Five tips corporations may want to consider to protect themselves
Just as China recently stepped up investigation into corporate corruption, it also has signaled its intention to be included among the world’s most aggressive enforcers of antitrust laws, according to noted Kaye Scholer Antitrust Partner Laura Shores.
“Given recent enforcement activity and statements seemingly aimed specifically at multinationals, companies need to be ready. Recent well-publicized bribery investigations make all too clear that warnings by China’s competition authorities should be taken seriously. By all appearances, this tiger is not made out of paper,” said Shores, who is based in Kaye Scholer’s Washington, DC office.
In July 2013, a senior official at one of China’s antitrust enforcement agencies warned foreign companies not to use lawyers to put up a fight when confronted with an investigation for price-related conduct, says Shores. In a training session with in-house lawyers from foreign multinational companies, Xu Xinyu, a division chief at the National Development and Reform Commission (NRDC), reportedly threatened to levy “double or triple” fines if companies contested alleged violations of China’s Anti-Monopoly Law (AML). Among the companies represented, according to Reuters, were Samsung, Microsoft, Volvo and Qualcomm.
“The AML marked its fifth anniversary in August. Until recently, enforcement had been focused on cartels in local markets, such as ones involving rice noodles, coffee and tea leaves, milk procurement and sand extraction. But in January 2013, NRDC announced fines against manufacturers of LCD panels—the first time the AML was enforced against cartel activity that occurred outside China,” added Shores.
By all indications, investigations of foreign companies is on the upswing. According to a CNBC story citing unnamed sources, at the July 2013 meeting, Xu claimed that half of the companies in attendance were currently under investigation, or had been investigated in the recent past.
“Antitrust enforcement authority is divided in China between NRDC, which investigates pricing-related conduct, and the State Administrative for Industry and Commerce (SAIC), which enforces non-price conduct such as supply restrictions, joint boycotts, and market allocation,” explained Shores. “ Like many of its international counterparts, the AML prohibits agreements between competitors to fix or control prices. But NRDC and SAIC regulations indicate that the agencies take a broader view than other authorities of what constitutes a violation. Parallel prices and information exchanges, for example, may be considered prohibited conduct.”
China, like many emerging antitrust regimes, has entered into cooperation agreements with other regulators, including the U.S. Department of Justice and the European Union. Like laws in other countries, AML regulations contain a whistle-blower provision indicating that favorable treatment may be given to those who first expose a violation. Unlike other laws, however, leniency is not guaranteed; NRDC retains discretion to impose any punishment it sees fit.
“In the early years, NRDC imposed fines that were relatively light, by international standards. But while still smaller than those levied by the United States and the European Union, the size of fines is increasing,” said Shores. “The LCD manufacturers, which were fined based on conduct predating the AML, were fined roughly $57 million. NRDC officials note that fines under the AML would have been significantly higher.”
Shores added that SAIC recently publicized decisions in recent cases that shed light on the agencies’ investigatory techniques. The evidence consisted of employee and customer interviews, written agreements, minutes of trade association meetings and other evidence obtained through on-site inspections. Information from other antitrust authorities was likely relied upon as well.
As is increasingly the case in other jurisdictions, much of the evidence appears to have come from competitors.
“In August, NRDC announced that six powdered milk producers, five of which were foreign, paid fines totaling $110 million for price-fixing and other AML violations. Three others escaped punishment altogether because they took ‘self-rectification’ measures that included admitting to unlawful conduct,” said Shores. “China’s recent aggressive enforcement measures—not to mention seemingly strong encouragement to come clean or else—warrant focused and immediate attention to compliance efforts.”
Below are five recommendations that Shores suggests multi-national companies operating in China might undertake to try and steer clear of a tough antitrust environment:
- Ask an experienced, independent, outside counsel to conduct an audit of existing practices to ensure current compliance with the AML. While in-house counsel may have the requisite background to do such an audit, they lack the objectivity and professional distance that may be needed if the investigation uncovers an issue related to an organization’s “sacred cows.”
- Craft and implement comprehensive and firm-wide compliance training.
- Consider providing one-on-one training for sales personnel or others in particularly high-risk positions.
- On an ongoing basis, carefully monitor all communications with competitors.
- Before sending your employees off to trade association meetings, give them clear guidance as to the line between permissible and impermissible conversations.
Emerging Trends is a regular feature from Kaye Scholer, highlighting emerging legal or business issues and the potential impact such issues may have for companies or executives operating in a particular space.
Laura Shores is a partner in the Antitrust Practice of the Complex Commercial Litigation Department in Kaye Scholer’s Washington, DC office. Laura is a trial lawyer with more than 20 years of experience in complex civil litigation, including antitrust and securities fraud matters. She can be reached at firstname.lastname@example.org.
About Kaye Scholer LLP
Founded in New York in 1917, Kaye Scholer combines the continuity and business acumen of a century-old law firm with a forward-looking, results-driven approach focused around lasting client relationships. With strengths in five core legal areas—corporate, finance, intellectual property, litigation and real estate, and two key industries—life sciences and financial services, we offer strategic guidance and legal services to public and private entities facing litigation, transactional or governance challenges. Our lawyers regularly advise on matters across multiple legal jurisdictions, including in the US, Canada, EU, UK, China and Japan. For additional information, please visit www.kayescholer.com.
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