The Saudi General Authority for Competition (GAC) issued advisory guidance for companies operating in Saudi Arabia on internal compliance mechanism to prevent violations of the Kingdom’s antitrust regime.
The Saudi General Authority for Competition (GAC) issued advisory guidance for companies operating in Saudi Arabia on internal compliance mechanism to prevent violations of the Kingdom’s antitrust regime. These guidelines address conventional concepts such as compliance risk assessment, internal monitoring and reporting mechanisms. Furthermore, the guidelines entice companies to establish channels to cooperate with GAC to prevent and address violations of the Saudi competition regime. The guidelines come in the wake of GAC substantially expanding enforcement of antitrust provisions imposing high-value fines against violators over the past 12 months.
GAC identifies agreements limiting competition as a principal issue of concern. Within the meaning of the Saudi antitrust regime agreements limiting competition are all agreements restricting the freedom of or harming competition, regardless of whether the parties to them intended to impact competition. These may be agreements (1) determining specifications, characteristics or availability of goods and services, (2) limiting customer choices, or (3) agreements limiting competitors’ access to suppliers or the market at large.
GAC specifically highlight agreements affecting market conditions such as price-fixing and geographical market division. In their guidelines, GAC emphasizes that they regard these agreements to be among the most harmful due to their direct negative effects on consumers.
The guidelines go on to address abuse of dominant market positions. GAC, emphasises the negative affects of market dominant players using their position to (1) determine or impose prices or terms for the sale or resale of goods or services, (2) limiting market access of specific undertakings by refusing or requiring others to cease to deal with them without valid reason, (3) pressure competitors by sell goods or services at prices below cost, (4) control prices by artificially affecting availability of goods and services, or (5) affect customers’ choice through tying and bundling.
Finally, the guidelines impress on the obligation to notify transactions that meet the filing criteria under the Saudi merger control regime. Economic concentrations, which include mergers, acquisitions, joint ventures and similar transactions, must be notified to GAC, if (1) the combined annual turnover of the parties involved is SAR 100 million (approx. USD 26 million) or more, (2) the transaction has a local effect in Saudi Arabia, and (3) the transaction leads to a change of control.
In their guidelines, GAC formulates measures businesses may implement to prevent, discover and address violations of the Saudi antitrust regime. These include (1) implementation of internal antitrust compliance policies and guidelines, (2) compliance trainings and awareness programs for staff, (3) monitoring and reporting mechanisms, (4) antitrust-risk analysis of business engagements and transactions, and (5) mechanisms to cooperate with GAC.
GAC recommends implementation of ‘effective’ antitrust-compliance policies and guidelines by companies. In this context GAC emphasizes that management bares responsibility for antitrust-compliance of companies and thus must ensure that staff is aware of antitrust requirements. Hence, internal antitrust-compliance policies and guidelines should clearly describe and explain existing obligations and should be actively communicated to staff and partners. This is particularly relevant in Saudi Arabia and the larger MENA-region, where antitrust regulations are still comparatively young and local staff and partners may be less aware of their obligations.
Antitrust trainings serve to educate staff on existing antitrust regulations and raise awareness of anti-competitive practices that must be avoided. Since what actions cross the line and are deemed anti-competitive is not always intuitively apparent, sophisticated trainings are vital. In particular, in Saudi Arabia where antitrust awareness is comparatively lower. Notably, the guidelines do not address antitrust trainings for external partners such as distributors or agents. Given the lacking antitrust awareness in the Kingdom and possible issues for principals arising out of their distributors or agents violating Saudi regulations, such measures may nonetheless be advisable.
Moreover, the guidelines suggest assigning designated antitrust-compliance staff within organisations who would monitor the companies business activities in Saudi Arabia. To support these activities formalized controlling procedures may be introduced that would allow designated staff to monitor ongoing business activities and transactions with respect to antitrust-compliance. In addition, GAC suggests that communication channels would be established through which employees could bring possible antitrust issues to the attention of designated antitrust-compliance staff (in-company whistle-blower programs). To ensure that affords to monitor operations and maintain reporting channels could be presented to mitigate liability in case of violations of the Saudi competition regime, it would be advisable to document these.
In addition to ongoing monitoring, GAC suggest that businesses assess possible antitrust risk before entering into new business or transactions. Similar to the monitoring activities, it would be advisable to document risk assessment activities to enable a company to provide proof of their compliance affords.
Finally, the guidelines suggest that companies should establish channels to engage GAC directly. On the face of it this recommendation may appear to address active outreach of companies. However, it is in fact limited to recommending to comply with requests from GAC such as information requests in investigations.
Given the increased enforcement activity of GAC aimed against both domestic and foreign businesses, companies are increasingly exposed. On the other hand GAC in their guidelines are seeking reaching out to businesses to show options to prevent violations and mitigate enforcement risks. In particular, GAC addressing measures to be implemented as part of internal compliance strategies and procedures is a welcome development. It remains to be seen whether GAC will grant leniency to business that implemented sound compliance procedures in cases where a violation nonetheless occurred. This aspect should also be considered by management, since GAC in their guidelines emphasize that management is responsible of an undertaking’s antitrust compliance and may be subject to sanctions in case of violations. Hence, companies active in Saudi Arabia should review their internal antitrust compliance mechanism.
Raising awareness of antitrust principles and compliant behaviour of local staff, distributors and partners is of vital importance. Saudi Arabia has—until late 2019—been a largely dormant antitrust jurisdiction. While GAC has been very active in increasing awareness of antitrust principles in the Kingdom, awareness still is comparatively low. Companies need to be aware of this issue when training local staff and partners on antitrust matters and pay increased attention to compliance and monitoring of local activities to ensure that their staff, distributors, and partners observe binding Saudi law.
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