Financial sanctions for non-compliance
The Israel Antitrust Authority (IAA) recently published draft guidelines on the factors that the IAA commissioner will consider when determining the financial sanction to be imposed on antitrust violators. The draft guidelines aim to structure the commissioner's decision-making process when determining the amount of a financial sanction while considering the specific circumstances of each case.
The draft guidelines replace the 2012 guidelines on the same subject. The main difference between the two sets of guidelines is that the previous versions focus on the more general factors that should be considered when imposing financial sanctions, while the new draft guidelines offer a quantitative methodology for determining the financial sanction to be imposed.
In May 2012 the Restrictive Trade Practices Law was amended to grant the IAA commissioner the authority to impose financial sanctions for certain antitrust violations. In July 2012 the IAA published two sets of guidelines:
- the first version outlined its general policy for the use of financial sanctions; and
- the second version detailed the factors that the commissioner considered when determining the financial sanction to be imposed in a given case.
The factors detailed in the second version included:
- the duration of a violation;
- the degree of harm likely to be caused to competition or the public;
- the violator's role in the offence;
- the existence of previous offences;
- the steps taken by the violator to correct the harm caused by the offence or prevent its reoccurrence; and
- the offender's financial state and additional personal factors.
For corporations, these factors also included the risk that a financial sanction could result in the offending corporation ceasing operations. In reality, the guidelines provided little guidance beyond that already provided by the Restrictive Trade Practices Law.
The previous guidelines clarified that the main consideration for calculating a financial sanction was the degree to which the violation affected competition. However, the weight given to this consideration was not clarified. In addition, the effect that other factors could have on the financial sanction was not discussed.
The methodology outlined in the draft guidelines for determining a financial sanction is based on a four-tiered approach.
Determination of maximum financial sanction
Under the Restrictive Trade Practices Law, the commissioner is authorised to impose financial sanctions of up to:
- approximately $260,000 on individual violators; and
- 8% of turnover (but not greater than approximately $6.3 million) for corporations with a turnover in excess of approximately $2.6 million.
In order to uphold the proportionality principle, the draft guidelines determine that financial sanctions imposed on corporations with a turnover of approximately $2.6 million or less will be no greater than 8% of their respective turnover.
Evaluating severity of violation and determining base financial sanction
The main factor for determining the severity of a violation is the degree of harm caused to competition or the public. This is based on:
- the party's market position;
- the degree of potential harm to other competitors; and
- the level of competition in the given market.
The commissioner may also consider harm caused to competition or the public and the duration of the violation. After completing this evaluation, a base financial sanction of between 5% and 90% of the maximum amount will be determined.
Violating party's behaviour
Steps that the violator took to end the violation or prevent it from continuing (including reporting the violation to the IAA) or steps taken to mitigate the outcome of the violation will be considered. These factors can lead to a 50% reduction or up to a 20% increase in relation to the base financial sanction.
Considerations external to violation
Previous offences and their context will be considered and can lead to a 30% financial sanction increase, while a lack of previous offences can result in a 5% reduction. Further, if a violating company's turnover exceeds approximately $80 million, a conversion factor as detailed in the draft guidelines will be added to the financial sanction. The amount received will then be reduced by a certain percentage as financial sanctions are a relatively new enforcement measure. The risk of potential insolvency or a cease of operations following the imposition of a financial sanction may also be considered a factor for reducing a sanction.
Generally, financial sanctions will be imposed on individuals only if the violation created a potential for substantial harm to competition and when it is possible to identify clearly the individuals responsible for the violation. In such cases, the financial sanction will be determined according to a similar methodology as that detailed above. The financial sanction imposed on an individual whose monthly salary does not exceed three times the national average wage (and who lacks other significant sources of income or assets), will not exceed approximately $53,000. This is a significantly lower maximum amount than that determined under the Restrictive Trade Practices Law (approximately $260,000).
In addition to the above factors, the commissioner may also consider:
- the time that had passed between the offence being committed and the start of an IAA investigation (which can result in a sanction reduction of up to 20%); and
- the violator's personal interest in the offence (which can result in a sanction increase of up to 15%).
However, the draft guidelines clarify that the minimum financial sanction will not be lower than approximately $3,800 and the maximum amount will not exceed the limit set by the Restrictive Trade Practices Law.
Financial sanctions for non-compliance
The Restrictive Trade Practices Law grants the commissioner the authority to impose financial sanctions for non-compliance with a request to deliver information or documents of:
- up to approximately $80,000 for individuals; and
- up to 3% of a corporation's turnover (but no greater than approximately $2 million) for corporations with a turnover of more than approximately $3.8 million.
The financial sanction in these cases will be determined in accordance with the methodology detailed above. However, the draft guidelines do not dictate how much relative weight will be given to each factor.
The methodology outlined in the draft guidelines is likely to foster more equal enforcement of antitrust legislation and provide businesses with tools to improve the assessment of potential violations.
However, the draft guidelines also grant the commissioner a significant amount of discretion in determining the parameters that will be considered in calculating a financial sanction and the respective weight that is to be afforded to each parameter. The existence of such broad discretionary factors may reduce the legal certainty that the draft guidelines were hoping to create.
For further information on this topic please contact Shai Bakal, Nava Karavany or Ragit Moshe at Tadmor & Co by telephone (+972 3 684 6000) or email ([email protected], [email protected] or [email protected]). The Tadmor & Co website can be accessed at www.tadmor.com.