On the other hand, they will entitle the President of the Office of Competition and Consumer Protection to impose high financial penalties on heads of businesses participating in cartels. According to Deloitte Legal experts, the amendment grants too much administrative authority to a single office, hence limiting legal protection of individuals.

Preliminary assumptions of the amendment originated by the President of the Office of Competition and Consumer Protection were approved by the government at the end of November 2012. They focus on filling legal loopholes in concentration proceedings. ‘The draft includes a number of interesting propositions. The new regulations will also simplify and shorten the proceedings before the Office. In simple cases, an entrepreneur will obtain a decision within a month, in more complex situations the period will be extended by four months. Companies will be glad to hear that in line with new regulations entrepreneurs may be informed of significant issues raised by the office before the final decision concerning concentration is issued. It will certainly streamline M&A processes and mitigate the risk of parties involved,’ explains Joanna Dudek, Attorney at Law, Partner Associate at Deloitte Legal Pasternak, Korba i Wspólnicy.

The Office’s key intention is to improve its efficiency in combating cartels. It is an important problem for all markets and consumers, in Poland as well. Price fixing arrangements are made both in manufacturing and in trade sectors. The new regulations reinforce the existing solutions, for example the approach to disclosing information on price fixing (leniency) and introduce new ones – such as voluntary submission to penalty. As proposed by the Office of Competition and Consumer Protection, the penalty imposed on the entrepreneur may be mitigated if he notifies the office of the price fixing arrangement entered into by his company. A new solution is the possibility to inform the office of other banned practices of the company, which may result in a potential reduction of financial penalty by 30 per cent. ‘This way the legislator wants to get a snowball effect, encouraging entrepreneurs to reveal price fixing arrangements other than those which have already been analysed by the office. The intention of the authorities is to support the current leniency program and to promote it. At this stage it is difficult to judge if the changes proposed will bring the intended results, says Tomasz Fiałek, Advocate and Managing Associate at Deloitte Legal.

According to Deloitte Legal experts the most controversial solution is the possibility to penalize individuals holding managerial positions in companies participating in cartels. The regulations in force allow for penalizing businesses only. In line with the amendments, the President of the Office of Competition and Consumer Protection will have the power to impose an administrative fine up to EUR 500 thousand on a company representative. Personal liability has been introduced to discourage managers from participating in illegal practices. The Office has not indicated management levels which can be penalized – whether it refers to owners and members of the management board or to managers, sales managers or directors of local structures as well. ‘The legislator must indicate more precisely what kind of activities and who exactly can be penalized so heavily. Another controversial issue is the proposition to impose so high financial penalties under administrative proceedings. In most European countries the liability is determined in line with penal or misdemeanour law,’ explains Tomasz Fiałek.

Based on an analysis carried out by Deloitte Legal experts in European countries, the penal law is applied to penalise individuals participating in price fixing arrangement and other illegal practices in 10 out of 14 countries, for instance in France. In Germany and the Netherlands the fines are imposed by administrative authorities. Such approach is supported by the Office of Competition and Consumer Protection. As indicated by Deloitte Legal experts, however, Garman and Polish regulations are only seemingly similar systems. The system applied by our Western neighbours stems from their administrative misdemeanours code based on the principles of the penal code. Such solutions are not proposed in Poland. Moreover, regulations implemented in the Netherlands in 2007 and referred to by the Polish anti-monopoly authorities, have not added much value to the local practice. Individuals were fined under these regulations in no more than 3 cases, out of which one concerned participation in agreement limiting free competition. Still, even such a limited number of cases raised much interpretation controversy.

According to Deloitte Legal experts proposed solutions, despite desirable goals, require thorough analysis and possible changes. ‘Regulations proposed by the Office of Competition and Consumer Protection do not provide appropriate legal protection to managers. Managers, who are obliged to cooperate with the office and to disclose circumstance of any breach of the competition law by their organizations, will in fact provide evidence which may be used to prove their personal liability. The Polish legislation, however, does not include any obligation of self-accusation. Quite the opposite, according to the Polish Code of Penal Proceedings an individual may refuse to testify if such testimony would be detrimental to him/her or his/her family.’ adds Joanna Dudek. The Partner of Deloitte Legal adds that concentration of investigation and court competencies in one body may compromise objectivity and excessively automate the analysis process.

Deloitte Legal experts remind that doubts mentioned by the Legislative Council and controversies aroused in the course of public consultations have not been cleared. The general approach to judicial decisions to be issued by the Court of Competition and Consumer Protection cannot be predicted, as its current competences do not allow for issuing verdicts concerning liability of individuals.

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