10 Jul 2017

The Dawn of Dawn Raids or the Twilight of Due Process in Serbia?

During the last ten days of May 2017, Serbian competition authority has hastily opened an unprecedented number of investigations.  Simultaneously, the authority announced a push for a complete revamp of the competition act.  Reviewing these developments through the lens of the New Administrative Act, which came into force on 1 June 2017, a strong argument can be made that behind these actions is a desire to circumvent the robust human rights safeguards introduced by the New Administrative Act and guaranteed under the ECHR and the Serbian Constitution.

During the last ten days of May, the Commission for Protection of Competition of the Republic of Serbia (the Commission) has decided to roll up its sleeves and put a number of companies suspected to have committed competition violations on its conveyor belt.

Unusually high number of unannounced inspections and three new investigations against several undertakings beg a question – why now?

By contrast, from 2009 when the Protection of Competition Act (the Competition Act) was adopted, until May 2017, the Commission has used its power to carry out unannounced inspections of business premises only six times. So why did the Commission decide to bring on its A-game now?

On 1 June 2017 (only one day after the initiation of the Commission’s last investigation), the much heralded and awaited new General Administrative Procedure Act (the New Administrative Act) came into force, governing all administrative proceedings, competition law included.  The New Administrative Act introduces a plethora of substantial changes, elevating human rights and due process safeguards to an unprecedented level, while paving the way for an all-encompassing overhaul of Serbian administrative law.

Amongst one of its many worthy goals, the New Administrative Act provides for a more robust alignment of its rules with that of the European Convention of Human Rights (the ECHR) and the European Union acquis.  While still on the path toward EU accession, Serbia has been a member state to the ECHR and the Council of Europe for more than a decade, with one of the highest number of cases per capita before the Strasbourg court.

Returning to the Competition Act in the period before the New Administrative Act, the Commission enjoyed vast and alarmingly broad authority to both carry out in-depth investigations as well as to impose dizzying fines on competition infringers.  Virtually, the Commission was and continues to be entrusted with powers that exceed those of the Public Prosecutor in criminal proceedings and is entitled to levy the highest fines known to Serbian law.

Given such great powers, one would expect equally far-reaching and strong procedural safeguards to balance the scales of justice, guarantee due process and ECHR compliance.  However, the previous Administrative Act coupled with the current Competition Act, fell short in providing just that.  In essence, the pre-1 June 2017, competition process allowed for the following:

  • Commission’s procedures almost certainly did not meet stringent human rights requirements imposed under the Serbian Constitution and the ECHR.  The Commission’s investigative powers were highly invasive, especially if regarded in context of a typical administrative procedure.  For instance, the Commission was entitled to carry out dawn raids – highly intrusive and unexpected inspections of business and personal premises, to gather evidence and belongings that were at a risk of being removed.  These dawn raids are regarded by the Commission as a highly effective tool, but what lies behind this effectiveness is simple: the Commission, assisted with the police, did not require a court warrant to carry out an inspection (and was neither subject to any immediate ex post court review).
  • Nothing in the Competition Act prohibits the Commission from going on a fishing expeditions – without a court order, the Commission could search for evidence not related to the subject-matter of its investigation and initiate new, unrelated proceedings against the same undertaking – in breach of both the Serbian Constitution and established ECHR case law.
  • The Commission’s authority to request information, even from the ‘accused’ party, is subject to severe fines for failure to comply.  These fines range from EUR 500 to EUR 5,000 per day, capped at 10% of the total annual turnover of the target undertaking.
  • Although mandatory, the Commission rarely offered public hearings to investigated parties, making this right more of an exception than a rule.
  • There was no legal rule preventing the Commission to freely exchange information with criminal prosecutors, irrespective of the manner and procedure in which said information was collected.
  • On top of that, the Commission fuses an investigative and adjudicative role plagued with the same prosecutorial bias, ever-present and strongly debated in European competition circles from the times of Menarini to this day.

The New Administrative Act was set to do away with these and similar practices.  It was intentionally promulgated in March 2016 with an unusually long 18-month grace period for all public authorities (including the Commission) to prepare for its application starting from 1 June 2017.

As it was emphasized by the then-Minister of Justice and Public Administration (now General Secretary to the President of Serbia), Nikola Selaković, “[u]pon coming into force of the new [Administrative] [A]ct, citizens will be able to also protect themselves from everyday actions carried by public authorities, in particular, from maladministration and lack of due process in the provision of public services.”  He further added that “[t]he aim of drafting and adopting the New Administrative Act is threefold: to enhance functioning of the administration, to enable better exercise and protection of citizens’ rights and interests, as well as public interests, and to perfect Serbia’s belonging to the European Administrative Space.”  The then-Deputy Head of EU Delegation in Serbia, Adriano Martins, added that the subject act was of “key importance for the creation of a modern public administration that should adhere to the responsibility, transparency and legality.”

The New Administrative Act introduces a number of novelties that facilitate communication between public authorities and private persons in the course of administrative proceedings, enhance protection of the parties’ rights and legal interests in any conducted procedure, and notably restrain powers of the acting authority.  Therefore, the New Administrative Act is undoubtedly perceived as a turning point for the Serbian competition watchdog – especially for the landmark provisions outlined below:

  • First, the New Administrative Act, as a lex posterior, establishes its permanent primacy over other statutes that regulate administrative procedures in specific areas.  Namely, under its Article 3, certain specific matters of administrative procedure can be governed by a lex specialis, provided that it does not reduce the level of protection of parties’ rights and legal interests guaranteed by the New Administrative Act (a so-called minimum human rights protection standard). This stands for the Competition Act as well.  In other words, any specific procedural rules that were applied by the Commission under the Competition Act now need to be carefully examined in light of the New Administrative Act.  If said rules do not conform to the human rights and procedural safeguards introduced by the New Administrative Act, they cease to apply further.
  • Second, in terms of its temporal scope, the New Administrative Act prescribes that all procedures which were still pending on June 1, 2017, are to be continued in accordance with the act on general administrative procedure which was in force before the New Administrative Act began to apply.  Therefore, any procedure initiated before 1 June 2017 is to be conducted under the former act, which, apart from lacking a provision on primacy over special acts (including here the Competition Act), prescribes much lower standards of protection for parties compared to the New Administrative Act.
  • With regard to inspections, significant differences exist between the New Administrative Act and the current Competition Act.  Under the new rules, inspection of any premises, at general, can be denied for all the reasons for which a witness can refuse to give a witness statement, including here exposure to significant material damage and / or pursuant to the privilege against self-incrimination (the same safeguards now apply with respect to the Commission’s requests for information).
  • When it comes to business headquarters, the New Administrative Act introduces a pivotal change for competition enforcement: inspection of a “home” is possible only on the basis of a court warrant or with consent of its resident.  Articles 6 and 8 of the ECHR, established case law of the Strasbourg court (e.g. Société Colas Est v. France, Delta Pekárny v Czech Republic) and Article 40 of the Serbian Constitution, all encourage extensive interpretation to encompass inviolability of business premises.
  • Given the New Administrative Act’s primacy over any other administrative statute (including the Competition Act) coupled with its new explicit guarantees of inviolability of home, the Commission’s authority to hereafter perform dawn raids without prior court warrant or an undertaking’s consent is on a fast track to oblivion.

Reviewing the dawn raids and investigations of May through the lens of the New Administrative Act, an entirely different image and meaning to the Commission’s actions emerge.  Despite the 18-month long grace period, the Commission opted to conduct raids and open investigations at the very last moment, all prior to 1 June 2017.  A strong argument can be made that the underlying goal of these newly investigations was to circumvent the New Administrative Act.

The current Competition Act was adopted in 2009 and successfully amended in 2013 with overall positive reviews by the European Commission and other stakeholders.  Any remaining insufficiencies, at least by design, should have been fully remedied by the New Administrative Act’s coming into force.  However, a concurrent public announcement that an entirely new competition statute will be introduced under the umbrella of “the need for increased efficiency and to facilitate easier competition enforcement in Serbia” (as stated by Miloje Obradović, the Commission’s President, Tanjug), raises serious doubts as to the true intentions behind this legislative push.

Similar to the investigations in May, if these intentions are to circumvent / undo all that has been achieved by the New Administrative Act and reverse the course of due process developments in competition proceedings, all relevant stakeholders – the private and the public sector, along with the public at large – should remain vigilant, and take action if necessary.

The Serbian Constitution (Article 20(2)) unequivocally states that “[t]he attained level of human and minority rights may not be lowered.”

Against this backdrop, only an open, transparent and broad public consultation can secure that we end up with a new antitrust act that fosters a free market and competition while protecting human rights of individuals and market participants introduced by the New Administrative Act and guaranteed under the ECHR and the Serbian Constitution. For the ongoing investigations, the only recourse is to turn to the Constitutional Court, and, eventually, the court in Strasbourg.

This article was previously published by Thomson Reuters/Practical Law and available on our website with the permission of the publisher.

Authors: Bogdan Gecić and Tatjana Sofijanić, Gecić Law

Sources: Commission for Protection of Competition of the Republic of Serbia, in Serbian (and partially in English) and http://www.paragraf.rs (in Serbian).