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KFTC to Expand Scope and Penalties of Korea’s Antitrust Enforcement Regime

November 2018 - EU & Competition. Legal Developments by Lee & Ko .

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Korea’s competition authority, the Korea Fair Trade Commission (the “KFTC, has announced a proposal to expand its existing enforcement authority to the courts and prosecutors through a full-scale reform of the Monopoly Regulation and Fair Trade  Act, Korea’s primary competition statute. If all proposed reforms are passed by the National Assembly as currently drafted, the impact on the Korean economy and antitrust enforcement will require companies doing business in Korea to tighten their risk management and compliance measures, as the scope and penalties of Korean antitrust enforcement would be broadened.

The following are a few of the proposed reforms that companies should take into consideration in developing their risk management and compliance programs for Korea.

  • Stricter regulation of information exchange . Currently, information exchange is not illegal in Korea, unless accompanied by actual collusion between the exchanging parties. However, the draft bill proposes adoption of a presumption of collusion if companies exhibit parallel anti-competitive conduct (whether or not they agreed to act in parallel) and the companies participated in information exchanges necessary for such parallel conduct. The KFTC has also proposed to include any “exchange of information on price, production quantity or other information that substantially limits competition” as a new category of prohibited (i.e. collusive) conduct.

  • New merger filing threshold based on “transaction value” . Currently, the Korean merger review process only considers the parties’ worldwide and Korean assets/turnover in determining whether a merger filing is required. However, this may not catch competitively significant transactions such as acquisitions of start-up companies with significant potential upside but insufficient assets/turnover to trigger a merger filing. For example, the 2014 Facebook-WhatsApp merger with approximately 24 trillion Korean Won in consideration was exempt from Korean merger filing requirements due to Whatsapp’s relatively low Korean turnover. To address the perceived loophole, the KFTC proposes to amend current merger control provisions to include a new ‘transaction value’ threshold, so that mergers which do not meet the current asset/turnover thresholds may still require notification if the consideration for the merger meets the ‘transaction value’ threshold.

  • Abolishment of the KFTC's exclusive criminal referral right . The KFTC proposes to abolish its exclusive right of referral for criminal prosecution of “hard core cartel” cases (which accounts for 90% of cartel cases) such as price-fixing and bid-rigging. This would enable the Prosecutors’ Office to independently investigate and prosecute antitrust violators, which it currently cannot do without the KFTC’s separate referral. In addition, to reflect concerns about the effect on leniency applications and potential for overlapping investigations by the KFTC and the Prosecutors’ Office, the KFTC is working with the Prosecutor’s Office to amend the existing leniency application process. For example, while the existing leniency process would primarily remain in place and the KFTC would remain as the sole channel for leniency applications, the KFTC would immediately share any leniency-related information with the Prosecutors’ Office.

  • Increased administrative fines for antitrust violations. To respond to criticisms that current administrative fines do not have a sufficient deterrence effect, the KFTC proposes to uniformly double the ceiling on administrative fines for all types of antitrust violations. For example, the administrative fines for cartels, abuse of dominance, and unfair trade practices will be increased from 10% to 20%, 3% to 6%, and 2% to 4%, of relevant turnover.

  • Introduction of private injunctive relief for individuals. Currently, an individual cannot seek court injunctions against potential competition law violations. The proposed draft bill allows the right to seek private injunctive relief from the courts to stop an alleged violation (i.e. unfair trade practices) which may cause significant harm to an individual.

  • Reduction of statutory limitation period for antitrust investigations . The statutory limitation period for KFTC investigations will be shortened from the current maximum of 12 years to a maximum of 7 years. However, for cartel cases, the current statutory limitation period (7 years from termination of cartel activities, and 5 years from commencement of KFTC investigation) will remain intact, given the longer period required for cartel investigations.

The KFTC’s resolve to strengthen anti-cartel enforcement is clearly evident in the reform proposal. The lack of attorney-client privilege in Korea already makes risk management difficult, even with effective compliance programs. Accordingly, the fact that mere information exchange could lead to criminal prosecution is quite controversial. Moreover, with the proposed introduction of class actions for private enforcement, and punitive (up to treble) damages to take effect from September 2019, no amount of emphasis on antitrust compliance can be seen as too great.

The final bill for amendment will be presented to the National Assembly within this final quarter of 2018 and may be further revised based on review and any follow-up discussions within the National Assembly.

If you have any questions regarding this article, please contact below:

Jae Hoon Kim (jaehoon.kim@leeko.com)

Hwan Jeong (hwan.jeong@leeko.com)

Genny S. Kim (genny.kim@leeko.com)

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