Singapore - CCS Issues Revised Competition Guidelines And A New Fast Track Procedure.
Legal News & Analysis - Asia Pacific - Singapore - Competition & Antitrust
12 November, 2016
The Competition Commission of Singapore (CCS) has announced amendments to a number of its core guidelines, following a consultation process last year. CCS has also confirmed the introduction of a new Fast Track Procedure, designed to give parties an incentive to admit liability and settle competition investigations quickly.
The amendments bring several of the guidelines in line with existing CCS practice, and in some cases, provide welcome clarifications as to how CCS will approach its enforcement and administration of the Competition Act (Act).
However, other amendments may have a “chilling effect” on the willingness of multinational businesses to participate in CCS’ leniency process (which provides immunity or penalty discounts to businesses that “blow the whistle” on cartel conduct).
This briefing highlights the key changes for businesses operating in Singapore.
What do I need to know?
The most important amendments are:
Introduction of a new Fast Track Procedure, which will grant a 10% penalty reduction to parties who admit liability for infringements of the Act, with the aim of enabling CCS to conclude its investigation early. The penalty reduction will be in addition to discounts for co-operation as part of a leniency application.
Addition of further conditions in the cartel leniency programme, including requiring (a) an unconditional admission of conduct (although not of liability), and (b) a grant of an “appropriate” waiver of confidentiality to allow CCS to communicate with competition authorities in other jurisdictions where leniency has been sought or other regulatory authorities.
Changes to the penalty guidelines, by setting out the formula for calculating penalties and foreshadowing more severe fines for bid-rigging, abuse of a dominant position and anti-competitive mergers that are not notified to CCS.
Amendments to the merger guidelines, emphasising that the Act may apply in some cases to acquisitions of minority shareholdings, mergers of competing buyers and acquisitions by private equity and venture capital funds.
Additions to the guidelines on anti-competitive agreements, reiterating that disclosures of confidential information regarding future commercial policy (e.g. future prices or output levels) between competitors are likely to be found to have an anti- competitive object, even where some parties simply receive the information.
Amendments to the guidelines on abuse of a dominant position, clarifying the conditions for finding collective dominance (i.e. held by several firms), and underlining the ability of CCS to seek behavioural or structural remedies for abuse of dominance as well as fines.
The new guidelines take effect on 1 December 2017. A. The new Fast Track Procedure (FTP)
The FTP is designed to provide parties with a financial incentive to “settle” a case by admitting liability, thereby enabling CCS to save its investigation and enforcement resources. It will be up to CCS whether the FTP is initiated or used in a particular case, although CCS has clarified that parties under investigation can also proactively indicate their willingness to enter into FTP discussions.
If CCS considers the use of FTP in a particular case to be appropriate, it will write a letter to all parties subject to investigation to gauge their willingness to use the FTP, with a two week deadline for response. CCS will then hold “without prejudice” discussions with each of the parties regarding the scope of the potential infringements, key evidence and the range of likely financial penalties to be imposed, during which parties will be able to express views on such issues as the classification of the alleged infringement, and its gravity and duration. Parties will be provided with access to “key documents” in the CCS investigation file to understand the strength of the case against them, and will also be given an indicative timetable for resolution of the case.
If both CCS and the parties are willing to proceed, then the parties will be required to make a Fast Track Procedure Statement, and to sign an FTP Agreement. Under the Agreement, they will be granted a 10% reduction in the overall financial penalty, in exchange for (a) unequivocally admitting liability to the infringement and (b) agreeing to limit their representations during the decision-making procedure. The Agreement will also state the maximum amount of financial penalties to be imposed, taking into account any leniency discounts.
Comparison with other jurisdictions
The FTP policy is similar to the cartel settlements policy introduced by the European Commission (EC) in 2008. However, CCS appears to have learnt from some of the difficulties encountered by the EC, especially in “hybrid cases”, where some cartel members settle but others see the case through, leading to little saving of prosecution resources. The policy states that CCS will generally only apply the FTP when all parties under investigation in a case agree to use it.
Importantly, unlike the EC’s policy, the FTP may be made available in relation to all infringements of Section 34 (anti-competitive agreements) and Section 47 (abuse of a dominant position) and not merely cartels.
The FTP is a useful addition to Singapore competition law, which should assist CCS in conserving its limited resources and ensuring that its investigations are completed within a reasonable timeframe. Using a fixed discount figure, rather than an “up to” offer (as in the UK), will provide predictability and certainty, helping investigated parties to assess their options and understand the potential benefits of the FTP.
Parties in global cartel investigations might now be able to include Singapore in any settlement negotiations. CCS has clarified in the Practice Statement that if the FTP negotiations are discontinued (e.g. if settlement negotiations were to break down in another jurisdiction), or, after settlement, if new exculpatory evidence comes to light, then any information, documents or admissions provided by the parties will be deemed to be withdrawn and cannot be used against any of the parties to the proceedings. However, if a cartel decision is appealed by other parties on the basis of liability (rather than merely penalty) and the CCS infringement decision is overturned by the Competition Appeal
Board (CAB), there is no indication in the Practice Statement as to whether CCS would then cancel penalties agreed with other parties under the FTP (although our working assumption is that it would not).
Time will tell whether the relatively low level of discount and the desire of CCS to avoid “hybrid cases” minimises use of the FTP. CCS has indicated in the document setting out
its response to consultation feedback that it may review this discount figure in future.
B. CCS' Leniency Programme
In 2014, CCS concluded its first two successful investigations against international cartels. Central to this increased enforcement activity has been the success of the CCS leniency programme. The new CS leniency guidelines include a number of substantial amendments. New conditions are being imposed on leniency applicants, which may reduce the attractiveness of the CCS programme, especially for parties involved in global investigations.
The new conditions
Applicants for leniency after 1 December 2016 will now be required to:
- give an unconditional admission by the applicant of conduct for which leniency is sought (although not an admission of liability for an infringement of the Act, so CCS will still be obliged to prove its case);
- grant an “appropriate” waiver of confidentiality, allowing CCS to communicate with competition authorities in other jurisdictions where the applicant has sought leniency and any other regulatory authority that it has informed of the conduct; and
- provide detailed information at the stage of applying for a marker, including the relevant markets in which the cartel activity occurred and the impact of the conduct on the markets identified by the applicant.
Other procedural clarifications include:
- an explanation of the information required for an applicant to obtain a marker;
- an increase in the threshold of information required from an applicant to
- “perfect” the marker;
- recognition of the existing CCS practice of allowing oral provision of corporate
- statements, and treating such information as CCS internal documents;
- some explanation of when CCS will regard a party as having “initiated” or “coerced” another party to participate in a cartel (thereby only being eligible for a
- penalty discount of up to 50%); and
- assurance that if CCS is considering withdrawing conditional leniency, it will raise
- those concerns with give the applicant and give it a chance to respond.
Many of the amendments simply record the existing leniency process operated by CCS, and thereby provide greater certainty for applicants regarding the various stages and applicants’ obligations.
However, despite opposition from many quarters, CCS has proceeded with its proposal to require mandatory waivers of confidentiality from leniency applicants. Including the qualifier “appropriate” does not provide much comfort, since there is no clarity on what “appropriate” might mean (and CCS will be the sole judge of when contact with another authority will be “appropriate”). Unfortunately, CCS has not explained why it could not instead have adopted a policy whereby waivers are sought on a case-by-case basis and parties are given an opportunity to explain any objections.
The stakes are high when companies are considering whether to apply for leniency, and there is a real risk that this policy will have a “chilling effect” on the willingness of multinational businesses to participate in CCS’ leniency process.
C. Financial penalty framework
The amendments to the penalty guidelines reflect the analytical framework applied by CCS in its decisions to date and will bring the guidelines in closer alignment with the penalties policies adopted by other competition authorities.
The guidelines now reflect the six distinct steps used by CCS in its determination of financial penalties, which closely mirrors the penalty-setting approach of the EC and the Competition and Markets Authority in the UK (CMA).
The turnover used in the calculation of base penalty in step 1 will now be the business’ turnover in the last year of the infringement, rather than its turnover in the year before the infringement decision.
In addition, the guidelines are amended to:
- make clear that they apply to infringements of Section 54 of the Act (which prohibits mergers that substantially lessen competition in Singapore);
- place emphasis on the seriousness of an abuse of a dominant position when calculating the base penalty;
- place emphasis on the seriousness of bid-rigging, and note that the duration in such an infringement will not generally be set at less than one year, given its tendency to have long-lasting negative effects; and
- retain discretion for CCS to use different figures where audited accounts are unavailable or where they do not reflect the true scale of the undertaking's activities in the relevant market.
The six-step approach to determining the penalty amount should make the penalty- setting process more consistent and predictable. The change to the year used for calculation of base turnover sensibly follows the approach of the EC and CMA, and will avoid the errors by the CCS revealed in the CAB’s decision ordering reductions in the penalties imposed in the ball bearings cartel (see our Casewatch report).
However, unlike the CCS, the EC and CMA also publish the starting percentage for the base penalty calculation. CCS has stated that it will continue to redact starting percentages from the public versions of decisions, on the basis that this protects confidential turnover figures (although the EC and CMA, subject to similar confidentiality obligations, have found ways around this). As a result, there remains in fact very little transparency in the penalty-setting process in Singapore. CCS will continue to have considerable discretion when setting penalties, but without the further accountability that would come from allowing visibility of all parts of the penalty calculation.
D. Merger Assessment Guidelines
The Merger Assessment Guidelines describe the factors considered by CCS in reviewing a merger, the purpose of which is to guide businesses in conducting their self- assessment on whether a merger may result in a substantial lessening of competition.
Some of the more significant clarifications include the following:
- minority shareholders may be found to have “control” where historical voting records indicate that such shareholdings are sufficient to form a majority of the votes present;
- mergers involving private equity and venture capital may give rise to competition concerns if they facilitate coordination of conduct among portfolio firms;
- mergers involving undertakings which are competing buyers will be assessed in a manner similar to those involving competing suppliers;
- expanded discussion of the important concept of the “counterfactual” (i.e. what would have occurred on the market in the absence of the merger), and identification of the importance of whether the merging firms are particularly close rivals in assessing the non-coordinated effects of the merger;
- clarification of the types of efficiencies that CCS may consider to offset anti- competitive effects arising from mergers, to include cost reductions, removal of mark-ups along the supply chain in vertical mergers, increase in investment by the merged entity, increase in variety of products and services, availability of one-stop shopping of different products for the customer and benefits to the customer resulting from a greater number of users on a network; and
- in relation to ancillary restraints, new text notes that CCS has in previous merger clearances accepted non-compete clauses with durations of between 2 and 5 years (so potentially a longer duration than is accepted under the equivalent notice from the EC, of 2-3 years).
The merger assessment guidelines do not deviate significantly from the current version. The amendments align the guidelines more closely with those of the EC and CMA, by clarifying certain issues and addressing other points that were not previously covered.
Despite past statements by CCS officials that it applies a “total welfare” standard in its enforcement of the Act, the new guidelines in fact state that mergers whose efficiencies only create extra profits for the companies involved are unlikely to benefit from the Net Economic Efficiencies exemption.
E. Guidelines on anti-competitive agreements
The amendments to the Section 34 guidelines mainly bring CCS enforcement practice in line with developments in competition case law in the European Union (EU).
Important amendments include the following:
- Reiterating that firms can occupy several levels of a production chain, and the mere fact that parties to an agreement are in a vertical relationship does not preclude CCS also finding that a horizontal agreement exists (e.g. a ‘hub-and-spoke’ agreement) notwithstanding the fact that vertical agreements have always been excluded from enforcement under the Act.
- Clarifying that “object” and “effect” are alternative, and not cumulative, requirements in Section 34, and that CCS does not need to show anti-competitive effects if it can establish that an agreement or concerted practice has as its object the appreciable restriction of competition.
- Emphasising that the list of categories of agreements and concerted practices that may be found to have an anti-competitive “object” is not closed. In particular, the exchange between competitors of individual company data regarding intended future prices or future output or production will be considered a restriction of competition by object.
Noting that a competitor will be regarded as a party to information exchanges even where it is merely a passive recipient of the information, unless it responds to the contact with a clear statement that it does not wish to receive such information.
The new text in the guidelines regarding the distinction between “object-based”’ and “effect-based” infringements, and the application of the Act to information exchanges, is welcome, since there was previously some lack of clarity regarding the approach of CCS. The new guidelines leave little doubt that CCS will be robust in investigating exchanges of information concerning future commercial policy (e.g. future prices or future output), and intends to follow closely the approach taken in EU cases, such as T- Mobile and the various Bananas cartel decisions.
F. Guidelines on abuse of a dominant position
The changes to the Section 47 guidelines are generally clarificatory, rather than substantive, with some amendments reflecting aspects of the CAB’s 2012 decision in the SISTIC case.
Noteworthy amendments include the following:
- Retaining the existing 60% market share threshold for dominance, but noting that it does not preclude dominance being established at a lower market share.
- Providing a more expansive discussion of the concept of “collective dominance” in the Act, under which several independent businesses can be regarded as a collective entity holding a dominant position, due to links or factors connecting them. The new text discusses the importance of contractual or structural links, as well as features of the market leading to relationships of interdependence.
Noting that CCS must conduct an assessment of the economic effects of particular conduct on the process of competition in order to find that an abuse of a dominant position has occurred, and that this will involve a consideration of the “counterfactual” where appropriate.
Noting that where CCS has decided that an infringement of Section 47 has occurred, it can, in addition to imposing financial penalties, impose a range of behavioural or structural remedies as appropriate.
While CCS has not employed the concept of collective dominance in any decisions to date, its new guidelines (and its rejection of objections based on American antitrust law) make it clear that it will follow the approach of the EU in this area.
For further information, please contact:
Ameera Ashraf , Partner, WongPartnership