1. Introduction
In order to achieve a market environment that provides better products and services at lower cost for the purpose of promoting the objective of consumer welfare, competition law has been globally established to ensure that companies are deterred from anticompetitive conduct that jeopardizes such an environment. The main foundation underlying the determination of regulatory enforcement mechanisms that would achieve this purpose is based on the perception that the potential financial gain that the company expects to receive should be less than the potential loss that it might suffer should an infringement be detected. According to this view, if the potential loss is determined to be higher than the possible financial gain, the company would avoid infringement, which means that the deterrent effect of regulatory law is achieved. For this reason, some countries and international organizations seek to keep the level of fines as high as possible; however, this still does not guarantee the desired deterrence and it should be remembered that, ‘achieving the deterrence is not all about imposing very high fines’, (Gündüz Reference Gündüz2012, 79) and ‘effective legal policy concerning corporate crime must be founded on an understanding of the decision-making process underlying corporate action’ (Kriesberg Reference Kriesberg1976, 1092).
The best example of the above would be European Union (EU) competition law, which solely targets companies with administrative fines that are set as high as possible. The role of individuals in decision making is not considered in this strategy, as achieving an individual’s compliance with the rules of competition law is left to the company through the establishment of internal compliance programmes. This approach, however, neglects how the authorities can provide a higher level of incentive to individuals than the company, by imposing severe punishments for their wrongdoing; thus, leaving the responsibility of incentivizing or punishing individuals to the company fails to maintain deterrence (Polinsky and Shavell Reference Polinsky and Shavell1993, 240).
The expected failure of this approach can be seen from the UK example, where the same enforcement strategy as in the EU was adopted through the introduction of Competition Act 1998 (CA98); four years later, however, individual sanctions were introduced through Enterprise Act 2002 (EA02) after it was noticed that the strategy of solely targeting companies remained very limited as a means of preventing individuals from involving their companies in anticompetitive conduct. The need for individual sanctions is mainly based on the fact that the way in which the company and its individuals are incentivized to obey the rules of law is entirely different. Whereas a company links its long-term sustainability to having a good reputation in the market, individuals are more concerned about their personal gain or loss and professional career. For this reason, ‘all else being equal, a jurisdiction without individual liability and criminal sanctions will never be as effective at inducing amnesty applications as a programme that does’ (Hammond, Reference Hammond2004; emphasis in original), and putting in place enforcement mechanisms targeting these corporate governance actors separately is always a better way to maintain competitive market environment.
Turkey, on the other hand, enacted its competition law through No. 4054 on Protection of Competition (Law No. 4054) in 1994, in parallel with its customs union negotiations with the EU. According to this, Turkey was obliged to enact standard substantive provisions of EU competition law as part of its domestic law. Also, the formation of the Turkish Competition Authority (TCA), as an independent antitrust agency, was predicated in Law No. 4054, but only started operating in 1997. In order to achieve alignment with EU competition law rules, one of the first missions of the TCA was to adopt EU legislation as quickly as possible.
Based on the way that UK and Turkish competition laws have developed, some similarities can be seen. In Turkey’s case, in spite of the fact that it started work on its competition law in the 1970s, no legislation was produced, and competition law was only introduced to Turkey by Law No. 4054. This brought Turkish competition law into line with that of the EU. On the other hand, UK competition law was governed by common law until 1948, and was based on judge-made rules. Judges developed a common-law doctrine, which was called ‘restraint of trade’, and this doctrine formed part of the legal background to the enactment of the Monopolies and Restrictive Practices (Inquiry and Control) Act 1948. Until the enactment of the CA98, different legislations had been enacted, but the requirement of fundamental changes was highly advocated. Despite both the UK and other member states not being satisfied with the procedures of the EU, UK national competition law CA98 was still modelled on EU rules (Lever Reference Lever1999, 24).
Not very long after their alignment with EU law, both the UK and Turkey started departing from it in terms of different aspects of competition law. The difference between these countries regarding individual sanctions is that, whereas the UK significantly departed from the approach of EU law by introducing new individual sanctions, Turkey had already stated under Article 16 of Law No. 4054 that fines can be imposed on natural persons. However, no individuals had been fined until this Article was amended by Law No. 5728 in 2008, because the TCA was not empowered to use this strategy by Law No. 4054.
This article will therefore compare Turkish and UK competition law regimes in terms of their individual enforcement mechanisms, how they are implemented, their deterrence on directors, and what Turkey should or should not do regarding improving the deterrent effectiveness of its competition law regime based on the example of the UK regime. Sections 2 and 3 of this article examine individual sanctions in Turkish and UK competition law and their deterrence on directors. Section 4 compares these two regimes in terms of how their individual sanctions have been implemented, analyses their downsides and upsides for the purpose of achieving deterrence, and provides suggestions for Turkey’s development of its competition law regime based on the UK example. Finally, conclusions will be drawn on the lack of deterrence of individual sanctions in both countries and how the experience of the UK can be taken as a reference by Turkey to take the right steps in future.
2. Individual Sanctions in Turkish Competition Law
Although it has been only 20 years since competition law was introduced in Turkey, the steps taken, and developments put in place, are significant in terms of maintaining the competitive market. During this period, a number of infringements have been detected, and administrative fines amounting to millions of Turkish lira (TL) imposed (TCA 2019).
According to Article 4 of Law No. 4054,
agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.
Companies that breach the law are primarily targeted by the TCA through administrative fines of up to 10% of the company’s annual turnover gained within the previous year.
Since the enactment of the law, there have been a number of investigations brought by the TCA against undertakings. One of the most recent investigations that the TCA conducted was in September 2018 on Google, which was fined TL93 million (approximately €15 million at the time of writing) for violating competition laws with its mobile software sales. The fine was imposed according to abuse of the dominant position clause in Law No. 4054, and the TCA gave six months to make the changes required in order to ensure that the instructions provided were complied with. In addition to this, another investigation, which at the time of writing is still underway, was launched on Google in January 2019 for using its dominant position with search algorithms to target advertisements (CPI 2019).
Another major recent investigation was conducted on Booking.com to determine whether Articles 4 and 6 of Law No. 4054 were in violation of their best practice guarantee within the scope of their service. The investigation concluded that Articles 4 and 6 were breached by the practice of Booking.com and an administrative fine of TL2.5 million (approximately €420,000 at the time of writing) was imposed.
Next to this corporate fining strategy, individuals may also face penalties if they are involved in a breach of competition law rules. It is stated in Article 16 of Law No. 4054 that fines can be imposed ‘on natural persons or legal entities which have the status of an enterprise and associations of enterprises and/or to the members of these associations.’ The Article also specified the percentage of the fine by stating that
in cases where the fines … are imposed on the legal entity enterprises and associations of enterprises, a fine up to ten percent of that fine shall be imposed also on the individuals personally who are in the management organs of these legal entities.
The Article was revised in 2008 by Law No. 5728 (Official Gazette 2008), which states that if administrative fines are imposed on undertakings or associations of undertakings,
an administrative fine up to five percent of the penalty imposed on the undertaking or association of undertakings shall be imposed on managers or employees of the undertaking or association of undertakings who are determined to have a decisive influence in the infringement. (Emphasis in original)
Article 8 of the Turkish Regulation on Fines also states that each of these managers and employees ‘shall be separately given between three percent and five percent of the fine given to the undertaking, taking into account points such as active cooperation’.
The first case in which the TCA employed its individual fining power was the White Meat cartel case in 2009. In this case, 27 undertakings operating in the white meat market and the White Meat Industrialists and Breeders Association (Besd-Bir) were found in breach of Article 4 of Law No. 4054. In this judgment, the undertakings were fined to the amount of TL27.6 million (approximately €4.6 million at the time of writing) in total and Zuhal Daştan, the board chairman of Pak Tavuk Gıda Sanayi ve Ticaret A.S. (Pak Tavuk) and the head of the Besd-Bir, was also fined 3% of the administrative fine imposed on Pak Tavuk due to his decisive influence on the occurrence of the infringement.
As this was the first case in which an individual fine was imposed in Turkish competition law, the issue of lack of clarity on the requirement of establishing the decisive influence on the part of an individual was addressed. According to this, persons should be regarded as having decisive influence on the occurrence of the infringement if they are:
(i) inviting other players in the market to coordinate,
(ii) providing suggestions to other players in the market relating to increasing prices by decreasing the supply,
(iii) encouraging or leading other undertakings to cooperate,
(iv) coordinating the cartel,
(v) offering to participate in the cartel, and
(vi) supervising/monitoring whether the parties comply with the cartel agreement (Canbolat and Lahur Reference Canbolat and Lahur2017).
By specifying these conditions, the TCA provided considerable clarity on the matter of decisive influence; however, it was still not clear enough as to whether these conditions need to be fully or partially satisfied for the fine to be imposed on individuals.
In the second case, the TCA launched an investigation on Bodrum Feribot İşletmeciliği A.Ş. and Bodrum Express Denizcilik ve Turizm A.Ş. as to whether they breached Article 4 of Law No. 4054 by being involved in rebate practices seeking to prevent new entrances to the market. Based on the findings of the investigation, an administrative fine of nearly TL90,000 (approximately €15,000 at the time of writing) was imposed on the undertakings by the TCA; however, no individual was fined. The rapporteurs provided their opinions regarding the imposition of individual fines, but these were not followed by the TCA based on the determination of the managers’ wrongdoing in the undertakings; rather, this was because other actors in the market had had a decisive influence on the occurrence of the infringement.
This reasoning is, however, unconvincing for two reasons. The first is that although it was determined that the managers of wrongdoing undertakings had no decisive influence in the infringement, it is very unlikely that competition law infringements are carried out without managers of undertakings being aware. Moreover, even simply being aware of the infringement should normally satisfy the conditions for the imposition of individual fines, and yet this is not one of the conditions currently being taken under consideration. This illustrates the narrowness of the concept of decisive influence in fining the individuals involved in infringement.
The second reason is that the individuals who did have decisive influence based on the judgment of the TCA were also not punished because they were not those in the management of the wrongdoing undertakings, and the amount of the fine to be imposed on the former is dependent on the fine imposed on the latter. However, this does not change the fact that these individuals were involved in the infringement and yet went unpunished. This again demonstrates the narrow approach of the individual fining mechanism in Turkish competition law, as it only targets individuals who are in the management of the wrongdoing undertaking. These two conditions may be the potential issues that cause individual fines to be triggered very rarely, as they both cover very narrow types of conduct and individuals.
After the decision of Bodrum Feribot, there were three other cases – Peugeot Dealers I, Cargo, Citröen Dealers – which the TCA investigated in 2010; however, no individual fine was imposed or reasoning provided in these cases. After these investigations, the TCA conducted another investigation on Otuzbir Kimya ve Sanayi Türk Ltd. Şti. (Otuzbir Ltd) and Sodaş Sodyum Sanayi A.S. (Sodas AS) as to whether they were involved in a price fixing and customer allocation agreement. Following the investigation, Otuzbir Ltd and Sodas AS were given an administrative fine of TL963,481 (approximately €161,000 at the time of writing) in total, and their general managers were fined TL12,532,38 and TL8,186,04 (approximately €2105 and €1376, respectively, at the time of writing) based on their decisive influence in the breach.
The reasoning given for the fines imposed on individuals was that the managers were heavily engaged with the administrative part of the agreement and the coordination of other parties involved, and were consequently found to have had decisive influence in the infringement. Nevertheless, the TCA imposed no fines on sales representatives and marketing supervisors of the undertakings who were involved in the breach, due to the reason that they only followed the orders of the managers.
Based on the way in which the TCA interpreted the matter of decisive influence in this case, it can first be argued that the conditions put forward in the White Meat case do not all have to be satisfied for a fine to be imposed on a person, as the TCA only considered the two conditions to determine the fines on managers in the decision of Otuzbir Ltd and Sodas AS (Canbolat and Lahur Reference Canbolat and Lahur2017). The question of whether all six conditions should be cumulatively satisfied to impose fines on individuals was not made clear in the White Meat case and the approach adopted by the TCA in this case is therefore important and practical, as it eliminates procedures before implementing the power of individual fining. The decision not to impose fines on individuals involved in the infringement can, however, be criticized for restricting the imposition of individual fines to only those individuals with a managerial position in the infringement, and not to others also intentionally involved in the breach, thus decreasing the deterrence of the enforcement mechanism on individuals. In addition to the two conditions discussed based on the decision of Bodrum Feribot above, this is the third reason that limits the implementation of fines, since individuals may not be punished when they are not in management even if they were involved in the infringement.
After this case, the TCA launched two other investigations: Steel Ring Manufacturers, and Izmir Chamber of Jewellers. In both cases, the parties were found in breach of Article 4 of Law 4054, and administrative fines were imposed on companies; yet again, despite reporters demanding that individuals be fined in these cases, the TCA neither imposed fines nor provided a reason why it did not do so. The TCA surely is not bound by the consultation provided by the rapporteurs; however, such a situation raises serious uncertainty regarding in which situations the TCA employs its individual fining power and upon whom.
This situation raises serious concerns regarding the deterrence of this enforcement tool. In order to maintain effective competition in the market, there is no doubt that not only companies but also their individuals should be targeted by different enforcement strategies. However, having introduced such sanctions in law does not in itself achieve this purpose and if there is something more important than having different enforcement mechanisms, it is the unambiguousness and consistency in their implementation (Gündüz Reference Gündüz2012). With respect to the individual fining strategy of competition law in Turkey, there has been very limited case law since the TCA was empowered to use this weapon; consequently, when, upon whom, and in which situations this sanction is triggered are the three main questions that cause the ambiguity that decreases its deterrent impact on individuals. For this reason, in spite of Turkish competition law having rapidly developed in the last 20 years, the TCA should eliminate the lack of clarity in the imposition of individual fines in order to further develop competition law.
3. Individual Sanctions in UK Competition Law
Individual sanctions were introduced to UK competition law by EA02 and some of the provisions were updated by Enterprise and Regulatory Reform Act 2013 (ERRA13). The introduction of these individual sanctions was based on the limited deterrent effect of the corporate fining strategy on individuals as ‘penalties directed solely at undertakings are insufficient to ensure that individuals within those undertakings comply with the standards imposed by competition law, and that these decisions by individuals are reflected in corporate conduct’ (Furse Reference Furse2012, 52). Considering that the previous approach adopted by the CA98 was inadequate, introducing individual sanctions was regarded as a significant development and expectations that they achieve greater deterrence ran high.
There are two primary individual sanctions introduced in UK competition law: director disqualification and cartel offence. Disqualification is a civil process that bans any person who occupies a director position regardless of ‘whatever name called’ (CDDA86, 22(4)) from being a director within any UK company for a specified period of time, and when this prohibition is breached, a fine is imposed on the director in question. Director disqualification is currently governed by the Company Directors Disqualification Act 1986 (CDDA86) which has been amended by Section 204 of the EA02 to apply in competition law cases, and this section has introduced two types of disqualification.
The first is Competition Disqualification Orders (CDOs) made by the court, and the second is Competition Disqualification Undertakings, offered by the directors themselves. The difference is that the Competition Market Authority (CMA) needs to bring a case before court for the CDO be determined when it is imposed on a wrongdoing director, whereas CDUs are voluntarily requested by the directors without the need for court proceedings. In both cases, directors can be disqualified for up to 15 years.
In order to impose a CDO on a director, there are two conditions stated under Section 204 (9A) to be fulfilled by the court. These are
(i) an undertaking which is a company of which he is a director commits a breach of competition law and (ii) that the court considers that his conduct as a director makes him unfit to be concerned in the management of a company.
On the other hand, CDUs are applied if it is determined that
(i) in relation to any person an undertaking which is a company of which he is a director has committed or is committing a breach of competition law, (ii) the conduct of the person as a director makes him unfit to be concerned in the management of a company, and (iii) the person offers to give … a disqualification undertaking.
Regarding the implementation of CDOs, interestingly there has been no case in which a CDO was individually imposed on directors since the enactment. However, there are four cases to examine on this matter which are: R. v Whittle, which is known as the Marine Hose case, R. v Burns and Others, which is known as the British Airways (BA) case, Steel Tanks, and the cartel case between Stanton Bonna (UK) Ltd, FP McCann Ltd, CPM Group Ltd and Milton Pipes Ltd (Stanton).
In the Marine Hose case, three directors involved in the cartel were disqualified for five to seven years; however, the CDO in this case was implemented based on the separate provision of Section 2 of the CDDA, which imposes disqualification on directors who are determined to be involved in a criminal offence (Stephan Reference Stephan2011a, 529–532). In the British Airways case, in spite of the directors admitting their involvement in a price fixing agreement, a CDO was neither sought nor imposed. In addition, in Steel Tanks, three directors of the wrongdoing company were imprisoned, but the CMA sought no CDO. Lastly, in Stanton, Barry Kenneth Cooper, the CEO of Stanton Bonna Ltd, was disqualified for seven years but again the CDO was imposed in connection with Section 2 of the CDDA. It can therefore be seen that there has been no case in which a CDO was solely triggered and imposed on wrongdoing directors, which illustrates the existence of serious limitations with implementing CDOs.
The first major limitation is that there are a number of issues that the CMA needs to consider before the CDO is definitely determined. These issues can be listed as: (i) proof of the commitment of infringement by undertaking; (ii) possible qualification of directors for leniency; (iii) evaluation of directors’ unfitness; (iv) determining the contribution of directors’ conduct to the infringement and knowledge of directors about the infringement; and, (v) assessment of the application of aggravating or mitigating factors to the case. Since conducting such a comprehensive investigation would take considerable time and require a considerable amount of resources, the CMA may tend to deal with the infringement by imposing corporate fines rather than going into this overwhelming procedure.
The second major difficulty is the lack of clarity in the implementation of CDOs. Particularly, ‘unfitness’ on the part of directors should be determined to impose disqualification because identifying the infringement of the rules of competition law does not mean that the directors of companies involved in the infringement are automatically disqualified; however, there is no exact definition of what fitness and unfitness mean.
For example, dishonesty is not one of the conditions to determine the unfitness of directors (Goldberg 2004, [611]). Also, the ‘conduct of the directors that constitutes a breach of their duties can also be an indication of unfitness, there is no direct link between the two – that is, a breach of directors’ duties is neither necessary nor sufficient to constitute unfitness’ (Ruhmkorf and Du Plessis Reference Ruhmkorf, Du Plessis, Du Plessis and De Koker2017, 55). Such a lack of clarity in the definition of ‘unfitness’ may be the main reason for the absence of an example of CDOs in UK competition law.
The implementation of the second type of disqualification, called CDUs, is, on the other hand, slightly better than that of CDOs as there are three example cases of CDUs being solely imposed. The first case arose from a price fixing agreement which led Trod Ltd to be fined £163,371; the director and shareholder of the company, Daniel Aston, was disqualified for five years based on his CDU request. In the second case, the wrongdoing companies that breached Chapter I of the CA98 were fined £370,000 in toto and two directors of two companies were given CDUs for three and three and a half years. Lastly, in Stanton, in addition to Barry Kenneth Cooper, who was sentenced to two years imprisonment and disqualified for seven years, two other directors in this case were given disqualification orders for seven and a half, and six and a half years, respectively.
These three cases illustrate that the CMA has started using its CDU power, but the downside of the CDU is that directors voluntarily ask themselves to be disqualified without the need for the CMA to conduct a lengthy and costly investigation. It should surely be appreciated that disqualifications in these two CDU cases were imposed following investigations conducted by the CMA; however, imposing a CDU rather than a CDO illustrates the reluctance on the part of the CMA to apply to court for a CDO against a director. This may be the underlying reason why there are two CDU example cases but no case of CDOs in UK competition law. Again, this may illustrate the lack of motivation of the CMA to impose disqualification on individuals.
In brief, despite some of the positive thoughts about disqualification, such as maintaining deterrence through individual punishment without going into the complexity and uncertainty of criminal enforcement (Stephan Reference Stephan2011a, 529), and it being the ‘second best’ individual sanction after imprisonment to deter individuals (Wils Reference Wils2008, 188), the very few implementations of this power give rise to doubts about its deterrence.
The second individual sanction is the criminal cartel offence. Based on the high number of proceedings brought against individuals, US competition law is always considered to have successful cartel offence enforcement, and this has greatly influenced the UK’s criminalization of its competition law under Sections 188–202 of the EA02. This step was a promising development when it is considered that ‘individuals stand the most to lose and so avoiding jail sentences is the greatest incentive for seeking amnesty’ (Hammond Reference Hammond2004); however, its implementation in practice is still questionable.
As with CDOs, there have been four criminal cartel cases so far: Marine Hose, British Airways, Steel Tanks and Stanton. The first successful example of a criminal cartel case was Marine Hose, whose investigation was conducted by the Office of Fair Trading (OFT – currently CMA), and three businessmen were jailed for between two and half to three years. Another investigation conducted by the OFT was the British Airways case, in which no cartel offence was imposed despite criminal proceedings being brought against four directors of British Airways. The Steel Tanks case, on the other hand, was initiated by the OFT but the CMA continued the investigation as the former rolled into the latter. In this case, the former director of Franklin Hodge Industries, Peter Nigel Snee was jailed for six months. There were two other individuals against whom criminal proceedings were brought, but they were acquitted. The last case was Stanton, in which the investigation was conducted by the CMA on Stanton Bonna (UK) Ltd, FP McCann Ltd, CPM Group Ltd, and Milton Pipes Ltd; Barry Kenneth Cooper was sentenced to two years’ imprisonment, suspended for two years, with a 6pm–6am curfew for six months.
As can be seen, it has been more than 15 years since the introduction of the criminal cartel offence and the number of prosecutions expected by the competition authorities was between six to ten per year (OFT 2001, [3.7]); however, there have been only four cases brought against individuals so far and it is very difficult to state that the expectations of the UK authorities are fulfilled. This appears even worse when it is considered that Marine Hose is regarded as a ‘US case’ on the basis that its investigation was launched by the US authorities (Stephan Reference Stephan2011a, 531).
Having a much lower number of cases than expected illustrates that there are certain obstacles or limitations before the CMA can implement this individual sanction, and these issues could be more serious than that of disqualification.
The first issue may be the ‘dual nature of the UK regime’, which impedes the operation of the competition law regime through the enforcement of different mechanisms which are criminal and civil in nature, because the CMA targets the undertakings by civil competition law whereas the individuals are targeted by criminal sanction (Furse Reference Furse2012, 122). Furse defined this problem as follows: the ‘greater failing in the system is the attempt to run a system of individual criminal prosecution alongside the civil enforcement system: in effect, operating different trains, on different tracks, with the same engine driver’ (Furse Reference Furse2012, 121). Inconsistency between the civil basis of UK competition law and the criminal nature of the cartel offence may have caused the institutional challenge that the CMA has been experiencing, and it can be argued that this is the major underlying reason for the limited number of examples brought before the court.
To achieve greater compliance with the regulatory competition law regime, the UK government has been willing to introduce and employ different civil and criminal enforcement tools; however, effective implementation of these instruments through this mixed approach has been overlooked (Jones and Williams Reference Jones and Williams2014, 9). This is because of a lack of attention given to the matter that ‘civil and criminal offences in the UK frequently overlap’ (Jones and Williams Reference Jones and Williams2014, 9). This is a ‘fundamental flaw’ and it can be suggested that the ‘substance of the Offence would be too limiting’ due to the potential conflict between the main basis of UK competition law regime, which is civil law, and the basis of this legislation, which is criminal law (Furse Reference Furse2012, 108). The success of the US criminal cartel offence is heavily based on the fact that the Antitrust Division of the US Department of Justice has not faced such an issue.
The second issue is the lack of public support to call individuals as criminals based on their anticompetitive conduct. Despite the fact that anticompetitive conduct is considered dishonest by the majority of the public, imprisonment of directors is only supported by about one sixth of that same public (Stephan Reference Stephan2008). This was discussed by De Moncuit, who noted that
public opinion does not seem to request the imprisonment of individuals involved in competition law infringements. Precisely, the prison sentence is more than a legal issue, as it involves a democratic question by gauging the popular wave that supports the criminalization of antitrust law. (De Moncuit Reference De Moncuit2018, 5)
At the time of the introduction of the sanction, the government and the OFT (currently CMA) were keen to introduce different enforcement mechanisms to achieve greater deterrence of cartel activities, and the potential limitations that may arise from public support were neglected. The basis of this problem is that ‘the drive for criminalization in the UK resulted not from a public sense of “moral outrage” and a bottom-up (or backward-looking) process, but from a top-down (forward-looking) one, driven by the international initiatives’ (Jones and Williams Reference Jones and Williams2014, 9). The enforcement authorities thus need to find a balance between the purpose of deterrence and retribution, as ‘society is often founded on a plurality of values and principles; the pursuit of deterrence through the criminal law should be conditioned accordingly’ (Whelan Reference Whelan2007, 19).
The third issue is the difficulty of determining particular individual amounts of punishment. Given the potentially harsh consequences that imprisonment may cause in the director’s personal life, the CMA would be understandably more cautious to implement this sanction than other individual sanctions. In order to eliminate the possibility of falsely imprisoning someone, a ‘higher standard of proof’ is required than other public enforcement strategies (Reindl Reference Reindl, Cseres, Schinkel and Vogelaar2006, 124). Indeed, De Moncuit noted how ‘prison sentences are very rarely imposed’ and one of the reasons for this is that ‘the standard of proof required to justify the prison sentence is almost impossible to prove’ (De Moncuit Reference De Moncuit2018, 10).
The nature of required investigations gives rise to the issues of cost and time consumption. Despite the fact that the resources provided to the CMA have been considerably increased, the process of criminal offence implementation is still not without drawbacks, as ‘the inherent nature of criminal cartel work will continue to make identification, investigation and successful prosecution extremely challenging’ (CMA 2015, [3.8]).
Besides these three issues, another consideration that has been widely regarded as the greatest impediment to implementing the cartel offence was the requirement of determining the dishonesty on the part of directors. For a long time this condition was cited as the reason for having so few cartel offence cases (Stephan Reference Stephan2011b); however, having had only two successful imprisonments (Steel Tanks and Stanton) since this requirement was removed by the ERRA13 in April 2014 illustrates that the requirement of dishonesty was not the biggest issue before the CMA could employ its cartel offence power.
It can therefore be argued that these major reasons underlie the very limited number of criminal cartel cases brought before the court. Consequently, the offence is unlikely to create an effective deterrent threat on directors as there is still reluctance on the part of competition law authorities to implement this enforcement mechanism. The UK government highlighted this concern, stating that, ‘the deterrence effect of the cartel offence is weaker than it was intended because there have been so few completed cases to date; only two cases have so far reached trial stage and only one of them resulted in convictions’ (Department for Business, Innovation, & Skills (BIS) 2011, [6.5]). For this reason, Furse described how ‘the UK’s cartel offence has been the dog that did not bark’ (Furse Reference Furse2012, 2) and ‘the threat of effective prosecutions being brought forward under the Cartel Offence is practically close to zero’ (Furse Reference Furse2012, 53).
Besides these two individual sanctions, fines are also recognized as an individual sanction to impose on directors, along with the first two individual sanctions in UK competition law. In addition to being disqualified or imprisoned, the possibility of the liability to pay a considerable fine can effectively deter directors, as such a sanction would potentially have serious financial consequences in their personal life. The issue with this enforcement strategy, however, is that its implementation is dependent on the implementation of the disqualification or the cartel offence and this is the reason why there is no case in which fines were solely imposed on individuals. In consideration of the limited use of these individual sanctions in practice, implementation and the deterrence of fines on directors would consequently be limited.
For example, the individual fine imposed along with directors’ disqualification is implemented if a director who has already been disqualified becomes involved in forming, marketing or running a company registered in the UK, or which has a connection with the UK. Such a strategy may potentially increase the deterrence of disqualification on directors if disqualification does not prevent them from taking a role in the management of a company. Also, individuals can be given fines along with the cartel offence, regulated under provision 190 of the EA02. According to this,
(1) A person guilty of an offence under Section 188 is liable: (a) on conviction on indictment, to imprisonment for a term not exceeding five years or to a fine, or to both; (b) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum, or to both.
Individual fining could be an effective deterrent mechanism but as long as it is applied without needing other individual sanctions to be triggered, in this current situation of UK competition law it is unlikely to expect individual fines to achieve the expected deterrence on directors.
4. Comparison and Suggestions for Further Development
In terms of the principal strategy adopted, UK competition law is similar to Turkish competition law because both legal systems primarily target companies with administrative fines up to 10% of their annual turnover. These regimes, however, part ways when it comes to individual sanctions, because the UK has individual sanctions of disqualification, cartel offence and fines, whereas Turkey currently has only fines. Their common feature is that they both adopted the strategy of corporate fines from the EU, and departed from this approach by introducing new individual sanctions. By doing this, UK competition law regime moved closer to that of the USA through criminalizing its competition law, while Turkey’s regime moved closer to the UK by enforcing individual fines. The crucial question that arises at this point is whether Turkey should follow the UK example by introducing the two other individual sanctions – the cartel offence and a disqualification order.
There is no doubt that ‘publicly imposed sanctions’ on individuals can be helpful for maintaining a certain level of deterrence (Polinsky and Shavell Reference Polinsky and Shavell1993, 239). This is, however, a valid statement only as long as the sanctions are severely implemented. Turkey and the UK have similar issues in this regard as individual sanctions in both countries have not been adequately implemented. The situation is worse for the UK as it has three individual sanctions, none of which operates as desired. Turkey, on the other hand, only has individual fines but the presence of a great deal of ambiguity regarding the matter of decisive influence and very rare implementation give rise to serious doubts about their powers of deterrence.
There are three suggestions that this article makes for Turkey to further develop its competition law while avoiding the missteps of the UK. The first suggestion would be to make a great deal of effort to remove the lack of clarity in the application of individual fines. This individual sanction has always been left behind other sanctions in the UK, but Turkey has fortunately not made the same mistake, and rather has empowered the TCA to fine individuals without depending on the application of other individual sanctions. Individuals are still punished following the investigation on companies being finalized, which is a well-known inherent problem in the nature of competition law in different jurisdictions (Caliskan Reference Caliskan2019). For this reason, some other individual sanctions can be initiated in Turkey, but fining should remain the sole-triggered individual sanction without depending on the implementation of other individual sanctions.
The second suggestion that this article provides for Turkey is the introduction of directors’ disqualification as an individual sanction. Despite the fact that this sanction has not been severely implemented in the UK, this mechanism can potentially be a great deterrence as long as the foundation underlying its principles is without any ambiguity and does not cause reluctance on the part of competition law authorities (Galloway Reference Galloway2017). The requirement of unfitness can be adopted from UK competition law but the grounds of unfitness to manage, particularly the conduct that made the individual unfit, should be clearly defined in the law. Otherwise, the introduction of this sanction will only be theoretical.
Assuming that Turkey adopts disqualification as an individual sanction and it is effectively imposed by the competition authorities, there would still be some factors that might impair its deterrence on directors, such as the closeness of the director to retirement (Wils Reference Wils2005, 147). This is because directors who are to retire soon are unlikely to be deterred by disqualification since they do not plan to continue their directorship. The problem can be worsened when the potential time gap between the formation of the cartel and the disqualification of the director is considered (Stephan Reference Stephan2011a, 533).
This issue also illustrates different incentives for individuals because, as Wils argued, ‘depending on the age of the person concerned, director disqualification may simply be the occasion to move into comfortable retirement, and the company could fully compensate its former director for any financial loss’ (Wils Reference Wils2005, 147). Under these considerations, being disqualified would not be a major issue for directors and, consequently, the effect of the disqualification to incentivize them is likely to be small.
A second reason for the lack of deterrence concerns whether the disqualified director would actually be prevented from taking any role in the management of companies. According to the survey undertaken by Hicks on disqualified directors in the UK, ‘a large minority [of disqualified directors] thought a disqualified director is unlikely to be caught if in breach of the order’ (Hicks Reference Hicks2001, 435). Hence, they may not be aware of the implications of being disqualified from directorship. Hicks continued by saying that,
Disqualification itself was not seen as a major impediment in finding work. Most were reasonably successful in setting themselves up again, usually in some line of self-employment. Few were apparently qualified for formal executive posts with companies so did not see disqualification as much of a problem in the main. (Hicks Reference Hicks2001, 436)
In this case, it would be difficult to expect directors to take the disqualification seriously; however, these are the downsides which are inherent in its nature. There is almost nothing to be done about the first downside if the director is to retire soon but, in fact, directors can be made aware of how likely they are to be caught if they are involved in the management of a company and how serious and negative the consequences would be in their personal life of breaching his/her disqualification order. Therefore, disqualification is surely not without downsides, but it can still achieve great deterrence on individuals as long as its legislation is clearly drafted.
The last suggestion that this article submits is that Turkey should not criminalize its competition law through introducing the cartel offence. This suggestion is based on the failure of the UK competition law in terms of implementing the offence, but the specific justification would be the inconsistency between the criminal nature of the offence and the civil basis of the competition law. It can be seen from UK experience that the issue of inconsistency is the preliminary point of other sub-issues and it is very unlikely that this problem can be tackled through ways similar to those this article suggests for disqualification because the issue is fundamental, and its introduction would change the way in which competition law is operated.
Based on what Kovacic stated, namely that ‘each jurisdiction considering or implementing a criminal enforcement program[me] can benefit from the experience of other jurisdictions that already have set out on a policy path’ (Kovacic Reference Kovacic2016, 40), Turkey should observe the unsuccessful UK experience with individual sanctions and consider the major and minor obstacles in order to eliminate the possibility of making similar mistakes, if it should be determined to introduce them into Turkish competition law. However, before considering introducing further individual sanctions, Turkey needs to clarify the application of individual fines so that they are implemented as desired, since it is currently very uncertain when, in which situations, and upon whom they are imposed.
5. Conclusion
This article examined the experience that Turkey and the UK have had so far in terms of imposing individual sanctions, and it has been discussed that they have yet to achieve the desired deterrence due to foundational and practical issues.
There is no doubt that the conduct of individuals should be scrutinized by antitrust authorities in order to preserve the strong deterrent effect of competition law; however, this purpose is unlikely to be achieved only by establishing individual sanctions in law without considering the potential issues and barriers that authorities may face in implementing them. This is because the deterrence of these mechanisms depends on how strictly they are applied, and this is linked to the level of fear that individuals would have. This is precisely the issue that UK authorities have been experiencing in the last 15 years, and despite the fact that the CMA (previously OFT) has been eager to crack down on cartels, there are structural barriers that make the implementation of individual sanctions much less possible. Due to the presence of these barriers, the competition law authorities and courts are reluctant to disqualify and imprison individuals. Given that the implementation of individual fines is dependent on the implementation of the cartel offence and disqualification, their implementation has very rarely appeared in practice and their deterrence effect is consequently very questionable.
For this reason, as Turkey is still in the early stages of developing its competition law regime, the failure of individual sanctions in the UK and the reasons as to why this failure has occurred should be taken under consideration by the competition law authorities before further individual sanctions are introduced. This article suggests that the eagerness of Turkey to crack down on companies and individuals to prevent anticompetitive conduct should not lead it to adopt the same methods adopted in the UK before constructing the underlying foundation of a particular individual sanction.
By this means, Turkey has not criminalized its competition law yet by introducing a cartel offence, and there could be a tendency on the part of authorities to initiate this individual sanction, but the failure of the UK example and its reasons should be taken into consideration before such a radical change is commenced. Based on the experience of the UK competition law regarding the criminal cartel offence, which ‘looks like a dead man walking’ (Jashua Reference Jashua2010, 10), this article suggests that Turkey should not criminalize its competition law. There are a number of issues to consider before introducing the cartel offence, such as the possible conflict between the criminal nature of the offence and the civil basis of Turkish law, the requirement for a comprehensive and lengthy investigation to collect sufficient proof and determine the right individual to prosecute with the right amount of punishment, and the possible absence of public support to put individuals in jail. These issues are not easily tackled to make the sanction limitation free.
In order to increase the strength of the rules of competition law, Turkey should initially rather empower its competition law authorities to use its enforcement mechanism of individual fines and remove the barriers before their imposition in order to preserve competition compliance within the corporate structure. It can also enhance the deterrence of its competition law by introducing director disqualification.
The logic behind the suggestion of disqualification is not about the issues that should be considered before its introduction being less comprehensive than that of the cartel offence, but regarding considerations around public support and the right amount of punishment. Also, it is based on the possible challenges to be faced by the TCA in operating its civil law against companies, whereas criminal law against individuals has been experienced by the CMA (previously OFT). This characteristic of disqualification would not cause the practical and theoretical issues that the criminal cartel offence might.
About the Authors
Samet Caliskan is an Assistant Professor of Law at Mus Alparslan University in Mus, Turkey, having previously worked in the United Kingdom as a Business and Legal Consultant between 2017 and 2018. He holds a BA in Business (Hons) from Gazi University, Ankara, Turkey, Master of Laws (LL.M) from Case Western Reserve University, Ohio, USA, and a Postgraduate Certificate in Research Training (PGCert) from Newcastle University, UK. He completed his PhD at Newcastle University Law School with a thesis exploring the law and the relationship between a company and its directors in terms of mitigating the risks of undesirable behaviour for the long-term interests of stakeholders.
Saliha Oner is a Legal Advisor based in Newcastle, UK. She holds a BA in Business from Suleyman Demirel University, Isparta, Turkey, Master of Laws (LL.M) from Case Western Reserve University, Ohio, USA, and a Postgraduate Certificate in Research Training (PGCert) from Newcastle University, UK. She completed her PhD at Newcastle University Law School with a thesis exploring directors’ and officers’ liability insurance and breaches of fiduciary duties.
