First Ever Use of Criminal Leniency Program without Initial Referral from KFTC - 8 Built-In Furniture Companies and 14 Individuals Indicted for Bid-Rigging

1. Overview of the Furniture Bid-Rigging Case

On April 20, 2023, the Fair Trade Investigation Division of the Seoul Central District Public Prosecutors’ Office (the “PO”) announced a series of indictments related to bid-rigging in built-in furniture manufacturing projects in Korea. According to the PO, the scheme lasted from January 2014 to December 2022 and affected approximately KRW 2.3 trillion of commerce involving around 780 apartment construction projects ordered by 24 construction companies. The PO indicted eight major furniture companies and 12 individuals, including top decision makers who ordered or approved the bid-rigging, for violations of the Monopoly Regulation and Fair Trade Act and the Framework Act on the Construction Industry, and also indicted two employees who destroyed evidence during dawn raids for destruction of evidence.

This case marks the first time ever in which the PO launched a criminal antitrust investigation through its use of the criminal leniency program without an initial criminal referral by the Korea Fair Trade Commission (the “KFTC”).¹ In the lead-up to the indictments, the PO and the KFTC reportedly held a series of meetings to share information, discuss the scope of the PO’s request for criminal referrals, and ensure consistency between the KFTC’s leniency program and the criminal leniency program. This case represents a potentially meaningful milestone that signals earlier involvement by the PO in antitrust cases and closer cooperation between the two agencies in criminal antitrust matters.

2. Background: PO’s Criminal Leniency Program

The PO has long made efforts to identify and prosecute collusion as a serious crime. But it faced practical and procedural limits in moving swiftly to investigate potential antitrust crimes, as it needed to receive leniency information from the KFTC. To remedy this, in December 2020, the PO established a cartel reduction/exemption system (hereinafter referred to as “criminal leniency program”) in the form of Supreme Prosecutors’ Office (the “SPO”) guidelines. The criminal leniency program allows the PO to grant penalty exemption or reduction to a person or entity who self-reports cartel activity and cooperates with the PO’s investigation.

While the criminal leniency program shares similarities with the KFTC’s leniency program in terms of the requirements and criteria for recognition, it has the following differences: (i) the ranking of leniency is based on the order of the SPO’s receipt of leniency applications, separate from the KFTC’s leniency ranking; (ii) the criminal leniency program covers only hardcore cartels (the KFTC leniency program covers softcore cartels as well); (iii) individuals as well as businesses are eligible to apply for leniency (only businesses are eligible to apply for the KFTC leniency program); and (iv) only the first-in-line leniency applicant is exempt from prosecution (the first- and second-in-line applicants are exempt from criminal referral under the KFTC leniency program).

[Comparison of the KFTC Leniency Program and the Criminal Leniency Program]

	KFTC Leniency Program	Criminal Leniency Program
Applicable Law	Monopoly Regulation and Fair Trade Act, Enforcement Decree, Notifications	Criminal Act, Whistleblower Protection Act, SPO Guidelines
Act Subject to Leniency	Hardcore and softcore collusion	Hardcore collusion, interference with bidding under the Criminal Act, bid rigging under the Framework Act on the Construction Industry
Qualifications for Application	Business entity	Business entity or individual
Application Procedure	Submission of application to the Cartel Division of the KFTC (visit, fax, email)	Submission of application to the Anti-corruption & Organized Crimes Department of the SPO (visit, fax, email)
Criteria for Judgment	Submission of evidence to prove the collusive act Good-faith cooperation with the KFTC investigation and deliberation (including attendance at a hearing) Whether the collusive act ceased, whether there is coercion or repeated violations, etc.	Submission of evidence to prove the cartel Good-faith cooperation with the PO’s investigation and criminal trial (including attendance at court) Whether the cartel ceased, whether there is coercion or repeated violations, etc.
Effect of Reduction/Exemption	First-in-line: Exemption from administrative fine, corrective order and criminal referral Second-in-line: Reduction of administrative fine and corrective order, exemption from criminal referral	First-in-line: Exemption from indictment Second-in-line: reduced sentencing
Confidentiality	Divulgence to a third party without the consent of the KFTC prior to the closing of the deliberation shall be deemed as violation of the duty of good faith cooperation	Divulgence to a third party without the consent of the PO before the criminal trial becomes final and conclusive shall be deemed as violation of the duty of good faith cooperation

Once a criminal leniency application is received, the SPO decides whether to transfer the application materials to the KFTC or to the PO. It is understood that there have been multiple applications that have been filed across several matters since the inception of the criminal leniency program. Before the furniture bid-rigging case, the SPO transferred all such applications to the KFTC to conduct investigation first.

This case represents the first one in which the SPO transferred the criminal leniency application materials to the PO instead of the KFTC. Despite the fact that the KFTC had an ongoing investigation into the same issue, the PO swiftly launched its own investigation and conducted extensive search and seizure of the relevant furniture makers and related persons. The PO also identified top decision makers within each entity that participated in the collusion, requested the KFTC to make criminal referrals for those individuals, and subsequently indicted them upon the KFTC’s criminal referral.

3. Implications

(1)

Need for an Accurate Understanding of the Criminal Leniency Program

We expect the PO’s interest and involvement in antitrust cases to remain elevated. Recent antitrust cases have demonstrated the PO’s commitment to investigating individuals with the highest decision-making authority and actively using compulsory processes such as search and seizure. The PO’s use of the criminal leniency program is expected to expand even further in the aftermath of this case, and the PO will continue to accumulate more information about cartels and experience in prosecuting cartels.

For parties facing potential investigation, utilizing the criminal leniency program could be an attractive path. The criminal leniency program exempts leniency applicants from facing compulsory investigative processes such as search and seizure or investigation of unrelated issues.

However, the PO has shown a tendency to decline to grant leniency status in cases where the PO suspects that the applicant tried to abuse the criminal leniency program, such as applying for leniency only after the KFTC’s investigation has progressed to an advanced stage or when a criminal referral looks likely. Therefore, it is recommended that potential leniency applicants seek advice from a legal expert before deciding whether or when to apply to criminal leniency.

(2)

Closer Cooperation between the PO and the KFTC

There has been a series of efforts to create a close and cooperative working relationship between the PO and the KFTC. The agencies’ Consultative Committee on Fair Trade Offenders, which was suspended for four years, was revived in November 2022. In January 2023, the Ministry of Justice, the PO, and the KFTC made a joint presidential report; and in March 2023, a working-level meeting on investigating fair trade offenders was held. Furthermore, while investigating the furniture bid-rigging case, the PO has reportedly engaged in in-depth discussions with the KFTC about how to share leniency information between the two agencies, how to establish a lasting system for interagency cooperation, and how to operate the KFTC’s criminal referral program.

These efforts portend a greater involvement by the PO in antitrust matters in the future. If PO has open access to information gained through the KFTC’s leniency program as well as the criminal leniency program, the PO may be able to bring criminal charges at an earlier stage, even if there is an ongoing KFTC investigation. Whereas in the past a party under investigation for alleged antitrust crimes could respond to the KFTC’s investigation process first and then to the PO’s investigation if charges were later filed, now the party may need to respond to both the KFTC’s and PO’s investigations simultaneously.

In particular, given the PO’s increased focus on investigating culpable individuals with the highest decision-making authority and use of compulsory processes to gather evidence, it will be important to have a multifaceted strategy for responding to antitrust allegations and to plan and prepare for potential involvement by the PO from the initial stages of response. In addition, it will be important to monitor the status of the cooperation between the PO and the KFTC, including the extent to which they are sharing information and coordinating law enforcement activities.

¹ The KFTC issued criminal referrals later, after the PO’s investigation was already in process.

[Korean Version]

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