On March 20, 2014, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) issued a press release announcing that, as of May 1, 2014, MOFCOM will make public on its website all decisions resulting in a finding that a company has failed to notify a reportable merger control event in breach of the Anti-Monopoly Law (effective August 1, 2008) (“AML”).
This new “name-and-shame approach” signals MOFCOM is determined to strengthen its enforcement mechanisms under the existing merger control regime and to further promote transparency. This follows the AML’s measures on investigating “concentrations” that came into effect on February 1, 2012 (the “Measures”), whereby MOFCOM is permitted to make public its decisions. Notably, MOFCOM also provided a dedicated fax number in the press release inviting “whistle-blowers” (being any corporation or individual) to report on any “suspected” breach of the AML in this regard. Under the Measures, MOFCOM is obliged to maintain the anonymity of the “whistle-blowers.”
Under the AML, a “concentration” is defined as (1) a merger of business operators, (2) the acquisition of control of a business operator by another business operator through the acquisition of equity or assets, or (3) the acquisition of control by a business operator of another business operator or the obtaining of decisive influence over another business operator by control or any other means. A joint venture between business operators in or outside of China can constitute a concentration.
A concentration must be notified to the Anti-Monopoly Bureau of MOFCOM if:
(1) the total turnover of all the parties involved in the concentration exceeds RMB10 billion (~US$1.6 billion) globally in the previous financial year, and each of at least two of the parties has sales in excess of RMB400 million (~US$65 million) in China in the previous financial year; or
(2) the aggregate sales of all parties involved in the concentration exceeds RMB2 billion (~US$320 million) in China in the previous financial year, and each of at least two of the parties has sales in excess of RMB400 million (~US$65 million) in China in the previous financial year.
Note: The thresholds apply in the case of offshore joint ventures where at least two of the joint venture parties satisfy the above criteria as applied on a “group basis”. In an acquisition scenario, the sales figures of the buyer and the target on a “group basis” will need to be assessed.
A reportable concentration must not be implemented before MOFCOM gives its clearance under the AML, which may impact the closing timetable for a Chinese or global deal. A “Phase 1” review lasts 30 days; a “Phase 2” review, if required, will last another 90 days; and a further “Phase 3” review of up to 60 days may be required under certain circumstances. The person responsible for filing is the buyer in an acquisition or any of a joint venture’s parties. Sanctions may include a fine of up to RMB500,000 (~US$80,000) and the unwinding of the concentration, if a reportable concentration is not reported in accordance with the AML. The indirect implications of being publicly “named and shamed” by MOFCOM, if any, will only become clearer with time.