Israel: Cartel Regulation 2008

Legislation and jurisdiction

1 What is the relevant legislation and who enforces it?

The law that deals with restrictive arrangements is the Restrictive Trade Practices Law 5748-1988 (the Antitrust Law).

Two enforcement institutions were established under the Antitrust Law: the Israeli Antitrust Authority (IAA) and the Antitrust Tribunal.

The IAA is an independent government enforcement agency established in 1994 through an amendment to the Antitrust Law. The IAA is mandated to prevent market power through merger control and anti-cartel enforcement, to restrain abuse by dominant firms and to preserve competition in the various markets. It is thus vested with investigative authority, power to initiate civil and criminal proceedings and the authority to order monopolies not to act in a manner that constitutes abuse of a dominant position.

The IAA employs about 70 staff and is divided into three professional departments: legal, economic and investigations. The IAA's annual budget (which has not significantly changed in recent years) is about 20 million new Israeli shekels (approximately e3.5 million).

The Antitrust Tribunal, sitting with the District Court in Jerusalem, has exclusive jurisdiction over non-criminal governmental antitrust proceedings. The District Court of Jerusalem has exclusive jurisdiction over criminal antitrust matters.

2 What is the substantive law on cartels in the jurisdiction?

A 'restrictive arrangement' is defined as an arrangement made between two or more persons conducting business, which restricts at least one party to the arrangement in a manner that may prevent or reduce competition (section 2(a) of the Antitrust Law).

In addition, the Antitrust Law provides in section 2(b) for a number of specific restraints, the existence of which constitute an irrefutable presumption that damage to competition exists (ie, per se illegal practices). Accordingly, an arrangement involving a restraint relating to one of the following issues shall be deemed to be a restrictive arrangement: the price to be demanded, offered or paid; the profit to be obtained; the division of all or part of the market, in accordance with the location of the business or in accordance with the persons or type of persons with whom business is to be conducted (ie, market allocation); and the quantity, quality or type of assets or services in the business.

Section 2 does not distinguish between horizontal and vertical agreements – both might be found to be restrictive arrangements. For example, an exclusive agreement may be considered as market allocation, and therefore a restrictive arrangement not only under the general definition determined in section 2(a), but also under the irrefutable presumption of section 2(b).

Entry into a restrictive arrangement without the authorisation of the Antitrust Tribunal (or without a temporary authorisation) is forbidden, unless the arrangement was specifically exempted by the general director, or is exempted according to one or more of the block exemptions.

An infringement of the restrictive arrangements chapter in the Antitrust Law is considered a criminal offence but is also subject to civil and administrative procedures.

3 Are there any industry-specific offences and defences?

Section 3 of the Antitrust Law provides that, notwithstanding the definition given in section 2 thereof to restrictive arrangements, several types of arrangements, some of them relate to specific business sectors, shall not be deemed restrictive (therefore granting them 'statutory exemption'), as following:

• an arrangement involving restraints, all of which are established by law;

• an arrangement involving restraints, all of which relate to the right to use copyrights;

• an arrangement entered into by a person assigning a right to real property and a person acquiring such right, involving restraints, all of which relate to the types of assets or services which the acquirer of the right is to engage in on such property;

• an arrangement between growers and/or wholesale marketers, involving restraints, all of which relate to the growing or marketing of domestic agricultural produce;

• an arrangement entered into by a company and its subsidiary;

• a vertical mutual exclusivity arrangement;

• an arrangement involving restraints, all of which relate to international air or sea transportation, or combined sea, air and ground transportation, provided that all parties to the arrangement are:

• sea or air carriers; or

• sea or air carriers and an international association of sea or air carriers, approved for this purpose by the minister of transport;

• an obligation of the seller of a business, sold in its entirety, to the purchaser of the business, not to engage in the same type of business, provided such obligation does not contradict reasonable and acceptable practices; and

• an arrangement to which a trade union or employers' association is party, involving restraints, all of which relate to the employment of workers and to working conditions.

In January 2007, an amendment to the Antitrust Law was approved, substantially narrowing the wide statutory exemption enjoyed by international air carriers and covering all arrangements between them. Several types of arrangements, including code-sharing arrangements, will now require the prior approval of the general director or the Antitrust Tribunal, unless exempted by a new block exemption to be published. Under the new amendment, in any one of the following cases a specific approval of the general director will be required:

• an arrangement of which both parties are Israeli air carriers;

• an arrangement between air carriers, of which at least one is Israeli and at least one of them is not;

• an arrangement between air carriers none of which are Israeli, but at least one has activity or representation in Israel; provided that one of the major issues of the arrangement is air transport to or from Israel, and the restrictions in the arrangement regard the activity, or abstention from activity, in Israel, of any of the parties.

The general director's approval will not be required in the latter two cases, if the arrangement was approved by the ministers of foreign affairs and of transportation for the purpose of preventing injury to Israel's international relations, or to assure continuance of flying rights between Israel and other countries.

The amendment will come into force either two months after the general director publishes a block exemption to arrangements between air carriers, or on 1 July 2008, whichever is the earliest. To date, the general director has not published such block exemption, therefore the amendment has not yet come into force.

4 Does the law apply to individuals or corporations or both?

The Antitrust Law applies to 'persons conducting business', ie, both to corporations and individuals, provided that they are engaged in the conduct of business.

5 Does the regime extend to conduct that takes place outside the jurisdiction?

The Antitrust Law does not explicitly mention that it applies to conduct that takes place outside of Israel, and yet does not decline its application to such foreign conduct either. However, based on the purpose of the Antitrust Law – the prevention of restrictive practices that have harmful consequences for competition within Israel – and based on the provisions of the Penal Law, the general director has previously declared that restrictive practices committed outside Israel, but which have a harmful effect on competition within Israel, are subject to the Israeli Antitrust Law.

6 Are there any proposals for change to the regime?

In 2005 a public committee was established by the minister of industry, trade and labour, for the re-examination of the Antitrust Law. A few months later, the committee published its recommendations regarding the need to amend the definition of 'restrictive arrangements' in section 2 of the Antitrust Law. The committee unanimously recommended to amend section 2, so that only arrangements between competitors could be considered illegal per se, while other arrangements that might harm competition would be examined under the rule of reason.

In addition, in November 2005 the IAA published its recommendation, according to which the fines imposed on cartels shall amount to 20 per cent of the cartel members' revenues earned in the field of the cartel.

Investigation

7 What are the typical steps in an investigation?

An investigation may take the form of an open investigation or of a concealed one.

An open investigation is conducted mainly by demanding documents and information that may assist in examining whether an offence has been (or is being) committed. This type of investigation has been extensively used by the general director, either through the legal department or the investigation department of the IAA.

In some cases a concealed investigation is preferred, at least at the beginning, for example, when there is a concern that evidence will be concealed.

In general, it takes several years from the opening of an investigation until the file comes to an end.

8 What investigative powers do the authorities have?

Any person may be obliged, upon the order of the general director or of any person authorised by him or her for such purpose from among the civil service, to provide him or her with all information, documents, ledgers and other certificates which, in the opinion of the general director, would ensure or facilitate the implementation of the Antitrust Law. The IAA makes an extensive use in this power.

The general director (or any person authorised by him or her from among the civil service) may, if he or she has reasonable grounds to believe it is necessary to ensure implementation of the Antitrust Law or to prevent its contravention:

• enter into any business premises and conduct a search, without a search warrant. However, he or she may enter residential premises only in accordance with a search warrant handed down by a court of competent jurisdiction; and

• seize any article or document (including computer material), if he or she has reasonable grounds for believing that it may serve as evidence in the hearing of an offence.

Furthermore, in the case that suspicion arises that a breach of the Antitrust Law has been committed, the general director, or any person authorised by him or her for such purpose (investigator), may investigate any person related to such contravention, or any person who may have information regarding such contravention, and may order any such person to accompany him on an investigation and to provide any details, documents or information relevant to such contravention. An investigator is authorised to compel oral testimonies, and the person under investigation is obliged to answer any question, except for such questions that might put him or her at risk of a criminal charge. Such testimonies may be used against the provider thereof.

With respect to a cartel offence, the general director, the chief of the IAA's investigations department and his or her deputy, and any other investigators the general director may authorise for such purpose, shall have powers of detention, arrest and release, but not the power to detain a person about to commit an offence.

International cooperation

9 Is there inter-agency cooperation? If so, what is the legal basis for, and extent of, cooperation?

International cooperation

In 2001 the IAA was nominated as an observer in the Competition Law and Policy Committee of the OECD. The nomination period was extended until the end of 2009. Since its nomination as an observer, the IAA's representatives participate in the committee's sessions and submit working papers in the relevant issues.

In 2001 the IAA also joined the International Competition Network (ICN) – an international organisation, the object of which is to supervise competition law internationally in three main fields: international monopolies, international cartels and mergers between multinational corporations whose activities may influence competition in more than one jurisdiction. The IAA was appointed to serve as a member of the Steering Group.

In addition, in 1999 the governments of the State of Israel and of the USA engaged in an Agreement Regarding the Application of their Competition Laws. The purpose of the agreement is 'to promote cooperation and coordination between the competition authorities of the parties, to avoid conflicts arising from the application of the parties' competition laws and to minimise the impact of differences on their respective important interests'.

Cooperation with other domestic government offices

The IAA is usually involved in legislative procedures in which it represents its position with regard to the effect any such legislation may have on competition. Furthermore, the IAA collaborates with other ministries and government agencies in trying to open markets to competition and solving competition issues that significantly affect the local economy.

10 How does the interplay between jurisdictions affect the investigation, prosecution and punishment of cartel activity in the jurisdiction?

We believe that the IAA's participation in international competition organisations has contributed to its learning and to the adoption of practices that seem to operate successfully and are compatible with the domestic market.

Adjudication

11 How is a cartel matter adjudicated? Cartel cases may be dealt with in several ways, as follows.

• Clearance to restrictive arrangements may be granted either by the general director or by the Antitrust Tribunal.

• The District Court of Jerusalem has exclusive jurisdiction over criminal antitrust matters.

• The general director is authorised to take civil administrative measures, such as a consent decree or an administrative declaration according to which a particular practice is deemed to be a restrictive arrangement. A consent decree is subject to the approval of the Antitrust Tribunal.

• Injunctions: the Antitrust Tribunal may, upon request of the general director, order any person not to take action which contravenes the provisions of the Antitrust Law. It also may order any action necessary for the prevention of such a contravention.

• Privtae enforcement (including class actions).

12 What is the appeal process?

Appeals on the general director's decision to grant an exemption to a restrictive arrangement and on a the general director's declaration that a certain conduct amounts to a restrictive arrangement, may be submitted to the Antitrust Tribunal within 30 days of the publication thereof.

Interim orders and final decisions of the Antitrust Tribunal may be appealed within 45 days to the Supreme Court – the highest judicial instance in Israel.

13 With which party is the burden of proof?

The determination regarding the burden of proof is as follows: In the case of an application for clearance of a restrictive arrangement, the burden of proof is with the parties to the arrangement. The Antitrust Tribunal shall decide on the approval of a restrictive arrangement, in whole or in part, if it believes that such arrangement is in the public interest, and it may stipulate conditions for its approval. If a request for an exemption from the need to receive such approval from the Antitrust Tribunal is filed with the general director, then the parties to the arrangement would have to prove the following: (i) that the restraints in the restrictive arrangement do not reduce competition in a considerable share of the market affected by the arrangement, or that they may reduce the competition in a considerable share of the market, but do not result in a substantial reduction of the competition in such market; and (ii) that the objective of the arrangement is not the reduction or elimination of competition, and that the arrangement does not include any restraints that are not necessary to fulfil its objectives.

With regard to administrative or criminal charges against parties to a cartel, the burden of proof is with the general director. It should be emphasised, however, (as mentioned above) that in the case of per se illegal practices, there is an irrefutable presumption of illegality, if the factual basis has been proven by the general director.

Sanctions

14 What criminal sanctions are there for cartel activity? Are there maximum and minimum sanctions?

According to the Antitrust Law, engagement in restrictive practices without the prior approval of the general director or the Antitrust Tribunal is considered to be a criminal offence (unless the practice is exempted under a block exemption). The sanctions available under the Antitrust Law for criminal offences are fines, imprisonment or both. The law mentions the maximum level of fines and periods of incarceration, but does not determine minimum levels for sanctions.

15 What civil or administrative sanctions are there for cartel activity?

The civil or administrative sanctions available under the Antitrust Law for cartel activity are as follows:

• a consent decree, according to which the general director and the parties to the cartel may agree, inter alia, on an amount of money to be paid to the State Treasury. The consent decree may include a provision according to which the parties to the cartel do not confess to being parties to a restrictive arrangement;

• an injunction order by the Antitrust Tribunal upon request of the general director to stop the illegal activity; or

• the general director may publish an administrative declaration, according to which a certain conduct is a restrictive arrangement. Such declaration, unless reversed by the Antitrust Tribunal, is considered to be prima facia evidence, in any judicial procedure, that a certain practice is a restrictive arrangement.

16 Are private damage claims or class actions possible?

Private enforcement is possible under the Antitrust Law. An act or omission contrary to the provisions of the Antitrust Law shall constitute a tort in accordance with the Torts Ordinance, enabling any person to seek a remedy from court through a civil action. However, the Antitrust Law does not allow punitive or exemplary damages.

In addition, a class action may be filed in the case of an offence under the Antitrust Law. It should be noted that until recently the procedure for antitrust class actions was determined in the Antitrust Law. In 2006 the Class Actions Law was legislated, according to which in antitrust matters, not only a person (individual or corporation) having interest in the lawsuit, or a consumers' association, may submit a class action, but also a public authority which acts in that field (ie, the IAA) can sue on behalf of 'a group of people [for whom] such lawsuit raises substantial questions of fact or law, which are common to all the members of such group'.

According the Class Actions Law, firstly a request for the approval of a class action shall be submitted. Such approval may be granted only if all of the following apply:

• the lawsuit raises substantial questions of fact or law, which are common to all the members of the group, and there is a reasonable possibility that they will be decided in favour of the group;

• a class action is the most efficient and fair way to resolve the argument under the circumstances;

• there are reasonable grounds to assume that the interest of all the members of the group will be represented and managed in an adequate way; and

• there are reasonable grounds to assume that the interest of all the members of the group will be represented and managed in good faith.

17 What recent fines or other penalties are noteworthy? What is the history of fines? How many times have fines been levied? What is the maximum fine possible and how are fines calculated?

The longest incarceration period decided upon by the Court was of nine months for a cartel that persisted for 14 years. Another noteworthy case is that of the conviction of the CEO of a company that was a party to a cartel according to the executives liability provision, even though that CEO was not aware of the existence of the cartel, and in spite of the fact that he was hired only three months before the charges against him were filed. However, he received a relatively modest fine of 40,000 new Israeli shekels (approximately e7,000). The highest fine that was imposed on a manager in the framework of the executives liability provision was 1.25 million new Israeli shekels (approximately e200,000), accompanied with 14 days of incarceration (to be served by way of community service).

Fines have been levied in each case of conviction – in about 25 cases in total, either as the only sanction or in addition to imprisonment (actual or conditional).

The maximum possible fines are about 2 million new Israeli shekels (e350,000) plus 13,000 new Israeli shekels (e2,400) for each day such offence persists. In the case of a corporation, the fine or the additional fine, as applicable, shall be doubled.

Except for the arbitrary determination of the daily fine for persistent offences, the Antitrust Law does not provide guidelines on the method according to which fines should be calculated (for example, as a percentage of revenue, as is the case in the EU). As mentioned in question 6 above, the IAA recommended the fines imposed on cartels shall amount to 20 per cent of the cartel members' revenues earned in the field of the cartel.

Sentencing

18 Do sentencing guidelines exist?

The Antitrust Law determines a maximum period of three years' imprisonment for cartel offences, and a period of five years if the cartel was made under aggravating circumstances. 'Aggravating circumstances' are defined as circumstances liable to cause substantial damage to business competition due, inter alia, to one or more of the following factors: the share and position of the defendant in the sector affected by the offence; the duration of the offence; the damage caused or expected to be caused to the public as a result of the offence; and the benefits obtained by the defendant.

Except for the provisions of the Antitrust Law and court judgments, there are no sentencing guidelines with regard to offences according to the Antitrust Law. However, as is the case in any criminal procedure, the prosecution may agree with the defendants on the sanction in the framework of a plea bargain, but such deal is subject to the approval of the court.

19 Are sentencing guidelines binding on the adjudicator? Not applicable.

Leniency or immunity programmes

20 Is there a leniency or immunity programme?

In 2004 the IAA adopted a leniency programme which is applicable only in cases of cartels, namely restrictive arrangements made between competitors.

21 What are the basic elements of a leniency or immunity programme?

The main principles of the leniency programme are as follows:

• Leniency will be granted to the first party to come forward and deliver full information with respect to the illegal activity being reported in which the applicant was involved. However, leniency will not be granted to whoever led the illegal activity.

• Leniency will be granted to a corporation or individual reporting illegal activity before an open investigation has begun.

• If a corporation qualifies for leniency, all directors, officers and employees of that corporation will receive leniency.

• If the corporation approaches the IAA to deliver information with respect to the illegal activity, the approach should follow a clear and binding decision of the corporation to deliver information to the IAA, as opposed to an individual's approach.

• In case the corporation does not approach the IAA, executives and employees can approach the IAA on their own initiative, deliver information and be granted individual leniency.

• Leniency will be granted only to those who terminated their part in the illegal activity.

• Leniency will be granted to those who provide full, ongoing and complete cooperation to the IAA throughout the investigation.

• Leniency will not be granted to whoever was previously either convicted of a cartel offence or has been granted immunity according to the leniency programme.

22 What is the importance of being 'first-in' to cooperate?

According to the leniency programme, immunity may be granted only to the first party to report the cartel.

23 What is the importance of going second? Is there an 'immunity plus' or 'amnesty plus' option?

The leniency programme does not offer any benefits to the second to come forward. However, in the event that an investigation is being conducted against a person, and during this investigation this person provides information with regard to another cartel in which he is involved and qualifies for leniency, then the provision of such information will be considered a lenient circumstance with regard to the ongoing investigation.

24 What is the best time to approach the authorities when seeking leniency or immunity?

One of the conditions for the grant of leniency is that the application to the IAA is made before the commencement of an open investigation, and that there is no information about an application to the IAA by another person involved in the cartel.

25 What confidentiality is afforded to the leniency or immunity applicant and any other cooperating party?

No confidentiality is offered to an applicant according to the leniency programme.

26 What is needed to be a successful leniency or immunity applicant?

There is no demand to meet a certain evidentiary standard. However, an applicant must provide the IAA with information that enables it to examine whether he or she meets the conditions of the leniency programme (for example, that he or she is not the leader of the cartel). If the IAA finds out that the applicant does not meet the prerequisite conditions of the programme, the information provided by him will not be used by the state against him, provided that the application to the IAA was made in good faith.

Furthermore, an applicant must fully cooperate with the IAA. In case that the applicant substantially breaches the leniency agreement or provides false or misleading information, the IAA, upon receipt of the accord of the district prosecutor, may cancel the leniency and use the information already provided by the applicant against him.

27 Does the enforcement agency have the authority to enter into a 'plea bargain' or a binding resolution to resolve liability and penalty for alleged cartel activity?

As in every criminal case, the prosecution may, in antitrust cases as well, enter into plea bargain. In antitrust cases any plea bargain is subject to the approval of the Jerusalem District Court. In practice, the IAA entered in several cases into plea bargain settlements.

Alternatively, if the IAA chooses the route of civil enforcement rather than criminal, it may enter into a consent decree with the parties to the restrictive arrangement. The consent decree is subject to the approval of the Antitrust Tribunal.

28 What is the effect of leniency or immunity granted to a corporate defendant on its employees?

Leniency granted to a corporation will include both the corporation itself and its workers and managers, except for those who do not fully cooperate with the IAA.

29 What guarantee of leniency or immunity exists if a party cooperates?

The grant of leniency is subject to the approval of the general director and the district prosecutor. After receipt of such approval, the chief investigator of the IAA may sign an agreement with the applicant. Such agreement will be authorised by the general director and the district prosecutor. Therefore, once signed, the agreement is binding on the State.

30 What are the practical steps in dealing with the enforcement agency?

An application for leniency may be submitted to the IAA's chief investigator while providing him with information about the cartel which enables the IAA to examine whether the applicant meets the prerequisite conditions of the leniency programme. As leniency granted to a corporation may benefit its employees and managers as well, it seems that no ethical problem arises if a counsel acts on behalf of all of them.

31 Are there any ongoing or proposed leniency and immunity policy assessments or policy reviews?

We are not aware of any policy assessment or reviews.

Defending a case

32 May counsel represent employees under investigation as well as the corporation? Do individuals require independent legal advice or can counsel represent corporation employees? When should a present or past employee be advised to seek independent legal advice?

In general, and if no ethical restrictions relating to conflict exist, there is no restriction on a legal counsel to represent both the corporation and its employees.

According to the Bar Association Rules (Professional Ethics) of 1986, an advocate shall not represent parties with conflicting interests in the same issue. However, this prohibition will not apply to the drawing up of an agreement and to the handling of a matter where both sides have agreed in writing that it may be done by the same advocate.

Accordingly, and to the benefit of the employee, an employee should be advised to seek independent legal advice in any case of a possible conflict of interests with the corporation. For example, if an employee is not a senior manager of a corporation which is suspected of being involved in a cartel, and is not himself involved in the cartel, he should seek for an independent legal representation, as no liability should be imposed on him.

Update and trends

During 2007 the courts convicted firms and individual defendants in four cartel cases, in the following markets: envelopes, frozen meat, military equipment and liquefied petroleum gas. Two of the convictions were made by the Supreme Court in appeals brought before it.

The most significant point in the two Supreme Court judgments, which were given by different panels, relates to the application of the defence of bona fide mistake. In the first case, the Supreme Court set strict guidelines for the application of the defence: when examining the legality of certain contemplated business moves, businessmen should first examine if there exists a prior judgment or an opinion of an official agency (such as the IAA) that clarifies the legality of the same, or similar, acts. If none exists, the legality of the act should be verified by finding out the position of the responsible agency. Furthermore, if a businessman wishes to rely on the advice of an attorney from the private sector, he should consult with a lawyer experienced in such matter and ask for a written detailed opinion. Oral consultation will not suffice and may amount to intentional ignorance of the legal prudence required to avoid criminal responsibility. In the other case, decided a few days later, the Supreme Court moderated the criteria set in the former case, while disagreeing with the requirement to ask for a pre-ruling from the Authority whenever possible.

Another noteworthy case is the Haifa District Court's ruling in May 2007 in a civil torts action launched by three foreign aviation companies against Aviation Services Ltd and its three shareholders at the relevant period, which were the major fuel distributors in Israel. Aviation Services, which was the outcome of a horizontal cooperation between the fuel distributors, was at the time the only supplier of jet fuel and refuelling services to airlines. The Court ruled in favour of the plaintiffs, determining that the joint venture was an illegal restrictive arrangement, and that the horizontal cooperation strengthened Aviation Services' market power and enabled it to charge from the plaintiffs supra competitive prices, while discriminating them against the national airline. The Court ordered total damages of about $3.6 million.

33 May counsel represent multiple corporate defendants? There is no fundamental prohibition on a counsel to represent multiple corporate defendants. Again, this depends on the ethical rules and the specific circumstances of each case.

34 May a corporation pay the legal costs of and penalties imposed on its employees?

The Antitrust Law does not explicitly allow or prohibit the payment of an employee's penalty or costs by the corporation. However, Israel's Companies' Law determines, with regard to criminal proceedings, that a company may indemnify an 'office holder' for 'reasonable litigation expenses' only in one of the following cases:

• where the investigation came to end without the submission of criminal charges against the office holder and without the imposition of a penalty in lieu of criminal charges (eg, an administrative fine);

• where the investigation came to end without the submission of criminal charges against the office holder, but with the imposition of a penalty in lieu of criminal charges, provided that the offence does not require cognition of criminal nature;

• where criminal charges were submitted but the office holder was acquitted; or

• where the office holder was found guilty of an offence that does not require intent or cognition of its criminal nature. The outcome is that a corporation may not pay legal costs or penalties imposed on office holders or on any other employee with regard to cartel offences in which such office holder or employee were involved, unless:

• the investigation came to end without the submission of criminal charges against the office holder, and without the imposition of a penalty in lieu of criminal charges; or

• criminal charges were submitted but the office holder was acquitted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.