27 April 2020
Introduction
With nearly five years of enforcement experience since the coming into effect of the Competition Ordinance (Ordinance), on 16 April 2020, the Hong Kong Competition Commission (Commission) published a revised Leniency Policy for Undertakings Engaged in Cartel Conduct (Leniency Policy for Undertakings) and introduced a new Leniency Policy for Individuals Involved in Cartel Conduct (Leniency Policy for Individuals) (collectively, Leniency Policies).[1]
Leniency is a key investigative tool used by competition authorities around the world to combat cartels[2]. Leniency programmes incentivise cartel participants to report and aid competition authorities to detect oftentimes secretive cartel activities. The Commission has revised the Leniency Policy for Undertakings, and introduced a new Leniency Policy for Individuals, in order to enhance the effectiveness and transparency of its leniency programme for cartel conduct, which will strengthen cartel detection, enforcement, and victim recovery.
As the names of the Leniency Policies suggest, the Leniency Policy for Undertakings is only applicable to undertakings, whereas the Leniency Policy for Individuals is only applicable to individuals. The Ordinance defines an ‘undertaking’ as any entity (including a natural person), regardless of its legal status or the way it is financed, which is engaged in an economic activity. The major incentive offered by the Leniency Policies is that, in exchange for cooperation with the Commission, the Commission will commit not to commence any proceedings in the Competition Tribunal (Tribunal) in relation to the reported conduct against the cartel member/individual who has in place a leniency agreement with the Commission. There will generally only be one successful leniency applicant in a particular cartel. There is therefore an incentive for companies and individuals to approach the Commission as soon as possible in order to be eligible for leniency.
It should also be noted that the Leniency Policies only apply to cartel conduct, which refers to agreements and/or concerted practices between two or more undertakings which consist of (i) fixing, maintaining, increasing or controlling the price for the supply of goods or services; (ii) allocating sales, territories, customers or markets for the production or supply of goods or services; (iii) fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services; or (iv) bid-rigging.
The revision and introduction of the respective Leniency Policies serve as yet another testament to the Commission’s determination in its enforcement efforts and openness to provide incentives for whistle-blowers to come forward to report cartel conduct.
Revised Leniency Policy for Undertakings
One of the major amendments made to the revised Leniency Policy for Undertakings is the removal from the old leniency policy of the condition that required the undertaking receiving leniency to agree to and sign a statement of agreed facts admitting to its participation in the cartel, on the basis of which the Tribunal may be asked jointly by the Commission and the applicant to make an order declaring that the applicant has contravened the First Conduct Rule by engaging in the cartel conduct.
The removal of such a condition ties in with the Commission’s new stance under the revised Leniency Policy for Undertakings, where the Commission will agree not to commence any proceedings (including the seeking of an order declaring that the applicant has contravened the First Conduct Rule by engaging in the cartel) before the Tribunal against a successful leniency applicant in relation to the conduct covered by the leniency agreement. This contrasts with the position under the previous Leniency Policy for Undertakings, under which the Commission would only agree not to commence proceedings against the successful leniency applicant for a pecuniary penalty.
Another key revision to the Leniency Policy for Undertakings entails the creation of two types of leniency applicants. Under this revision, leniency is available for the first cartel member that, in addition to meeting all the requirements for receiving leniency, either (i) discloses its participation in a cartel of which the Commission has not opened an initial assessment or investigation (Type 1); or (ii) provides substantial assistance to the Commission’s investigation and subsequent enforcement action of a cartel which the Commission is already assessing or investigating (Type 2).[3] This distinction has a substantial impact on the protection offered to leniency applicants regarding private follow-on action.
For Type 2 leniency applicants only, in the event of a private follow-on action for damages being initiated by victims of the cartel conduct against other undertakings found to have engaged or been involved in the conduct covered by the leniency agreement, the Commission may issue an infringement notice to a party to a Type 2 leniency agreement, requiring the party to admit to a contravention of the First Conduct Rule, in order to permit the initiation of follow-on proceedings against them. Should a party to a Type 2 leniency agreement elect not to make the relevant commitment in an infringement notice issued by the Commission, the Commission reserves the right to treat the applicant as failing to comply with the leniency agreement and take appropriate action, including making an application to the Tribunal for an order that the applicant has contravened the Ordinance, in order to permit the initiation of follow-on proceedings against the applicant. Note, however, that the Commission will not issue such an infringement notice unless and until victims of the cartel have initiated a private follow-on action against the other undertakings found to have engaged in the cartel conduct covered by the leniency agreement.
The Commission will not issue an infringement notice to parties to a Type 1 leniency agreement, thereby incentivising leniency applicants to apply for leniency before the Commission has opened an initial assessment or investigation in order to qualify as a Type 1 applicant.
However, note that an undertaking that is clearly the single ringleader of a cartel, or that has coerced other parties to participate in the cartel conduct, will be disqualified from receiving leniency.[4] Nevertheless, in order to incentivise undertakings to apply for leniency, the Commission states in the revised Leniency Policy for Undertakings that wherever possible, in order to maximise incentives and opportunities for companies to come forward and report their cartel conduct, the Commission will construe or interpret the ringleader ground of this policy in favour of accepting a leniency applicant.
Other provisions in the old leniency policy remain essentially unchanged. For example, the leniency granted to an undertaking will also extend to its current, and possibly former partners, agents, employees and officers, provided that they fully and truthfully cooperate with the Commission.
Below is a table summarising the key differences between the old and the revised Leniency Policy for Undertakings:
|
|
Previous Position |
Current Position |
|
1. |
To receive leniency, undertaking had to admit to its participation in the cartel, on the basis of which the Tribunal may make an order declaring that the applicant has contravened the First Conduct Rule |
A successful leniency applicant does not have to admit to participation in the cartel, except, for Type 2 leniency applicants only, in the event of private follow-on action for damages being initiated by victims of the cartel conduct covered under the leniency agreement (see point #3 below) |
|
2. |
The Commission would agree not to commence proceedings against the successful leniency applicant for a pecuniary penalty |
The Commission will agree not to commence any proceedings against the successful leniency applicant |
|
3. |
N/A |
Introduced distinction between two types of leniency applicants. Type 2 leniency applicants may be given an infringement notice by the Commission requiring its admission of contravention of the First Conduct Rule, in order to permit the initiation of private follow-on proceedings against them |
|
4. |
Undertakings which have coerced others to join a cartel will be barred from receiving leniency |
An undertaking which is clearly the single ringleader of a cartel, or that has coerced other parties to participate in the cartel conduct, will be disqualified from obtaining leniency |
New Leniency Policy for Individuals
A new Leniency Policy for Individuals has been introduced to enhance the comprehensiveness of the Commission’s leniency programme. It is intended that individuals involved in cartel conduct, such as employees of a company, can now also seek leniency under this new policy. Key points of the policy are highlighted below.
Similar to the revised Leniency Policy for Undertakings:
- leniency is not available under the Leniency Policy for Individuals to individuals whose involvement in the cartel conduct was clearly as the single ringleader of the cartel conduct, or who have coerced other parties to participate in the cartel conduct. Again, wherever possible, the Commission will construe or interpret the ringleader ground of this policy in favour of accepting a leniency applicant in order to maximise incentives and opportunities for individuals to come forward and report their cartel conduct;
- if the individual meets all the conditions for leniency, the Commission will enter into a leniency agreement with that individual, under which it will commit not to take any proceedings against the individual in relation to the reported conduct; and
- leniency under this new policy is only available for the first individual involved in cartel conduct who reports the cartel to the Commission, before the Commission’s granting of a marker to an undertaking under the Leniency Policy for Undertakings, and goes on to meet all the conditions under the Leniency Policy for Individuals.
Companies should note that, even when a leniency ‘marker’ – which holds a leniency applicant’s place at the front of the queue for leniency for a period of time set by the Commission (ordinarily at least 30 calendar days) to allow the leniency applicant to gather the information necessary to perfect its leniency application – has already been granted to an individual, although no other individual can pass the leniency applicant and obtain leniency while the (individual) leniency applicant holds the leniency marker, the Commission may still give an additional marker for the first undertaking that applies for it. In contrast, if the marker has already been taken by an undertaking, a marker for individuals will not be available. Such a policy intends to further incentivise companies to apply for leniency.
Looking Ahead
By introducing various enhancements to the existing leniency programme, the revised Leniency Policies intend to make it easier and more attractive for companies and individuals to come forward and cooperate with the Commission. The Commission believes that this will in turn improve cartel detection, strengthen enforcement and enhance deterrence and victim recovery, bringing the benefits of effective market competition to Hong Kong consumers, businesses and the economy.
Cartel remains a strong focus of the Commission’s enforcement actions since the competition law in Hong Kong went into full effect almost five years ago, and we should all expect to see the Commission continue in their enforcement efforts in relation to cartel conduct.
Businesses are therefore strongly recommended to conduct competition audits and to provide adequate training to employees to ensure compliance.
For further information, please contact:
Machiuanna Chu, Partner, Deacons
machiuanna.chu@deacons.com.hk
[1] Leniency applications already made under the existing version of the Leniency Policy for Undertakings (released in November 2015) will continue to be handled under that version of the policy.
[2] In Hong Kong, cartel conduct generally gives rise to involvement in a contravention of the First Conduct Rule. The First Conduct Rule provides that an undertaking must not (a) make or give effect to an agreement; (b) engage in a concerted practice; or (c) as a member of an association of undertakings, make or give effect to a decision of the association, if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong. Contravention of the First Conduct Rule may result in the Competition Tribunal (Tribunal) imposing a maximum pecuniary penalty of 10 per cent of the gross revenue of an undertaking in Hong Kong, for each year in which the contravention occurred.
[3] For clarity, under the revised Leniency Policy for Undertakings, the Commission will agree not to commence any proceedings before the Tribunal against a successful leniency applicant – both Type 1 and Type 2 – in relation to the conduct covered by the leniency agreement.
[4] Under the previous Leniency Policy for Undertakings, only undertakings which have coerced others to join a cartel will be barred from receiving leniency.
