The substantive economic unity principle does not apply when it comes to procedural issues such as serving papers, the Administrative Court rules

With its Forex Decision No. 20-32/397-179 dated 2 July 2020 (“ Board Decision “), the Turkish Competition Board (“ Board “) fined certain banks on the grounds that they failed to provide the information that the Turkish Competition Authority (“ Authority “) requested in the scope of a preliminary investigation. On Wednesday, 2 March 2022, the Authority published on its website the Ankara Administrative Court 3rd Division’s (“ Court “) judgments on certain appeals against the Board Decision. The Court annulled the Board Decision against some of these banks (“ Banks “). You may access the judgments’ original Turkish versions on the Authority’s website.

The Board Decision

With its Decision No. 20-05/48-M dated 17 January 2020, the Board launched a preliminary investigation against the Banks to assess whether the banking and financial institutions active in Turkey (and their representative offices) violated Law No. 4054 on the Protection of Competition (“ Law No. 4054 “) with respect to their operations on deposits, loans, securities, bonds, shares and intermediary services. The Board requested that the Banks submit, among other things, the chats of the traders, which: (i) the Banks and their parent groups employ in the US and England; and (ii) make sales and purchases with Turkish lira. The Board narrowed down the scope of the traders with the top 10 biggest transaction volumes in Turkish lira. The Banks were to provide the chats that the traders made on the Bloomberg and Reuters platforms between 1 January 2018 and 17 January 2020. The Banks had to obtain these from the respective platforms and send them to the Authority electronically. The entities explained to the Board that they were not capable of providing this information for various reasons. Primarily, they pleaded that they did not have access to this data. They also relied on banking and data privacy regulations in other jurisdictions, which might have come into play as they provided this information. In addition, they contended that the request for information’s (“ RFI “) notification to them vis-à-vis the parent companies abroad erred in procedural law, especially Law No. 7201 on Notifications (“ Law No. 7201 “). The Board dismissed these defensive arguments and held that the economic unity principle applied to RFI notifications as well. As such, it could legally request information that a parent company located outside of Turkey had from its Turkish subsidiary/branch, etc.

The Court’s judgment

Turning back to Forex , the Court was not of the same view as the Board. It annulled the fining decision, having established the following:

• Law No. 4054 explicitly refers to Law No. 7201 on the issue of notifications.
• Law No. 7201 provides that the following legal instrument will dictate the notification regime when it comes to serving a foreign entity: bilateral or multilateral judicial assistance and cooperation agreements between Turkey and the addressee state. If there are no such agreements or if they are not applicable in terms of scope, then Law No. 7201’s provisions on foreign notifications will apply.
• The Lahey Convention is not enforceable because the agreement is not applicable to serving administrative acts.
• As such, the Board had to apply Law No. 7201’s provisions on foreign notifications, which require that the Authority send the RFI to the Turkish Ministry of Foreign Affairs, which will convey it to the embassy/consulate in the addressee state.
• Most importantly, the economic unity principle does not apply to official notifications, which is a procedural issue that the legislation explicitly regulates in detail. This principle serves specific competition law purposes such as holding a parent entity liable for its subsidiary’s conduct and transactions.

Against the foregoing, the Court ruled that the Board should have conveyed the RFIs to the Banks’ parent companies and not the Banks themselves. Therefore, the Court found the fines to be unlawful and quashed them.

Interestingly, previously, the Court unanimously turned down another bank’s appeal against the Board’s same decision. There, the Court noted that there is a similar practice in the EU where the European Commission can serve an entity’s fully owned subsidiary in the EU when the entity concerned has no commercial existence in the common market. The Court did not elaborate on Law No. 7201.

Conclusion

The Court’s judgment is of paramount significance for competition law practice. In this case, the Court concluded that the economic unity principle, which directly results from competition law, did not prejudice procedural requirements such as notification law. This development is certainly something that Turkish subsidiaries/braches/offices of international companies may want to consider the Court’s relevant judgments next time they hear from the Authority by the virtue of an RFI.