The Armenian government plans to significantly toughen financial penalties for unfair competition as part of its declared efforts to improve the country’s business environment, a senior state regulator said on Wednesday.
The antitrust sanctions presently envisaged by Armenian law are widely seen as too soft to hamper a de facto monopolization of key sectors of the national economy by wealthy businessmen close to the government. Western lending institutions consider the so-called “oligopolies” a serious hindrance to Armenia’s sustainable economic development.
Under the existing legislation, companies found to be engaging in unfair competition must be fined only 500,000 drams ($1,320), while those abusing their “dominant position” in a particular sector risk penalties equivalent to 2 percent of their annual operational revenues.
The State Commission on the Protection of Economic Competition (SCPEC) highlighted the mildness of these sanctions last month when it slapped a modest 2.5 million-dram fine on a highly profitable firm that controls imports of wheat, sugar and other basic foodstuffs to Armenia and is a large-scale alcohol bottler. The Aleks-Grig company, owned by a government-linked tycoon, was fined for illegally using famous Russian and Ukrainian vodka brands.
“We are simply enforcing the strictest sanctions envisaged by the existing legislation,” the SCPEC chairman, Artak Shaboyan, said. “The sanctions are probably soft. We admit that.”
“All experts point out that we must toughen the penalties,” he told journalists. “The [fine] rate can be as high as 10 percent all over the world.”
Shaboyan revealed that a government task force comprising World Bank experts is now working on corresponding legal amendments that should be unveiled in July. He would not be drawn on just how drastic the planned increase in fines is likely to be.
Shaboyan spoke after signing a “memorandum of understanding” with Sergei Kapinos, the head of the Yerevan office of the Organization for Security and Cooperation in Europe. The office has pledged to assist the Armenian authorities in improving the investment climate.
Kapinos cautioned that heftier penalties alone would not address the problem. “Very small fines are absolutely ineffective, but very heavy fines too can have negative consequences,” he told reporters.
The authorities should also take other measures, such as judicial reform, if they are to strengthen the rule of law, Kapinos said. “Our organization is raising the issue of making the judicial system more effective,” he added.
Sarah Reynolds, a World Bank expert advising the Armenian government, stressed the need for a level playing field for all businesses. “The rules of the game should be clear and understandable to everyone,” she said.
Tsolvard Gevorgian, chairwoman of the Union of Armenian Traders, was very skeptical about the likely impact of tougher antitrust sanctions. “You can’t cure a cancer patient with therapeutic measures,” Gevorgian told RFE/RL’s Armenian service. “Only surgery could save him.” She questioned the Armenian government’s “political will” to ensure fair competition.
Government critics have long contended that privileged treatment of “oligarchs” and other loyal entrepreneurs is a key feature of Armenia’s political system that enables the authorities to stay in power. They also claim that many top government officials themselves own businesses protected against competition.