Cartel Leniency Guidelines: A practical interpretation from lawyers’ perspective

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In August 2020, China’s antitrust authority, the State Administration for Market Regulation (“SAMR”), made public the Guidelines on the Application of Leniency Mechanism in Horizontal Monopoly Agreement Cases (“Leniency Guidelines”) by publishing its new book on antitrust regulations and guidelines. The Leniency Guidelines was authored by China’s Anti-Monopoly Committee of the State Council (“AMC”), and was published internally among antitrust authorities on 4 January 2019. The Leniency Guidelines significantly increases the transparency and predictability of cartel leniency mechanism in China, and thus companies need to update their antitrust compliance manuals accordingly.

I. Drafting Background

Since the implementation of China’s Anti-Monopoly Law (“AML”) in 2008, China’s antitrust authorities have investigated 182 cases on monopoly agreements (until November 2019), with the total value of imposed fines and confiscations exceeding 4.4 billion RMB. However, only a few of them (no more than 20 cases) have received immunity or a reduction of fines according to leniency rules. An important reason for the lack of use of leniency is that the AML only has one provision on leniency (Article 46) which is very doctrinal and hard to implement in practice.

In contrast, foreign jurisdictions such as the United States, European Union, Japan and Korea have issued detailed guidelines for cartel leniency, which have proved very successful in fighting cartels. According to statistics, more than 60% of cartel cases were found and penalized through leniency programs in the abovementioned jurisdictions. In order to give full play to the functioning of leniency, on the one hand, the Leniency Guidelines provides clear guidance for companies when applying for leniency, and on the other, it gives detailed instructions for antitrust authorities when reviewing the leniency applications and providing lenient treatments.

II. Key Provisions of the Leniency Guidelines

A. Scope of application

In the past, China’s antitrust authorities have applied leniency policies in both cartel and resale price maintenance (“RPM”) cases, which caused confusion on its scope of application. For instance, China’s previous antitrust authority the National Development and Reform Commission (“NDRC”) have accepted leniency applications in the milk powder RPM case (2013) and the spectacle lens RPM case (2014). Now, the Leniency Guidelines specifies that it only applies to horizontal monopoly agreements, such as cartel between competitors characterized by price fixing, output restriction and market sharing. Therefore, companies engaging in vertical monopoly agreements are no longer qualified to apply for leniency in China, but they may apply for another mechanism – the commitment mechanism.

B. Timing of applying for leniency

Timing is of the essence when making a leniency application. Cartel participants can approach antitrust authorities to seek leniency either before or after the opening of an antitrust investigation, as long as the antitrust authorities have not issued letters of advance notification of administrative penalties (similar to the statement of objection in the EU). Therefore, even if companies have already been investigated for cartel conducts, they can still make leniency applications with added-value evidence if antitrust authorities did not have sufficient evidence. The Leniency Guidelines encourage cartel participants to self-report as early as possible. Before filing a formal leniency application, cartel participants can communicate with antitrust authorities anonymously or in real names in oral or written form.

C. Reports and material evidence for submission

To receive full or partial immunity from penalties, cartel participants should self-report and hand over material evidence relating to the cartel to the antitrust authorities. Either oral or written form with the involved parties’ signature or stamp for confirmation can be accepted by the authorities. The first applicant can apply for full immunity from penalties and the subsequent applicants can apply for reduction of penalties. The Leniency Guidelines provides different requirements on the reports and material evidence included in the application for full immunity and reduction of fines.

To be granted full immunity, cartel participants should submit a report including a detailed description of the alleged cartel arrangement and material evidence which can either enable the antitrust authorities to open a case or find an infringement of the AML in connection with the alleged cartel. As for the application for reduction of penalties, applicants should submit reports about the cartel in which they participated and material evidence which are not in the antitrust authorities’ possession and have significant added value for the determination of cartel.

D. Sliding scale of leniency

The Leniency Guidelines provides a relatively fixed sliding scale of leniency from administrative penalties. Normally, only three applicants can obtain leniency treatment:

  1. The first applicant may receive full immunity or at least an 80% reduction in fine;
    (Note that the antitrust authority shall grant full immunity if the first applicant apply for leniency before it opens a case in connection with the alleged cartel, but if the first applicant is the organizer of the cartel or has coerced other parties to reach or implement the cartel, it shall not be granted full immunity);
  2. The second may receive a 30%-50% reduction;
  3. The third may receive a 20%-30% reduction.

In exceptional cases where leniency is granted to more applicants, these applicants may receive no more than a 20% reduction.

The AML prescribes two types of administrative penalties, which are fines and confiscation of illegal gains. Immunity or a reduction of penalties under the Leniency Guidelines are granted in relation to the fines imposed on the companies. However, to encourage self-reporting and provision of material evidence, the antitrust authorities have discretion in deciding whether to give full or partial immunity to confiscation of illegal gains as well.

E. Applying for a marker

The Leniency Guidelines adopts a marker system for the first time. The marker system encourages leniency applicants to come forward as early as possible, by allowing potential applicants to approach antitrust authorities to submit initial information about its participation in cartel in exchange for a marker to hold its place in the line-up for leniency.

As to the first leniency applicant with a report meeting the requirements under the Leniency Guidelines, even if it does not provide any material evidence or sufficient material evidence, the antitrust authority will put it on the record and give it a written receipt (i.e. marker) stating the date of receipt and the list of submitted materials. Then, the first applicant will have 30 days (extendable to 60 days in exceptional circumstances) to hold its place and supplement evidence as required by the antitrust authority. If the applicant submits all necessary material to the authority within the prescribed period, the date of receiving the report (i.e. the marker date) would be regarded as the date on which the leniency application is submitted. However, if the applicant fails to submit relevant materials to the authority within the prescribed period, the marker would be cancelled and the subsequent applicant would automatically be regarded as the first applicant for immunity from penalties.

F. Auxiliary obligations following submission

After submitting a report and material evidence required by the authorities, the leniency applicants must carry out a series of auxiliary obligations including and without limitation to: (i) ending its involvement in the alleged cartel immediately following its application; (ii) continuously and comprehensively cooperating with the antitrust investigations; (iii) properly preserving evidence and information; (iv) refrain from disclosing the fact or any of the content of its application without obtaining the consent of the antitrust authorities; (v) refrain from engaging in other conduct which may affect the antitrust investigation. If a company fails to comply with the obligations above, the antitrust authority will cancel its place in the line-up for leniency.

G. Confidentiality and disclosure

Article 16 of the Leniency Guidelines provides that, absent the consent of the leniency applicants, the antitrust authorities must not disclose the report or any other materials submitted by leniency applicants; no entities or individuals have the right to gain access to the submitted report and materials. Literally construed, such entities shall include a court. However, the Leniency Guidelines deleted a provision from its 2016 draft version, which prohibits the use of the submitted materials as evidence in civil antitrust lawsuits. Hence, whether and in what circumstances the submitted material by the leniency applicants would be required to be disclosed by a court order in antitrust civil lawsuits remain to be seen.

III. Outlook

The leniency practice in foreign jurisdictions shows that leniency program is an important and effective tool in detecting, investigating and penalizing cartels. Along with the publication of the Leniency Guidelines, it is expected that an increasing number of cartel cases may be detected and investigated by China’s antitrust authorities. As the Leniency Guidelines have adopted the marker system, it is advised that companies make full use of it to seek immunity or a reduction of penalties. For multinational companies, they need to consider submitting leniency application in all related jurisdictions simultaneously and swiftly. For example, in the Ocean Shipping Cartel Case, the first applicants receiving exemption from penalties in each jurisdiction are different, with NYK as the first in China (2015), MOL in EU (2018) and CSAV in Chile (2019). Against this background, it is advised that multinational companies plan ahead for leniency application in each related jurisdiction and that they should seek one-stop-shop professional assistance from international law firms with global network.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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