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Current Trends in the Prosecution of Bid Rigging in the Czech Republic

Current Trends in the Prosecution of Bid Rigging in the Czech Republic

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In its most recent annual report, the Czech Competition Authority stated that the investigation of bid-rigging cartels would be its highest priority. The issue of bid rigging is a hot topic that has attracted the attention not only of the CCA, but also that of the Czech police and public prosecutors, who have been very active in investigating bid-rigging cartels in recent years.

With this increased level of scrutiny, companies should be aware that potential antitrust behavior brings not only the risk of high fines from the CCA, but more importantly criminal sanctions, which may be catastrophic for both the company and its management.        

Criminal Law Implications of Bid Rigging

Under Czech law, companies can be held liable for certain crimes. However, unlike individuals, corporate entities cannot be held criminally liable for breaches of antitrust law. Thus, formally, only the CCA and/or the European Commission can investigate and punish cartels for bid rigging. 

However, recently we have observed a growing trend whereby the police and public prosecutors are actively going after bid-rigging cartels and pursuing companies in such cases through different means. Specifically, they are prosecuting them for “manipulating public procurement and public tenders” - a crime for which companies can be held criminally liable. 

This practice has material implications for companies operating in the Czech Republic. In practice, if a company is convicted for bid rigging, it faces, among other things, the following negative consequences: (i) substantial fines; (ii) a non-discretionary ban from participation in public tenders for at least five years; and (iii) significant reputational damage, given that criminal records are publicly available and cannot be deleted for at least five years, and in certain cases even longer.

Such penalties can strike a deathblow to companies - especially those which depend on public tenders for their business. 

Limited Legal Tools for Defense 

Czech criminal law does not provide companies with sufficient tools to mitigate the negative effects of criminal convictions, such as leniency or settlement programs, which are commonly used by individuals in antitrust infringement cases.

For instance, if an individual files a successful application for leniency before the CCA in antitrust infringement cases, he/she can obtain a reduction or removal of fines and, in some cases, avoid being blacklisted from public tenders. Moreover, Czech criminal law recognizes the successful application for leniency before the CCA as a way of exculpating an individual from subsequent criminal liability. 

However, companies accused of bid rigging and prosecuted for these crimes do not have this option. In general, they cannot even settle with the public prosecutor or judge since most bid-rigging cases are too serious to qualify for this.

The negative consequences of a criminal conviction for bid rigging occur automatically, and judges do not have any discretion to decide otherwise. 

We see this as a potential problem, in particular for the large corporations that are vital for the Czech economy, and which may face criminal sanctions even for quite negligible cases involving their employees. 

Is There a Fix?

The existing Czech criminal law requires, in our view, substantive amendment in order to protect the rights of companies accused of bid rigging. First, it should be clear whether bid rigging should fall within the jurisdiction of criminal prosecution, and if so, what types of cases can be prosecuted. It should also be clear what type of offences should be left exclusively to the CCA’s competence. Secondly, companies that are criminally accused of involvement in bid rigging should be provided with alternatives such as settlement or leniency in order to give them a reasonable chance of surviving a criminal conviction. 

As an alternative, there is an argument that the prosecution of all bid-rigging cases should be left to the exclusive jurisdiction of the CCA and/or the European Commission due to their longstanding expertise in detecting and addressing these types of antitrust behavior. 

Obviously, given the severe nature of the sanction, companies in sectors sensitive to bid rigging should implement solid compliance programs to educate their employees and protect themselves from both administrative and criminal sanctions. If the company detects any anti-competitive behavior, it should consider applying to the CCA for leniency. If a leniency application is done in time, the CCA’s binding decision on a bid-rigging case would create a legal obstacle, preventing the police and public prosecutor from prosecuting the company for the same acts covered by the CCA’s decision

By Petr Zakoucky, Partner, and Adam Prerovsky, Associate, Dentons

This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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