CC: The Supreme Court ruling in the Builders' Cartel case restricts cooperation between law enforcement agencies and their ability to uncover serious competition violations

The ruling of the Administrative Case Department of the Supreme Court Senate (Senate) in the construction cartel case has raised important issues regarding cooperation between law enforcement agencies, the transfer of legally obtained evidence for the disclosure of cartel agreements, and the effective application of competition law.

The Competition Council (CC), respecting the Senate's ruling, emphasizes that the Senate did not assess the existence of a prohibited cartel agreement in its judgment[1] and did not analyse that, without the recordings of negotiations obtained legally in criminal proceedings, such a long-term, secret and verbally implemented violation. The judgment does not question that this evidence was obtained legally and is reliable, but the court's assessment is limited to a formal evaluation of the process of submitting the evidence, effectively leaving the most important aspect unassessed – the actual possibilities of detecting and proving the violation.

The Senate has overturned the Administrative Regional Court's ruling in the case concerning CC's decision of July 30, 2021, on prohibited agreements in the construction industry and referred the case back to the Administrative Regional Court for reconsideration (Judgment).

In its ruling, the Senate focused on the procedural aspect, namely, the interpretation of the legal framework in the context of the admissibility of evidence. The Senate concluded that information provided by the Corruption Prevention and Combating Bureau (KNAB) to the CC, obtained through operational activities (wiretaps[2]) in a criminal investigation, is not admissible as evidence in competition law proceedings and cannot be used to prove the existence of a cartel agreement.  The Senate pointed out that the detection of cartels is not included in the tasks and objectives set out in the Operational Activities Law, and therefore concluded in its judgment that the persons involved in the cartel do not and cannot have grounds to expect that the information obtained in the course of operational activities may be transferred and used in administrative proceedings to prove the existence of a cartel agreement. Therefore, the Administrative Regional Court will have to assess whether the legality of the CC's decision is justified by other evidence in the case.

Firstly, the CC emphasizes that, in accordance with the Competition Law, the CC has the right to initiate and conduct investigations based on information provided by other institutions. In this particular case, the CC obtained information provided by the KNAB and materials obtained in criminal proceedings, including conversations intercepted during operational activities, which had lost their classified status at the time of transfer. Before using this material, the CC verified its legality – that the operational activities had been carried out with the sanction of a Supreme Court judge – and obtained confirmation that the material was authentic. An expert examination was carried out in the case, which found that the recordings of the conversations had not been edited or falsified and corresponded to the conversations that had actually taken place. These circumstances are not questioned in the judgment, but at the same time, the court has not assessed these facts on their merits.

Secondly, the Judgment does not assess the opinion of the KNAB as the investigating authority in the criminal proceedings, which is also included in the case materials, namely that the protection of materials obtained in criminal proceedings is not a goal in itself. The person directing the proceedings has the legal right to disclose the evidence obtained to another institution at a time when it does not interfere with the investigation and is deemed justified and necessary. Since the KNAB detected signs of a serious violation of competition law in the conversations intercepted during its operational activities, the anti-corruption authority forwarded the information to the CC in accordance with the Criminal Procedure Law and its competence.

Thirdly, the Judgment does not assess proportionality in a broader context, in answering the question of whether the transfer of conversations intercepted by law enforcement authorities to the CC for the purpose of uncovering cartel agreements is necessary in a democratic society and proportionate to the right of individuals to privacy[3]. In other words, the rights of certain individuals to privacy are not balanced against the interests of society as a whole in preventing long-term (more than five years), systematic and large-scale prohibited agreements in public procurement. It is important to note that in the case of the construction cartel uncovered by the CC, the impact on public procurement amounted to more than EUR 600 million, causing significant damage to the state budget, the use of European Union co-financing, and fair competition.

In the opinion of the CC, it is important to strike a reasonable balance between the rights of individuals to privacy and the public interest in preventing persistent and large-scale violations of competition law, as also pointed out in the judgment of the European Court of Human Rights[4], which was also mentioned in the Judgment. The European Court of Human Rights found that the transfer of conversations between company representatives in a criminal case, which indicate the implementation of a cartel agreement, to the competition authority for investigation and detection of this competition law infringement in administrative proceedings does not violate the right of individuals to respect for their private and family life, as guaranteed by Article 8 of the European Convention on Human Rights.

Fourthly, the Judgment does not assess the cooperation between the authorities and the main objective achieved as a result of that cooperation, namely the detection and prevention of a significant infringement of competition law. It was precisely as a result of close cooperation between law enforcement authorities that a long-standing cartel agreement was detected and stopped, which otherwise, given its secret nature, would have been virtually impossible to detect.

Fifth, in the opinion of the CC, the message conveyed in the Judgment creates a risk that in cases where a law enforcement agency, in performing its statutory duties, finds signs of another significant violation – in this case, a cartel agreement that causes significant harm to society as a whole – cannot be referred to the CC simply because the Operational Activities Law does not contain grammatically direct and detailed provisions on the transfer of such information. This approach ignores both the public interest in preventing and detecting serious violations of this type and magnitude and the principle of cooperation between institutions.

The CC draws attention to the fact that the findings expressed in the Judgment regarding the lack of quality in the legal framework, which restricts the transfer of information obtained as a result of the operational activities of law enforcement authorities to the CC for use in administrative proceedings, pose significant challenges to the effective detection of hidden cartel agreements. The CC does not have the right to carry out operational activities itself, including wiretapping, while the procedural activities provided for in the Competition Law are aimed at obtaining evidence of written communications that have already taken place, as well as explanations from the parties to the case about their prohibited agreements. The Senate has also recognized that cartel agreements are made secretly and that the documentation related to them is kept to a minimum. Consequently, operational activities carried out by law enforcement authorities are often the only way to uncover cartel agreements alongside corrupt activities committed by officials in public procurement, especially if the cartel members have reached and maintain such agreements verbally, leaving no other significant evidence.

I. Šmite, Chairwoman of the Competition Council: “The Competition Council disagrees with the reasoning provided in the judgment and considers that the Senate’s assessment in this case has been narrow and formal, limiting itself to only one aspect of the overall issue under consideration – the formal compliance of the transfer of evidence, without analysing the issue in the context of proportionality, the protection of public interests, and the results of research on this type of cooperation between law enforcement agencies. At the same time, while respecting the Senate's decision, the CC will use all legal means to achieve a fair result that is in the public interest and to ensure effective protection against the most serious organized violations of competition law, such as cartel agreements.”

In its decision of July 30, 2021, the CC found that ten construction companies had engaged in a long-standing prohibited agreement on participation in public and private procurement, and imposed fines totalling EUR 16.65 million on the companies.

More information about the CC's decision in the "construction cartel case":  https://www.kp.gov.lv/lv/jaunums/konkurences-padome-soda-10-buvniecibas-uznemumus-par-dalibu-karteli