On October 21, 2015, the Korea Fair Trade Commission (the “KFTC”) announced a comprehensive enforcement process reform initiative aimed at improving due process for targets of KFTC investigations, which will also improve the transparency, effectiveness and efficiency of the KFTC’s enforcement program. Dubbed as “Enforcement Process 3.0,” this major reform plan overhauls the KFTC’s entire enforcement process, from opening an investigation to conducting an on-site investigation (so-called dawn raid) to internal case management infrastructure and to internal records maintenance requirement. To this end, the KFTC plans to adopt or revise various rules and operating procedures, and implement a records maintenance system during the remainder of this year.

  1. Background

Over the years, the KFTC has been criticized for lacking proper procedural safeguards necessary for the transparency of its enforcement program, employing unfair investigative techniques, unduly delaying the disposition of pending matters, and also not according due process to targets of its often vaguely-defined, widereaching and de facto compulsory investigations but without formal compulsory process. Then earlier this year, the KFTC suffered a number of high-profile court room losses where its administrative sanctions with a significant amount of fines were vacated due to its procedural deficiencies, or weakness of the evidence gathered under deficient investigative procedures or insufficient internal case control. In response, recognizing that the absence of fair investigative procedures and due process actually hurts its ability to carry out the enforcement mission efficiently and effectively, imposes undue and wasteful burdens on the business community, and ultimately undermines the public’s trust in the KFTC’s legitimate law enforcement, the KFTC adopted a bold new move to reform its enforcement procedures. In so doing, the KFTC distinguished itself from some of the neighboring countries’ antitrust authorities who have not yet adopted transparency and due process-centric procedures.

  1. Key Components of KFTC’s “Enforcement Process 3.0” Reform Initiative
    1.  KFTC to adopt “Investigative Procedural Rules” for on-site investigations and compliance rules for investigators

The KFTC plans to adopt investigative procedural rules to increase the transparency of its on-site investigations and improve due process.. Specifically, among other things, the new investigative procedural rules will include: (i) to avoid a fishing expedition, the requirement to specify the purpose and scope of the inquiry, the name of the investigation target and place; (ii) the right to refuse the investigation that exceeds the expressly stated scope of the inquiry; (iii) the right to request and have legal counsel present throughout the entire investigative process, including during the dawn raids and witness examinations; (iv) the right to review and confirm investigators’ detailed investigation reports of on-site investigations and the right to receive a copy of an inventory of materials collected by the investigators during dawn raids; and (v) a provision that KFTC investigators who violate the new procedural rules will be penalized for violations, such as failing to make investigation reports or employing unfair or overbearing investigative techniques.

  1. KFTC to revise “Case Management Process Rules” to strengthen internal control of case management processes

The KFTC plans to revise its internal case management process rules. Among other things, the revisions will incorporate the following changes: (i) the requirement for KFTC investigators to record ex officio investigations in the electronic system prior to conducting an on-site investigation (until now, only cases triggered by a third-party complaint or leniency application had to be entered into the formal records system); (ii) the requirement to notify investigation targets of the disposition regardless of whether the KFTC found a violation; (iii) the requirement for KFTC investigators to forward matters to the Commission for deliberation within 6 months from the opening of the inquiry (but 9 months for abuse of market dominance and unfair assistance cases, and 13 months for cartel cases); (iv) the requirement to enter in the electronic case management system the expiration date of the statute of limitations for formal agency decision for KFTC matters and the expiration date of the statute of limitations for criminal indictment for public prosecutors; and (v) the requirement to implement a recusal/disqualification procedure for those within the KFTC performing the quasi-judicial functions.

  1. KFTC to revise “Leniency Program Rules” requiring examination of leniency applicant’s credibility and content of admissions

To prevent false, exaggerated or unfounded claims in leniency applications or overstatements by leniency applicants, the KFTC plans to require the leniency applicants to appear before the Commission during separate leniency application status determination hearings so that the Commission may verify the credibility and content of the leniency applications. In addition, under the new rules, the Secretary General of the KFTC can no longer grant “provisional” leniency markers. Only the Commission upon its formal deliberation may grant permanent markers.

  1. KFTC to adopt “Case Records Management Rules” requiring proper maintenance of case records

To prevent the loss of case records, the KFTC plans to adopt rules on record-keeping practices. Under the new rules, the KFTC will be required to organize and maintain all of the records received, gathered or created during the entire investigative process.

  1. Implications

The KFTC itself promotes “Enforcement Process 3.0” as a revolutionary reform initiative to overhaul its enforcement practices of the past 30 years. With significantly improved procedural transparency and fairness, the KFTC may now believe that its substantive antitrust rules as well as procedural rules are consistent with today’s global standard. This procedural reform initiative provides an enhanced framework for the KFTC to execute its antitrust enforcement mission in a more transparent, efficient and effective manner in the long run. It would also help strengthen the KFTC’s legitimacy as a de facto or quasi- adjudicative body of first instance. From a perspective of the business community and antitrust bar, this reform initiative clarifies some of the murkiest procedural questions and promises a more transparent and ultimately more efficient, effective and fair antitrust enforcement regime in Korea. While it remains to be seen as to whether the new rules under the reform initiative will achieve all of the stated goals, the reform initiative will likely improve due process and set the KFTC apart from other enforcement agencies in other parts of the globe that have been criticized for lacking proper due process. It will also help level the playing field when it comes investigation targets’ right to defend themselves in a fair and transparent setting.

On a more practical level, members of the business community would be well advised to take full advantage of the new procedural rules to protect their interests and defense themselves in a more level playing field. In particular, targets of KFTC investigations may now more confidently assert their right to counsel throughout the entire investigation process whereas in the years past it depended to a degree how reasonable particular KFTC investigators were on a given matter. The enhanced internal control and records maintenance requirements within the KFTC will also help reduce the possibility of duplicative investigations and requests for the same materials when the assigned KFTC investigators change due to their periodic post rotations. On the other hand, the leniency rule change could be a mixed blessing for some members of the business community. It was not unheard of that some companies would rush to file for leniency without proper internal investigations solely for the purpose of avoiding a criminal referral and securing a guaranteed reduction in administrative fine. Under the tightened leniency regime, however, a potential leniency applicant will have to do a more thorough internal investigation before it hastily files for leniency lest it face the risk of confessing its wrongdoing but without the hoped-for benefits of a validly recognized leniency applicant.

While there are still some areas for improvement, reform or clarification (such as the attorney-client privilege issue, to name just one example), the KFTC’s just announced “Enforcement Process 3.0” is certainly a step in the right direction.