What, if any, criminal sanctions are there for cartel activity?
Corporate violators are subject to a criminal fine of up to 200 million won. Individuals are subject to imprisonment of up to three years or a criminal fine of up to 200 million won, or both. Under the Monopoly Regulation and Fair Trade Act (MRFTA), the Korea Fair Trade Commission (KFTC) must first make a referral to the Prosecutors' Office for a party to be indicted for illegal acts where criminal sanctions may be imposed. Meanwhile, under the 16 July 2013 amendments to the MRFTA, which became effective on 17 January 2014, the KFTC’s obligatory referral obligations have been strengthened. Prior to the amendments, only the prosecutor general could make a request for referral to the KFTC.
According to the amendments to the MRFTA, the chair of the Board of Audit, the administrator of the Public Procurement Service or the administrator of the Ministry of SMEs and Start-ups may make a request to the KFTC to refer a case to the Prosecutor’s Office. If such request for referral is made, the KFTC is obliged to make such referral. The amendments to the MRFTA also explicitly recognise an exception to referral in the case of cartel activity leniency applicants.
The KFTC is increasingly filing criminal referrals with the Prosecutors’ Office against corporations as well as individuals. Upon investigation and indictment by the Prosecutors’ Office, in most cases the courts imposed only criminal fines (rather than imprisonment) on individuals as well as corporations. To date, this trend appears to be continuing. In a small number of cases, however, the courts imposed imprisonment on individuals with or without a suspension of execution.
The number of criminal referrals made per year since 2007 are as follows:
- 2007: 7;
- 2008: 5;
- 2009: 5;
- 2010: 1;
- 2011: 8;
- 2012: 2;
- 2013: 12;
- 2014: 36;
- 2015: 9;
- 2016: 22;
- 2017: 27;
- 2018: 44;
- 2019: 19; and
- 2020: 5.
What civil or administrative sanctions are there for cartel activity?
The KFTC can impose administrative fines against corporate violators that engaged in cartels of up to 10 per cent of the relevant sales (increased to 20 per cent in the Amendment) and, if there are no sales, an amount of up to 2 billion won. ‘Relevant sales’ refers to the total revenue generated during the period of the cartel with respect to the products or services directly or indirectly affected by the cartel. Corporate violators are also subject to a cease-and-desist order and other appropriate administrative corrective orders. While in some cases only a corrective order is issued regarding cartel activities, in most cases an administrative fine is imposed along with the corrective order. There are no civil sanctions that may be pursued by the government.
The size of administrative fines that are imposed on cartel cases is continually increasing. Some of the recent examples of cartel cases where a large administrative fine was imposed are:
- the Liquefied Petroleum Gas case (2009);
- the Refineries case (2011);
- the Life Insurance case (2011);
- the Steel Sheet case (2012);
- the Honam Express Railway Construction Bid Rigging case (2014); and
- the Scrap Metal case (2021).
During 1981 to 2001 there were 359 cartel cases that resulted in guilty verdicts or pleas. The average total of fines issued for each of those years was 22,187 million won. The total number of guilty verdicts and fines in subsequent years were:
- 2002: 47 guilty verdicts, total fines 53,109 million won;
- 2003: 23 guilty verdicts, total fines 109,838 million won;
- 2004: 35 guilty verdicts, total fines 29,184 million won;
- 2005: 46 guilty verdicts, total fines 249,329 million won;
- 2006: 45 guilty verdicts, total fines 110,544 million won;
- 2007: 44 guilty verdicts, total fines 307,042 million won;
- 2008: 65 guilty verdicts, total fines 197,479 million won;
- 2009: 61 guilty verdicts, total fines 52,932 million won;
- 2010: 62 guilty verdicts, total fines 585,822 million won;
- 2011: 71 guilty verdicts, total fines 577,902 million won;
- 2012: 41 guilty verdicts, total fines 398,866 million won;
- 2013: 46 guilty verdicts, total fines 364,731 million won;
- 2014: 76 guilty verdicts, total fines 769,428 million won;
- 2015: 88 guilty verdicts, total fines 504,919 million won;
- 2016: 64 guilty verdicts, total fines 756,040 million won;
- 2017: 69 guilty verdicts, total fines 229,439 million won;
- 2018: 157 guilty verdicts, total fines 237,950 million won;
- 2019: 76 guilty verdicts, total fines 73,762 million won; and
- 2020: 83 guilty verdicts, total fines 149,387 million won.
Do fining or sentencing principles or guidelines exist? If yes, are they binding on the adjudicator? If no, how are penalty levels normally established? What are the main aggravating and mitigating factors that are considered?
The KFTC’s Notification on Detailed Standards Regarding Imposition of Administrative Fines is the guideline on the imposition of administrative fines and, as an administrative regulation, it has binding force internally at the KFTC. Administrative fines for unreasonable collaborative acts are calculated by multiplying the imposition rate by the degree of violation depending on the severity of violations (0.5 per cent to 10 per cent) with the total revenue generated during the period the cartel operated with respect to products or services directly or indirectly affected by the cartel (‘relevant sales’). The severity of violations may be classified into very ‘severe’, ‘severe’ or ‘less severe’ violations by considering the details of violation (eg, whether there was restraint of competition and whether monitoring or sanction measures were prepared and undertaken to implement the agreement) and extent of violation (eg, participating enterprise’s market shares in the relevant market, relevant sales, scope of unreasonable gain and damage and regional scope of the effect of the violation).
Key factors for an increase in administrative fines include:
- if the statutory violation was repeated and was subject to the KFTC’s measures in the past five years, and if the latter, the number of times;
- if the statutory violation period is extensive; and
- if other enterprises that did not participate in the statutory violation were retaliated against.
Key factors for reduction in administrative fines include:
- where there was agreement on collaborative acts, but such agreement was not implemented;
- cooperation in the KFTC investigation; and
- voluntary correction of the statutory violation (here, voluntary correction should be beyond simply discontinuing the violation, but rather it should involve an affirmative removal of any effect caused by the violation (ie, price reduction)).
The KFTC may make a criminal referral of a violator to the Prosecutors’ Office, and has prepared criminal referral guidelines that stipulate such referral matters. Under the criminal referral guidelines, penalty points are assigned to the violation depending on the specific type of violation and severity of the violation, and if the total penalty points exceed a certain level, the violator shall be subject to such referral. For example, in the case of cartels, high penalty points are assigned to hard-core cartels (ie, price fixing, output restriction cartels, market allocation cartels and bid rigging). With respect to the severity of violation, higher penalty points would be assigned the higher the total market share of cartel participants; the wider the area affected by the cartel (ie, geographic scope); the more coercive the participation in the cartel; and longer the cartel period are. The total penalty points would be calculated pursuant to a certain formula, and if the penalty points for the violator are 1.8 points or more, the violator would be subject to referral. The referral guidelines stipulate the criteria for calculating penalty points for enterprises as well as individuals.Compliance programmes
Are sanctions reduced if the organisation had a compliance programme in place at the time of the infringement?
The KFTC established and operates ‘Rules on Operation of Fair Trade Compliance Programs, Offering of Incentives, etc’. According to said Rules, if an organisation receives a certain grade or higher for its compliance programme from an agency designated by the Korea Fair Trade Mediation Agency or agency designated by the KFTC (which does not currently exist), it may be exempt from the duty to officially announce the fact that it is subject to the KFTC’s corrective order or such duty may be attenuated.
- Evaluation of ‘AAA (Best)’: exempt from the duty to publicly announce that the organisation is subject to KFTC’s corrective order.
- Evaluation of ‘AA (Outstanding) or A (Better than Most)’: reduction of the size of posting of public announcement in publications and the number of publications in which such announcement will be published by one level, and a reduction of the period of the announcement at the business’s website and on electronic media.
Are individuals involved in cartel activity subject to orders prohibiting them from serving as corporate directors or officers?
The MRFTA and the Korean Commercial Code do not contain provisions restricting individual employees involved in unreasonable collaborative acts from serving as corporate directors or officers. However, individual employees who participated in a leading manner in unreasonable collaborative acts may be subject to criminal punishment if the KFTC makes a criminal referral to the Prosecutors’ Office. In the case of companies under strict supervision for establishment and operation, such as financial institutions and public companies, the individual employees’ history of criminal punishment is stated as a ground for disqualification from serving as corporate directors or officers.Debarment
Is debarment from government procurement procedures automatic, available as a discretionary sanction, or not available in response to cartel infringements?
In case of a party engaging in a cartel regarding government or public institution procurement, such party may be restricted from participating in a tender held by the government or public institution for a period of up to two years. The head of the relevant government or public institution has the authority to restrict such participation.
Currently, the Act on Contracts to Which the State is a Party restricts the right of a party to participate in tenders for two years in the case where the party led the cartel and was the successful bidder; for one year in the case where the party led the cartel; and six months in the case where the party participated in a cartel.Parallel proceedings
Where possible sanctions for cartel activity include criminal and civil or administrative penalties, can they be pursued in respect of the same conduct? If not, when and how is the choice of which sanction to pursue made?
The MRFTA provides for both administrative sanctions that may be pursued by the KFTC and criminal sanctions that may be pursued by the Prosecutors’ Office. However, article 71 of the MRFTA provides for criminal prosecution only when the KFTC files a criminal referral with the Prosecutors’ Office. Under the MRFTA, the KFTC shall file a criminal referral with the Prosecutors’ Office if it determines that a violation of the MRFTA is objectively so obvious and serious as to greatly restrain competition, and the prosecutor general may request the KFTC to file a criminal referral with the Prosecutors’ Office when he or she believes that a violation of the MRFTA is objectively so obvious and serious as to greatly restrain competition. In addition, article 315 of the Korean Criminal Code and article 95 of the Framework Act on the Construction Industry provide for the offence of bid rigging, which may be prosecuted by the Prosecutors’ Office even without regard to receiving any criminal referral from the KFTC. Consequently, both administrative sanctions and criminal sanctions may be pursued in respect of the same conduct.