Unveiling Flaws of Egypt’s Vaunted New Merger Control Regime
On 4th of April 2024, Egypt’s Prime Minister issued a decree
Egypt Promises the IMF to Enforce its Inactive Merger Control
While the legislative amendments
ECA v. Sectoral Regulators: Failed Advocacy for the Best Practice
ECA v. CBE
At the level of the reviewing process, the new merger control regime is believed to be fragmented between the ECA and other sectoral regulators, namely, the Central Bank of Egypt (“CBE”) and the FRA (the regulator of non-banking financial services). This power division over Mergers and Acquisitions (“M&As”) was fiercely opposed by the ECA, advocating for an exclusive power for the Authority. Back in 2020, when the draft of the then-new Central Bank Law was under discussion before the Economic Affairs Committee of the House of Representatives (“the House”), the ECA submitted a request during the hearings to omit Articles (221) and (222) from the draft. Such articles excluded the banking sector from the Competition Law and established a Special Unit in the CBE to investigate monopolistic and anti-competitive practices in the banking sector. In its memo
ECA v. FRA
Recurrently, the ECA went through the same struggle for an undivided power during the law-making process of the Law No. (175) of 2022, which amended the Competition Law to add the merger control regime, yet against the FRA this time. In July 2022, the deliberations over the draft law were announced to be adjourned
ECA v. EDA
Apart from this dispersion of power over M&As engendered by the statutory-based exclusions for both the CBE and the FRA, Egypt’s pharmaceutical regulator, established in 2019, known as the Egyptian Drug Authority (“EDA”) had claimed, earlier in 2021, a clearance power over the disposal of assets of any pharma manufacturing facility, by virtue of EDA’s Decision
Overlooking Global Experience
Whereas analogous debates emerged in other jurisdictions, comparative findings
(Un)constitutionality Concerns of the New Merger Regime
Criminal Proceedings v. Administrative Fines
In addition to the divergence from what could be perceived as a best practice, the Egyptian model is seriously believed to pose concerns of (un)constitutionality arising from the unparalleled approaches of public enforcement; that is, the sector in which undertakings infringe merger control rules defines the public enforcement mechanism. To illustrate, under Article (22)bis “D” of Competition Law, added by the new amendment, infringements of merger control regime are criminal acts punishable by fines imposed through criminal proceedings before a court of law. Conversely, as per Article (222) Para. (3) of the CBE Law, non-compliance with the CBE’s decisions and orders on competition-related questions, including those on M&As, is confronted with at least one measure from a list of administrative sanctions, including financial sanctions (administrative fines), upon the sole discretion of the Board of Directors and without statutory rules on due process guarantees. Article (222) refers to the list of sanctions stipulated for in Article (144). In terms of due process, reference was made only to the principle of proportionality and Article (147) delegated the Board of Directors to set the rules on the calculation of administrative fines and the procedures related thereto. These measures are of course of administrative nature and therefore could be challenged before the 7th Circuit of the Administrative Judiciary Court at the Council of State. Still, no administrative appeal process was provided, nor were the rights of confrontation and hearing granted in the statutory rules. Besides the Supreme Constitutional Court (“SCC”) conservative precedent against administrative fines,[1] this arbitrary classification by the Legislature evokes unjustified form of unequal regulatory burden which rationally raises questions about the constitutional infirmity on a cross-sector level.
Poor Drafting of Public Enforcement on FRA-regulated sectors
Another constitutional concern relates to the public enforcement of the new merger rules on infringements by undertakings regulated by the FRA. Section (One) of the aforementioned Article (22)bis “D” of the Competition Law extends the application of criminal sanctions to FRA-regulated undertakings proceeding with M&As without submitting the notice required. Paradoxically, Article (19)bis “E” reads that: “Provisions of Articles…, and (22)bis “D’” shall not apply on economic concentrations in activities supervised and monitored by the Financial Regulatory Authority”. This blatant incongruity of legal provisions falls far below the settled case law of the SCC on the required preciseness, clarity, and accuracy in the legislative drafting on criminalization and penalization.[2] Another practical and unavoidable implication of this distorted model is that such infringements can proceed to the court by the Public Prosecutor only upon the “greenlighting” request of the ECA, as per Article (21) of the Competition Law, as amended by the Law No. (56) of 2014, while in fact all documents related to the infringement investigated in such cases would be at the disposal of the FRA.
A Procedural Loophole Threatens the Whole Regime
From the perspective of constitutional framework of drafting regulations, there exists the question of whether the FRA was formally consulted about the draft of the Executive Regulations before its ratification, given that the preamble of the Prime Minister’s decree on the Executive Regulations referred to consulting only the ECA. While the consultation drafting instruction is decided for the ECA upon a statutory provision, as previously explained, the FRA, under Article (215) of the Constitution
Scrutinizing FRA’s Role in Merger Review
Finally, major institutional challenges are facing the FRA for exercising its new mandate of merger review in the non-banking financial sector starting from 1st of June, 2024. Since this mandate was decided by the ratification of the new legislative amendments in December 2022, the FRA has not, to the date, set up any organizational structure to handle it. It remains unclear which department within this giant regulator the undertakings shall address regarding the review process of M&As. This also raises questions on whether the FRA has staff members with professional and academic background sufficient to perform this role. Conversely, the CBE established the Competition Protection Unit
While the ECA could have mitigated the capacity-building concern of the FRA staff by integrating them into its new long-term MoU
Another caveat on the FRA’s role in merger reviews is that, to the date, no guidelines
Conclusion
In brief, Egypt seemingly pushed by calls for structural reforms by the IMF has introduced to the market its first pre-merger control regime. Institutional rivalry has played a significant role in shaping this regime when the CBE was comprehensively exempted from the application of Competition Law rules and the FRA seized a quasi-exclusive power over M&As in the sectors it regulates. Such a dispersion of power in the merger review process is thought to induce practical challenges, but this it yet to be tested. From a constitutional law perspective, the new regime poses questions on the power of administrative fines the CBE was mandated and whether the poor drafting of public enforcement against infringements in the FRA-regulated sector would face judicial scrutiny. Lastly, the FRA is considered to be in a weakened institutional position with its new mandate of merger review given that no designated unit was established and no guidelines were published and considering the question of the qualifications required for the its staff to be capable of performing this role.
*The views expressed herein are the author’s own and do not purport to reflect those of his professional affiliations.
[1] SCC, ‘Ruling in the Case No. (72) of Judicial Year 18’, Egypt’s Official Gazette Issue (33) (14/08/1997)
[2] SCC, ‘Ruling in the Case No. (3) of Judicial Year 10’, (02/01/1993); SCC, ‘Ruling in the Case No. (114) of Judicial Year 21’, (02/06/2001); SCC, ‘Ruling in the Case No. (146) of Judicial Year 20’, (08/02/2004).
[3] SCC, ‘Ruling in the Case No. (31) of Judicial Year 10’, (07/12/1991); SCC, ‘Ruling in the Case No. (36) of Judicial Year 18’, (03/01/1998); SCC, ‘Ruling in the Case No. (15) of Judicial Year 37’, (01/03/2015).
[4] SCC, ‘Ruling in the Case No. (6) of Judicial Year 44’, Egypt’s Official Gazette Issue (27)bis (09/07/2023)