On June 25, 2013, partial amendments (“Amendments”) to the Monopoly Regulation and Fair Trade Act (“MRFTA”), the Fair Transactions in Subcontracting Act (“Subcontracting Act”) and the Act on Fair Transactions in Large Franchise and Retail Business (“Franchise and Retail Business Act”) were passed by the plenary session of the National Assembly.  The key provision in such Amendments is the abolition of the Korea Fair Trade Commission (“KFTC”)’s exclusive right of referral to the Prosecutor’s Office.

  • Strengthening of the KFTC’s Obligatory Referral: Obligation to Refer Cases to the Prosecutor’s Office if the Board of Audit and Inspection (“Board of Audit”), the Public Procurement Service (“PPS”) or the Small and Medium Business Administration (“SMBA”) Makes a Request for Referral to the KFTC

According to the Amendments, even if the KFTC decided not to refer certain cases to the Prosecutor’s Office since it found that the requirements for referral were not met, the Chairman of the Board of Audit, the Administrator of the PPS or the Administrator of the SMBA may make a request to the KFTC to refer a case to the Prosecutor’s Office based on the ripple effects of the violation to society, effects to national finance and the extent of damages to small/medium size businesses incur.  In case of such request, the KFTC has the obligation to refer the case to the Prosecutor’s Office.  Under the Amendments, the authority to request criminal referral, which is currently exclusive to the Prosecutor’s Office, has been expanded to three additional government agencies such as the Board of Audit.

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  • Exception Recognized for Leniency Applicants

The Amendments recognized an exception to referral by expressly stipulating that, for cartels under the MRFTA, a leniency applicant shall not be referred to the Prosecutor’s Office.  Such exception is recognized in order to uncover and eliminate cartels through voluntary reporting of cartels.  While the KFTC previously exempted leniency applicants from criminal referral under relevant guidelines, there was some controversy on whether the KFTC could provide an exemption for referral to a leniency applicant in the case that the Prosecutor’s Office requested criminal referral because there was no express provision in the relevant laws.  However, based on the Amendments, even if there is a request for criminal referral the KFTC may grant an exemption from criminal referral to the leniency applicant.

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  • Increase in Criminal Referrals for Violations of Laws Relating to Fair Trade Expected

The KFTC announced that its exclusive right to criminal referral is essentially abolished due to the Amendments (June 25, 2013 Press Release).  The Amendments will become effective early next year (six months after the official announcement) and, the KFTC plans to hold discussions regarding concrete standards and procedures in regard to requests for criminal referral with the relevant government agencies.

Based on the Amendments, it is anticipated that criminal referrals for violations of fair trade laws will increase.  In this connection, it appears that companies may need to take multilateral and active measures regarding, not just the KFTC, but other related government agencies, such as the SMBA, the Board of Audit and the PPS, when violations of fair trade laws occur.

Meanwhile, although the Amendments regarding the above abolition of the system of exclusive criminal referral (June 25, 2013) and concentration of business (act of unreasonable support) (July 2, 2013), which are in line with the government’s economic democratization policy, were all passed during the plenary session of the National Assembly, other MRFTA amendments relating to recognition of punitive measures for damages and private claims for injunctions, among others, are currently under review by the National Policy Committee of the National Assembly.  Therefore, it appears that there will be continued interest in the status of the above Amendments due to the likelihood of increasing corporate liability.