Banking Investigation: Grand Finalé

the-endOn Friday the March 8th the TCA has announced its long waited final decision on banking investigation: guilty as charged! Decision has set new all time high fining records due to the size of the sector and the undertakings (check out Harun’s post for details). Investigation on 12 banks (including 3 state-owned banks) had started in November 2011 and banks were alleged to had agreed to jointly set maximum deposit rates and credit card fees and charges as well as to increase loan rates between 2007 and 2011.

Being the Authority employees we have abstained from making comments on the ongoing investigation process as you know. Before seeing the reasoned decision we still have a little to say on the investigation but there are a few things to mention about.

First of all banking sector executives kept tacitly implying during the process that the “sector” must be exempted from the competition rules due to the “special circumstances” of the sector. Accordingly one of the first impacts of the decision was a press release by the Banks Association of Turkey (BAT) which says as follows:

 “…In addition, in order to avoid such a situation which is far from reflecting the realities of the industry and, therefore, is fundamentally unjust, the relevant legislation needs to be reviewed to take into account sector characteristics. For this purpose, under the supervision of the relevant institutions and organizations, it has been put on the agenda of the BAT to work on the legislative amendment proposals.”

According to the statement of the BAT, so the banks, are going to use their powers to create a competition law exemption for the sector. But why? I believe that the TCA’s investigation was built upon tangible evidence and the decision is just antitrust wise. I suppose such a statement can be interpreted as the Turkish Banking Sector’s standard operating procedure has been collusion and instead of complying with the law they want to amend it (a good example of how collusion worked back in 90’s, can be found here in Turkish).  Moreover reading bank executives statements following the decision, it is attracted my attention that they are confused about some basic competition law concepts such as object, effect and information exchange, even after having two different investigations within three years. Here is the statement of the Garanti Bank CEO for instance:

“..It is said that a number of conversations and e-mails have been identified. People who know each other, talk to each other in all sectors. This does not mean that a violation of the competition. It must be examined if we did give any instruction to branches thataway. Do we have a common interest rate applied through the all branches of the banks? No, not. So how competition are being violated?”

Another issue that caught my attention during the investigation was the wording of some lawyers during the oral hearings. I have observed watching the hearings that some attorneys chose to speak ill of the rapporteurs and the investigation report itself instead of pointing out to the weak points of the report sedately and picking a hole in it. It’s not a much wise strategy in so many ways.

Last thing I’d touch upon is the private litigation process which probably will follow the decision. Articles 56, 57 and 58 of Turkish Competition Act allows competitors and consumers to claim damages they suffer as a result of the infringement of competition, that is to say the difference between the cost they paid and the cost they would have paid if competition had not been limited. During the investigation some NGOs had announced that they would appeal to the court for compensation against the banks once the violation is detected by the TCA. Since the private litigation way has never been implemented successfully within the Turkish Jurisdiction so far and the wording of the Act is disputable, those litigation cases will illuminate the road. I personally wonder how the Judges approach this case. The biggest challenge that they may face is the calculation of the damages while another important issue is the determination of grounds for triple damages. The Act states that if the resulting damage arises from an agreement or decision of the parties, or from cases involving gross negligence of them, the judge may, upon the request of the injured, award compensation by three-fold of the material damage incurred or of the profits gained or likely to be gained by those who caused the damage.

All in all the fat lady has sung her song and the decision has taken its place as a remarkable one within the Turkish Competition Law cases and we may expect to hear more of its impacts sooner.

Investigation on Mey İçki

According to the TCA’s website, an investigation was initiated on the country’s biggest liquor company, Mey İçki. Mey was established by the joint venture group, comprising Nurol Holding, Özaltın Construction, Limak Construction and Tütsab, that bought the alcoholic beverages department of Tekel (State Monopoly for Alcoholic Beverages and Tobacco) in 2004. Undertaking was acquired by Diageo in 2011 for $ 2,1 billion.

Alleged accusations contain establishing exclusivity on retail selling points and foreclosing the market to rivals thereby violating both the articles 4 and 6 of the Competition Act. Mey İçki is considered to be the dominant company at several liquor markets including the traditional Turkish drink “rakı”.

Since the privatization in 2004, company had been subjected to 5 preliminary inquires but those inquires had never ended up into an investigation. Relying on the statistics that we shared earlier within this blog, we expect that the investigation to be concluded within the first quarter of the 2014.

Minor Issues-I

I believe that one of the significant issues of Turkish Competition Law is that it does not have a provision which instructs a way to deal with the relatively insignificant restrictions (depending on the size of the undertakings or the market). Pursuant to the Act, any restriction of competition regardless of concerned undertakings’ size or the market shares would fall under the scope. As any colleague of mine would agree that this deficiency creates a large amount of job burden and causes time and labor loss. Cases that involve (bread) bakeries have always been among those troubled ones in my experience along with local bus line and traditional convenience store cases. When I was reading about the bakeries decision ruled by Croatian Competition Agency (CCA), which made me smile sadly, I thought that similar problems exist in different jurisdictions as well.

Being the first fining decision since the implementation of the new act in 2010, it is considered by the CCA as a deterrent measure and public warning to other entrepreneurs and their interest associations that may infringe competition law prohibitions. According to the decision, 17 bakeries in Osijek tried to fix prices under the leadership of local Craftsmen Association and symbolically fined of 66 Euros (for bakeries that attended to meeting but have not increased prices), 200 Euros (for bakeries which raised their prices) and 6600 Euros (for Craftsmen Association). In its decision, the CCA explained the reason of symbolic fining as follows:

“…distortion of competition in this case was not significant due to the fact that the 17 bakers-craftsmen who participated in the prohibited agreement do not have significant market power in a market in which they operate, and the agreement itself has had limited geographic scope (only in Osijek-Baranja County), lasted a short period of time and, in addition, not all bakers, though undoubtedly participated in the agreement, after the meeting actually raise the price of bread.”

Reading those lines I wondered whether spending scarce resources of both time and labor on that case worth it? For the CCA, the answer is apparently affirmative since the Agency used the decision to promote and introduce the “new” act. But how would it be like if you have to deal with such relatively insignificant cases frequently?

There are two ways of relieving such a burden. First one is using a prioritization mechanism which will allow Authority to ignore minor issues and focus on the major cases. I’m aware that this could be possible within the UK and EU competition law enforcement (more on this issue will be shared by Harun soon). Second and more suitable one for the Turkish jurisdiction is to implement a truncated process for those minor (depending on the size, market share or total income of the parties) violations instead of launching a full throttle investigation process. Such a shortcut could be applied without any amendments if the Authority abdicates it’s own time limits for investigation process.

Anyhow, until a mechanism to dodge those minor issues is developed TCA experts will be visiting small enterprises for interviews and dawn raids, spending worthy time on these cases.

Banking Investigation: A Simple Misconception

Turkey’s economic agenda was occupied by the TCA’s ongoing banking investigation at the end of the last week. Investigation mentioned was commenced, a year ago (November the 2nd, 2011) and concerns 12 major banks. According to the Mr. Kaldırımcı -President of the Authority- alleged accusations includes colluding to fix interest rates on many loan types, especially credit cards.

What brought the longstanding investigation foreground last week was an article written by economy columnist Erdal Sağlam from Hürriyet Daily. In his article titled “Banks to face billions of liras of competition fines” Sağlam stated incorrectly that the TCA’s investigation on banking sector had come to an end and concerned parties would be fined. This statement refuted by the President Mr. Kaldırımcı in no time at all. Refuting Sağlam’s remarks Mr. Kaldırımcı indicated that “We had said the investigation would be completed in January at the earliest. But it is not likely to be finalized before February or March” and added it is uncertain yet if there will be a fining or not. The article was also confuted by the TCA in its announcement (in Turkish).

But President’s clarifications couldn’t help banks share prices’ falling at the end of the day. While banking price index decreasing 2,41 percent on Friday, İMKB (İstanbul Stock Exchange) 100 index fell 1,56 percent. Those ill results of a simple misconception emphasise importance of competition advocacy and public relations i suppose.

PS: On a side note Erdal Sağlam’s article includes some other noteworthy aspects. We are going to touch upon them on a different post.

Concrete, Never Wears Off

Today (30.10.2012) TCA announced that another investigation has been initiated regarding six local ready-mix concrete producers. Looking back to the relativly short history of Turkish Competition Law it won’t be harsh to say that concrete and cement producers has always been an abrasive issue for the Authority. A vast number of investigations concerning the sector was and is conducted. Between the years 1999 and 2010, sector was fined in the wake of various investigations a total amount of 40.346.616 TL (appr.17 million Euros).