Competition Laws in Middle East are relatively new, and authorities overseeing competition compliance require capacity building and knowledge or training.
Omar ObeidatPartner, Head of Intellectual Property and Competition
Khaled AttiaPartner, Head of Dispute Resolution - Egypt
Frank LucentePartner, Corporate Commercial, Qatar
Christopher WebbPartner, Corporate Commercial, Saudi Arabia
Arif MawanyHead of Corporate Commercial - Oman
International In-house Counsel Journal Vol.15, No. 60, Summer 2022, 1 International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607
In this piece we address how different the Competition authorities are in the Middle East and highlight those authorities upping their game in enforcement of the competition laws looking at practically how serious the penalties they impose.
The Competition Laws in the Middle East are relatively new. As such, with the enactment of these laws over the past two decades, authorities overseeing competition compliance took some time to find its way whether require capacity building and knowledge or training of government staff. Some of these authorities found through practice the need to cooperate with other governmental institutions to improve enforcement while other identified the need to a stronger regulation adding teeth to its enforcement and enabling its officers with greater power.
Saudi Arabia having the most sophisticated and impressive enforcement record with Egypt not too far from Saudi Arabia and its clamping down on certain sectors was felt and heard by other sectors. Other countries still struggling to find their way during competition infancy, not really due to lack of powers affirmed under the law, but its strategy, structure, and capabilities may not have been as aggressive as the laws permit. Whether be it legislation review, staff training, or organizational structure, it is important to understand the factors needed to transform the authorities in countries of the Middle East region to adopting more proactive approach.
In Kuwait, the Competition Protection Agency (“CPA”) focused its efforts on capacity building and training of officers of the CPA. The CPA received in the recent years training from the World Bank on conducting dawn raids and further received training from experts at the US Federal Bureau of Investigations specifically on entering premises of corporates, searching and identifying records establishing evidence for violation of the law. These types of training paved the way for exercising expanded powers enjoyed by the CPA with the enactment of Law No 72 for the Year 2020 and its Implementing Regulations No 14 for the Year 2021.
With these legislative amendments, the CPA now oversees new sectors not previously under its scrutiny. The increasing number of investigations, inspections and court referrals executed by CPA only confirms the serious approach by the Authority in proactively combatting anticompetitive behaviours. Apart from developing the inspection capability, the CPA in Kuwait has been a very engaged and busy authority whether in hosting local awareness programs or carrying out studies against sectors.
Overall, the CPA in Kuwait would have to be the most evident example of a regulator shifting towards a proactive approach. Although there are no published decisions on enforcement by the CPA, Finally, as with Egypt, the Kuwaiti regulator is in favour of exchange of information and dialogue with competition authorities in other Arab countries in order to cooperate amongst these authorities with respect to access to information and share experiences. The Competition Protection Law in Kuwait, Law No.(70) of the year 2020 (hereinafter “Law”) afforded CPA officers judicial police powers enabling the officers entry to private 2 Moutaz Abdullat & Omar Obeidat premises and conducting raids and preparing raid reports proving the violations committed against the provisions of the Law. The judicial body administered to decide on violations of the Law is rather an interesting approach adopted under the Kuwaiti Law. Instead of referring violations against the Law to the criminal court, a special tribunal named the Disciplinary Council is established by decision of the Minister of Trade and Industry, and comprised of three judges of the highest level in the judiciary pyramid in addition to two other members, also from outside the CPA, who would have legal and economics experience.
The penalties ordered by the Disciplinary Council for most violations of the Law are fines with a cap of 10% of the aggregate revenue of the party subject of the violation based on the results of its preceding financial year.
The decisions of the Disciplinary Council are final and cannot be appealed. The penalties ordered by the Disciplinary Council for most violations of the Law are fines with a cap of 10% of the aggregate revenue of the party subject of the violation based on the results of its preceding financial year. However, for violations related to failure to comply with requests of CPA or providing misleading information, the fines have a ceiling of 1% of the aggregate revenue. Nevertheless, settlement is possible before the Disciplinary Council issues its final decision, whereby the CPA and the violator can agree to put the case to rest, subject to approval of the Disciplinary Council, in which case the settlement shall be a minimum of half the fine ceiling but not more than the ceiling value. Prior to identifying the violation by the CPA, any party who voluntarily reports its violation to Article 5 which are crimes mainly involving price fixing, market allocation and bid rigging, and provided the concerned party submits all evidences thereto, it shall be relieved from prosecution.
Needless to mention, the sanctions listed by the Law are quite deterrent, and serve the purpose for combatting anticompetitive behaviour. Overall, enforcement in Kuwait although still in its infancy stages, it is on the right track with a supporting legislation and an active authority.
The Egyptian Competition Authority (“ECA”) is quite an active authority and its experience dates back to the legislation it administers; Law No 3 of 2005. This law has undergone several improving amendments. In addition to the Law, the ECA also publishes guidance addressing leniency policy as well as cartels and abuse of dominance. The structure of the ECA made of a Board of Directors linked with the Prime Ministry of Egypt equips the authority with the necessary teeth for enforcement. In fact, the ECA has published its strategy for the years 2021-2025 based on four pillars, one of which is to enable effective enforcement of the Competition Law.
This strategy extends full immunity against prosecution to parties blowing the whistle on prohibited horizontal agreements and cartels, encouraging violators to come forward with information and secure their immunity. This will certainly bring the ECA closer to its objective in taking down cartels. The ECA is also upping its enforcement game by launching a specialized unit to counter bid rigging in government tenders and adopting a Bid Rigging Detection system and launching another unit for Monitoring Mergers and Acquisitions which aims to identifying those transactions that failed to report to the ECA, and finally a department for Investigations and Economic Review.
The ECA is relying on digital transformation through acquiring automated systems to enable effective enforcement. This includes a Market Monitoring Report and a Cost Calculation system for all its cases and complaints. The ECA also established memorandum of understandings with other government agencies to cooperate on inspections and market monitoring, and further connected through shared links to government databases allowing the ECA to generate sufficient data around any suspected party.
On top of all this, the ECA keeps its staff busy through training workshops but aims to go an extra mile in the near future and educate its staff on Competition Law and Economics from a reputed university. Undoubtedly, the work done by the ECA so far and its plans ahead are impressive. When reviewing enforcement on the ground however, the number of enforcement cases administered by ECA does not fair evenly with the powers and authority of this agency.
In December 2021, the OECD published its annual report on competition policy developments in Egypt. The report found that in the year 2020, a total of seven enforcement Competition Enforcement 3 decisions in infringement cases were rendered by the ECA. The decisions concerned three cartel violations, three violations for abuse of dominance, and a failure to comply with ECA directions. A recent decision by the ECA board published last in July 2022 identified and prosecuted a cartel of egg brokers responsible for fixing prices of eggs in Egypt.
Cartels and abuse of dominant position and vertical agreements are sanctioned by a fine ranging between 1-12% of the annual turnover of the product/service subject matter of the violation.
The subject crime was a horizontal agreement to fix prices on a daily basis running over a period of twenty one months. The ECA investigates and renders a decision to refer the violation to a criminal court. The responsibility of ECA ends when it renders a determination to violation of the Competition Law where the public prosecution takes over though relying on the findings and decisions issued by the ECA to prosecute a case before the criminal court. The sanctions imposed by the Egyptian law relies on a hybrid of annual turnover percentage and/ or specific fine when turnover cannot be calculated. Cartels and abuse of dominant position and vertical agreements are sanctioned by a fine ranging between 1-12% of the annual turnover of the product/service subject matter of the violation or, in case the annual turnover cannot be calculated, by a fine ranging between EGP 300,000 (approx. USD Fifteen Thousand) – 500,000,000 (USD Twenty Five Million). Although the ceiling fine is quite deterrent for cartel and abuse of dominance, the penalties for failure to comply with ECA requests or to notify mergers remain manageable with a fine with ceiling of half a million Egyptian pounds (USD 25,000).
The anti-competition fight in Egypt has been quite serious as revealed by the court judgments handed down. A court judgment in 2021 involving a chicken broker cartel fined each of the violators thirty million pounds (approx. USD 1.5 Million). In other judgements, a criminal court determined back in 2018 in a case involving a pharmaceutical cartel, ordering a whopping fine of EGP 500Million (approx. USD 25 Million)against each of the violators. Overall, the Egyptian authority remains the most experienced and the most sophisticated in the region with proven record of enforcement and evident deterrent judgments.
The ambitious 2021-2025 plan is promising and on completion will enrich and enable the ECA to move onto a much more advanced stage of enforcement. In the UAE, the structure of the competition authority and change of management and expected change in legislation all combined had its toll on the enforcement.
The UAE Competition Law first enacted in 2012 through Federal Law No 12. The authority already existing at the time of was the Consumer Protection Department, which later had been assigned the function of administering competition and was renamed to become Consumer Protection and Competition Department (“CPCD”).
Perhaps this is the most obvious dent in the capability of authority to succeed. The experience with the management was restricted to consumer related issues which is why the annual reports of this department and majority functions remained for the most part addressing consumer protection and fell short of focusing on competition. This is not to say the authority was idle or inactive. To the contrary, the CPCD was pretty much vigilant and active in addressing any matter raised to its attention. It is the challenges faced by its limited staff resources that made it a reactive authority in responding to complaints rather than proactively addressing anti-competitive behaviours and preparing sector studies. The other challenge was that the wording of the 2012 law being generous in exempting sectors from the application of the law. The law exempted a laundry list of sectors among others, pharmaceutical, transport, oil and gas, courier and mail, financial, and telecoms.
Although this exemption was subject to an independent regulator being charged with addressing competition rules with a given sector, the exemptions seemed to weaken the position of the CPCD and was constantly used as an excuse by the presumed exempted sectors. Naturally, the CPCD knows better and would go all the way to defend its position to address competition law violations in the absence of a sector specific legislation. However, the overall impression one is left with, is that CPCD enforcement needs a serious TLC. Proposed amendments to the Competition Law has been on the table and expect to see it come into effect within a short period of time, given the recent legislation reform packages introduced in 2021 and 2022.
Penalties under the Law are quite deterrent with fines ranging from AED 500,000 (USD 136,000) to AED 5Million (USD 1.36 Million) as decided by the court.
We expect the changes aimed at addressing specifically those challenges keeping the authority from being a proactive one. We expect to see an improved legislation doing away with unjustified exemptions and granting the authority sharper teeth for enforcement. Although one would hope, but it is unlikely to see the competition department fly on its own as an independent authority. The CPCD addresses violations related to restrictive agreements and abuse of dominance but none of its decisions are published and remains confidential. This is another practice that ought to be reversed by an improved legislation as experience has shown that publishing enforcement cases and sanctions achieves the deterrent purpose desired. Penalties under the Law are quite deterrent with fines ranging from AED 500,000 (USD 136,000) to AED 5Million (USD 1.36 Million) as decided by the court. Settlements have been reached at the CPCD level before referring violations to court where violators are expected to pay a fine of AED 2 Million (USD 270,000). Sanctions for failing to seek merger control approvals will be based on aggregate annual revenue of 2-5%, but in case calculation was not possible the mentioned fine ranges shall apply. Overall, the UAE enforcement system is active and undergoing development and we expect to see a legislation change that will enable stronger enforcement.
Other jurisdictions as in Jordan, Oman and Qatar share similar characteristics in having an unpublicised enforcement regime.
Qatar’s regulator does not publicise any enforcement action with no anecdotal evidence of dawn raids ever being conducted. However, it is expected that legislative changes are on the way and this may impact upon enforceability activity in Qatar.
Because it is rare to see any published decisions on enforcement by the Jordanian authority, one is pleasantly surprised to hear the regulator showing its teeth by taking a stance on certain contracts or imposing fines on a group of traders due to non-compliance. The most interesting observation here is that Jordan’s Competition Directorate has existed since 2004, and two years after enacting the Competition Law. This would make Jordan the oldest competition regime in the region though not really the most experienced.
Finally, Omani Competition Protection and Monopoly Prevention Centre (Centre”) at the Ministry of Commerce, Industry and Investment Promotion (MoCIIP) is the authority concerned with administering the Competition Law in Oman. The Royal directive in 2018 establishing this authority is blamed to have subsumed this authority into the MOCIIP, thereby curbing any ambitions to allow the Centre flourish build its own strategy nor own its decisions.
Media reports reveal the Centre has received and addressed more than 22 complaints up to year ending in December 2021, and indeed there appears to be activity on awareness campaigns by the Centre and appears to be carrying out sector specific studies.
However, it remains that lack of publications and in the absence of access to decisions, makes it challenging to track developments in Oman, Jordan and Qatar alike, let alone to have a meaningful review of its performance.
The GAC is equipped with a legislation offering effective remedies to counter anti-competitive practices, by fines reaching of up to 10% of the global revenue of the violator or triple the gain from the violation.
Saudi Arabia’s General Authority for Competition (“GAC”) remains the most active, and to some, probably too active, and the revenue generated from settlements and hefty fines imposed in the recent years will in all likelihood keep the enforcement steady. The GAC is equipped with a legislation offering effective remedies to counter anti-competitive practices, by fines reaching of up to 10% of the global revenue of the violator or triple the gain from the violation. The Authority also has the power to order a cessation of the offending conduct. The difference we have seen over the past year and a half is that decisions issued previously to name and shame offenders of the Competition Regulation are no longer the policy of GAC and no mentioning of specific names of violators and sanctioned parties. The enforcement decisions issued by GAC conceal the names of the offenders and suffice by indicating the sector to which these offenders belong until a final court judgment is Competition Enforcement 5 rendered, at which point the GAC would publish the names of the violators.
However, GAC continues to publish a brief of all its decisions and the Board of Directors meetings. By way of example, in March 2022, the Board of GAC approved investigating 5 companies for colluding in government tenders, dismissed a complaint against two advertising and media production companies, initiated judicial proceedings against two entities in the contracting sector, dismissed nine complaints and accepted four settlements. Two months later, the Board issued a decision to take measures against several companies in Gypsum and Cement Plates sector, settled with 4 entities, and dismissed complaints against 29 entities from technology sector, audio and broadcast sector, bakeries business and others. The outcome of minutes of one GAC board meeting probably equates to an entire year decisions of the next busy authority in the region.
The type of violations in the report revealed the highest percentage crime was bid[1]rigging in government tenders constituting 27.2% of the total violations, followed by price fixing 20.4% and abuse of dominant position at 15.9%.
In its 2020 annual report, GAC published that its enforcement officers completed 95 investigations reports and 35 enforcement reports. The type of violations in the report revealed the highest percentage crime was bid[1]rigging in government tenders constituting 27.2% of the total violations, followed by price fixing 20.4% and abuse of dominant position at 15.9%. The final court judgments typically impose fines ranging between SAR 2.6 Million and SAR 5 Million. However, failure to report economic concentration by Pepsico Services LLC received the highest fine in 2020 in the amount of SAR 10 Million. Obviously, the depth at which GAC operates is at a totally different level compared to its peers in the region. This could be explained as partly owed to the size of the Saudi economy but there are common features of why an authority is more successful in the enforcement scene than others, and why it has completed much more detailed sector specific studies than others and why it was able to accommodate and decide on violations and complaints compared to its peers. The most important feature unquestionably is the independent structure of the authority having its standalone structure rather than being tied into a ministry budget and what follows in terms of firing restrictions and salary limitations.
We have seen the active authorities in KSA, Egypt and Kuwait stand out compared to those authorities that are departments within the ministries of commerce. One must conclude that the organizational structure is the most relevant factor in setting apart an authority from being one of a reactive or idle approach to one of a proactive approach.
This article was first published in the International In-House Counsel Journal (2022).
For further information, please contact Omar Obeidat.
Published in December 2022