On 28 November 2019, the State Administration of Market Regulation (SAMR) released for public comment draft "Anti-Monopoly Compliance Guidelines for Operators" (the Draft Guidelines).1 These non-binding guidelines recommend measures for "business operators" subject to the Antimonopoly Law (AML) to develop and implement antitrust compliance programmes. The Draft Guidelines integrate prevailing best practices for international compliance programmes, while reflecting the unique challenges of antitrust risk management in China.
The Draft Guidelines provide a roadmap to SAMR's published guidance on the substantive rules against anticompetitive monopoly agreements and abuse of dominance. Participants in monopoly agreements are referred to SAMR's leniency programme for instructions on seeking amnesty or penalty reductions through voluntary disclosure to SAMR. Similarly, companies are advised to comply with merger notification requirements.
Convergence in Compliance Programme design
The Draft Guidelines focus on specific strategies for Chinese companies to develop and implement effective antitrust compliance systems. Many key concepts resonate with prevailing best practice of international compliance programmes in the antitrust field (as reflected in the U.S. Department of Justice's July 2019 policy on "Evaluation of Corporate Compliance Programmes in Criminal Antitrust Investigations") and other fields (such as the ISO 37001 standard for Anti-bribery management systems).
- The Draft Guidelines endorse a "risk-based" approach to compliance, encouraging companies to identify and assess their unique antitrust risks arising from their relative size and their respective industries' characteristics, market conditions, regulatory and antitrust enforcement climate.
- The Draft Guidelines construe "compliance risks" broadly, encompassing both "legal liability" and economic losses, reputational losses, and other negative impacts resulting from antitrust non-compliance.
- The compliance management function is likewise construed broadly, ranging from the formulation and implementation of measures to prevent and reduce compliance risks, the identification and assessment of compliance risks, training, responses to compliance risks and regulatory investigations and remediation.
- The Guidelines underscore the need of an internal "compliance culture" of "honesty, trustworthiness, and fair competition" beyond "strictly abiding" by applicable laws.
- The Draft Guidelines emphasise the "tone at the top", encouraging "senior managers" to assume leadership roles and overall responsibility for antitrust compliance.
- Companies are encouraged to establish compliance departments with resources and capabilities commensurate with the scale of operations and compliance risk.
- Moreover, compliance departments should have the "independence" and "authority" to implement compliance management effectively.
- The Draft Guidelines encourage companies to develop frameworks not only to punish non-compliant behaviour, but also to improve incentives to comply with antitrust rules through "rewards." Specifically, companies should consider "incorporating compliance responsibilities into job responsibilities and employee performance evaluation systems, and establishing compliance performance indicators."
- Similarly, the Draft Guidelines suggest the creation of whistle-blower reporting channels, as well as policies protecting whistle-blowers against retaliation.
- Compliance policies and procedures should be clear, and employees should be trained on compliance.
- Compliance departments should organise internal inspections and audits to verify adherence to company policies and evaluate their effectiveness.
Other aspects of the Draft Guidelines, however, reflect China's particular regulatory dynamics. For example, the Guidelines also suggest that companies may "report the construction of their anti-monopoly compliance management system and the implementation effect in writing to SAMR." Unlike the sharing of best practices among compliance peers in the private sector, this apparently contemplates voluntary progress reports to SAMR on compliance programme implementation. The Guidelines do not establish any concrete incentives for such voluntary reports, but Chinese companies may nevertheless perceive benefits from a record of collaborative engagement with local competition regulators on compliance issues.
The Guidelines advance SAMR's interest in securing cooperation with dawn raids and other investigative measures. Both business operators and their individual employees are admonished to cooperate with competition authorities in the "investigation of suspected monopolistic behaviour in accordance with the law" and to avoid certain practices that may "refuse or impede" the investigation. Such practices include (1) refusing or obstructing entry to premises, (2) refusing or failing to comply timely with information request, (3) refusing to answer questions, (4) providing false or misleading information, or (5) "concealing, destroying or transferring evidence."
The Guidelines warn business operators and employees to "cooperate fully" with investigators during unannounced inspections (i.e. dawn raids).
As a practical matter, SAMR personnel enjoy broad investigative powers when conducting dawn raids, but these powers are formally constrained by internal authorisation and supervision procedures. By specifically referring to "investigations" conducted "in accordance with the law", the Guidelines at least tacitly acknowledge the possibility of prosecutorial misconduct. The Guidelines do not, however, spell out acceptable protocols for companies to verify that investigators heed the limits of their formal authorizations (however broad such limits might be).
As Chinese companies have expanded their commercial footprint overseas, their exposure to liability has likewise expanded. Accordingly, the Draft Guidelines remind compliance departments to research "international" competition laws as well China's domestic competition rules. The Draft Guidelines recommend Chinese companies conducting business in foreign jurisdictions to "understand and abide" by local antitrust laws and consult antitrust counsel as needed. However, if a Chinese company confronts an antitrust investigation or litigation in a foreign jurisdiction, it may "report the situation" to SAMR. The Draft Guidelines do not explicitly relieve the tension between SAMR's dual roles as both a resource to safeguard the interests of Chinese companies in foreign antitrust proceedings and a competition authority pursuing greater coordination with foreign counterparts. A Chinese defendant in a foreign antitrust action seeking to enlist SAMR's aid might instead elicit a parallel probe of analogous conduct in China.
Path forward for Competition Compliance in China
SAMR's release of Draft Guidelines dovetails with a growing emphasis by Chinese authorities on corporate governance and internal compliance programmes. For example, the State-owned Assets Supervision and Administration Commission (SASAC) issued pilot Guidance on Compliance Management for Central Enterprises (the Guidance) in 2018.2 Before the antitrust enforcement powers of the State Administration of Industry and Commerce (SAIC) and the National Development Reform Commission (NDRC) were consolidated in SAMR in 2018, both agencies signalled the potential relevance of compliance programmes in penalty decisions. Hongcan Yang, director of the Anti-Unfair Competition and Antimonopoly Bureau of State Administration of Industry and Commerce (SAIC), stated in a press conference in 2017 that corporate governance and internal compliance programmes may be considered as a mitigating factor in penalty calculations for commercial bribery offenses under the Anti-Unfair Competition Law.3 The National Development and Revolution Commission (NDRC) also released for public comment draft the Guidelines for Calculation of Illegal Gains of Monopoly Conduct by Operators and Identification of Penalties in 2016 (the NDRC draft Guidelines), of which NDRC encouraged companies to strengthen their antimonopoly compliance system.4
Companies active in China should ensure that their global antitrust compliance programmes have been effectively localised and implemented by their China operations--together with protocols for responding to potential dawn raids or inspections by SAMR aimed at verifying compliance.
1 SAMR website, 28 November, 2019
2SASAC Order (2018) No.106, 28 November, 2019
3Interview with Director of the Anti-monopoly and Anti-Unfair Competition Law Enforcement Bureau of SAIC on the new Anti-Unfair Competition Law, Xinhua News, 9 November, 2017
4NDRC website, 17 June, 2016
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