Exemption for leniency applicants

On March 5, 2013, thirteen members of the National Assembly, including Assemblyman Seok-Hoon Kang of the ruling Saenuri Party, proposed an amendment (the “Amendment”) to the Monopoly Regulation and Fair Trade Act (“MRFTA”) which concerns the Korea Fair Trade Commission (“KFTC”)’s exclusive right of referral to the Prosecutor’s Office.  If the amendment is implemented, three government agencies, which include the Board of Audit and Inspection (“Board of Audit”), will be granted the authority to make a request to the KFTC to refer a case to the Prosecutor’s Office.  The above is also noteworthy since President Keun-Hye Park’s commitment to “democratization of the economy” is reflected in the intent of the Amendment, and this would be viewed as significant changes to the KFTC’s exclusive right of referral to the Prosecutor’s Office if the Amendment is adopted by the National Assembly.

  • Background: Criticism of the KFTC’s Exclusive Right of Referral

Currently, under the MRFTA, only the KFTC can refer violators of the MRFTA to the Prosecutor’s Office (“Exclusive Right of Referral”).  Critics have argued that the KFTC has not properly exercised the Exclusive Right of Referral to increase the level of deterrence, pointing to the low percentage of referrals compared to cases where the KFTC imposed corrective orders or administrative surcharges.  In this context, President Park has pledged to improve the KFTC’s exercise of the Exclusive Right of Referral in order to promote “democratization of the economy”.

  • Broadening Obligatory Referral: Regulation on Obligation to Refer Cases to the Prosecutor’s Office if the Board of Audit, the Public Procurement Service or the Small and Medium Business Administration makes a request to the KFTC

Under the Amendment, the KFTC has the obligation to refer cases to the Prosecutor’s Office if the Board of Audit, the Public Procurement Service or the Small and Medium Business Administration makes a request to the KFTC to refer a case to the Prosecutor’s Office based on ripple effects of the violation to society, effects to national finance and the amount of damages that small/medium size businesses incur as long as the violator is not a leniency applicant.

<Proposed Amendment>

Article 71 (Referral)

(4) Even if the KFTC has decided not to refer certain cases to the Prosecutor’s Office since it found that such cases do not constitute cases requiring referral, the Board of Audit, the Public Procurement Service or the Small and Medium Business Administration may request that the KFTC refer such cases to the Prosecutor’s Office based on ripple effects of the violation to society, effects to national finance and the amount of damages that small/medium size businesses incur.  If such request is made, the KFTC will have the obligation to make a referral of such cases to the Prosecutor’s Office.  However, a violator that falls under Article 22-2, Section 1 above will not be subject to this Section.

  • Exception to Protect the Leniency Program

In order to protect the effectiveness of the leniency program, the Amendment made exceptions for leniency applicants as set forth under Article 22-2, Section 1 of the MRFTA.  Lawmakers seemed to have considered the difficulties of detecting and investigating cartel activities and reducing cartel activities without the effectiveness of the leniency program.

  • Companies should be mindful that, while the KFTC’s “Exclusive Right of Referral” is still maintained, the scope of government agencies that may request referral and the obligation to refer cases to the Prosecutor’s Office have broadened

If the Amendment is implemented, instances where the Board of Audit, the Public Procurement Service or the Small and Medium Business Administration requests the KFTC to refer cases to the Prosecutor’s Office is expected to increase.  Notably, these government agencies may rely on the Amendment in response to civil complaints.  Therefore, companies which may have violated the MRFTA should be mindful of how to deal with such possibilities of requests for referral by these government agencies