[co-author: Jake Walter-Warner]
On September 23, the Hong Kong Competition Commission (HKCC) released a draft of its “Leniency Policy for Undertakings Engaged in Cartel Conduct.” The draft specifies when the HKCC will refrain from pursuing monetary penalties against an entity in exchange for that entity’s cooperation. The HKCC was created when Hong Kong’s Legislative Council passed a competition ordinance in 2012. The Competition Ordinance applies to any agreement that has the object or effect of preventing, restricting, or distorting competition in Hong Kong, even if the parties and concerted activity are outside of Hong Kong. Over the past three years, the HKCC has slowly released guidelines related to the implementation of the Ordinance. With the release of the leniency policy, the HKCC is on track to begin enforcing the Competition Ordinance in mid-December 2015.
Leniency Policy: The policy allows the HKCC to consider giving leniency to “undertakings” who have “engaged” in “cartel conduct.” An “undertaking” is any entity which is engaged in an economic activity. This definition is purposely broad and includes corporations, partnerships, individuals, trade associations, and other business entities. The undertaking must have “engaged” in cartel conduct, meaning the undertaking must confirm that it has “terminated its involvement in the cartel” (though the HKCC can consent to continued involvement in the cartel if it were to aid its investigation). “Cartel conduct” is analogous to what would be considered “hardcore” violations of U.S. antitrust law: agreements to fix prices, share markets, restrict output, or rig bids. “Cartel conduct” is prohibited by the Ordinance’s First Conduct Rule.
Eligibility for Leniency: Crucially, an undertaking is only eligible for leniency if it is the first cartel member to report the cartel conduct and it meets all the requirements for receiving leniency. After a tip is called into the HKCC hotline, the Commission will review the information to determine if leniency is available. If leniency is available, the undertaking must make a “without prejudice” proffer to the agency within 28 days that contains a detailed description of the cartel and the applicant’s role within the cartel. However, before formally entering into a leniency agreement, the HKCC may ask the applicant for documents or witnesses to corroborate the proffer. The draft guidelines say that the HKCC will provide “assurances” to the applicant that it will not use this evidence against them, but the guidelines do not specify what these “assurances” actually are. If the Commission enters into a leniency agreement with an undertaking, it will normally extend leniency to all current and former directors, officers, and employees of the undertaking that fully cooperate with the HKCC.
Requirements of the Leniency Agreement and Termination of Leniency: The leniency agreement requires the applicant to confirm that:
1) It has provided and will continue to provide full and true disclosure to the HKCC;
2) It has not coerced other parties to engage in the cartel conduct; it is no longer involved with the cartel;
3) It will keep confidential all aspects of the leniency application and process;
4) It will continue to provide cooperation to the HKCC; and
5) It is prepared to sign a statement of agreed facts which may be used to ask a Tribunal to make an order declaring that the undertaking has violated the First Conduct Rule.
The HKCC may terminate the agreement and commence adverse proceedings if it has “reasonable grounds” to suspect that the information provided by the undertaking was false, or if the undertaking violates the terms of the agreement. Notably, the leniency agreement allows for follow-on civil actions by private plaintiffs if a Tribunal declares that the undertaking violated the First Conduct Rule. While both sides are expected to keep information related to the leniency agreement confidential (including its very existence), in appropriate cases, the HKCC may condition the offer of a leniency agreement on the undertaking agreeing to allow the HKCC to exchange confidential information with authorities in another jurisdiction.
Going Forward: Overall, the HKCC leniency agreement policy is similar to the policies of other competition authorities around the world. There are, however, a few issues which deserve attention moving forward. First, what does it mean for an undertaking to have “coerced” other parties to engage in cartel conduct? Are the words or actions of a company with a large market share inherently “coercive,” rendering it ineligible for leniency? Second, every leniency agreement requires the undertaking to admit it violated the First Conduct Rule, which could expose it to damages through lawsuits initiated by private plaintiffs. Third, given that the HKCC can condition leniency on the right to share information with foreign antitrust authorities, what protection will the undertaking have from potential prosecution in other jurisdictions? The incentive to report illegal conduct and cooperate with the HKCC will be greatly diminished if that cooperation can ultimately be used against the company elsewhere.