The Competition Authority imposes administrative fines on undertakings and their associations for infringements of competition law and the competition provisions of the EEA Agreement, see Article 37 of the Competition Act. The vast majority of the Competition Authority's administrative fines concern breaches of the ban on illegal collusion and the abuse of a dominant market position. To date, the Competition Authority has not issued general guidelines on the imposition of administrative fines, as is common practice in neighbouring countries. Regulations of this kind are now under consideration, and stakeholders and other interested parties are given the opportunity to submit views that could be useful in this work.
However, rules are in force for the cancellation or reduction of administrative fines in cases concerning illegal collusion, namely the rules No. 890/2005. Illegal collusion between competitors constitutes a serious economic offence which is liable to cause significant damage to business life and, not least, to the general public. Furthermore, experience shows that collusion is usually carried out in secret and can therefore be difficult to uncover. The rules on the waiver or reduction of fines are therefore intended to reduce collusion among the companies involved by creating an incentive for participants to break away from the illegal agreement and cooperate with the competition authorities. The rules provide that parties can come forward at any time to report an infringement and provide evidence and information, in return for having their penalties cancelled or reduced. Most states have introduced such rules with the aim of rooting out illegal collusion.
The Competition Authority is currently reviewing the aforementioned sanctions framework, within the framework laid down by the current competition law, see in particular Articles 8 and 37 of the Competition Act. This work is part of the review of the authority's procedural rules which is currently underway, as set out, for example, in Project plan related recommendations for improvement in the National Audit Office's public administration review.
At this stage of the review, the Competition Authority, as previously stated, wishes to give stakeholders and other interested parties an opportunity to submit views that could be useful in the work. In particular, views are sought on the following:
Views can be sent to the email address samkeppni@samkeppni.is until Friday, 11th December, under the title „Deciding Fault – A Perspective“.
A comprehensive overview of administrative fines from the enactment of the Competition Act to the end of 2021 is available. here. It details which companies have been fined, the nature of the offences, whether a settlement was reached, whether the fine was appealed to a review board or the courts, and whether any changes were made to the fines during that process.
The overview also shows that under the current Competition Act, companies have been fined in 85 cases, and the total amount of the fines amounted to just over 13 billion krónur in 2021. The overview also shows that in just over half of the cases, a fine has been settled with the parties concerned, or the party has decided to accept it. In cases where a matter has been appealed to an appeals board and taken to the courts, the fine has been confirmed unchanged in just over a third of cases, but reduced or overturned in almost two-thirds of cases.
Competition law sets a maximum for fines, which can be up to 10% of the total turnover of an undertaking or group of undertakings in the preceding year. This percentage provides a benchmark for setting fines, but in practice, the final fines imposed in this country have been well below this maximum. When determining fines, the Competition Authority assesses each case individually, taking into account mitigating or aggravating factors, such as the nature and extent of the infringements, how long they have lasted, and whether they are repeat infringements. The grounds for administrative fines are set out in the conclusions of the fine decisions, see the decisions referred to in the aforementioned overview.
To date, the Competition Authority has not established specific rules for determining fines. However, the Competition Authority has had the EC's guidelines in mind, without directly basing its decisions on them. Generally, it can be said that fines for breaches of competition law in this country would be significantly higher if fine decisions were based on the ESA's guidelines.
Administrative fines are imposed to eradicate offences and to prevent other similar offences from occurring. For this to be the case, the fines must have a deterrent effect, both for the companies concerned and for other companies wishing to avoid a similar fate.
There are significant public interests in eradicating breaches of competition law. A lack of competition and anti-competitive practices by companies, such as collusion or the abuse of a dominant market position, undermine the standard of living of the general public. One of the clearest manifestations of this is unnaturally high prices or lower quality of goods and services.
Í Report of the Competition Authority No. 1/2021, The positive effects of competition on living standards and prosperity, research on the effects of competition on various economic factors, such as productivity, innovation, economic growth, inequality, employment levels and food security, is summarised. It covers, among other things, foreign studies on the effects of competition law infringements. The report provides an overview of 11 empirical studies published between 1989 and 2015, which assessed overcharging due to collusion. In all but one of the studies, the overcharge is in double digits, and it is not uncommon for it to be around or over 20-30%.
It is therefore in the public interest that administrative fines provide a sufficient deterrent, thereby reducing the likelihood of societal harm from breaches of competition law.
In the opinion of the Competition Authority, there are indications that the administrative fines imposed to date have not had a sufficient deterrent effect. The following may be cited in this regard:
Firstly The information indicates that the deterrent effect of fines in competition matters is not sufficient, according to the attitudes of managers of Icelandic companies. In a report by the Competition Authority No. 3/2020, The knowledge and attitudes of managers in Icelandic companies towards competition issues, The results of a survey of business leaders, conducted in late 2019 and early 2020, were published. The survey was an online poll sent to the leaders of just over 8,000 companies, from which responses were received from nearly 2,000.
Among other things, it was asked how much certain factors deter companies from anti-competitive behaviour. It emerged that only 46% of executives believed that fines from the Competition Authority had a rather large or very large impact in this regard. Managers believed that negative media coverage of competition law infringements, individual criminal liability, potential damages payments, and the cost and disruption of investigations had a greater impact than administrative fines from the Competition Authority.
Secondly It can be inferred from the Competition Authority's previous fine decisions that, in at least some cases, they have not been sufficient to deter companies from re-offending. Overview of administrative fines As published on the Competition Authority's website, several companies have been fined more than once, sometimes for the same or similar offences.
In the third place European competition authorities have taken action in recent quarters to respond to the inadequate deterrent effect of fines. At the beginning of 2019, a specific directive on strengthening competition enforcement in the EU's member states came into force (Directive (EU) 2019/1 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market). The Directive is also intended to promote a more consistent application of sanctions by the Member States of the European Union, see in particular Chapter V of the Directive and the recitals. The Directive specifically states that the deterrent effect of fines varies considerably between countries. It is important to ensure an adequate deterrent effect, inter alia in light of examples of repeated infringements (see e.g. recital 47: „The existence of repeated infringements by the same perpetrator shows its propensity to commit such infringements and is therefore a very significant indication that the level of the penalty needs to be increased to achieve effective deterrence.“).
It is generally expected that the aforementioned directive will result in an increase in administrative fines to ensure an adequate deterrent effect and greater consistency in the application of competition rules.
In this context, it should be noted that the European Commission's fine decisions were recently examined in an administrative review by the European Court of Auditors (ECA) in the European Commission's Competition Directorate. report on the administrative review from November 2020, it is emphasised that the adequate deterrent effect of fines is an important element in the effective enforcement of competition rules. Although the Commission's fines are among the highest in the world, their actual impact depends on the size of the undertakings, the likelihood of the secret infringements being discovered, the potential benefits for the undertakings from the infringements, etc. The Court of Appeal recommends that the Commission assess the actual deterrent effect of fines, but that this has not been done adequately to date (see paragraphs 64-72).
Competition authorities in Europe base many of their fine decisions on public guidelines/rules. The European Commission and the ESA, for example, have published guidelines on this, see e.g. EU guidelines and ESA guidelines. Generally, rules of this kind create a clearer framework for the determination of fines. At the same time, care must be taken to ensure that the rules do not give companies the opportunity to calculate in advance the fine for a specific breach of competition law, as this could undermine the deterrent effect.
As is well known, the competition rules of the EU and the EEA Agreement apply in the European Economic Area, and uniform application of the relevant substantive rules is envisaged. Recently, there has also been a drive towards greater consistency in competition enforcement more generally, see the aforementioned Directive on the strengthening of competition enforcement in the Member States (Directive (EU) 2019/1 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market). The objective of the Directive is, inter alia, to better harmonise the application of sanctions by the Member States of the European Union, see in particular Chapter V of the Directive and the recitals. The Directive has not yet become part of the EEA Agreement, but it is indicative of the development currently taking place in the European Economic Area.
In recent years, there has been a growing emphasis on the rules for the waiver and reduction of fines in international competition law. The rules allow companies involved in illegal collusion to come forward and inform the competition authorities about the conduct. They are therefore an important tool in rooting out illegal collusion between companies. Fines imposed on companies for serious breaches of competition law can amount to up to 10% of their annual turnover.
By co-operating with competition authorities, companies can avoid fines or have their fines reduced to a much lower amount than would otherwise be the case. The company that is the first to provide the competition authorities with evidence which, in their view, could lead to an investigation into alleged illegal collusion can expect to have fines cancelled, provided certain conditions are met. Companies that provide the Competition Authority with evidence that is a significant addition to the evidence the authority already has can expect a reduction in fines. It is considered that the public interest in rooting out illegal corporate collusion outweighs the fines that are waived when companies cooperate with competition authorities.
Rules comparable to those set out here are in force in the United States, the European Union and elsewhere. At the European Union level, there has recently been an emphasis on harmonising these rules between countries and increasing the effectiveness of these remedies. This is specifically provided for in Directive No. 1/2019 on the strengthening of competition supervision, chapter VI. It is important that Icelandic competition rules keep pace with this development. The review of the rules is a step in this direction.
Read more about current rules of the Competition Authority.
It is very rare for a company to come forward of its own accord to the Competition Authority to disclose an infringement and obtain a waiver of fines.
There are also few examples of the rules having been invoked to obtain a reduction in fines for assisting competition authorities. However, it is common for companies to request settlement discussions after an investigation has begun, and a settlement has been reached in a number of fine cases. A settlement typically involves a company receiving a lower fine than would otherwise be the case, and in this respect, a settlement can replace the application of Regulation No 890/2005.
The Competition Authority's survey of company executives in Iceland, as reported in a report. No. 3/2020, The knowledge and attitudes of managers in Icelandic companies towards competition issues, revealed that there is little knowledge of the cancellation and reduction rules among managers. This is likely a significant reason why the rules have rarely been tested. It can also be assumed that such rules will be less frequently applied if the deterrent effect of administrative sanctions is insufficient.
It is important to ensure the appropriate functioning of these rules.
The participation of company employees and directors in illegal collusion can result in fines or imprisonment for up to six years, pursuant to Article 41a of the Competition Act. The investigation of such cases is handled by the District Attorney's Office, following a complaint from the Competition Authority. Such a complaint is a prerequisite for an investigation, in accordance with Article 42, paragraph 1 of the Competition Act.
According to paragraph 3 of Article 42 of the Competition Act, the Competition Authority may decide not to prosecute an individual.„if he, or a company for which he works or sits on the board of, has taken the initiative to provide the Competition Authority with information or documents concerning an infringement of Article 10 or 12 provided the Competition Authority with information or documents concerning an infringement of Article 10 or 12 of the which may lead to the investigation or proof of an infringement, or which, in the Authority's opinion, are a significant addition to the evidence it already has in its possession.“
This means that individuals can avoid criminal liability by informing the Competition Authority of an offence or assisting the authority in an investigation that is already underway. The same reasoning underlies this provision and the current rules on the reduction and remission of fines (leniency rules) with regard to undertakings.
The revised rules aim to establish a clearer and more transparent framework for notifications and assistance from company employees in relation to investigations into breaches of competition law.
For further information, the Competition Authority has published three videos on competition law and the prohibition of illegal collusion and abuse of a dominant position. They cover, among other things, penalties for breaches of competition law, and the video on illegal collusion also introduces the leniency and immunity rules.
The videos can be accessed here.
For further information on the activities of the Competition Authority, a summary of practical information and guidance is available. here.
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