On March 26, 2024, the Act on Contracts to which the State is a Party (the “State Contracts Act”) was amended to introduce a new provision allowing mitigation or exemption from debarment for cartel leniency applicants who are subject to mitigation or exemption from corrective measures or penalties under Article 44 of the Act on Monopoly Regulation and Fair Trade (the “FTL”). This amendment took effect on September 27, 2024.

Article 44 of the FTL provides that leniency applicants or companies that cooperate with the Korea Fair Trade Commission’s (the “KFTC”) cartel investigation may be subject to certain mitigations or exemptions from corrective measures or penalties. However, the mitigation/exemption under the FTL does not shield such parties from the risk of being debarred from public tenders under other laws including the State Contracts Act, which worked as a serious disincentive for companies weighing their options for a potential leniency. The recent State Contracts Act amendment aims to fix this by aligning the debarment provisions in the State Contracts Act with those of the FTL.

Article 76, Paragraph 7 of the Enforcement Decree of the State Contract Act sets forth the criteria for mitigation or exemption from debarment as follows.
 

• A person who has been subject to an administrative fine under the FTL (including those who have been subject to an administrative fine as well as corrective measures) files for leniency and:

• A person who has only been subject to corrective measures under the FTL files for leniency and is ultimately exempted from the corrective measures will be exempt from debarment under the State Contracts Act.
   

The amendment is expected to make leniency a more enticing option for companies subject to cartel investigations by the KFTC as the newly introduced mitigation/exemption also applies to administrative fines that may be imposed in lieu of debarment under Article 27-2 of the State Contract Act.

With both the KFTC and the Prosecutor’s Office having split but overlapping investigatory powers over hardcore cartel violations and their respective leniency programs, we are seeing an increase in the potential risk of C-level decision-makers being subject to scrutiny and potential administrative/criminal sanctions as well as companies having to respond to follow-on private plaintiff damage suits. The newly introduced mitigation/exemption under the amended State Contracts Act will be an important additional factor for consideration in formulating possible risk mitigation strategies in related situations.