Out-Law News

Hong Kong plans greater cartel cooperation incentives

The Hong Kong Competition Commission has published proposals for a cooperation and settlement policy aimed at encouraging companies involved in cartels to step forward and help with investigations.

The new policy (16 page / 416KB PDF) sits alongside the commission’s existing leniency policy, and will be available for businesses which cannot benefit from the current policy. That policy, introduced in November 2015, is only available for the first cartel member reporting cartel conduct to the commission.

Under the proposals, companies cooperating with the commission on cartel investigations could benefit from a discount of up to 50% off the financial penalty which they might otherwise face.

The commission will determine discounts based on the order in which companies come forward to cooperate as well as the nature, value and extent of the cooperation. It may also agree not to bring proceedings against individuals involved if they fully cooperate with the investigations.

The commission has also proposed a ‘Leniency Plus’ programme. Companies that have cooperated in a cartel investigation and are the first to disclose the existence of another cartel could receive a further discount of 10% off the penalty for the first cartel, depending on the significance of the second cartel and the strength of the evidence provided.

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said the policy brought the Hong Kong regime in line with EU and UK practice.

“It is a welcome development that a company that has not been the ‘first through the door‘ to the competition authority as a leniency applicant can still potentially benefit from a significant discount in penalties and protection from personal liability for directors and employees,” Davis said.

“On the other hand, as with leniency, the downside for an applicant is the need to admit they have breached competition law, and the need to ensure complete and continuous cooperation with the investigation, which can impose a significant burden on the company. In addition, it does not protect the company from follow-on damages actions. Companies will therefore generally weigh up carefully the merits of an application under the cooperation policy,” Davis said.

Davis said the policy had other concerning aspects.

“First, it is not clear whether a company can inquire as to the availability of leniency before – for example, in the UK, a company is able to undertake preliminary enquiries on a no-names basis to ascertain whether full leniency is available or, if not, what level of discount under the equivalent of the cooperation policy might be available. However, in Hong Kong, it seems that the level of discount will only be determined or confirmed at a later stage,” Davis said. 

“Also, it would be far more preferable if it was possible to make an application under the cooperation policy to an independent team in the Hong Kong Competition Commission rather than to the case team dealing with the investigation.”   

The cooperation policy applies only to cartel conduct, and also only to ‘undertakings’ rather than individuals.

Although businesses are expected to indicate their willingness to cooperate with the commission by making contact with the case manager for a cartel investigation, either orally or in writing, the commission will also be able to approach companies under investigation to propose cooperation.

Any disclosure of documents, information or communication provided during a cooperation will be considered to be made on a without prejudice basis.

Once the commission and an undertaking under investigation have reached agreement in principle on the facts of the case and a draft cooperation agreement, the commission will indicate the maximum fine it will recommend to the competition tribunal. The business then has 10 days to formally confirm that it wants to continue cooperating by signing the cooperation agreement.

The policy allows the commission to discontinue cooperation with a company at any stage before the agreement is signed, if it has “reasonable grounds” to suspect that the company has failed to comply with any requirements. The commission can also terminate a cooperation agreement if it has grounds to suspect that the undertaking has “knowingly or recklessly” provided false or materially incomplete information, or has failed to comply with the terms of the agreement in another way.

If no cooperation agreement is signed, the commission will not be able to directly use any of the documents and information gathered as evidence in the investigation or subsequent proceedings, although it can obtain the same information by using its powers under the Competition Ordinance or “to make indirect use of documents and information provided in the context of cooperation”.

Pinsent Masons’ Davis said aspects of this were also concerning.

“‘Indirect use’ is explained as covering ‘derivative use in the context of an investigation, e.g. to develop facts through further investigation on the basis of knowledge gained by the commission from documents and information provided as part of cooperation’. However, companies will be concerned about the risks of the information being used against them should the cooperation agreement not proceed,” Davis said.

The Hong Kong Competition Ordinance came fully into force in December 2015, covering areas such as cartel activity and giving the competition commission and tribunal powers to take action against companies and individuals engaged in such activities.

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