On 11 December 2018, Directive (EU) 2019/1 of the European Parliament and of the Council to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market was adopted. The Directive aims to enable national competition authorities (NCAs) to be more effective enforcers of EU competition law. Specifically, its objective is to ensure the independence and resources of NCAs as well as to improve their respective enforcement and fining powers allowing them to more effectively apply Articles 101 and 102 of the Treaty on the Functioning on the European Union (TFEU).
The European Commission’s impact assessment (SWD(2017) 114) accompanying the proposal for the Directive estimates that losses of between € 181- 320 billion are incurred each year due to the existence of undiscovered cartels. While NCAs have notably increased their enforcement activities in recent years, the Commission considers that much more needs to be done to improve cartel detection rates particularly at a national level.
The Commission had previously identified through public consultation four main issues which reduced the effectiveness of NCAs:
- Lack of effective competition tools
- Lack of effective powers to impose deterrent fines
- Divergences in leniency programmes of Member States which discouraged infringers from coming forward
- Lack of safeguards ensuring that NCAs can act independently and have the necessary resources to enforce EU competition law
Due to the imbalanced enforcement activities of NCAs both businesses and customers based in Member States where there has been insufficient public enforcement have been disadvantaged. This imbalance has effectively created “safe havens” within the EU where anticompetitive practices often go unpunished because, for example, evidence cannot be collected. The Directive intends to alleviate these problems and improve the current situation of uneven enforcement of Articles 101 and 102 TFEU across the EU.
Effective competition tools
The Directive empowers NCAs to conduct all relevant unannounced inspections concerning possible breaches of Articles 101 and 102 TFEU including the powers to: (i) enter property, (ii) examine the books and records relating to the undertaking in question, (iii) to take or make copies of any records deemed appropriate, (iv) to seal the premises or records while the search is taking place, and (v) to request explanations from any member of staff of the undertaking being searched.
The Directive enables NCAs to conduct unannounced inspections at the homes of directors and staff members of undertakings if reasonable suspicion exists that relevant records are being kept there. Member States must ensure that NCAs have the power to require all necessary information from undertakings within a reasonable amount of time when requested as well as the power to summon for interview any representative of an undertaking.
In addition, Members States must enable NCAs to impose interim measures on undertakings when there is a risk of irreparable harm to competition as well ensuring that NCAs have the power to force and monitor commitments from undertakings.
Effective powers to impose deterrent fines
The Directive places an onus on Member States to either empower NCAs to impose by decision dissuasive fines on undertakings who infringe Article 101 or 102 TFEU, or in the alternative request for fines in non-criminal judicial proceedings. This is particularly interesting in relation to Member States who have fully criminalised competition law offences such as Denmark and Ireland, but where public enforcement activities have been very limited due to the burden of proof required. These Member States will now be required to change their system to ensure that the criminal system “does not affect the effective and uniform enforcement of Articles 101 and 102 TFEU”.
To prevent the possibility of any undertaking evading liability for fines, the Directive states that the “notion of undertaking” applies for the purpose of imposing fines on parent companies and legal and economic successors of undertakings. NCAs will have the power to identify the legal or economic successors and if necessary impose fines on them.
Currently there exists considerable variances among Member States regarding the maximum fines which can be imposed. As a result, the deterrent effect of fines differs across the EU. Under the Directive, Member States must ensure, when calculating fines, the maximum amount that may be imposed upon each undertaking is not less than 10% of the total worldwide turnover of the undertaking in a given year, while leaving it at the discretion of Member States to impose a higher maximum if they so wish.
Congruency of leniency programmes across Member States
The Directive states that Members States must ensure that leniency programmes are put in place enabling NCAs to grant immunity from fines to all companies that are first to submit evidence revealing the existence of secret cartels (except for those found to have coerced others to join the cartel in question or to remain in it).
Additionally, leniency programmes of Member States must allow companies not qualifying for immunity from fines the possibility of receiving a reduction in fines if they provide significant value-added evidence about cartel to prove the infringement.
Furthermore, the Directive sets the general conditions for leniency which must be observed including the cessation of cartel activities, genuine cooperation, providing detailed descriptions of the cartel’s operations and participants, and any past and potential future leniency applications to other competition authorities. Leniency applicants must commit to answering any requests by the NCA and not to destroy or falsify evidence of the cartel or make public its leniency application until the NCA has issued its statement of objections in enforcement proceedings.
Leniency programmes of all Members States must also allow for the possibility of cartelists to apply for markers which would initially grant them a place in the queue conditional on them providing certain minimum information such as the affected product and geographical market(s), duration and nature of illegal activities, and information on past and possible future leniency applications to other competition authorities.
Independence and access to adequate resources
In some Member States, national law has prevented NCAs from operating under the guarantee of independence. The directive codifies the operational independence of NCAs. Decision makers within NCAs are to be free from political and other external influence. NCAs shall set their own priorities in terms of enforcement unrestricted from any external influences. Specifically, persons who make the decisions are prohibited from seeking or taking any instructions from government or any other public or private entity in the context of performing their duties and exercising their powers in relation to the application of Articles 101 and 102 TFEU.
Under the Directive, if decision makers within NCAs leave their position they shall be excluded for a reasonable period from dealing with enforcement proceedings which could cause potential conflicts of interest. The Directive puts in place protections so those working within an NCA cannot be dismissed from their position for the proper performance of their duties or for exercising their powers in relation to the application of Articles 101 and 102 TFEU. Members States must also ensure transparency in terms of recruitment for NCAs.
Member States shall guarantee that NCAs have sufficient resources (e.g. qualified staff, financial and technical) to conduct investigations concerning possible breaches of Articles 101 and 102 and to adopt decisions in relation to those provisions where necessary. NCAs will also have independence in how their allocated budget is spent and publicise periodic reports on the amount of resources which were allocated to it each year as well as any changes in comparison to previous years.
Other topics covered by the Directive
The Directive outlines rules concerning limitation periods for imposing fines. Limitation periods will be interrupted while the European Commission or NCA of another Member State is conducting enforcement proceedings concerning the same anticompetitive conduct. This interruption shall come into effect as from the notification to one of the undertakings involved regarding the first formal investigative measure and will apply to all undertakings which have taken part in the infringement. The closing of enforcement proceedings will mark the end of the interruption of limitation periods. Member States are free to maintain or introduce absolute limitation periods, however, under the condition that the duration does not make the enforcement of Articles 101 and 102 “practically impossible or excessively difficult”.
Access to file
The Directive stipulates that access to settlement submissions or leniency statements can only be granted to those that are subject to the proceedings in question and only in the context of exercising their right to defence.
The deadline for the transposition of the Directive by Member States is 4 February 2021.
by Pádraic Burke