In order to effectively deter violations of the law through active referrals to the Prosecutor’s Office, the Korea Fair Trade Commission (hereafter the “KFTC”) amended its “KFTC Guidelines to Referrals of Violations of the Monopoly Regulation and Fair Trade Act, Etc.” (hereafter the “Referral Guidelines”), which became effective as of August 22, 2014.
- Background of Amendment
- The KFTC amended the Referral Guidelines in order to achieve the following purposes: (i) to increase transparency and reasonableness in the exercise of the right of referral by newly establishing specific and quantified referral standards, as the relevant amendment enables referrals with respect to, among others, the provision of unfair advantages to specially related persons and violations of the Act on Fair Trade in Large Scale Distribution Businesses (hereafter the “Large Scale Distribution Act”); and (ii) to strengthen the deterrent effect on violations of the law through active exercise of the right of referral with respect to individuals.
- Key Points of Amendment
- (Newly established standards for referring individuals) In principle, individuals should be referred to the Prosecutor’s Office in cases where, among others, such individuals (i) have substantive responsibility with respect to the violations of the law or (ii) obstructed the KFTC’s investigations through the use of physical force.
< Reference 1 > Individuals Who Should Be Referred (Article 2(5) of the Referral Guidelines)
- An individual who engaged in the decision making regarding violation of the law through acts such as providing instruction, authorization or ex post approval;
- An individual who can be viewed to have actively implemented acts that are in violation of the law;
- An individual who has obstructed the KFTC’s investigations by using violent language or physical violence during investigations or by intentionally preventing or delaying the investigators’ entry onto site;
- An individual who is practically responsible for compliance in case of failure to comply with the KFTC’s corrective measures or prohibition order; or
- An individual who is practically responsible for the violation of the law in case a violation of the law of a company is material or intentional.
- (Newly established standards for referrals with respect to the provision of unfair advantages to specially related persons) In the case a company that belongs to a large conglomerate (with the amount of total assets equal to or greater than KRW 5 trillion) provides unfair advantages through transaction under significantly favorable conditions to a specially related person or a company in which the specially related person directly holds shares (Article 23-2 of the Monopoly Regulation and Fair Trade Act (hereinafter“MRFTA”)), in principle, such company should be referred if the legal violation point is equal to or greater than 2.5 points according to the newly established point standards where the degree of unfairness, violation amount and the percentage of shares held by the owner family should be taken into account.
- Not only the company that belongs to the large conglomerate, but also the specially related person who engaged in the relevant violation may be referred to the Prosecutor’s Office.
- (Specification/quantification of standards for referrals with respect to acts of unfair support) Standards to determine whether an act of unfair support should be referred were not specific under the previous referral standard since it provided that an act of unfair support may be referred to the Prosecutor’s Office “in the case where support was actively provided with affirmative intent to support and the effect of such support is significant.” In this connection, in the amended Referral Guidelines, referral standards were specified by (i) newly establishing detailed evaluation standards that took into account the effect of support, intention of such support and the scale of the relevant transaction executed for the purpose of support and (ii) stipulating that the relevant act should in principle be referred if the points for the legal violation are equal to or greater than 2.5.
- (Newly established referral standards for violations of the Large Scale Distribution Act) Among the acts in violation of the Large Scale Distribution Act, in principle, the acts that are subject to referral, i.e., “coercing exclusive transactions (Article 13 of the Large Scale Distribution Act)” and “demanding the provision of management information (Article 14 of the Large Scale Distribution Act),” should be referred to the Prosecutor’s Office if the legal violation point is equal to or greater than 2.5 according to the detailed evaluation standards where the degree of damages, amount of turnover and the number of suppliers are taken into account.
- (Newly established statutory grounds for referrals with respect to retributive provision of disadvantage) The Referral Guidelines (Article 2(1)) provide that the retributive provision of disadvantage to other parties including transacting counterparties based on reasons such as the other parties’ application for dispute mediation, report, or cooperation with the KFTC investigations should in principle be referred to the Prosecutor’s Office pursuant to the establishment of Article 23 of the MRFTA (Prohibition of Retributory Measures) and Article 18 of the Large Scale Distribution Act.
※ Provided, that the exercise of the right of referral related to Article 23-2 of the MRFTA shall become effective as of November 29, 2014.
- Increased Risk for Companies and Individuals for Violating the MRFTA, Etc
- Due to the recent criminalization of MRFTA violations and strengthening of referral standards under the Referral Guidelines, risk of referral is expected to increase in the future for companies and individuals.
- In particular, the ratio of the referral of individuals was merely 11.1% in previous cartel cases (2011-Jul. 2014). However, since the risk of criminal punishment of officers and employees engaging in violations of the law has increased as a result of strengthened standards for referral of individuals, it is important to implement training/preventive measures in advance to the personnel in charge.