On September 23, 2015, the Hong Kong Competition Commission (the Commission) released a draft leniency policy for undertakings engaged in cartel conduct (the Policy) for public consultation. Feedback is invited by the deadline of October 23, 2015.1
Cartels are arrangements between competitors to fix prices, restrict output, share markets and rig bids that have the object of preventing, restricting or distorting competition. Such conduct is deemed a form of "Serious Anti-competitive Conduct" under the Hong Kong Competition Ordinance (Cap. 619) (the Ordinance). Because of their illegal nature, cartels are typically organized and implemented in secret, making them difficult for competition authorities to detect.
Under section 80 of the Ordinance, the Commission may enter into a leniency agreement with an undertaking2 not to bring or continue proceedings in the Competition Tribunal (the Tribunal) for a fine in exchange for the undertaking's cooperation in an investigation or in proceedings under the Ordinance.
Consistent with similar leniency practices globally, the draft Policy is designed to help the Commission identify and combat cartels and incentivize cartel members to cease illegal cartel activity.
Key Elements and Scope of the Draft Policy
The draft Policy would give the first member of a cartel who "blows the whistle" to the Commission immunity from proceedings in the Competition Tribunal for a fine, as long as the whistleblower meets all the requirements for leniency:
(a) leniency will only be available for cartel conduct, not other forms of anti-competitive behaviour (such as abuse of substantial degree of market power or resale price maintenance). This is because cartels are universally condemned as economically harmful.
(b) only an undertaking may apply for leniency;
(c) leniency is only available to the first undertaking that reports the cartel conduct to the Commission (as long as it meets all the requirements for leniency);
(d) if the Commission decides to offer leniency to the undertaking in question, it will enter into a leniency agreement with that undertaking; and
(e) the undertaking will be required to sign a statement of agreed facts admitting its participation in the cartel.
Where the Commission has entered into a leniency agreement with an undertaking, leniency will usually extend to its directors, officers and employees. This is subject to the relevant individuals' cooperation with the Commission throughout the investigation and any ensuing proceedings.
A draft leniency agreement is annexed to the draft Policy to ensure potential leniency applicants understand the nature of their obligations should they be successful in applying for leniency for cartel conduct.
Follow-on Actions Still are Possible Against Successful Leniency Applicants
The fact that a company is granted and enjoys leniency under the Policy will not protect it from later follow-on actions.
Section 110 of the Ordinance provides that private parties who have suffered loss or damage as a result of any act that has been determined to be a contravention of a conduct rule have a right of action against any person who has contravened the rule or has been involved in that contravention. "Determined" means, amongst others things, that the Tribunal has made a decision that the act is a contravention of a conduct rule in the Ordinance.
Undertakings that do not Qualify for Leniency
The Commission will have discretion to provide favourable treatment to undertakings that cooperate with it during a cartel investigation, although ultimately it is a matter for the Tribunal and the courts to decide whether a fine is appropriate in the circumstances (and if so, the level of that fine) or whether other orders should be made.
Confidentiality, Non-Disclosure and Cooperation in Cross-border Investigations
An applicant for leniency will be required to enter into a non-disclosure agreement with the Commission and will have to keep the fact of the investigation, its application for leniency and the terms of any leniency agreement confidential, unless the Commission's prior consent has been obtained or the disclosure of the information is required by law. Any applicant in breach of its non-disclosure agreement will cease to be eligible for leniency under the Policy.
For leniency application materials in the Commission's possession (e.g., any confidential information created by an applicant for the application and the Commission's records of the leniency application process), the Commission has stated in the draft Policy that, subject to the requirements of the Ordinance and to the extent applicable, it will not disclose such materials unless:
(i) it is compelled to do so by an order of the Tribunal or any court, by law or any requirement made by or under law;
(ii) it has the consent of the leniency applicant to disclose the materials;
(iii) the relevant information or document is already in the public domain; or
(iv) the Commission terminates the leniency agreement in accordance with section 81 of the Ordinance.
In appropriate cases and where permitted by law, a leniency applicant may be required to authorize the Commission to exchange confidential information with authorities in other jurisdictions as a condition for entering into a leniency agreement.
The Role of the Communications Authority
Currently, the Commission is principally responsible for enforcing the Ordinance but has concurrent jurisdiction with the Communications Authority for anti-competitive conduct in the telecommunications and broadcasting sectors. The Communications Authority has yet to decide whether to adopt a leniency policy and is inviting views and submissions from broadcasting and telecommunications licensees.
This development is a significant step in the evolution of Hong Kong's fledgling antitrust regime, following the landmark adoption by the Legislative Council in June 2012 of the Ordinance. At a time when many cartels are international in scope and are prosecuted by antitrust agencies in multiple jurisdictions concurrently, the adoption of the Policy will put Hong Kong on an equal footing with many other countries that already have leniency programs, for example, the European Union, the United States, Australia and Japan, to name just a few.
Multinational enterprises doing business in Hong Kong can no longer afford to dismiss the Special Administrative Region as a jurisdiction that has no competition regime or antitrust enforcement. Going forward, antitrust compliance in Hong Kong will be as important as compliance in other markets. The risk and cost of cartel participation in Hong Kong is now significantly greater than it has been historically.
For those companies who are part of a cartel, the Policy, once adopted, will provide an opportunity to come forward and provide information and cooperation, in exchange for the avoidance of substantial fines. Experience in other jurisdictions has shown that the vast majority of cartels investigated by antitrust authorities today come to light as a result of whistleblowers coming into the authority under leniency programs.
1. Along with the draft Policy, the Commission has also published a Guide to the Draft Cartel Leniency Policy summarising the approach of the Commission in preparing the Policy. The draft Policy and the Guide to the Draft Cartel Leniency Policy can be downloaded via the link below:
2. An "undertaking" refers to any entity (including a natural person), regardless of its legal status or the way in which it is financed, which is engaged in an economic activity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.