January 15th, 2025 Legal Updates

LESSONS LEARNED: SAUDI DAWN RAIDS

INTRODUCTION:

In a dynamic market such as that of the Kingdome of Saudi Arabia (“KSA”), it is envisioned that regulatory authorities will be very active in monitoring and dealing with potential and de facto practices which violate any anti-trust protections of the free-market structure. In such a sense, Royal Decree No. (M75) of 1440H, as amended (the “Competition Law”) and its Implementing Regulations No. 337 of 25/1/1441H (the “Regulations”) (together the “Competition Regime”) created a system that is tailored to prosecute violators. The General Authority for Competition (“GAC”), under orders of its board, has been conducting general dawn raids on a sector-by-sector basis along with its more targeted dawn raids. The GAC has broad authority when conducting said raids, demanding the full cooperation of its personnel in providing all information requested by the investigators. The dawn raids have identified vulnerabilities in some establishments’ awareness and perception of the applicable laws, evident by many of the investigated establishments falling into pitfalls of anti-trust violations.

With a year worth of incidents in review, we explore a few of the main anti-trust pitfalls flagged by the GAC, which entities operating in KSA must be aware of:

KEY PROVISIONS UNDER THE COMPETITION REGIME:

Much like other competition regimes, the KSA Competition Law empowers the GAC to investigate anti-competitive behaviours in the markets. Article 15 of the Competition Law prescribes sufficient authority to the investigators of the GAC to inquire, gather evidence (including electronic device and data), and investigate violations of the Competition Regime where the GAC personnel would have equivalent to law enforcement capacity. The same article authorises the GAC personnel to enter premises, offices, and branches of entities, examine their books and documents and make copies thereof.

Article 16 of the Competition Law also authorizes the GAC personnel to seek the assistance of the competent authorities, including law enforcement agencies, to enable them to carry out their duties. Further, Article 16 prohibits any entity from obstructing the operations of any GAC officers or investigators, including prohibiting or withholding any information, providing misleading information, or concealing or destroying documents that benefit the investigation by the GAC. This is further emphasized by articles 36 through 38 of the Regulations. Such an umbrella of authority is furthered by granting GAC personnel extra-territorial authority to investigate foreign incidents with effects on the KSA market per the provisions of article 35 of the Regulations.

Therefore, it is not uncommon for the GAC personnel to conduct investigative raids on a suspected or unsuspected entity’s premises and probe all pertinent documentations. However, the issues arise from the information uncovered during the GAC’s investigations. Below are some of the most comment illegal anti-trust practices we have encountered while being involved in GAC Dawn raid situations.

MOST COMMON ANTI-TRUST PRACTICES INVESTIGATED BY THE GAC:

Anti-competitive behaviours usually do not stem from intentional misconduct, rather from lack of understanding of the provisions of the Competition Regime or lack of awareness of its updates. The Competition Regime now prohibits some actions which were legal prior to its issuance. As such, any entity conducting commercial activities in KSA should ensure that all its relevant personnel (sales team, marketing team, management, and legal department) are up to date with their practices and policies. A simple correspondence with certain information is sufficient to be an anti-trust violation leading to substantial financial sanctions. Entities operating in KSA should be aware of the following pitfalls:

  1. Recommending Sale Prices: The old competition law, prior to the introduction of article 5.1, was not explicit on suggesting or recommending sale prices and the GAC did not have track record in investigating such a behaviour. However, with the introduction of article 5.1 of the Competition Law, entities operating in KSA should understand that proposing RSPs, in it of itself, is a violation of the Competition Regime. Additionally, it should be noted that price fixing may be directly or indirectly realized in cases of rebate structures that are tied to suggesting or recommending prices, which would be interpreted as an anti-trust practice by the GAC.
  2. Fixing Sale Prices: Article 5 of the Competition Law explicitly prohibits determining or imposing the sale price or terms of resale of goods or services. For example, discussing this internally, between members of an organization, could establish a potential violation. In the event the sales team personnel of an entity utilize a recommended resale price (from an internal correspondence) in a communication or an arrangement with a vendor or customer, then a violation of the Competition Law has taken place It is always advised to avoid any discussions with vendors, suppliers, or customers in relation to retail prices, whether in terms of recommendations or suggestions. This is also true even if the customer or vendor requests this information.
  3. Behaviour Related to Abuse of Dominance: Under Article 6 of the Competition Law, abuse of market dominance is realized when an entity which holds significant market power exploits such position to hinder competition in the relevant market. Not all behaviour related to market dominance is explicitly or specifically prohibited. However, these behaviours which include variation in payment terms, rebate structures, including different slabs, performance-based incentives, and setting terms for resale will be prohibited if they impose unfair market conditions by the dominant entity. Whether such violations are realised directly or indirectly, legal concerns will be raised. From a practical standpoint, when a dominant entity practices price-fixing, whether directly or due to the above practices, this can be assessed as a form of abuse of market dominance under Article 6 of the Competition Law, not article 5.1.

It should be noted that practices that breach the Competition Regime result in consequences that include fines up to 10% of the annual global turnover or three times the illegal profits, cancellation of licenses, criminal charges, reputational damage, and civil lawsuits for damages. The shift to stricter prohibitions highlights the GAC’s commitment to ensuring a level playing field for all market participants.

COOPERATION WITH THE GAC & COMPLIANCE EFFORTS:

Should the GAC raid an entity during a general or targeted raid, it is always advised to fully cooperate with the GAC’s efforts to ensure no obstruction violations are assessed against the entity. Under Article 19 of the Competition Law, the GAC may assess obstruction violations in the amount of up to 5% of the total annual global sales not exceeding 5,000,000 Saudi Riyals. Further, cooperation is not only legally required but also strategically advisable as the GAC has been lenient with first time offenders and entities with minor violations under the Competition Law. We would recommend the following practices be adopted during a GAC raid:

  1. Ensure Immediate Compliance: An Entity must allow the GAC representatives prompt access to requested premises and documents. Delays or obstruction may lead to penalties per article 19 of the Competition Law.
  2. Designate a Liaison: Appoint a knowledgeable staff member or legal representative to facilitate the inspection and respond to the GAC’s queries. This expedites the process and allows for a more prompt compliance track.
  3. Document the Process: Keep a detailed record of the GAC’s activities during the raid, including the materials reviewed or seized.

Moreover, proactive measures can greatly assist in avoiding non-compliance of the Competition Regime and potential raids. The following steps will ensure strong anti-trust policies and avoid potential substantial financial sanctions.

  1. Conduct Regular Audits: Whether an entity has submitted data or documents to the GAC in the course of an investigation or a raid, or still not subject to investigation, it is advised to conduct a legal due diligence review of the documents, operations, and correspondences of the entity to ensure compliance. Such review is intended to avoid potential violations of the Competition Regime, address violations that have already taken place, and allow the entity to assess the level of risk it may face under the Competition Regime.
  2. Employee Trainings: The entity should provide comprehensive anti-trust and competition training to all employees, especially those in leadership, sales, and procurement roles to ensure that the personnel most in contact with the provisions of the Competition Regime are properly educated on the same. Such training can address important matters such legal vs. illegal practices, establish guidelines for communications, in depth understanding of the relationships between market players from a competition perspective, and reporting mechanics to avoid sanctions.
  3. Establish Proper Anti-trust and Competition Policies: An entity must draft and implement internal policies that address anti-competitive behaviour risks based on the new Competition Regime. This includes guidelines on communication with competitors, vendors, suppliers, and clients as well as pricing and market study guidelines.
  4. Seek Legal and Regulatory Guidance: When in doubt, reach out to GLA for legal guidance
CONCLUSION:

The broad authority of the GAC to conduct raids is a vital tool in combating anti-competitive practices in KSA. Businesses must understand their rights and responsibilities under the Competition Regime to ensure compliance and navigate dawn raids effectively. By taking a proactive and meaningful look inwards, entities can foster a culture of compliance and avoid the legal risks of substantial financial sanctions.

GLA has a great relationship with the GAC and is in constant communication with their personnel in relation to both anti-trust and merger control matters. We pride our self in our ability to have direct and honest discussions with the GAC to find solutions for clients. GLA has an exceptional record of assisting KSA businesses in developing practical and proactive practices in the realm of anti-trust and competition. Our firm offers a wide spectrum of services that include developing and administrating anti-trust employee training (In English and Arabic), developing tailored and compliant anti-trust policies, and conducting anti-trust legal due diligence exercises. The GLA Anti-Trust and Competition team can help navigate dawn raids on the ground or help entities prepare for them.

Want to know how to keep your business ahead of the curve? Reach out to Alex Saleh, Managing Partner or Asad Ahmad, our head of Anti-Trust and Competition practice.

Authors: Asad Ahmad, Head of Anti-Trust & Competition and Khaled Al Khashab, Associate.

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