The Price Bureau of Guangdong Province (“GDPB“) recently published an article about an investigation in a price-fixing cartel among sea sand dredging companies on its official website 1. According to the article, the price of sea sand in Guangdong province rose from around RMB20 per cubic meter to over RMB40 per cubic meter since 2009, which seriously affected the progress of many major infrastructure projects of the State. This unusual trend attracted the attention of the government of Guangdong province. In order to find out the reason behind the price increase, GDPB initiated an investigation in February 2012 under the guidance of the Price Supervision and Anti-monopoly Bureau of the National Development and Reform Commission (“NDRC“).
After rigorous investigation, GDPB found out that over 20 companies licensed to dredge sea sand formed a so-called “Sea Sand Association” and regularly coordinated the amount of “resource exploitation fee”. As resource exploitation fee was an important component of the sea sand price, its increase directly led to a rise of price in the sea sand market. In addition, to ensure the implementation of the cartel price, the Sea Sand Association adopted a supervising mechanism to punish those companies who broke the agreement and those who refused to join the Association.
At first, GDPB encountered difficulties in investigating the cartel due to the companies’ attempt at concealment of their illegal conducts. The bureau then took the strategy of targeting on 6 core members and used leniency program to break down their alliance. These efforts eventually enabled GDPB to obtain essential evidence of the price-fixing activities of the Association, including the names of the participants and the text messages reflecting the communications among the participants.
As a result, GDPB imposed a total of RMB759,247 of fines on three companies: two of them (Dongguan Jianghai Trading Co., Ltd. (东莞市江海贸易有限公司) and Guangdong Baohai Sand and Stone Co., Ltd. (广东宝海沙石有限公司)) were identified as leaders/organizers of the cartel and the other one (Shenzhen East Sea Century Information Consulting Corporation (深圳东海世纪信息咨询有限公司)) was identified as the primary beneficiary of the cartel. Since Guangdong Baohai Sand and Stone Co., Ltd. voluntarily provided important evidence under the leniency program, it was granted a reduction of 50% of the fine according to Article 46 of the Anti-Monopoly Law (“AML“). Therefore, GDPB only imposed a fine of about RMB145,300, equaling to 5% of its sales revenue made in the last year. For the other two companies, i.e. Dongguan Jianghai Trading Co., Ltd. and Shenzhen East Sea Century Information Consulting Corporation, the fines equaled to 10% of the two companies’ sale revenues of the last year, which were about RMB134,500 and RMB479,400 respectively. In addition, GDPB warned the other participants against violation of the AML without imposing monetary punishment.
There are a few points that we think are worth noting about this investigation:
First, NDRC’s public discussion about the leniency treatment in the sea sand case is a positive sign that the transparency of leniency program is increasing. The current provisions in the AML and the rules issued by the enforcement agencies are quite high-level with regard to the leniency program. Besides, Chinese antitrust enforcement agencies rarely disclose how they apply the leniency provisions in practice. The two factors combined create uncertainties in the procedures and outcome of leniency applications. We believe that the type of disclosure made by the authorities in the sea sand case will help to reduce the uncertainties to some extent.
Second, the current provisions only give a general description of the “important evidence” to be submitted in return for leniency treatment, but do not specify the types of evidence admissible to the authorities. The sea sand case gives us some insight in this regard: “important evidence” does not necessarily refer to a written agreement among the participants; it could also be other useful information, such as the names of the participants and text messages reflecting the communications among the participants.
Third, Guangdong Baohai Sand and Stone Co., Ltd., a leader/organizer of the cartel was granted fine reduction in the present case. However, according to Article 20 of the Procedural Rules of Administration of Industry and Commerce on Investigation of Cases regarding Monopoly Agreements and Abuse of Dominance (《工商行政管理机关查处垄断协议、滥用市场支配地位案件程序规定》), an organizer of a cartel is not eligible for leniency treatment 2. This raises a question: does NDRC follow different rules in terms of an organizer’s qualification for leniency? Currently there are no provisions in the rules promulgated by NDRC that prohibit a leader/organizer from benefiting from the leniency program. We are of the view that this is an important issue to be clarified by the authorities, especially in relation to those cases where NDRC and SAIC both have jurisdiction.
Forth, it is worth noting that over 20 companies participated in the cartel, whereas only 3 of them were fined. This reflects the focus of the enforcement authorities in dealing with AML violations at the present stage, which is to rectify the wrongdoings of the market players instead of imposing monetary punishment.