On December 9, 2020, the National Assembly passed a bill to amend the Monopoly Regulation and Fair Trade Law (the “FTL”), which included a few changes from what was submitted by the Korea Fair Trade Commission (the “KFTC”) to the National Assembly on August 31, 2020. The amendment adds exchange of information to the types of conduct that could constitute a cartel. In addition, around the time the National Assembly passed the FTL amendment bill, the “Guidelines on Criminal Leniency and Investigation Procedures for Cartel Cases” published by the Prosecutors’ Office (the “PO”) (the “Leniency Investigation Guidelines”) took effect on December 10, 2020. Under these guidelines, companies and individuals who voluntarily report their hardcore cartel activities to the PO will be granted considerable benefits in terms of PO investigation and court procedures.
There have been continued discussions over the necessity of regulating the exchange of sensitive information, including future prices, between competitors. Although such acts of exchanging information often cause an anti-competitive effect, such as facilitating companies to form a cartel and engage in unfair collusive activities, it was difficult for the KFTC to effectively regulate these activities due to the lack of explicit statutory basis under the FTL.
However, the amended FTL (i) adds certain acts of exchanging information to the types of collusion, (ii) allows the presumption of cartel agreements if external alignment is present and exchange of information is confirmed, and (iii) increases the administrative fine cap in cartel cases from 10% to 20% of the relevant sales revenue. Accordingly, it has become more likely that discussions that are not currently recognized as collusive conduct may be deemed as such going forward, which will entail a higher level of sanctions.
Further, although the KFTC will continue to have the exclusive right to make a criminal referral in hardcore cartel cases, the implementation of the Leniency Investigation Guidelines is expected to bring significant changes to the future investigation process for cartel cases also in light of the strengthened degree of sanctions against cartels under the amended FTL.
1. Key Cartel-Related Provisions Under Final Amended FTL
(1) Exchange of Information as New Type of Collusion and Expanded Presumption of Agreement
Under the amended FTL, “substantially restricting competition by means of exchanging information, including price, production volume and other information prescribed by the Presidential Decree” between companies was newly added as a type of collusion. Furthermore, the amended FTL contains a new provision that allows the KFTC to presume that companies had an agreement to collude if they had exchanged any information that would be necessary to engage in the alleged collusion. Going forward, we anticipate that through the FTL’s subordinate regulations and notifications, the KFTC will further define the characteristics and scope of the prohibited information, criteria for finding an exchange of information illegal, and the calculation of administrative fines in collusive information exchange cases.
As the FTL amendment newly includes exchange of information as a type of collusion, it is likely that there will be an increasing number of cases where the KFTC presumes a cartel to be present through exchange of information. Furthermore, as a result of the amendment, the burden of proof will shift to the companies to show the absence of such agreement for exchange of information.
(2) Increased Cap for Administrative Fine for Cartel Cases
To further deter legal violations, the amended FTL increases the administrative fine cap for all FTL violations by twofold. Previously, the administrative fine imposable for collusive activities was capped at 10% of the relevant sales revenue. However, the cap has now been increased to 20% of the relevant sales revenue starting from the effective date of the amended FTL (one year from the promulgation of the proposed overhaul).
2. Key Provisions of PO’s Leniency Investigation Guidelines
On December 8, 2020, the PO established the Leniency Investigation Guidelines for cartel cases and started to enforce the guidelines nation-wide starting from December 10, 2020.
According to the Leniency Investigation Guidelines, any company or individual is allowed to report a hardcore cartel to the PO, and such company/individual will be granted certain benefits with respect to their FTL violations depending on their leniency ranking and degree of cooperation, such as non-indictment (for a first-in-line reporter) and mitigation of recommended penalties by 50% (for a second-in-line reporter). In principle, self-reporters will be exempted from compulsory investigation, including search and seizure, arrest and detention. The PO’s leniency program is structured similarly to the KFTC’s leniency program under the FTL.
In addition, the Leniency Investigation Guidelines allow the PO to directly investigate not just the cases transferred from the KFTC, but also the hardcore cartel cases directly reported to the PO or recognized by the PO. Only for those cases that are not appropriate for the PO to investigate, the PO will transfer the case records to the KFTC and determine whether to resume investigation once the KFTC has delivered the results of its investigation. Therefore, we anticipate that the PO’s investigation process for hardcore cartels will be significantly different from its previous process, in which the PO commenced investigating cartel cases only after the KFTC filed a criminal referral.
Implications
As the amended FTL adds acts of exchanging information as forms of collusion, on the part of companies, it will be necessary to check all channels through which information may be exchanged, including industry meetings or gatherings (including any official meetings such as associations, acts of cooperation and seminars) and review potential legal risks associated with information exchange from a variety of perspectives, such as whether the company will exchange any information (e.g., price and production volume) that can directly/indirectly affect competition (business activities), or whether there is any information that can be misperceived as exchanged information even though it was obtained independently.
Given that the Leniency Investigation Guidelines are independently enforced by the PO separately from the KFTC’s leniency program, it will be possible for the companies/individuals that are suspected of participating in hardcore cartel to report the cartel directly to the PO, not the KFTC, in line with the Leniency Investigation Guidelines. However, for the moment, nothing has been definitively determined as to the coordination or reconciliation between the two systems in terms of, for example: the relationship between the KFTC’s leniency ranking and the PO’s leniency ranking under the Leniency Investigation Guidelines; the process of handling a cartel case if multiple companies reported the same case to the KFTC and PO in different orders; the procedures for investigating a company if only the individuals filed the leniency application; and how the PO should handle a hardcore cartel case for which the PO has commenced an investigation through a complaint or accusation or an ex officio investigation, or if the case investigated by the PO is the same as the one already under the investigation of the KFTC, given that the PO must request the KFTC to first file a criminal complaint with the PO because of the KFTC’s exclusive right to do so. Therefore, it will be necessary to continuously monitor how the two systems will be operated.
