Vietnam’s Ministry of Industry and Trade recently announced that 19 insurance companies operating in Vietnam had been fined a total of VND 1.7 million (approximately US$89,000) for their involvement in unlawful price-fixing activities.
The price-fixing decision, announced on 29 July 2010, follows a long running investigation into collusive practices in the motor vehicle insurance sector in Vietnam, and is the most significant anti-cartel enforcement efforts yet by the Vietnamese authorities under a cross-sector competition regime that became operational in 2005.
In this update we examine the decision and the message it sends regarding the future of competition law enforcement in Vietnam.
Background - the investigation process
The Vietnam Competition Authority (“VCA”) began its investigation into cartel practices in the insurance sector in November 2008, following allegations of collusion made by several customers and other industry participants.
At that time, the VCA’s investigation was seen as a significant step in the development of Vietnam’s competition regime, as enforcement efforts had previously been extremely low.
VCA’s investigation ran for over 12 months, and focussed on 19 insurance companies that, according to government data, account for 99.79% of the national motor vehicle insurance market (although at least one of the relevant insurance companies disputed the VCA’s findings regarding the relevant market affected by the arrangements).
During its investigation, VCA found that in September 2008, 15 insurance company executives met and reached a cooperative agreement on the level of motor vehicle insurance premiums that would be applied going forward. VCA also determined that four more insurance companies subsequently became involved in the price-fixing agreement. According to reports, these facts were largely admitted by the participating companies, some of whom cited a perceived need to respond to severe price competition in their industry as a primary reason for their actions.
In accordance with the standard enforcement process under Vietnam’s competition regime, VCA then passed its findings to the country’s Competition Council, which has adjudicative powers in relation to relevant competition cases. The Competition Council conducted its own investigative hearings and confirmed the existence of the unlawful price-fixing arrangements, leading to imposition of the penalties.
Determination of the fine amounts
Under Vietnam’s Competition Law, companies found to have engaged in unlawful cartel activities can be fined up to 10% of their annual turnover in the financial year preceding the year of the relevant infringement.
However, in this case, the Competition Council determined that the fine applied to each of the insurance companies participating in the price-fixing agreement would be calculated as 0.025% of their total turnover in 2007 (the year preceding the year in which the price-fixing agreement was implemented). Additionally, the 19 insurance companies involved in the violation of the Competition Law have been ordered to pay administrative fees of VND 100 million.
In a press release relating to the decision, the VCA stated that the penalty was of a “warning nature”, and noted that this was due to factors including “low awareness” of the Competition Law.
Notably, a number of the relevant insurance companies are reported to have requested the Competition Council to consider applying a reduced penalty on the basis of the emerging status of the insurance market in Vietnam, and the need to preserve the standing of this market. Although there is no indication that this factor was given significant weight by the Competition Council, it has been reported that the Council’s decision to impose relatively low penalty levels on many of the participants in the collusive arrangements was influenced by the fact that those participants voluntarily suspended their relevant behaviour once contacted by the Vietnamese authorities and took steps to implement remedies for their behaviour.
The case is a ‘warning shot’ for businesses operating in Vietnam
The VCA press release also indicated that penalties of a “warning nature” should not be expected going forward. Indeed, the press release states that “[f]rom now on, all and any practices in restraint of competition shall be strictly dealt with in accordance with the laws of Vietnam”.
Accordingly, the decision should be seen as a signal to the business community in Vietnam about the likelihood for more vigorous enforcement of the Competition Law (and more significant penalties for identified violations of the law) going forward.
All companies with operations in Vietnam, or who sell into the country, should ensure they understand their obligations under the law and have appropriate procedures and policies in place to ensure compliance going forward.