Category: Czech Republic

In April 2018 the Office for the Protection of Competition adopted new guidelines on the method of setting fines for competition law infringements,(1) noting that the need for a revision of the previous guidelines had emerged in the wake of developing case law, as well as amendments to the Act on the Protection of Competition.

The new guidelines are intended to underline the repressive and preventive function of fines. As a result, undertakings can expect higher fines for infringements of competition rules than under the previous regime. In line with the previous guidelines, the new guidelines continue to consider the gravity and duration of the infringement as the core factors when calculating a fine.

However, they also provide undertakings with a more thorough and comprehensive list of factors which the office will consider when determining the amount of the fine. As such, although the guidelines create grounds for the office to impose stricter sanctions, the undertakings are at least provided with greater legal certainty and transparency as to the method of calculation. This update sets out the most significant changes introduced by the guidelines.

New percentage thresholds for calculating basic amount of fines

The new regime introduces a lower and upper band for calculating the value of sales of products or services affected by the anti-competitive behaviour for the purpose of calculating the basic amount of the fine. The percentage depends on the type of infringement.

For the most serious infringements, the office may calculate 5% to 15% of the value of sales (which were affected by the anti-competitive behaviour), whereas for serious and less serious infringements the percentage ranges from 3% to 10% and up to 5%, respectively. Due to these new thresholds, the basic amount of fines for competition law infringements is likely – in comparison with the old method – to double or even triple, depending on the circumstances of the case.

Special rules for gun-jumping infringements

As a matter of principle, gun-jumping infringements fall within the category of serious infringements for which the office may calculate the basis of the fine by considering 3% to 10% of the value of the sales. However, the new guidelines allow the office to derogate from this rule in instances where the infringement of the standstill obligation pertains to a transaction which was:

• subsequently cleared without commitments; or
• approved under a simplified procedure.

In such cases, the office will consider 2% of the value of the sales or up to 1% of the value of the sales if the transaction was cleared in a simplified procedure.

Updated list of mitigating and aggravating circumstances

The guidelines also provide an updated list of mitigating and aggravating circumstances which the office will consider when assessing the gravity of the infringement. Moreover, the office’s discretion to adjust the amount of the fine with respect to the existing mitigating or aggravating circumstances has been increased from 50% to 70%. As such, the office has more freedom to consider individual circumstances, which can thereafter be reflected in the final amount of the fine.

Increased time coefficient for long-term infringements

The office decided to take a more rigorous approach towards long-lasting infringements and subsequently increased the time coefficient for infringements of more than 120 months from three to 10.

Comment

It can be expected that the office will get tougher on fines for competition law infringements. The guidelines allow the office to impose significantly more severe penalties (up to 15% of the value of sales) for serious and long-term infringements in the future. This expected tougher approach can also be inferred from the office’s press release(2) relating to the introduction of the guidelines.

By Claudia Bock, Attorney at Law, Monika Svikova, Associate Schoenherr

The legal regulation of transactions with virtual currencies and Initial Coin Offerings / Initial Token Offerings is a topic of ever more frequent discussion in the Czech Republic. The ano-nymity of cryptocurrency transactions has been reduced by the introduction of Anti-Money Laundering (AML) rules, while the Czech regulator’s approach to the regulation of trading with virtual currencies is very liberal.

AML

Reference to virtual currency appeared for the first time in the Czech legal system in Janu-ary 2017, when an amendment to the AML Act came into force. The amendment introduced the definition of virtual currency and extended the list of persons subject to the law to per-sons providing services related to virtual currencies. Consequently, the obligation to identi-fy customers and fulfil further obligations deriving from AML rules now applies, for example, to providers of online payment gateways allowing payments in bitcoins for goods in e-shops, virtual wallet providers, and virtual currency exchange platforms.

The 2017 amendment was introduced because there had not previously been any specific requirements for trading with virtual currency, so that, in general, a mere business license was sufficient to do business in this area. Due to the anonymity of users, the potential to lose the trail of the transferred currency, and other aspects of these services, the use of virtual currencies is considered risky from an anti-money laundering perspective both by the European Banking Authority and the Czech legislator. 

Out of Sight of the CNB

Despite the nomenclature, “virtual currencies” are not actually considered currency from the Czech legal perspective. The Czech National Bank does not consider virtual currencies to be a non-cash means of payment, nor their purchase or sale as payment services, and the exchange of virtual currencies for Czech crowns or other currency are not considered exchange transactions. According to the Czech National Bank, virtual currencies also do not bear the characteristics of an investment instrument. Therefore, the Czech National Bank has concluded that trading with virtual currencies does not require a license or other ap-proval from the Czech National Bank, and is not subject to its supervision. 

From recent statements of the Czech National Bank, it is obvious that it has no plans to regulate virtual currencies and has a relaxed approach to the regulation of cryptocurrencies. In February 2018, the Vice-Governor of the Czech National Bank, Mojmír Hampl, said that the Czech National Bank does not want to ban cryptocurrencies and is not hindering their development, but that they are also not actively promoting or protecting them or the cus-tomers that use them. 

ICO

The approach of market authorities to Initial Coin Offerings (ICOs), i.e. to the issuance of virtual currencies and their sale to the public for traditional (fiat) currencies or for other vir-tual currencies, is not uniform. The European Securities and Markets Authority (ESMA) points out that, depending on how the ICOs are structured, they can fall outside the regu-lated area, and therefore investors do not benefit from the traditional protections for regu-lated investments, and it is alerting investors to the high risk of losing all the capital they have invested.

At the same time, the ESMA informs companies engaged in ICOs of their obligations under EU law and regulations in the event that virtual currencies or tokens qualify as financial in-struments. They need to carefully assess whether it is possible to classify the virtual curren-cies or tokens that they issue as financial instruments, in which case the issuances would likely be a regulated investment activity, and they will need to comply with applicable EU legislation, such as, for example, the Prospectus Directive, the Markets in Financial Instru-ments Directive, the Alternative Investment Fund Managers Directive, and the AML Di-rective. 

Raising funds through ICOs is not regulated by Czech law, and the Czech National Bank has not yet provided any guidance on ICOs beyond publishing the ESMA’s statements on its website. We therefore assume that the approach of the Czech National Bank to ICOs will follow ESMA’s statements, and the companies involved in ICOs should carefully consider whether their activities constitute regulated investment activity to prevent breaches of rules applicable to investment activities under Czech law.

By Natalie Rosova, Head of Banking & Finance, Schoenherr Czech Republic  

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Ondrej Plesmid is the Chief Legal Officer at King’s Casino in the Czech Republic. His career as a lawyer started in a small law office, and he subsequently worked for over three years in the Czech Ministry of Finance and then the Ministry of Regional Development. In 2017 he moved to the private sector and started to work at King’s Casino.

CEELM: Did you always want to become a lawyer? 

O.P.: As I remember, I always wanted to be a lawyer. There wasn’t any other option for my career and everything I did during my studies led me to reach my life’s dream. I always wanted to help others with a bigger global influence. Working as a lawyer gives me a lot of satisfaction – intellectual challenges, diverse practice areas, transferable skills, flexibility, and much more – so I never have the feeling that I have a boring job or that I made the wrong decision.

CEELM: You worked for quite a time in the public sphere for different Czech ministries. Why did you decided to return to private industry?

O.P.: As a lawmaker, you can have a global influence and be in quite a unique position to affect societal change. This is what I wanted to do in my career. Unfortunately, the Czech public sphere is quite ossified and at some point in my life I realized that it was not what I was looking for. Based on my experience, as a public servant you are rewarded mainly based on your served years, not based on your working results. The sentence which I heard most during my years as a civil servant was that I was too young, without the experience to have any good or useful ideas. Limited flexibility in internal communications, complex decision-making procedures, unclear structures, low-performing departments, and the absence of results-based orientation made me question whether this is what I really wanted to do. Because of all these, after finishing my projects, I decided to go private, even though jobs in the private sector can be unstable compared to those in the public sector.

CEELM: What difficulties/challenges do you face as an in-house counsel working in the gaming industry?

O.P.: At the end of 2016 the Czech Republic passed a new gaming law, which came into force in 2017. As one of the authors of this new law, I can clearly say that the main goal of the law was to bring logical regulation and modern trends to the Czech Republic. Unfortunately, the implementation of this law in the last few months has not been handled effectively and the Czech gaming industry has become over-regulated and unpredictable. From applying for licenses to communicating with supervising bodies, everything has become quite a challenge. As an international casino and one of the biggest poker rooms in the world, it is sometimes very difficult to catch up with competition under such conditions. Because of that, it is important for us to constantly communicate with the Czech gaming regulators.

CEELM: How would you ease the work of in-house lawyers if you had legislative powers?

O.P.: A few months ago, I realized how many regulations tie our society. I can hardly think of any part of my life which is not under the regulation of some law, very often with a lot of nonsensical conditions. If I would have legislative powers, my main goal would be to get rid of unnecessary regulation.

CEELM: What is your managerial style? How do you keep your team motivated and efficient?

O.P.: My managerial style is largely influenced by the advice of a successful businessman: “You can climb up on my back, or I will climb up on yours.” Even though I have very high and strict expectations, I would say that I see myself as a supporter or cheerleader of every member of my team. Give everybody a chance to grow and build things together, unless they show me the opposite. I’m not a fan of classic standard processes – I always try things in my own way and I have to say it always works. This is what I want from my team: to keep their minds open. I also do not require them to be in the office from 8 am to 4 pm. Honestly, I do not really care from where and when they work. My only requirement is that they have their work done. But to be honest, I believe that to keep your team motivated and efficient mainly depends on the members of your team. Because of that I am very strict when choosing a new member for my team. I am very glad and thankful for the team and coworkers I have now, because we have built up a very friendly work environment.

CEELM: Where would you organize a team building exercise? 

O.P.: I am a very active person so I am pretty sure I would go for some outdoor activities where we can work as a team.

CEELM: What is your favorite tourist destination and why?

O.P.: I do not think that I have only one favorite destination. I love traveling itself; it does not matter if it is a city, or the desert, or mountains, as long as I can get to know new places, people, food, and enjoy life.

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.