Competition Council of Latvia (CC) says a recent ruling by the Supreme Court in the construction cartel case unjustifiably restricts cooperation between law-enforcement institutions and limits the ability to uncover the most serious competition law violations.
According to the Council, the ruling by the Supreme Court’s Senate, Department of Administrative Cases, has brought to the forefront important questions about inter-agency cooperation, the transfer of lawfully obtained evidence for detecting cartel agreements, and the effective enforcement of competition law.
The Competition Council notes that, while it respects the Senate’s decision, the court did not assess the existence of the prohibited cartel agreement on its merits. Nor did it analyze the fact that, without conversation recordings lawfully obtained in criminal proceedings, it would be impossible to prove such a long-running, secret, and orally implemented violation. The judgment does not dispute that the evidence was obtained legally and is reliable; however, the court’s assessment is limited to a formal review of the procedure for transferring evidence, effectively leaving the most essential issue unexamined — the real practical possibilities for uncovering and proving the violation.
At the same time, the Council points out that the Senate has overturned the Administrative Regional Court’s judgment regarding the Competition Council’s decision of July 30, 2021 on a prohibited agreement in the construction sector, and has sent the case back to the Administrative Regional Court for a new review.
The Competition Council explains that the Senate focused on a procedural aspect
— interpretation of the legal framework in the context of admissibility of evidence. The Senate concluded that, in proving a competition law infringement (a cartel agreement), it is not permissible to use information that the Corruption Prevention and Combating Bureau (KNAB) provided to the Competition Council from evidence in a criminal case investigated by KNAB, where that evidence was obtained as a result of operational (covert) measures.
The Senate also stated that uncovering cartels does not fall within the tasks and objectives defined in the Operational Activities Law. Therefore, the judgment concludes that persons involved in the cartel had no reason — and could not have reason — to foresee that information obtained through operational measures could be transferred and used in administrative proceedings to prove a cartel agreement. As a result, the Administrative Regional Court will now have to assess whether the lawfulness of the Competition Council’s decision can be supported by other evidence in the case file.
The Competition Council stresses that under the Competition Law it is entitled to initiate and carry out investigations also on the basis of information provided by another institution.
In this particular case,
the Competition Council received information and materials obtained in criminal proceedings from KNAB,
including conversations intercepted through operational activities — materials which, at the time of transfer, had lost their classified status.
Before using the materials, the Competition Council verified their legality, including that the operational measures had been authorized by a Supreme Court judge, and obtained confirmation that the materials were authentic. An expert examination in the case found that the recordings had not been edited or falsified and corresponded to the conversations that actually took place.
These circumstances are not disputed in the judgment, but the court also did not evaluate them on their merits, the Competition Council adds.
The Council further notes that the judgment does not consider KNAB’s position as the authority directing the criminal proceedings — a position also contained in the case materials — namely that protecting evidence obtained in criminal proceedings is not an end in itself. The authority leading criminal proceedings has rights set out in law to disclose obtained evidence to another institution once it does not interfere with the investigation and is deemed justified and necessary. Because KNAB identified indications of the most serious competition law violation in the intercepted conversations, the anti-corruption authority forwarded the information to the Competition Council in line with the Criminal Procedure Law and its competence.
The Competition Council also argues that
the judgment did not conduct a proportionality assessment in a broader context,
addressing whether the transfer to the Competition Council of law-enforcement-intercepted conversations for the purpose of detecting cartel agreements is necessary in a democratic society and proportionate to individuals’ right to privacy. In other words, it does not balance certain individuals’ right to privacy against society’s interest in preventing a long-term — more than five years — systematic and large-scale prohibited agreement in public procurement.
The Competition Council notes that, in the uncovered construction cartel case, the impact on public procurement exceeded €600 million, causing significant harm to the state budget, the use of European Union co-financing, and fair competition.
In the Council’s view, it is important to reasonably balance individuals’ right to privacy with the broader public interest in preventing and uncovering long-term, large-scale competition law violations — an approach also highlighted in a European Court of Human Rights (ECtHR) judgment referenced in the Senate ruling. The ECtHR has found that transferring intercepted conversations between company representatives in a criminal case — where those conversations indicate cartel implementation — to a competition authority for investigation and detection of the competition law infringement in administrative proceedings does not violate Article 8 of the European Convention on Human Rights (the right to respect for private and family life).
The judgment also does not assess inter-agency cooperation and the main result achieved through it
— the detection and prevention of a serious competition law violation. The Competition Council emphasizes that it was precisely close cooperation between law-enforcement institutions that enabled the identification and stopping of a long-running cartel agreement that, given its secret nature, would otherwise have been practically impossible to uncover.
According to the Competition Council, the message conveyed by the ruling creates a risk that, in cases where a law-enforcement authority, while performing its statutory duties, identifies signs of another serious violation — in this case, a cartel agreement harming society — that information may not be transferred to the Competition Council simply because the Operational Activities Law does not contain a direct and detailed provision allowing such transfer. In the Council’s view, such an approach ignores both the public interest in uncovering serious violations of this kind and the principle of cooperation between institutions.
The Council warns that the Senate’s conclusions regarding shortcomings in the quality of the legal framework — which restricts the transfer of information obtained through operational activities for use by the Competition Council in administrative proceedings — create major challenges for effectively uncovering covert cartel agreements. The Competition Council itself has no authority to conduct operational activities such as intercepting conversations, and the procedural tools provided in the Competition Law focus mainly on obtaining evidence of written communication already produced, as well as explanations from parties about prohibited agreements they have concluded.
At the same time, the Competition Council notes that
the Senate has acknowledged that cartel agreements are carried out secretly
and that related documentation is reduced to a minimum. Consequently, operational measures by law-enforcement authorities are often the only way — alongside the detection of corrupt actions in public procurement — to uncover cartel agreements, especially when cartel participants reach and maintain arrangements orally, leaving no other significant evidence.
Competition Council Chairwoman Ieva Šmite says the Council disagrees with the court’s reasoning and believes the Senate’s assessment in this case was narrow and formal, focusing only on one aspect of the broader question — the formal compliance of evidence transfer — without analyzing proportionality, protection of the public interest, and the results of such inter-agency cooperation.
She adds that, while respecting the Senate’s decision, the Competition Council will use all legal means to achieve a fair outcome consistent with society’s interests and to ensure effective protection against the most serious, covertly organized competition law infringements — cartel agreements.
As previously reported,
the Supreme Court overturned the Administrative Regional Court’s judgment
that had dismissed construction companies’ applications to annul the Competition Council’s decision, and sent the case back to the Administrative Regional Court for a new review.
The Supreme Court told LETA that both the Competition Council and the Administrative Regional Court, in proving the applicants’ competition law violation, had unlawfully used information obtained by KNAB through an operational activity measure — namely secretly intercepted conversation recordings and their transcripts.
The court emphasized that uncovering a competition law violation such as a cartel agreement is not included among the exhaustive list of objectives and tasks in the Operational Activities Law for which it is permissible to use information obtained through specially conducted operational measures.
The Supreme Court held that such information, even if attached to criminal case materials, cannot be freely transferred for use for purposes unrelated to the objectives of operational activities. Otherwise, it would open broad and uncontrolled possibilities to pass on operationally obtained information — without limiting the type or volume of data — through criminal proceedings to an indefinite circle of recipients for use in virtually any other process where it might be claimed to be necessary. This, the court said, would create a significant risk of arbitrary interference and abuse of powers and would fail the “quality of law” requirement in terms of foreseeability.
The court stressed that
information obtained through operational measures retains its special legal status
and restrictions on use even after being added to criminal case materials, as occurred in this case.
Moreover, Supreme Court case law has previously recognized that covert interception of conversations may be carried out only to detect crimes, not minor criminal offenses. Since the legislator has repeatedly and deliberately rejected the possibility of criminalizing actions related to prohibited agreements in competition law, operational activities for uncovering such agreements are prohibited.
The Supreme Court stated that the legal framework does not provide a clear basis allowing information obtained through operational activities to be transferred for use by the Competition Council in administrative proceedings.
As previously reported by LETA, in 2021 the Competition Council uncovered a cartel of construction companies whose participants were involved in at least 70 procurement procedures with a total contract value of €687 million.
The Competition Council fined ten companies involved in the cartel
a total of €16,652,927. The ten sanctioned companies included SIA “Skonto būve,” SIA “Latvijas energoceltnieks,” SIA “Velve,” SIA “Arčers,” SIA “Rere būve,” SIA “Re&Re,” SIA “RBSSKALS būvvadība,” SIA “Abora,” “LNK Industries,” and SIA “Merks.” Since “RBSSKALS būvvadība” had already been liquidated, the fine was not imposed.
Eight of the ten companies fined by the Competition Council appealed the decision to the Administrative Regional Court. Because several appeals were submitted together with parent companies, a total of 13 companies are listed as applicants in the combined case.
The combined case was initiated following applications by “Skonto būve,” “Latvijas energoceltnieks,” “Rere būve” and its parent company AS “Rere grupa,” “Arčers” and its parent AS “UGN,” “LNK Industries” and its parent SIA “LNK (Latvijas novitātes komplekss),” “Abora” and its parent SIA “Tehnocentrs,” “Re&Re,” as well as “Merks” and its parent “Merko Ehitus.”
The Administrative Regional Court dismissed the 13 companies’ applications seeking annulment of the Competition Council’s July 30, 2021 decision in the construction cartel case.
Of the ten sanctioned companies, two did not appeal: “Velve,” with which the Competition Council reached a settlement and issued a positive opinion on measures taken to “restore customer trust,” and “RBSSKALS būvvadība.”
If the final ruling is unfavorable to the applicants, they will have to pay the fines, the companies will be barred from participating in public procurement for a certain period, and claims may be brought against them regarding projects already implemented.
Read also: What is happening at Dailes Theatre? Actress speaks publicly about mass layoffs