From the Enforcer: Competition Council of Latvia

Latvia: from the enforcer

Address: Brīvības iela 55, Riga, LV-1010, Latvia
Tel: +371 6728 2865
Fax: +371 6724 2141
Email: [email protected]
Web: www.kp.gov.lv

Contacts

 Juris Gaikis
Juris Gaiķis

Chairman of the Competition Council of Latvia

Janis Racko
Jānis Račko

Council member, Acting Chairperson
Email: [email protected]

Liga Daugaviete
Līga Daugaviete

Council member
Email: [email protected]

Maris Spicka
Māris Spička

Executive Director
Email: [email protected]

Questions and answers

How long is the head of agency’s term of office?

The term of office of the chairperson and the members of the Competition Council of Latvia (the CC) is five years and may be subject to reappointment.

When is he or she due for reappointment?

The Chairman Juris Gaiķis was elected in September 2020. The chairman's first term of office will end in September 2025.

Which posts within the organisation are political appointments?

None. The chairperson and members of the CC are appointed on merit by the Cabinet of Ministers, considering the recommendation of the Minister of Economics in accordance with the Competition Law.

What is the agency’s annual budget?

The budget for 2021 is €2,143,139 million.

How many staff are employed by the agency?

At the start of 2021, the CC had 47 employees, but at the moment the CC has 54 employees, out of whom 46 have the status of officials, and eight have the status of employees.

To whom does the head of the agency report?

The chairperson reports to the Minister of Economics.

Do any industry-specific regulators have competition powers? If so, how do these relate to your agency’s role?

No. Only the CC enforces the Competition Law and corresponds articles of the Treaty on the Functioning of the European Union.

May politicians overrule or disregard authority’s decisions? If they have ever exercised this right, describe the most recent example.

No. The decisions of the CC can only be appealed in court.

Does the law allow non-competition aims to be considered when taking decisions?

No, the Competition Law does not provide for any non-competition aims to be considered.

Which body hears appeals against the agency’s decisions? Is there any form of judicial review beyond that mentioned above? If so, which body conducts this? Has any competition decision by the agency been overturned?

The decisions of the CC may be appealed in two instances: The Administrative District Court and then the cassation instance in the Supreme Court (Department of Administrative Cases).

In general, all decisions taken by the CC have been appealed by market participants against whom the decision is negative. Most legal proceedings take up to three years before they are finalised. Between 2017 and 2020, 23 proceedings were finalised, and the CC’s decision was upheld in all cases (the success rate of the CC in the final appeals was 100 per cent).

In the first nine months of 2021, significant resources have been devoted to the representation of the CC in courts. There are 31 of the CC's decisions in various instances in the courts, including the five of the appeal proceedings that were terminated in the first nine months of 2021. Thus, in four cases out of five, the CC's decisions have entered into force. In 2021 the success rate of the CC in the final appeals is approximately 80 per cent, but the correct figure will be known at the end of the year.

Has the authority ever blocked a proposed merger? If yes, please provide the most recent instances.

The authority has blocked proposed mergers; however, such decisions have been taken rarely. The most recent was the CC’s decision on 17 December 2018, when it prohibited one of the largest retailers SIA Maxima Latvija to use the commercial premises in a local market (the centre of the capital Riga). To assess the market affected by the transaction in the more objective manner, the CC performed a survey of customers of the current tenant (also retailer) in the particular premises. By using the isochronal method, the CC concluded that use of the respective premises by one of the largest retailers (that already owns one shop within the affected market) would significantly reduce competition in the relevant market, limit the possibility of consumers to purchase daily consumer products in stores of bigger number companies and would strengthen the market power of the current retailers.

In 2017, the CC also blocked a merger, prohibiting the other largest retailer (SIA Rimi Latvia) to use retail premises at the shopping centre Domina Shopping in Riga. The CC found that it would have caused significant harm to competition, strengthening the retailer’s position in the market (especially in the multifunctional shopping centre segment). This was the first blocking decision taken by the CC in eight years.

To ease preparation of merger notifications (or to identify that the merger does not reach the threshold for submission of notification), the CC provides pre-notification consultations. They are widely used by market participants, and thus problematic mergers and agreements can be detected at an early stage. In 2020, to facilitate submission of merger notifications by companies, the CC provided 12 pre-merger consultations. In the first nine months of 2021, the CC provided 81 pre-notification consultations.

Has the authority ever imposed conditions on a proposed merger? If yes, please provide the most recent instances.

Yes, there have been several cases. The most recent was in June 2021 when the CC  adopted a decision to allow OÜ MM Grupp, a company registered in Estonia, representing several companies in Latvia, including Apollo Kino Ltd, to acquire another company registered in Estonia, OÜ Forum Cinemas Latvia, which also operates in the film distribution and screening markets in Latvia. The CC concluded that the merger would significantly restrict competition in these specific markets. Therefore, to guarantee continued competition on the market, the merger was cleared subject to accepted remedies, with OÜ MM Grupp committing to divest the assets of its owned cinema Citadele (ie, employees and property, etc) to the control of unrelated third party.

Has the authority conducted a Phase II investigation in any of its merger filings? If yes, please provide the most recent instances.

Phase II investigations were carried out in 12.5 per cent of the merger cases reviewed in 2019. Depending on the merger notification, Phase II investigations may last up to either three or four months. These mergers affected the following markets: fuel market and food and production of alcohol (beer).

In 2020, the Competition Council did not detect a possible threat to competition in any of 11 assessed merger cases and allowed these transactions. Although most merger transactions did not cause significant negative consequences for competition, two mergers were assessed in more detail with an in-depth economic analysis conducted. These mergers affected the following markets: the television channels distribution wholesale market and the coffee machine rental and servicing market.

In the first nine months of 2021, the CC has provided a merger assessment in 16 cases. But such an in-depth investigation took place in the case of a merger of cinema-related companies, where the CC allowed mergers with binding rules to prevent significant negative effects on the cinema screening market, while in the other 15 cases mergers were allowed without objection.

Has the authority ever pursued a company based outside your jurisdiction for a cartel offence? If yes, please provide the most recent instances.

In late 2014, the CC imposed fines on official dealers and importers of Volkswagen cars in Latvia for taking part in a cartel. For at least five years, undertakings systematically coordinated their participation in procurements, as they allowed the winning of a preselected tenderer, while other participants submitted offers that were coordinated and less favourable to clients or abstained from participation within the procurements. Importers of Volkswagen cars in Latvia, SE Moller Auto Import, not only knew and did not object to the market sharing among dealers, but also contributed and supported the infringement by acting as an intermediary during exchange of information. Several direct participants were fined jointly and severally with their parent companies – one German and one Norwegian company. The decision has been appealed in court, and legal proceedings are still pending in this case.

Do you operate an immunity and leniency programme? Whom should potential applicants contact? What discounts are available to companies that cooperate with cartel investigations?

There is a leniency programme, which provides an opportunity for an undertaking that is or was involved in a cartel to be the first to submit evidence on a voluntary basis regarding the violation to the CC and to receive a full exemption from a fine and prohibition to participate in public procurements.

Regulation No. 179 on Procedures for the Determination of Fines for the Violations Provided for in Section 11, Paragraph one and Section 13 of the Competition Law and in sections 5, 6, 7 and 8 of the Unfair Retail Trade Practices Prohibition Law (which came into force on 1 April 2016) includes a leniency programme that exempts a participant of a horizontal cartel agreement from the payment of a fine or a fine reduction. Potential applicants must submit their applications to or contact the Cartel Department.

According to the guidelines on the leniency programme in Latvia, fine system of the programme provides:

  • a 100 per cent exemption from the fine if the undertaking that is or was involved in a cartel is the first one to submit evidence on a voluntary basis, and the authority has no information concerning the respective infringement;
  • a 30 to 50 per cent reduction of the fine if the CC has information on the infringement, but the undertaking is the first one to provide the authority with significant information; and
  • a 20 to 30 per cent reduction of the fine if the CC has information on the infringement, and the undertaking is no longer the first one, but provided information is still significant.

In 2018, the CC developed guidelines on the leniency programme. The guidelines provide general theoretical and practical explanations about the programme, principles of its application and previous practice of the authority.

Is there a criminal enforcement track? If so, who is responsible for it? Does the authority conduct criminal investigations and prosecutions for cartel activity? If not, is there another authority in the country that does?

The regulatory framework of the Competition Law in Latvia does not provide for criminal liability in competition infringement cases. Thus, neither the CC nor any other authority conducts criminal investigations and prosecutions for cartel activity.

Nevertheless, the CC cooperates closely with the Corruption Prevention and Combating Bureau (CPCB) as public procurement cartels go together with corruption. Both authorities actively exchange evidence and information on alleged infringements that are discovered during investigations and relates to the competence of the other authority. Both authorities are also closely cooperating in educational matters. In 2018, the CC concluded two year-long cycles of workshops in cooperation with the CPCB and Public Procurement Bureau to educate organisers and tenderers of procurements.

Cooperation in the context of enforcement is especially fruitful in bid rigging cases (cartel offence in Latvia), which often involve corruption on the part of the public administrative body organising the procurement. Thus, in its investigations, the CC can use evidence that the CPCB gathered during criminal investigation.

For example, in 2019 based on the information provided by the CPCB the CC initiated an investigation in the Construction Companies cartel” case. In July 2021, the CC – based on the information provided by the CPCB and additional evidence obtained during the investigation – adopted a decision in the case, detecting a long-term prohibited agreement of 10 construction companies on the conditions of participation in public and private procurements in Latvia.

Moreover, as the CPCB carries out criminal investigations of corruption cases in the actions of public officials, due to the limitation period provided by the Criminal Law, such investigations often are terminated without results, while cartel investigations and the CC’s decisions are the only option to expose the guilty officials and fine them by disturbing their reputation.

Are there any plans to reform the competition law?

At the beginning of 2019, we only planned to amend the Competition Law with two novelties. In 2020 all of them were completed. On 28 March 2019, Parliament adopted the amendments to the Competition Law, granting the CC more powers to address competition distortions caused by public administrative bodies – local governments and their undertakings. It provides the CC with powers to intervene when public administrative bodies or their companies ignore the principle of competitive neutrality

On 1 January 2020, amendments to the Competition Law of the Republic of Latvia entered into force, prohibiting public administrative bodies – the state, local governments and capital companies owned by them – from violating the principle of equal competition by unduly restricting or even denying the private sector an opportunity to operate on the market.

Currently, as part of the improvement of the regulatory framework, amendments to the Competition Law have been prepared and submitted to the Ministry of Economics, including clarifications, statements and annotations in connection with the ECN+ Directive to be transposed into national legislation. Amendments to the law are currently being drafted.

Simultaneously with the adoption of the ECN+ Directive, the independence of the CC will be strengthened, envisaging the subordination of the institution to the Cabinet of Ministers (government), and not to one specific ministry– the Ministry of Economics – as it is now. The independence of council members will also be strengthened by stipulating in law that council members are not subject to the provisions of other regulatory enactments regarding the evaluation, suspension and disciplinary liability of a civil servant and its results, as well as other legal norms restricting the Council's independence.

Currently, the Competition Law regulation is under discussion with other responsible authorities, ministries and social partners, which in addition to corporate liability, also provides for individual liability of company officials (application of fines and restrictions on holding certain positions for a certain period of time) for infringements of the prohibited agreements and abuse of a dominant position, to further deter violations of Competition Law.

When did the last review of the law occur?

In 2019.

Do you have a separate economics team? If so, please give details.

Yes, the CC has a separate economics unit comprised of one chief economist, and three economists.

Has the authority conducted a dawn raid?

Dawn raids are carried out in all cartel cases and, if necessary, in other cases (for example, investigations of abuse of dominant position, vertical restraints and unnotified mergers). Dawn raids are one of the core instruments for the authority to obtain evidence of the infringement. In 2020, the CC carried out one dawn raid inspecting six market participants. In the first nine months of 2021, the CC has already carried out five dawn raids inspecting 16 market participants.

Has the authority-imposed penalties on officers or directors of companies for offences committed by the company? If yes, please provide the most recent instances.

No, the regulatory framework in Latvia does not provide for such penalties for competition infringements.

What are the pre-merger notification thresholds, if any, for the buyer and seller involved in a merger?

A notification of a merger prior its implementation is required, if the following two conditions are satisfied:

  • the total turnover of merger participants in the previous financial year in the territory of Latvia has constituted at least €30 million; and
  • the turnover of at least two merger participants in the previous financial year in the territory of Latvia has constituted at least €1.5 million.

There is also the possibility to review the ‘below-thresholds mergers’, that is, the CC is also entitled to request the merger participants to submit a notification on the planned or already implemented merger no later than 12 months from the date of merger implementation, if:

  • the merging parties are direct competitors and their total market share on the relevant market exceeds 40 per cent as a result of merger; and
  • the CC has reasonable suspicion that dominant position in the market can be created or strengthened, or competition in the relevant market can be significantly decreased as a result of merger.

Even in a case where a merger falls under the notification criteria, the undertaking is entitled to:

  • request a written confirmation that the CC will not use its right to request a merger notification; and
  • on its own initiative, submit a full or abridged merger notification to the CC.

Are there any restrictions on investments that involve less than a majority stake in the business?

No.

Latvia: from the enforcer's competition economists

Address: Brīvības iela 55, Riga, LV-1010, Latvia
Tel: +371 6728 2865
Fax: +371 6724 2141
Email: [email protected]
Web: www.kp.gov.lv

Contacts

Juris Gaikis
Juris Gaiķis

Chairman of the Competition Council of Latvia

Janis Racko
Jānis Račko

Council member, Acting Chairperson
Email: [email protected]

Liga Daugaviete
Līga Daugaviete

Council member
Email: [email protected]

Maris Spicka
Māris Spička

Executive Director
Email: [email protected]

Artus Kuka
Artūrs Kuka

Chief Economist
Email: [email protected]

Questions and answers

How many economists do you employ?

We employ four economists. There is a chief economist, and three economists working in the Economic Analysis Unit.

Do you have a separate economics unit?

Yes.

To whom does the chief economist report?

The chief economist reports to the executive director.

Does the chief economist have the power to hire his or her own staff?

The Economic Analysis Unit takes an active part in the recruitment process and has a substantial role in the final hiring decision.

How many of your economists have a PhD in industrial economics?

None.

Does the agency include a specialist economist on every case team? If not, why not?

In cases where an economic approach is necessary, economists usually support a case handler throughout the entire investigation. Due to restricted resources, only in complicated cases is there a project team consisting of leading case handler and two or more experts, lawyers and economists.

Is the economics unit a ‘second pair of eyes’ during cases – is it one of the agency’s checks and balances? If not, why not?

In economically complicated cases and market inquiries, economists are a second pair of eyes and, in addition, provide substantial added value to the case investigation. In other cases, the involvement of economists depends on the characteristics of the case. There are cases where legal analysis is more important than economic analysis or the economic analysis is not complicated enough to require an additional specialist from the Economic Analysis Unit, taking into account that many case handlers have graduated as economists, financial analysts, etc.

How much economics work is outsourced? What type of work is outsourced?

Cases involving outsourced specialists are rare. The CC outsources only consumer surveyors to ensure that the survey meets all social research standards. Several years ago, a task that was outsourced within a case investigation was an economic survey on the rating, availability, and substitutability of international television channels in Latvia. The results were used in the case of alleged abuse of dominance in the market of the distribution of TV channels.

In the first nine months of 2021, the CC conducted consumer survey in the merger case in the film screening and distribution markets. The survey covered several thousand respondents, and the CC used the data to inform the relevant market definition.

Organisation chart

Organisation chart

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