On September 26, 2017, the State Council of South Korea approved an amendment to the Enforcement Decree (“Amended Enforcement Decree”) of the Monopoly Regulation and Fair Trade Act (“MRFTA”). The Amended Enforcement Decree, which is made in accordance with the recently amended MRFTA that was announced on April 18, 2017 and will come into force on October 19, 2017, will also become effective on October 19, 2017, the same effective date as the amended MRFTA. Key provisions of the Amended Enforcement Decree are: (i) establishing a system to impose and collect a noncompliance penalty for failure to provide information requested by the Korea Fair Trade Commission (“KFTC”); (ii) raising certain jurisdictional thresholds for merger notification obligations; (iii) increasing the upper limit on administrative fines for repeat violations of the MRFTA; (iv) introducing the payment of a reward for reporting the provision of inappropriate benefits to persons with special interest; and (v) easing the conditions for legality determination on the misappropriation of technology/unfair poaching of employees.
I. Main Apects of the Amended Enforcement Decree
1.Establishing a system to impose and collect a noncompliance penalty for failure to provide information requested by the KFTC
A. Introduction of grounds to support a noncompliance penalty for noncompliance with the KFTC’s information request (The amendments to the MRFTA)
Under the current MRFTA, the KFTC could only impose an administrative surcharge (Article 69-2(1)(6)) for failure to comply with its submission (reporting) request. The amended MRFTA’s newly added Article 67(9) carries a criminal sentence of up to 2 years in prison or a criminal fine of up to KRW 150 million. The amendment also adds Article 50-4, which empowers the KFTC to impose a daily noncompliance penalty of up to 0.3% of a company’s average daily turnover for the company’s continued noncompliance even after the KFTC, through its sub-Commission rather than full-Commission deliberation meeting, reorders compliance with the information request on the basis that the requested information is necessary to determine the legality of the conduct at issue.
B. Preparation of specific details on the use of a noncompliance penalty: duration of penalty, imposition method, penalty rate, and collection procedure (The Amended Enforcement Decree)
The Amended Enforcement Decree creates Article 57-4, which stipulates the following: (i) The duration of the daily noncompliance penalty lasts from the day after the deadline for the submission until requested submissions are made; and (ii) The noncompliance penalty can be imposed within 30 days after the deadline when the KFTC imposes a penalty for the first time on a particular business, and if that business continues to resist compliance, the KFTC can impose a penalty on the business every 30 days from the deadline for the submission. Also, the Amended Enforcement Decree adds Article 57-3 and Table 1-5 to the Enforcement Decree, which provide that, (i) the average daily turnover that serves as the basis for the noncompliance penalty is calculated by dividing the company’s total turnover for 3 years ending on the deadline by the total number of days during that 3-year period; (ii) specific penalty multiplier, described in the table below, depends on the offender’s average daily turnover; and (iii) the KFTC has discretion to increase the penalty amount up to 150% or decrease to 50%, taking into account the offending company’s efforts to comply, degree of noncompliance, and reasons and consequences of noncompliance. (However, the amount of penalty still cannot exceed 0.3% of an average daily turnover).
2. Raising the turnover thresholds for merger notifications
Due to economic growth, domestic firms have seen an increase in both assets and turnover. As a result, there have been continued discussions about the need to reasonably adjust the merger notification thresholds. The Amended Enforcement Decree makes changes to Article 18(1) - (3). Currently, a company must report its proposed business combination if its worldwide total amount of assets or turnover is equal to KRW 200 billion or more, and the counterparty’s worldwide amount of its total assets or turnover is KRW 20 billion or more. The Amended Enforcement Decree will raise the thresholds to KRW 300 billion and KRW 30 billion, respectively.
Meanwhile, under the current Enforcement Decree, (i) where both parties to the business combination are foreign companies or (ii) where a company subject to the reporting requirement is a domestic company and its counterparty is a foreign company, the business combination is reportable only where the company meets the abovementioned thresholds AND turnover in Korea of each foreign company is KRW 20 billion or more. The Amended Enforcement Decree increases the domestic turnover requirement to KRW 30 billion or more.
3. Increasing the upper limit on administrative fines for repeat violations of the MRFTA
Under the current MRFTA, the KFTC first computes the administrative fine by multiplying the relevant sales by a multiplier, which should be within the range of multipliers specified under the law and is determined by taking into account the seriousness of the illegal conduct. Next, the KFTC considers the duration and number of offenses as aggravating/mitigating factors to increase/decrease the base fine calculated above. The current upper limit to increase the fine is 50%. The Amended Enforcement Decree, in an attempt to better prevent the recurrence of offenses, will increase the upper limit to 100% by amending subparagraph 2(b) of Table 2 attached to the Enforcement Decree.
4. Introducing the payment of a reward for reporting violations of Article 23-2(1) of the MRFTA (Prohibition of Provision of Inappropriate Benefit to Person with Special Interest)
Under the existing Enforcement Decree, those who report unfair support or subsidization prohibited under Article 23-1(7) of the MRFTA are entitled to the payment of rewards. This has been so since April 2005. In comparison, however, rewards have not been available for filing a report or providing information on an act prohibited by Article 23-2(1), i.e., provision of inappropriate benefits to persons with special interest such as owner families, even though such conduct is similar in purpose and nature to unfair support or subsidization. In the interest of fairness, the Amended Enforcement Decree modifies Article 64-7 to give rewards for reporting violation of Article 23-2(1) as well.
5. Easing the conditions for legality determination on the misappropriation of technology / unfair poaching of employees
The existing MRFTA prohibits conduct that unreasonably interferes with the business activities of other companies. The law, however, bans such conduct only where business activities are made “severely” hard to be carried out as a result of the prohibited conduct. Since it is not easy to meet this requirement of severe hardship, critics argue that this provision is not very effective in protecting the technology and human resources of SMEs. To address this issue, the Amended Enforcement Decree relaxes the standard from “severely” to “considerably.”
II. Implications and Outlook
1. The introduction of a noncompliance penalty gives the KFTC an effective enforcement tool in its investigation process. From the start of the KFTC’s onsite investigations, businesses should proactively and clearly negotiate the scope of the demanded materials and the deadline to submit these materials with the KFTC case handlers, organize the demanded materials, and expedite the document review process.
2. The increased upper limit on administrative fines for repeat offenses will likely inhibit the recurrence of anticompetitive conduct. Companies with a record of antitrust violations should preemptively take measures to reduce the likelihood of violation through employee education and training, and introduction of compliance programs.
3. Whistle-blowing from the inside may be on the rise due to the payment of a reward for reporting violations of provision of inappropriate benefits to owner families. This means the KFTC may intensify investigations into unfair internal transactions.
4. The KFTC will more actively investigate and penalize conduct that unreasonably interferes with business activities of SMEs such as misappropriating technology and unfairly poaching employees.