Leniency In Mainland China And Hong Kong.

Business and individuals who have been involved in anti-competitive conduct face the risk that it will be reported to, or otherwise discovered by, the competition authorities. One option for parties in these circumstances is to proactively approach the authorities and cooperate in exchange for lenient treatment. However, such treatment comes at a price: an applicant will need to cooperate fully with the authority in any subsequent investigation and there may also be potentially adverse consequences, such as exposure to private litigation.
 

The competition authorities in Mainland China and Hong Kong have established leniency regimes, both of which have recently been updated. In this ebulletin, we will provide an overview of leniency in both jurisdictions, as well as discuss the benefits and drawbacks of applying for leniency.
 

Ultimately, businesses and individuals operating in Asia need to be aware of how leniency works under the competition law regimes of Mainland China and Hong Kong (and potentially, more broadly than this depending on the products/services affected by the conduct). Businesses also need to recognise that deciding to apply for leniency requires a careful consideration of the potential risks and rewards involved. 

Mainland China

Very recently, on 31 August 2020, China’s chief competition enforcement agency, the State Administration for Market Regulation (“SAMR’), announced the publication of the ‘2019 Compilation of Antitrust Regulations and Guidance’ (《2019年反垄断规章和指南汇编》). This publication formally adopts four key guidelines relating to the enforcement of China’s primary competition statute, the Anti-Monopoly Law (“AML”), that have been in consultation for a number of years, including: the (1) Guidelines to the Application of the Leniency Regime in Horizontal Monopoly Agreement Cases (“Leniency Guidelines”); (2) Guidelines to Commitments from Undertakings in Monopoly Cases; (3) Antitrust Guidelines for the Automobile Sector; and (4) Antitrust Guidelines for the Intellectual Property Field.
 

This ebulletin will focus on the Leniency Guidelines, which are stated to be effective as from 4 January 2019 (for further information on the other key guidelines, please see our ebulletin China’s SAMR publishes long-awaited antitrust guidelines on leniency, auto sector and IP). Under these Guidelines, SAMR (or any other competition enforcement agency, such as a regional branch of the SAMR) may grant leniency to up to 3 parties in cases involving a horizontal monopoly agreement (e.g. price fixing or market sharing). These parties may be granted the following forms of leniency:
 

• For the first successful leniency applicant, immunity from fines. (if the leniency application is submitted before the enforcement agency has established a case or commenced an investigation, unless it established the cartel or coerced other members to join or stay in the cartel arrangement), or otherwise a reduction of the applicable fines by at least 80%;
   

• For the second successful leniency applicant, a reduction of the applicable fines by 30-50%; and
   

• For the third successful leniency applicant, a reduction of the applicable fines by 20-30%.
   

The number of parties that can be granted leniency may be increased in large and complex cases involving major players in the market, provided those applicants come forward and offer crucial evidence in their leniency applications.
 

The evidence that is required in order to submit a formal leniency application includes:
 

• For the first leniency applicant, any evidence that will allow the enforcement agency to establish a case or commence investigations under the AML (if the case or investigation has not already been established or commenced), or any new evidence not already in the enforcement agency’s possession and which is sufficient to establish the existence of a monopoly agreement in breach of Article 13 of the AML.
   

• For subsequent applicants, any evidence that: (i) strengthens or supplements the enforcement agency’s case against the formation or execution of a monopoly agreement; (ii) supplements the enforcement agency’s case in relation to the contents, duration, or parties of a monopoly agreement; or (iii) otherwise proves or strengthens the evidentiary proof of a monopoly agreement.
   

The Leniency Guidelines therefore provide welcome certainty regarding the process, in particular in that they formalise the framework around which leniency applications can be made and the conditions on which leniency may be granted.
 

However, one important factor to note about the Leniency Guidelines is the lack of any explicit protections on confidentiality. This could mean that materials contained in a leniency application may be subsequently used against the leniency applicant, for example in damages claims from third parties that have suffered losses due to the cartel (known as “follow-on damages claims”). Potential leniency applicants must therefore take this consideration into account when considering whether to make such an application.

Hong Kong

In April 2020, the Hong Kong Competition Commission (“Commission”), revised its Leniency Policy for Undertakings Engaged In Cartel Conduct (“Leniency Policy”) that it first introduced in November 2015 ahead of full implementation of Hong Kong’s competition regime. As well as making some significant changes to the original policy, the Commission also introduced a leniency policy for individuals.
 

Under the Leniency Policy, “leniency” is the term used for a party that secures full immunity in relation to a particular cartel arrangement (e.g. price fixing or market sharing). In this sense, “leniency” is only available to one party (or “undertaking”); it is not available to any party who has acted as the ringleader of a cartel.
 

Under the revised Leniency Policy, a successful leniency applicant will be granted either “Type 1” or “Type 2” leniency:
 

• Type 1 leniency is available to undertakings that alert the Commission to a cartel that is not currently the subject of an initial assessment or open investigation by the Commission; and
   

• Type 2 leniency is available to undertakings that provide substantial assistance to the Commission’s investigation or enforcement against a cartel that the Commission is already assessing or investigating.
   

The key difference between Type 1 and Type 2 leniency is that the Commission may issue an infringement notice against an applicant with Type 2 leniency, requiring the applicant to admit to its participation in the contravention of the Ordinance. This means that such party may be subject to follow-on damages claims, although the Commission has stated that it will only issue such infringement notices if any such follow-on damages claims are brought against other members of the cartel. On the other hand, an applicant with Type 1 leniency will not have to admit involvement and will therefore not be subject to follow-on damages claims from third parties.
 

This distinction between Type 1 and Type 2 leniency was introduced in the recent revisions of the Leniency Policy in order to encourage more cartel participants to apply for leniency. Previously, all successful leniency applicants were required to admit participation in the contravention, opening them up to possible third-party damages claims. The Commission found that this possibility had acted as a substantial deterrent for parties considering whether or not to apply for leniency.
 

The Commission has also published a leniency policy for individuals involved in cartel conduct, which is substantially similar to the Leniency Policy for undertakings described above. Where an individual has applied for leniency, it will still be possible for an undertaking to apply for leniency. However, where an undertaking has applied for leniency, this option will no longer be available to an individual.
 

There is a separate Cooperation and Settlement policy for undertakings who do not qualify for “leniency”. As with the Mainland China regime, this provides for a stepped reduction in the penalty ultimately sought by the Commission, depending on the timing and evidence provided by the cooperating party.

Should a business or individual apply for leniency?