In September 2021, the Prosecutors’ Office (the “PO”) indicted companies that allegedly colluded in a competitive bid held by the Public Procurement Service (the “PPS”), while leaving out a company that voluntarily reported the collusion under the PO’s criminal penalty exemption or reduction system (the “Criminal Leniency Program”) for cartel.

This is the first case in which the “Guidelines on Criminal Leniency and Investigation Procedures for Cartel Cases” (the “Criminal Leniency Guidelines”) promulgated by the Supreme Prosecutors’ Office (the “SPO”) in December 2020 was applied.  Starting with this case, we expect that the PO will seek to take advantage of the Criminal Leniency Program more actively.

For cartel crimes, the KFTC retains an exclusive right to make criminal referrals.  In other words, prosecutors can issue indictment only upon the KFTC’s criminal referral.  Nevertheless, even before the KFTC files a complaint, the PO may investigate a cartel case and conduct compulsory investigations.  Depending on the result of the investigation, the PO may request the KFTC to make a criminal referral, which the PO then uses to file a complaint with the court for indictment. 

The PO view cartel as a serious crime that undermines fairness of competition in the market, and collusion for cartel, by nature, is based on stealth agreements between and among parties.  For these reasons, the PO believe that it is imperative to conduct an investigation promptly even before the KFTC makes a criminal referral in order to secure key evidence. 

In line with this position, the SPO established and implemented the Criminal Leniency Guidelines in December 2020.

Among antitrust crimes, the Criminal Leniency Guidelines deal with more hardcore cartels, such as price-fixing, output cartel, market division, and bid-rigging, as well as obstruction of bids under the Korean Criminal Code and bid-rigging under the Framework Act on the Construction Industry Act.

An important aspect of the Criminal Leniency Guidelines is that the SPO (or the regional POs investigating the cartel) will rank criminal leniency applications by order of their receipt, exempt the first leniency applicant from indictment, and seek reduced sentencing for the second leniency applicant.  Furthermore, the Criminal Leniency Guidelines explicitly prohibit compulsory investigations and other investigations against criminal leniency applicants.  However, in order for Criminal Leniency Program applicants to ultimately qualify for leniency, they must provide the investigating POs with evidence that can prove the cartel activities and faithfully cooperate with the PO’s investigation and criminal proceeding.

While the KFTC’s leniency program is only available to companies, the new Criminal Leniency Program is available to both companies and individuals.  That is, former and current officers and employees can apply for Criminal Leniency Program independently from their employers.  When a company applies for Criminal Leniency Program, it must provide a list of “current officers and employees who should be exempt from indictment together with the company” in its application.  Hence, current officers and employees of a company can be exempt from criminal punishment when the company applies for Criminal Leniency Program.  However, former officers and employees are left unprotected in the company’s Criminal Leniency Program application, which incentivizes such former officers and employees to separately seek leniency.  This means that the companies would have to compete with those who are not covered by their Criminal Leniency Program application.

The recently changed investigative powers of the PO have reduced the scope of direct investigation to the so-called “six major crimes,” which include criminal violations of the Monopoly Regulation and Fair Trade Act (“FTL”).  Accordingly, the PO’s personnel for direct investigation will be concentrated on the six major crimes, thereby heightening the PO’s scrutiny of possible criminal violations of the FTL as serious corporate crimes that disrupt fair competitive order in the market.  Moreover, as the PO can now directly acquire criminal information related to cartel by operating its Criminal Leniency Program, the PO’s direct investigation of cartel will likely be further stimulated. 

As the KFTC and the PO will not be working under the same leniency framework, they are not expected to share leniency information.  Therefore, even if a company files for leniency with the KFTC, there remains a risk that another competitor’s filing for Criminal Leniency Program may lead to unexpected investigation by the prosecution at any time.  Under these circumstances, companies that participated in a cartel may preemptively cooperate with the prosecution’s investigation and be exempted from criminal punishment through the Criminal Leniency Program.  Furthermore, filing for Criminal Leniency Program comes with several benefits, including protection against the PO commencing a compulsory investigation or a separate investigation on an unrelated matter based on the information provided under the Criminal Leniency Program.  For this reason, better and more accurate understanding of the details and application of the Criminal Leniency Program as well as a proactive response to a new dimension in the cartel investigation have become more important than ever.