Settling For Less? Hong Kong Competition Commission Publishes Policy On Cooperation In Cartel Cases.
Legal News & Analysis - Asia Pacific - Hong Kong - Competition & Antitrust
23 May, 2019
The Hong Kong Competition Commission (“HKCC”) has recently released its Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct (“Cooperation Policy”). Alleged cartelists under HKCC investigation now have a formal framework under which they can choose to cooperate with the HKCC in exchange for a reduction in the potential pecuniary penalty.
The Cooperation Policy is a welcomed and long overdue development in that it enhances procedural transparency in dealing with the HKCC. It also brings the Hong Kong regime more in line with overseas antitrust systems in offering incentives to settle instead of running the gauntlet of proceedings in the Competition Tribunal.
However, there do remain some concerns with how the Cooperation Policy will operate in practice and whether it will be sufficiently attractive. The risks and costs of cooperation may for some businesses outweigh the potential benefits, particularly in this prosecutorial regime where there remains no precedent as to the level of pecuniary penalties that may be imposed.
A clearer settlement framework in cartel investigations
The Cooperation Policy supplements the HKCC’s Leniency Policy that was adopted in November 2015. In the absence of a formal settlement policy, alleged cartelists under investigation have so far have had to take a leap of faith if they had sought to cooperate.
Under the existing Leniency Policy, businesses involved in cartel conduct (i.e. competitors engaging in price fixing, market sharing, bid-rigging or output reduction) have been able to self-report their conduct to the HKCC in exchange for immunity from a pecuniary penalty. However, leniency is only available to the first cartel member who reports to the HKCC – a “winner takes all” system.
Previously, if leniency was no longer available (e.g. another cartel member has already successfully applied for leniency), there was insufficient incentive and transparency that would support cooperating with the HKCC. The HKCC had offered a vague promise to give “favourable treatment” to cooperating parties, but the benefit of doing so remained distinctly unclear.
With the new Cooperation Policy, members of the cartel who are not eligible for leniency may consider cooperating with the HKCC in its investigation. In return, the HKCC will propose to the Competition Tribunal a discount from the pecuniary penalty it would had otherwise recommended should be imposed.
The level of discount depends on the order in which the cartel member comes forward to the HKCC. The HKCC will also consider the nature, value and extent of the cooperation provided. If parties cooperate with the HKCC during the investigation, the range of recommended discounts available are:
Band 1 (1st to cooperate)
35 - 50%
Band 2 (subsequent parties)
20 - 40%
Band 3 (even later parties)
Up to 25%
If cooperation is only offered after the commencement of Competition Tribunal proceedings, the HKCC will propose a discount of up to 20%.
“Leniency Plus” has been introduced through this Cooperation Policy. Businesses that expose the existence of another cartel to the HKCC and who receive leniency for that second cartel, can receive a “bonus” discount of up to 10% off the recommended pecuniary penalty for the first cartel.
Cartel members cooperating with the HKCC may also ask the HKCC not to bring any proceedings against individuals involved in the cartel conduct. This includes any current and former officers, employees, partners and agents of the business. Individuals themselves are not eligible for cooperation under the Cooperation Policy.
The process for cooperation
The cooperation process is similar to the process to apply for leniency under the HKCC’s Leniency Policy. In essence, cooperation comes in four stages:
> Stage 1: The cartel member indicates its willingness to cooperate with the HKCC, either on its own initiative or by invitation from the HKCC.
> Stage 2: The cooperating party provides evidence to the HKCC during the investigation – on a “without prejudice” basis. This involves providing a detailed description of the cartel and relevant documents to the HKCC. Relevant employees will also be required to attend HKCC interviews.
> Stage 3: Only after all evidence is provided, the HKCC would indicate the applicable band of discount available. If this is acceptable to the cooperating party, a Cooperation Agreement is signed confirming the applicable discount and adopting an Agreed Factual Summary. The parties then make a joint application to the Competition Tribunal for the discounted pecuniary penalty.
> Stage 4: The cooperating party continues its obligations to cooperate pursuant to the Cooperation Agreement, until the HKCC issues a final letter after the conclusion of all enforcement and appeal proceedings against all participants in the cartel.
Although the Cooperation Policy provides a structured framework for cooperating with the HKCC, parties entering into this process will face considerable difficulty and uncertainty throughout the process. For instance:
> The requisite extent and value of cooperation remains at the discretion of the HKCC.
> As with comparable overseas systems, cooperating parties are not aware of the level of discount until late into the process – after the company/employees have exposed themselves in terms of evidence and information on the conduct.
> The precise terms of the Cooperation Agreement are unclear, as unlike the Leniency Policy, no template text is provided in the Cooperation Policy.
> The risk of failing to meet cooperation conditions remains high. Information given to the HKCC by the company is “without prejudice” and cannot be used if a Cooperation Agreement is not eventually signed. However, the HKCC has indicated it would still seek to subsequently use the interviews of employees, e.g. to challenge their credibility in the Competition Tribunal.
Is cooperation an attractive defence strategy?
Parties facing a cartel investigation by the HKCC have to make an early decision as to how they defend the serious allegations of cartel conduct. The option to cooperate needs to be considered in a wider context where there may be risks and disincentives to not cooperate and instead face the rigours of a “normal” investigation.
Cooperation with the HKCC does come at a cost. For example:
> Businesses bear not only its own legal costs of the investigation and Tribunal proceedings, but also the HKCC’s legal costs for the application to the Competition Tribunal.
> Cooperating businesses are required to provide “continuing full and truthful cooperation, at its own cost,” to the HKCC in the enforcement proceedings against all participants of the cartel (and in subsequent appeals). Failure to comply with such requirement would risk any efforts previously put in to secure cooperation.
Whether such costs are worth the discount obtained from cooperation may depend on the expected amount of pecuniary penalty that may be imposed by the Competition Tribunal. Given the statutory cap of 10% turnover for a pecuniary penalty, businesses with smaller Hong Kong turnover may find the costs outweighing the benefits of cooperating with the HKCC.
Nevertheless, the introduction of the Cooperation Policy is generally a welcomed development. It provides some certainty for businesses to consider settling with the HKCC even when leniency is not available. Importantly, businesses under cartel investigations will now face greater pressure to consider settlement with the HKCC, as the race to obtain a discount is now more prescribed.
Of course, this Cooperation Policy formally only applies to cartel conduct. Whether and how it can be successfully deployed in other investigations remains an open question, especially when the incentives to cooperate are very different from cartel cases.
For further information, please contact:
Marcus Pollard , Competition Counsel, Linklaters