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.

Largest Cartel Fine by the EU Commission

Adsız(For more information on cartel fines by the EU Commission see here.)

The EU Commission imposed fines on producers of TV and computer monitor tubes a total of € 1.47 billion for two decade-long cartels that operated worldwide (The press release is available here). Members of cartels include major firms like Philips, LG, Panasonic, Samsung, and Toshiba. Chunghwa from Taiwan got immunity as the first leniency applicant.

These cartels were described by the Commissioner Almunia as the “textbook cartels” since they featured all the worst kinds of anticompetitive behaviour. They also used the most advanced methods to conceal the illegal practices such as price-fixing, market sharing, customer allocation, and exchanges of sensitive commercial information.

They were also regarded as one of the most organised cartels since they arranged top management level meetings, disguised as “green(s) meetings” by the cartelists themselves because they were often followed by a golf game, in order to coordinate two different cartels.

And an interesting excerpt from the report by New York Times (available here):

“One of the “greens meetings” took place at the Palm Garden Golf Club and was followed by a “Top Management” meeting in the Terengganu room of a Marriott Hotel, according to a person with knowledge of the investigation who asked not to be named because of the legal sensitivity of the case. The person gave no further details about the location or the meeting. But those details suggested that the conspirators played and ate during the day at a luxury golfing resort near the Malaysian capital Kuala Lumpur that is equipped with a driving range, infinity-edge swimming pool and tennis courts.”

As the report suggests, the surrounding of a cartel meeting seemed not to change considerably as it ended in a smoke-filled hotel room although it was preceded by a beautiful day at a scenery possibly like the following one.

infinity pool

These cartels also used Mission Impossible style expressions like “This tape will self-destruct in ten seconds”. Although they did not invent a self-destructive notes, it is usual for members of cartels to use warnings like “Please dispose the following document after reading it”.

Lastly, there had been “serious harm” to producers and to consumers which means that a number of sizable follow-on damages actions can be on their way considering the cartelised products account for up to 70% of a final product.

Indeed, the largest cartel fine imposed by the EU Commission will direct us to look more closely into the records of the TCA in the forthcoming posts. However, we do not dare to make any comparison with the EU jurisdiction…

TCA Fined Steel Straps Producers

According to the press release published today, Turkish Competition Authority (the TCA) imposed fines on two undertakings for bid-rigging, price-fixing, and information sharing on steel straps market. Although the details of the case has not been publicized yet, some prominent features of the decision, basing on the press release (in Turkish) and prenouncement (in Turkish), can be summarized as follows.

Firstly, it is inferred that the TCA regarded the above-mentioned practices as a cartel. This is an important issue in Turkish competition law in that the starting rate of the fine is determined higher for the cartels pursuant to the Fining Regulation. Furthermore, there is a lively debate on this issue since the TCA does not characterize some explicit cartel conduct as a “cartel”.

Secondly, the TCA did not apply any aggravating factors in this case as well. It is quite normal not to increase the fine where there is no aggravating factor. However the TCA has increased the fine in only 3 cases out of 29 decisions adopted after the promulgation of the Fining Regulation in 2009. Hence, it appears to be a regular practice of the TCA that it increases the fine very rarely due to aggravating factors.

Thirdly, fines reduced because of the mitigating factors. However there is no indication about what these factors and discount rates are. This practice, namely not providing adequate information as to the process in which the fines are determined, is criticized by the Council of State, the Supreme Administrative Court which reviews the decisions of the TCA, and by stake-holders.

Fourthly, leniency application of one undertaking was accepted and the fine reduced by 50 %. This is the fourth occasion in which the TCA reduced the fine due to leniency.

Last but not least, the TCA rejected the argument for the imposition of fines on directors. Although the TCA imposed fines on directors of undertakings in two previous cases regarding poultry industry and sodium sulfate market, this is the fifth occasion in which this argument is rejected.

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).