The Malaysian Competition Commission (MyCC) recently published its Guidelines on Financial Penalties and Guidelines on Leniency.
What’s new ‘at a glance’
- The Guidelines on Financial Penalties set out a number of factors that MyCC will take into consideration when imposing a penalty. Although the Guidelines stop short of specifying how much weight (e.g. in percentage terms) will be attached to the individual factors, it is clear that companies may stand to benefit financially from having a competition compliance programme in place. This is because MyCC has taken the enlightened step of declaring that it will treat the existence of an appropriate compliance programme as a mitigating factor when calculating a penalty.
- The Guidelines on Leniency describe how a company that has been involved in a cartel can escape a financial penalty by self-reporting the violation to MyCC and providing supporting evidence on its involvement. There are a number of very positive aspects to the Guidelines – which are in many places aligned with international best practice. For example it is possible to obtain a ‘marker’ (to reserve the company’s place in the queue while evidence is obtained) before submitting a full leniency application. The Guidelines also provide helpful detail on what kind of information MyCC requires before it would award leniency. This is useful detail for a potential applicant trying to decide whether to self-report.
- However, the Guidelines are just the beginning. MyCC will now need to apply them coherently and in a transparent manner to build trust with the business and legal community. Past experience in other competition law regimes has shown that predictability in this complex area is a prerequisite before companies will come forward. There are, it seems, some potential wrinkles in MyCC’s policy and potential applicants will be watching to see how things play out in practice. For example, it is unclear whether enquires about the availability of immunity can be made anonymously; whether MyCC will require a written confession to be produced (which MyCC might also hand over to foreign competition authorities); and whether MyCC will grant sufficiently large reductions to companies that are not the first to bring the cartel to MyCC’s attention but nonetheless provide important evidence to MyCC.
Guidelines on Financial Penalties
The Malaysian Competition Act prohibits (a) agreements which have the object or effect of significantly preventing, restricting or distorting competition in Malaysia; and (b) conduct which amounts to the abuse of a dominant position in a market in Malaysia. Under the Act, MyCC can impose a financial penalty of up to 10 per cent of the worldwide turnover of an infringing company over the period during which the infringement occurred. The Guidelines on Financial Penalties state that the following factors may be taken into consideration in determining the amount of any financial penalty: the gravity, duration and impact of the infringement; turnover of the market involved; degree of fault (whether negligence or intentional); role of the enterprise in the infringement; recidivism (i.e. where the infringement is not the first infringement of the prohibitions), existence of a compliance program and the level of financial penalties imposed in similar cases. The Guidelines on Financial Penalties recognise that there can be aggravating factors as well as mitigating factors which may have an impact on the financial penalty imposed.
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Comment on Guidelines on Financial Penalties The Guidelines on Financial Penalties list many factors that MyCC can take into account when deciding on the appropriate level of a penalty. However, they stop short of indicating how much weight would attach to any of the listed factors. For example, the Guidelines do not explain in real terms how the “seriousness” of a violation would impact on the calculation of the penalty, nor the extent to which a mitigating factor, such as the existence of a compliance programme, might reduce the fine – e.g. in percentage terms. The result is that MyCC retains full discretion to set a penalty at any level below the 10 per cent statutory cap. However, the Guidelines are a step towards transparency and this should be welcomed. Plus, there are a number of tangible outcomes for companies: First, it would be prudent for companies to develop (if they have not done so already) competition compliance programmes which are tailored to their size and sector. This is because, provided the compliance programme is “appropriate having regard to the nature and the size of the business of the enterprise”, MyCC will treat the programme as a mitigating factor. As to what would constitute an “appropriate” programme in the eyes of MyCC, that remains to be seen. However, a consensus has emerged in recent years – across legal practice areas and jurisdictions – as to what amounts to the key elements of an effective compliance programme. Overall, it is commendable that the Guidelines treat the existence of a compliance programme as a mitigating factor. Malaysia joins the ranks of Australia, Canada, Chile, India, Israel, Singapore and the UK in being more willing to consider discretionary reductions in financial penalties in so far as a compliance programme evidences a genuine compliance culture. In contrast, certain antitrust authorities around the world, such as the US Department of Justice and the European Commission have refused to consider a company’s existing competition compliance programme in mitigation when deciding on penalties. Of course, in addition to lowering any penalty, having a tailored compliance programme in place will also reduce the risk of an infringement in the first place – or at least help bring it to light promptly so that the company is best-placed to apply for total immunity from fine (see below on Guidelines on Leniency). Secondly, the fact that Board involvement will result in a higher fine underscores the need for competition law training to be rolled out throughout the company, including to senior executives and the Board. Training must not be confined to, say, the sales function of the business. Indeed, a successful compliance programme will be one which is endorsed at the highest level of the company.
Guidelines on Leniency
The Act provides for the implementation of a leniency regime whereby the enterprise may obtain immunity or a reduction of up to 100 per cent of any financial penalties which would have otherwise been imposed, if it admits to cartel conduct. In exercising its discretion to grant 100 per cent leniency or differing percentages of reductions of financial penalties, the MyCC may take into consideration any circumstances including the fact that the enterprise was the first enterprise to come forward to the MyCC about an infringement, the stage in the investigation (if any), the information or co-operation to be provided and information already in possession of the MyCC. The Guidelines on Leniency adds some clarity to the leniency regime and the related procedures. It states that it is MyCC’s policy to grant a 100 per cent reduction in the financial penalties that would otherwise be imposed on the first successful leniency applicant which has admitted its involvement in a cartel; and the applicant offers to provide information or other form of co-operation about the same cartel in which the MyCC has no knowledge. Nevertheless, it appears that the 100 per cent reduction in financial penalties would not be available to the enterprise which initiates the cartel or has taken steps to coerce another enterprise to take part in the cartel activity. Further, any leniency granted would not protect the successful applicant from other legal consequences, such as civil proceedings commenced by an aggrieved third party who has suffered loss or damage directly caused by an infringement. Any person wishing to apply for leniency can enquire about the availability of leniency and request for a “marker” through initiating contact with the appointed Leniency Officer to establish priority over other potential applications. The Leniency Officer can be contacted through the Leniency Hotline telephone number posted on MyCC’s website (http://mycc.gov.my/). A marker is only valid for 30 days from the date it is granted, during which time the applicant should complete its leniency application in accordance with the Guidelines on Leniency, or risk losing its priority position. MyCC has the discretion to extend the 30-day deadline if there are valid grounds for its consideration. Comment on Guidelines on Leniency There are a number of very positive aspects to the Guidelines. For example, MyCC has taken great care to ensure there is a clear contact point for leniency applications and has also tried to spell out in sufficient detail what an applicant will need to provide in order to obtain leniency. This will certainly help a potential applicant assess whether it stands a good chance of reaching MyCC’s threshold for granting leniency. The availability of a 30-day marker in order to obtain this information is also a helpful feature – and in line with international best practice. Ideally, MyCC would allow companies to check whether immunity is available on an anonymous (i.e. no-names) basis before applying for a marker. This type of prior consultation is a common practice internationally – see for example International Competition Network guidance on an effective leniency policy. Less positive is the fact that leniency applications may need to be made in writing and signed by an authorised senior officer of the company. In recent years, competition authorities around the world (including for example the European Commission) have sought to introduce paperless – i.e. oral – procedures for making leniency applications. This helps ensure that the leniency applicant is not in a worse position (as regards exposure to damages actions etc) than companies that have chosen not to come forward and self-report. Potential applicants will also be watching closely to see whether, in situations where a successful applicant avoids financial penalties, MyCC nonetheless exercises its discretion to impose other remedial relief. This could reduce the attractiveness of self-reporting. Similarly it remains to be seen how generous (or demanding) MyCC will be as regards those companies that apply for leniency even though they are not first-in. It will be important for MyCC to obtain evidence from those subsequent applicants (in order to corroborate the account of the immunity applicant for example). Those companies will need sufficient encouragement to come forward when they know that full immunity is not available. The apparent ability for MyCC to disclose a leniency application to a competition authority in another country (without the consent from the applicant or even their knowledge) may also mean that companies are reluctant to self-report in Malaysia – at least until they have made leniency applications elsewhere. MyCC has taken a great step forward in producing these Guidelines – but there remain areas of concern. MyCC now needs to apply the Guidelines carefully in order to build sufficient trust with the business community such that companies will feel comfortable in self-reporting. The experience in more established competition law jurisdictions is that when the policy is well designed and implemented, it becomes a key means of enforcing against the most serious types of competition law violations. By Andre Gan and Lydia Kong (Wong & Partners Kuala Lumpur)
