Ari Edwald wrote an article in Viðskiptablaðið two weeks ago entitled „Competition fines as a percentage of turnover“. He argues that penalties for breaches of competition law are much harsher in this country than elsewhere, when compared on the same percentage of turnover. He attributes this, among other things, to the fact that the overall profitability of Icelandic business is, for various systemic reasons, much lower than in the countries with which we compare ourselves.
When assessing fines, regard must be had to the fact that their purpose is to create a deterrent effect which promotes compliance with competition law and thereby increases competition for the benefit of the public and business life. When determining fines, the law provides that regard must be had to the nature and extent of the infringements and how long they have lasted. Consideration must also be given to whether the infringement is a repeat offence. It is these factors, more than any others, that determine the amount of the fines.
Competition law provides that fines may amount to a maximum of 10% of turnover in the preceding year. This criterion is not otherwise determinative of the amount of fines; rather, it serves primarily to ensure that fines are not imposed on companies that they cannot reasonably afford to pay.
Icelandic competition authorities have generally stayed well below the statutory maximum turnover thresholds when imposing sanctions for competition law infringements. For this, they have in fact faced some criticism. Thus, various parties who claim to have suffered damage from the infringements have criticised the Competition Authority for not imposing sufficiently high fines. It has been noted that the fine is often much lower than the profit made by the infringers from the infringements. The deterrent effect is not sufficient.
These critics may have a point. Of the 16 companies fined for breaches of the prohibition provisions of competition law since 2011, 6 companies, or in just over a third of cases, are repeat offenders.
This means, in other words, that companies have not been deterred in far too many cases, despite the enforcement of competition law and the deterrent effect that fines on companies are supposed to have.
Various ways are available to respond to this experience. For example, the deterrent effect can be strengthened with higher administrative fines. Several countries have also authorised competition authorities to require in court that the directors of offending companies be banned from managing companies for a specified period. However, few countries have taken the route of directing sanctions solely at company directors. Administrative fines against companies are still considered an effective method for addressing competition law infringements and creating a deterrent effect.
It is recognised that breaches of competition law can be particularly damaging in a small economy. They reduce the competitiveness of businesses and cause harm to consumers. Rather than worrying about whether fines from competition authorities are a heavier burden on companies here than elsewhere, businesses should simply strive to comply with competition law for the benefit of the public and the economy. That would solve the problem.
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