Leniency Regimes

Kim & Chang Kyung Taek Jung, Han Woo Park, Michael Yu

1. What is the relevant legislation concerning the leniency policy and what is the enforcing body?

The applicable provisions implementing the Leniency Policy of the Korea Fair Trade Commission (‘FTC’) are provided under Article 22-2 (Mitigation of Informants) under the Monopoly Regulation and Fair Trade Law (the ‘FTL’) and under Article 35 (Criteria for the Mitigation of or Exemption from Punishment for Informants, etc) under the Enforcement Decree (the ‘Enforcement Decree’) promulgated under the FTL. One of the key revisions made to Article 35 of the Enforcement Decree in March of 2005 was to revise the applicable implementation provisions so that the FTC no longer exercised discretion over granting exemptions or reducing the amount of applicable fines.

In addition, the FTC has enacted the ‘Notification on Corrective Measures Regarding Voluntary Reporters of Improper Concerted Acts and the Leniency Programme’ (the ‘Notification’) to provide additional terms underlying the foregoing provisions and specific rules regarding the reporting process.

2. What are the basic tenets of a leniency/immunity programme?

If the FTC concludes that a defendant was involved in cartel activity in violation of the FTL, then the FTC may impose the sanctions described below. In addition, the employees of a corporate defendant who actually conducted the cartel activity in violation of the FTL may also be subject to criminal sanctions. The FTC has the authority to issue the following orders and penalties:

1. Cease and desist or corrective order: The FTC usually issues a corrective order wherein the offending party or parties are ordered not to engage in the prohibited cartel activity.
2. Public announcement of the violation: The FTC may also order the offending party or parties to publish a public announcement concerning the violation of the FTL. The FTC will designate the number of daily newspapers in which the announcement must be carried and the size of the announcement and will usually dictate its contents as well.
3. Monetary fine: The offending party or parties may be subject to up to a five per cent fine on the gross sales derived from the business activities relating to the cartel activity during the period of the cartel activity (10 per cent if the cartel activity began after 1 April 2005). Such fine cannot exceed five per cent (and for the period after 1 April 2005, 10 per cent) of the annual average sales of the offending party calculated upon the annual sales over the most recent three years.
4. Complaint for criminal sanctions: Criminal sanctions are the most severe penalties available under the FTL. In the case of criminal sanctions, the FTC will file a complaint with the prosecutors’ office for indictment under the FTL. Criminal proceedings can be commenced only if the FTC files the complaint. In the case of conviction, the offending party or parties (and the employees, in case of a corporate defendant) may be subject to a fine of up to 150 million won (approximately $150,000) or up to two years’ imprisonment – although imprisonment is reserved for only the most exceptional cases.

In general, the FTC will issue any one of the first three penalties or, more often, a combination of the three. Only in the most severe and blatant cases of violation of the FTL, or where the offending party continues to engage in the illegal activities despite the cease and desist order, will criminal sanctions be imposed. If the FTC concludes that the defendant(s) violated the FTL, then such finding may be used by Korean customers to commence a civil action for damages attributable to such cartel behaviour. In such a case and under Korean law, the claimant is only required to prove damages (and proximity with the cartel activity), as the conclusions of the FTC that a cartel existed and that such a cartel had an adverse impact on competition in Korea will be relied on by Korean courts.

The leniency programme as provided under the FTL, the Enforcement Decree and the Notification are intended to encourage cooperation with the FTC and to facilitate their investigation with respect to potential cartel activity which violate the FTL. The leniency programme is available to companies that cooperate with the FTC’s investigation (such as through admission of involvement in a cartel, cooperation through every stage of the FTC’s investigation, etc). The FTC recently revised its leniency programme to exclude the FTC’s discretion in determining the level of leniency treatment. According to the recent revisions, as long as (i) a company is the first to come forward to cooperate with the FTC, and (ii) the value of such cooperation is such that the applicant for the leniency provides ‘useful’ information when

(iii) the FTC did not have sufficient evidence to prove the cartel, then a complete exemption of fine is required to be provided. If the cooperation is made when the FTC has ‘sufficient’ evidence to prove the cartel, then a 15–30 per cent reduction of fine is available.

3. How many cartels have been unveiled and punished since the adoption of the leniency policy?

According to a report prepared by the FTC, the statistics with respect to general cartel enforcement in Korea are indicated in the table below.

Against this background, the leniency programme in Korea was introduced in 1997, one of the first countries in Asia to do so after similar programmes were introduced in the US, Canada and the EU. In its initial stages, there have been relatively few applicants under the leniency programme as indicated in the table below. However, since the recent revisions made to Article 35 of the Enforcement Decree in March of 2005, the number of leniency applications has been increasing.

According to its own report1 the FTC assessed that relatively infrequent use of the leniency programme was attributable to the fact that discretion was granted to the FTC with respect to the level of leniency that could be granted to an applicant, without assurances that an applicant would be able to receive full exemption from sanctions and/or penalties.

4. What is needed to be a successful leniency applicant? Is documentary evidence required or is testimonial evidence sufficient?

Under Article 35(1) of the Enforcement Decree, a successful applicant must qualify under certain conditions and provide certain evidence. The level of leniency that will be granted will depend on whether and to what degree these conditions are met. Generally, there are four parameters which are gauged:

• Priority in reporting. What level of leniency the applicant will qualify for will depend on whether the applicant is the first to report ‘exclusive’ information to the FTC.
• Timing of investigation. The amount of reduction will also depend on whether the FTC had already been investigating the matter prior to the applicant’s information.
• Degree of cooperation. The amount and duration of the cooperation that the applicant provides during the FTC’s investigation will also be considered for determining the relevant reduction level.
  • Continued participation. Lastly, the FTC will also review whether the applicant is currently conducting the improper behaviour being investigated or has ceased to do so.
  • In principle, a leniency applicant should file an application prescribed under the Notification with the FTC which should include the following items:
• information on applicant; • outline of cartel activity;
• list of evidence necessary for proving cartel activity;
• covenants to continue to provide cooperation until the completion of the FTC’s investigation; and
• confirmation of suspension of cartel activity.

However, if an applicant has difficulty in filing an application prescribed under the Notification, a leniency application can be made verbally, in which case the officer of the FTC must record or videotape the verbal application.

As to the form of the evidence to be submitted at the time of filing the leniency application, the Notification indicates that such evidence may be in the form of documentary evidence, recorded tapes, computer files, or any other type of media.

TIMING

5. What are the benefits of being ‘first in’ to cooperate?

Prior to 1 April 2005, an applicant that was the first to provide the information was not assured of receiving full leniency. After revisions to the relevant laws and regulations were put into effect, an applicant who fulfilled all four of the criteria provided under Article 35(1) of the Enforcement Decree, including the requirement to be the first party to provide information, was assured of receiving 100 per cent leniency on all applicable sanctions and penalties.

6. What are the consequences of being ‘second’? Is there an ‘immunity plus’ or ‘amnesty plus’ option?

Even if the applicant was not the first to provide the relevant evidence, the Enforcement Decree provides that the applicant can still qualify for partial leniency. Under the revised Enforcement Decree, a ‘second reporter’ can qualify for a 30 per cent reduction in fines if such person fulfils all of the following criteria:2

• A person who has reported to the FTC prior to the commencement of an investigation and fulfils each of the following criteria shall be subject to a 30 per cent reduction in fines and is partially exempt from corrective orders:
  • they are a person who, as the second person to do so, exclusively provides information which was necessary to evidence the improper concerted act;
  • all facts relevant to the improper concerted acts shall have been provided, and cooperation shall have been provided, including the submission of relevant documents, until the completion of the FTC’s investigation; and
  • the person shall have ceased all activity which could be deemed improper concerted acts.
• After the commencement of investigations by the FTC, a person which has cooperated with the FTC shall be subject to a 30 per cent reduction in fines and partially exempt from corrective orders if the following conditions are met:
  • they are a person who, as the second person to do so, exclusively provides information which was necessary to evidence the improper concerted act;
  • all facts relevant to the improper concerted acts shall have been provided, and cooperation shall have been provided, including the submission of relevant documents, until the completion of the FTC’s investigation; and
  • the person shall have ceased all activity which could be deemed improper concerted acts.

The FTC has also implemented an ‘amnesty plus’ provision under Article 35(1)(v) of the Enforcement Decree, under which a target of an ongoing investigation can seek amnesty or full leniency with respect to other improper concerted acts which were not the subject of the FTC’s initial investigations. Article 16 of the Notification provides for various criteria depending on the relative importance of the first cartel activity (already under investigation) and the second cartel activity (newly reported by the applicant), as follows:3

• If the scale of the second cartel activity is not greater than 100 per cent of the scale of the first cartel activity, then the applicant will receive a 20 per cent reduction with respect to the first cartel activity.
• If the scale of the second cartel activity is greater than 100 per cent but less than 200 per cent of the scale of the first cartel activity, then applicant will receive a 30 per cent reduction with respect to the second cartel activity.
• If the scale of the second cartel activity is greater than 200 per cent and less than 400 per cent of the scale of the first cartel activity, then the applicant will receive a 50 per cent reduction with respect to the second cartel activity.
• If the scale of the second cartel activity is greater than 400 per cent of the scale of the first cartel activity, then the applicant will receive full leniency with respect to the second cartel activity.
• For purposes of the foregoing measurement, the ‘scale’ shall be based on the amount of sales of the relevant products or services.

7. Are subsequent firms given any beneficial treatment if they make a useful contribution? How are ‘useful contributions’ defined?

Although the revisions which took effect on 1 April 2005 provide for more assured leniency in the case of first and second reporters, at the same time the FTC removed prior provisions which had provided the possibility for subsequent reporters to obtain leniency depending on the evidence being offered. As such, third and subsequent reporters, as well as ‘joint reporters’ that collectively submit information, cannot qualify for leniency under the programme. However, if the third and subsequent reporters do not deny the cartel activity and continue to provide positive cooperation until the final decision of the FTC, the FTC may, in its discretion, grant up to 15 per cent reduction in fines.

SCOPE/FULL LENIENCY

8. Is it possible to receive full leniency? And, if so, what are the conditions required to receive full leniency?

Under Article 35(1) of the Enforcement Decree there are two possible ways that an applicant will qualify for full leniency (ie, 100 per cent reduction in fines and exemption from corrective order)4:

•  
  • A person who has reported to the FTC prior to the commencement of an investigation and fulfils each of the following criteria shall be exempt from fines and corrective orders:
    • they are a person who first provides exclusive information which was necessary to evidence the improper concerted act;
    • the report shall have been made at a time when the FTC had either no knowledge of the improper concerted acts or the FTC was not able to obtain sufficient evidence necessary to prove the improper concerted acts;
    • all facts relevant to the improper concerted acts shall have been provided, and cooperation shall have been provided, including the submission of relevant documents, until the completion of the FTC’s investigation; and
    • the person shall have ceased all activity which could be deemed improper concerted acts.
  • After the commencement of the investigation by the FTC, a person who has cooperated with the FTC shall be exempt from fines and exempt or partially exempt from corrective orders if the following conditions are met:
    • they are a person who first provides exclusive information which was necessary to evidence the improper concerted act;
    • the cooperation shall have been provided at a time when the FTC had either no knowledge of the improper concerted acts or the FTC was not able to obtain sufficient evidence necessary to prove the improper concerted acts;
    • all facts relevant to the improper concerted acts shall have been provided, and cooperation shall have been provided, including the submission of relevant documents, until the completion of the FTC’s investigation; and
    • the person shall have ceased all activity which could be deemed improper concerted acts.

9. How many companies have received full immunity from fines to date?

The reason why the 10 cases in 2005-2006 did not receive full immunity was because the leniency applications related to those cases were made before the revisions to Article 35 of the Enforcement Decree took effect and therefore the FTC exercised discretion in exempting or reducing the amount of the applicable fines.

PROCEDURE/CONFIDENTIALITY

10. What are the practical steps required to apply for leniency?

The following flowchart has been provided by the FTC to explain the relevant steps in the leniency application process.5

11. Is there an optimal time to approach the regulatory authority?

In usual circumstances, there is no particular consideration in terms of when the application for leniency should be submitted. However, given that the benefits of the leniency programme will only be provided to first and second applicants, an application should be submitted as quickly as possible. At the same time, it should also be noted that the FTC procedures provide for a 15-day ‘marker’ period during which the applicant may supplement the leniency application and submit evidence necessary for proving cartel activity. If the FTC finds it necessary to extend the ‘maker’ period so that the applicant may collect and submit relevant evidence, the FTC may extend the ‘maker’ period by an additional 60 days.

12. What guarantees of leniency exist if a party cooperates?

Based on the application filed by the applicant, a determination of whether the applicant qualifies under the conditions provided under Article 35 of the Enforcement Decree will be made within 15 days from the date of submission. This period for determination may be extended by an additional 60 days if there is a justifiable reason (for example, where the ‘maker’ period is extended). If the FTC confirms that the applicant has qualified under the conditions, then the FTC is prohibited under Article 12 of the Notification from cancelling such a determination, unless any one of the following conditions exist:

• the applicant has failed to provide complete cooperation until the end of the investigation of the FTC;
• the evidence submitted is determined to be fraudulent or false; or
• the applicant has failed to cease the improper acts by the time the FTC has made its final determination on the case.

13. Is confidentiality afforded to the leniency applicant and other cooperating parties? If so, to what extent?

Article 19 of the Notification provides confidentiality obligations which are imposed on the FTC official(s) who review the leniency application submitted by the applicant.

The submitted information may only be accessed by government officials who are working on the case and cannot be disclosed to third parties without the consent of the applicant.6 At the time the investigation report of the case official is submitted for review by senior officials at the FTC, the identities of the parties must be concealed by use of code or redaction or other measures7. Finally, under Article 19(4) of the Notification, the FTC is obliged not to disclose the identities of those parties which benefit under the leniency programme.

CONSEQUENCES

14. What effects does leniency granted to a corporate defendant have on the defendant’s employees?

Under the FTL, the employees of a corporate defendant are not subject to the four types of sanctions imposed by the FTC, except for complaint for criminal sanctions.

15. Does leniency bar further criminal or private enforcement?

No. The intent of the leniency provisions is to restrict the enforcement powers of the FTC only in its administration of the FTL, without affecting the rights of other authorities or third parties. As such, the extent of the remedies provided under the leniency provisions is limited only to reducing the scope of monetary fines and corrective orders that can be imposed by the FTC on an applicant.

At the same time, one additional measure that the FTC can implement in the event that cartel activity is found is to recommend the case to the Office of the Prosecutor General for criminal sanctions to be imposed on the relevant actors. Under Article 20 of the Notification, the FTC should refrain from referring applicants to the criminal authorities if their status has been confirmed under the leniency provisions, except where the applicants are engaged in certain types of egregious violations or the Prosecutor General has already made a request that the FTC should submit a criminal complaint.

REFORM/LATEST DEVELOPMENTS

16. Is there a reform underway to revisit the leniency policy? What are the latest developments?

The most recent round of major revisions to the leniency policy were implemented and took effect as of 1 April 2005. Thereafter, on 1 July 2006, there was a minor revision to the Notification implemented in order to improve the leniency application process. Earlier this year, the FTC proposed an amendment to the FTL to make it clear that the leniency applicants qualified under the conditions provided under Article 35 of the Enforcement Decree should be exempt from criminal sanctions, but this amendment was not adopted. We are not aware of any further efforts since then to reform the leniency provisions.

FOOTNOTES