Subsequent to the amendment of the Monopoly Regulation and Fair Trade Act (hereinafter the “MRFTA”) on July 16, 2013 (effective as of January 17, 2014) strengthening the criminal referral obligations of the Korea Fair Trade Commission (hereinafter the “KFTC”), the KFTC has referred nearly all companies and individuals involved in almost all cartel cases to the Prosecutor’s Office. At the same time, the Prosecutor’s Office has continued to express its interest in more actively investigating antitrust cases by, for instance, announcing its plans to establish a new department in charge of investigating antitrust cases and assigning prosecutors exclusively to handle antitrust cases such as cartels (e.g., bid-riggings).
Court Imposes First Prison Sentence on Executives for Bid-Rigging
Recently, in major bid-rigging cases, Korean courts have sentenced executives and employees that participated in the bid-rigging to imprisonment.
- Bid-rigging case concerning cables used for nuclear power plants: 3 executives sentenced to 6 months imprisonment
On February 5, 2014, the Busan Eastern District Court sentenced former and current executives from 3 companies for engaging in bid-rigging of cables used for nuclear power plants to 6 months imprisonment. This case is noteworthy since it was the first prison sentence imposed on individuals engaging in cartels in Korea. The court also imposed suspended sentences (6 months imprisonment and 2 years suspended sentence) and community service against executives and employees who submitted “sham” bids while imposing criminal fines ranging from KRW 16 million to KRW 40 million against the companies involved. The defendants in this case were indicted under Article 315 of the Korean Criminal Code (crime of interference with tenders, which is specifically for bid-riggings), as opposed to under the MRFTA, and the Prosecutor’s Office issued an indictment independently without the KFTC’s criminal referral.
- Bid-rigging case concerning the four major Korean rivers restoration projects: an executive who played leading role sentenced to 2 years imprisonment
On February 6, 2014, the Seoul Central District Court found that 11 construction companies violated, among others, the Framework Act on the Construction Industry in connection with bid-rigging of the four major Korean rivers restoration projects. The court criminally fined 6 companies which played a leading role a total of KRW 75 million and 3 other companies a total of KRW 50 million. Also, the court sentenced an executive who played a leading role in bid-rigging to 2 years imprisonment, and other executives involved were imposed suspended prison sentences (18 executives) or criminal fines (3 executives and employees).
Heightened Risks of Criminal Penalties for Bid-Rigging Even in the Absence of the KFTC’s Criminal Referral Under Other Relevant Statutes such as the Criminal Code or Framework Act on the Construction Industry
In explaining the heightened criminal penalties such as the imposition of prison sentences against individuals engaging in cartels, the court noted that “measures taken in the past in bid-rigging cases involving large-scale national projects (i.e., in such cases only construction companies were sanctioned or executives were only imposed criminal fines) failed to prevent similar violations from reoccurring,” demonstrating the need for strengthening criminal penalties.
Such change in the court’s position appears to be due to criticism that, since administrative penalties, such as the imposition of surcharges by the KFTC, failed to serve as effective deterrence, cartel activities should be deterred through “heightened criminal penalties on individuals.”
In light of recent court decisions such as the above, it is expected that the Prosecutor’s Office would independently issue indictments without the KFTC’s criminal referral pursuant to other relevant statutes such as the Criminal Code and Framework Act on the Construction Industry specifically for bid-rigging. It is also expected that courts will impose heightened criminal penalties on individuals as well as companies that participate in bidrigging based upon factors such as whether the individuals played a leading role and the degree of participation.
Furthermore, in viewing the grant of rights for request of criminal referral by the KFTC to other governmental agencies (i.e., Public Procurement Service, Small and Medium Business Administration and the Board of Audit and Inspection) and the strengthening of the KFTC’s criminal referral obligations, it is expected that criminal referrals by the KFTC and indictments issued by the Prosecutor’s Office’s will increase for cartels as well as other violations of the MRFTA.
Therefore, companies should be mindful of the risks of criminal penalties under relevant statutes such as the Criminal Code and Framework Act on the Construction Industry as well as the MRFTA. In particular, given the heightened risks of criminal penalties against individuals, it is advisable to strengthen internal supervision and compliance training programs of executives and employees.