Leniency program is an effective tool in exposing cartels. This has been confirmed by over 20 antitrust jurisdictions having leniency program around the world. China joined the club on August 1, 2008, when the Anti-Monopoly Law of PRC (“AML”) came into effect. For the first time, AML expressly recognized leniency program in its intention to condemn monopoly agreements. However, AML only makes a passing reference to the policy in which “undertakings who voluntarily report to antitrust enforcement authorities on monopoly agreements and advance key evidence MAY be reduced or exempted from penalties”. Thus, it takes China’s trust busters to fashion rules to implement leniency policy.
In China, two government agencies have shared responsibilities to combat monopoly agreements, i.e., State Administration of Industry and Commerce (“SAIC”) and National Development and Reform Commission (“NDRC”). SAIC’s enforcement is limited to price-related monopoly agreements while NDRC enforces the rest types of monopoly agreements. However, the dividing line can easily be blurred in practice. For example, to raise market price, colluding competitors have to cut back outputs concertedly. It may fall into the overlapping area of SAIC and NDRC’s jurisdictions at the same time. Where the situation arises, according to an official from SAIC in a recent international conference on China’s AML, the jurisdiction issue will be worked out by the two authorities by determining which aspect is dominant, i.e. price fixing or output reduction.
Presently, there are no effective leniency rules in China. So far, only SAIC has publicized specific leniency rules for public comment, i.e., SAIC unveiled its first regulation on monopoly agreements for public comment in June 2009, which contains provisions on leniency policy; SAIC publicized the second draft towards the end of May 2010. In 2009, NDRC has also published its regulation on price-related monopoly agreements. Oddly, given that price cartels are the most commonplace monopoly agreements, NDRC’s regulation is completely silent on leniency policy.
According to SAIC’s Draft Regulation on Prohibiting Monopoly Agreements (“Draft Monopoly Agreements Regulation”) , a whistleblower has to meet several conditions to be eligible for exemption from penalty, i.e., (1) it shall be the first party coming forward to SAIC on a voluntary basis; (2) it shall report on monopoly agreement; (3) it shall provide key evidences (key evidences are defined as those enabling SAIC to initiate investigation or those dispositive in determining monopoly agreements, including participants of the monopoly agreement, products concerned, content of the agreement and means of reaching it as well as specific information in relation to its implementation); and (4) it shall actively cooperate with investigation. Upon satisfaction of all the above conditions, the whistleblower SHALL be exempted from penalty rather than MAY be exempted, as provided in the first draft.
Draft Monopoly Agreements Regulation is also noticeable, as it eliminates specific rate of reduction in penalty for the second and third whistleblowers. In the first draft regulation on monopoly agreement, the second whistleblower shall be reduced of penalty by 50% and the third by 30%. However, these rates are gone in Monopoly Agreement Draft Rules. It simply provides that other whistleblowers MAY be reduced of penalty according to specific conditions.
Despite the significant improvements China has made in fashioning cartel leniency policy, it has still a long way to go before its instrumentality of exposing cartels can be exploited to the full capacity. For instance, Draft Monopoly Agreements Regulation has no provisions on procedural matters, such as whether the authorities would issue markers to parties coming forward with key evidence, the time frame for the authorities’ review of leniency applications, whether the key evidence turned in the leniency procedure is subject to submission to court hearing civil claims? What are the rates of reduced penalties for the second and third whistleblowers? It is only after these questions and other important issues are considered and clarified before the leniency policy can become workable.
Lastly, it is expected that NDRC will coordinate its position with SAIC on leniency policy. Given the intricate jurisdictional links between NDRC and SAIC in enforcing AML against cartel agreements, it is necessary that the two authorities have unified position in this regard. Otherwise, bizarre situations may arise. For example, competitors have reached an agreement that limits price and divide sales territory. Results would be different in terms of availability of leniency depending on which authority exercises jurisdiction. It may give the whistleblowers an incentive to engage in forum shopping.