On June 4, 2024, the Korea Fair Trade Commission (“KFTC”) announced the Cabinet’s passing of the proposed amendment (“Proposed Amendment”) to the Enforcement Decree of the Monopoly Regulation and Fair Trade Law (“FTL”), which contains details of the Fair Trade Voluntary Compliance Program (“CP”), such as the evaluation criteria, procedure, and standards for reducing corrective orders and administrative fines for companies with outstanding compliance programs.
The CP system, adopted in 2001, is designed to promote a culture of voluntary compliance with fair trade regulations. As of the end of 2022, approximately 730 major companies had adopted and implemented the CP system.
The facilitation of the CP system has been recognized as a National Governance Task by the current administration, against the backdrop of the global demand for environmental, social and governance (“ESG”) management. In the proposed amendment to the FTL promulgated on June 20, 2023 (set to become effective on June 21, 2024), the KFTC established provisions that provide the legal basis for the CP system, such as its evaluation, incentives, and the designation of evaluation agencies. The Proposed Amendment is a follow-up measure that sets forth subordinate regulations to facilitate a seamless integration between the CP provisions under the amended FTL and the actual adoption and implementation of CP systems by business operators. In addition, the KFTC introduced the “Regulation on the Operation and Evaluation of the Fair Trade Voluntary Compliance Program” (“CP Notification”), which contains detailed provisions on the CP evaluation process and related matters.
The following provides a summary of the Proposed Amendment.
|
1. |
CP Evaluation Criteria and Procedure |
-
Requirements for Requesting CP Evaluation: A company that meets the requirements for CP implementation and has operated a CP for at least one year may request for an evaluation. The KFTC evaluates the company’s performance in the immediately preceding year based on the criteria set forth in the CP Notification, including whether the company has met all of the requirements for CP implementation and the CP’s operational status.
-
Criteria for Additional Points:
|
– |
Consecutive requests for CP Evaluation: Companies that apply for consecutive annual CP evaluations can earn up to 1 additional point depending on the period. |
|
– |
Supporting CP implementation by other companies: If the company’s partner company implemented a CP with the company’s operational support and obtains a rating of B or higher, the company can earn 0.7 points for each partner company, up to a maximum of 4 points. |
|
– |
Performance of Voluntary Dispute Resolution Body: Companies may earn 0.2 points for participating in a CP event and submitting survey responses, 0.4 points for presenting a case study, 0.4 points for providing materials (e.g., CP operating materials), 0.7 points for establishing an internal voluntary dispute resolution body, and 0.3 points for receiving and processing dispute claims. |
-
Rating Withholding and Adjustment: Ratings may be withheld, not awarded, adjusted, or invalidated if there are inappropriate grounds for assigning a CP evaluation rating.
|
2. |
Requirements for Incentives Including Fine Reduction |
-
Scope of Fine Reduction: The fine may be reduced by a maximum of 20%. For a more rigorous evaluation, companies rated AA or higher are subject to an in-depth interview in addition to the existing documentary and on-site evaluations.
|
– |
A one-time reduction is allowed during the rating’s validity, of up to 10% (for AA rating) or 15% (for AAA rating) based on the fine after the second adjustment. |
|
– |
However, an additional reduction of up to 5% may be granted if the company proves that it detected a violation through an effective CP operation and ceased the violation prior to the commencement of the investigation. |
-
Mitigation of Corrective Order: A one-time mitigation during the rating’s validity is allowed for a corrective order to publicly disclose the legal violation.
|
– |
Public disclosure by publication: The size and number of publications may be reduced by one level (for AA rating) or two levels (for AAA rating). |
|
– |
Public disclosure on the business premises or electronic media: The period of disclosure may be reduced. |
-
Not Eligible for Reduction or Mitigation: Violations involving the following cases are not eligible for fine reduction or mitigation of corrective order, as being contrary to the CP system’s purpose of preventing legal violations:
|
– |
When the company’s employee in charge of the CP is involved in the violation; |
|
– |
When the violation occurred before the implementation of the CP; |
|
– |
If the violation involves certain types of hardcore cartels (e.g., price fixing, output restriction, bid rigging, market allocation, or collusion on transaction/payment terms); and/or |
|
– |
When high-level officers of the company (e.g., directors) are directly involved in the violation. |
|
3. |
Evaluation Costs and Designation of Evaluation Agency |
-
Evaluation Costs: Based on to the principle of “payment by beneficiary” (i.e., the party benefiting from the relevant system should bear the costs), the company bears the cost of the CP evaluation (KRW 6.6 million for the initial evaluation and KRW 4.4 million for subsequent evaluations). However, the evaluation costs are reduced for medium-sized and small businesses as follows:
|
– |
For medium-sized companies or institutions with annual sales of less than KRW 300 billion, the evaluation cost is reduced by 50% (i.e., KRW 3.3 million for the initial evaluation and KRW 2.2 million for subsequent evaluations). |
|
– |
Small businesses and companies with an AAA rating in the previous year’s CP evaluation are entirely exempt from the evaluation costs. |
-
Designation of Evaluation Agency: The KFTC may designate the Korea Fair Trade Mediation Agency (which is currently conducting CP evaluations) or other institutions that have issued fair trade-related certifications and performed evaluations for at least two years, as an evaluation agency and provide notice thereof.
The amended FTL, its enforcement decree, and the CP Notification related to the CP system are set to come into effect on June 21, 2024. Since various incentives, such as exemption from official investigations, mitigation of public disclosure order, and reduction in fine, etc., are provided based on the results of the CP evaluation, companies should ensure that the implementation and operation of the CP system align with the new requirements to obtain a high rating in the CP evaluation.
Related Topics
#CP #Compliance Program #KFTC #Antitrust & Competition #Legal Update
