Businesses engaged in cartels that may impact Hong Kong will need to carefully assess, with their advisors, the pros and cons of making a leniency application.
The revised leniency policies increase the benefits for leniency applicants. They are not required to submit to Tribunal proceedings and, in the case of leniency applicants who come forward before the Commission becomes aware of an infringement, will not be required to submit to a declaration of breach (and as a result, they will receive de facto immunity from follow on damages actions in Hong Kong).
Key points in the Revised Corporate Leniency Policy
- Leniency is still only available to the first undertaking to apply. Subsequent applicants cannot avoid prosecution entirely, but can choose to cooperate with the HKCC in return for the HKCC making representations to the Competition Tribunal for a lower penalty. The HKCC published a revamped cooperation and settlement policy in April last year.
- Leniency is still expressed to only be available in respect of cartel conduct: however whereas the original leniency policy referred expressly to agreements between competitors, this wording is dropped in the Revised Corporate Leniency Policy, which refers inter alia to price fixing agreements between undertakings. This raises an obvious question as to the extent to which vertical agreements (e.g. RPM) are covered.
- New distinction between type 1 and type 2 leniency applicants: the Revised Corporate Leniency Policy introduces a distinction between type 1 and type 2 leniency.
- Type 1 leniency is available to the first cartel member to disclose its participation in a cartel before the HKCC has commenced an investigation.
- Type 2 leniency is available to the first cartel member to provide “substantial assistance to the Commission’s investigation and subsequent enforcement action of a cartel which the Commission is already assessing or investigating”. The policy does not articulate a test for “substantial assistance” nor does it explain how the HKCC will make this determination upfront. In practice, this is likely to leave undertakings already under investigation with considerable uncertainty as to whether or not they are eligible for leniency.
- A successful leniency applicant does not face Tribunal proceedings: the revised policy clarifies that the HKCC will not commence Tribunal proceedings in respect of a successful leniency applicant of either type. Given the cost of litigation in Hong Kong, this is potentially a significant boost, clearly designed to make the policy workable in practice and, thereby, attractive to would-be leniency applicants. This is likely the most welcome and significant clarification of policy from the point of view of would-be applicants.
- De facto immunity from private damages actions for type 1 applicants: in Hong Kong, private actions for competition violations are barred.1 Follow on actions are permitted, but only following a determination of breach by the Tribunal (or the courts) or an admission in a commitment that has been accepted by the Commission.2 Under the Revised Corporate Leniency Policy, type 2 leniency applicants may be required to accept an infringement notice including an admission of breach, if a follow on damages applicant comes forward. But this does not extend to type 1 applicants. It follows that an undertaking that brings a cartel to the attention of the HKCC, i.e. a type 1 leniency applicant, does not face a follow on damages risk in Hong Kong. However, to state the obvious, a leniency applicant may face damages risks in other jurisdictions, particularly those where a successful leniency application does not preclude such actions. So this may be of limited practical benefit, especially in cross-border cartels.
- Leniency not available for ringleaders: the Revised Corporate Leniency Policy states that an undertaking that has acted as the ringleader of a cartel is not eligible for leniency (the previous policy only barred an undertaking that coerced other undertakings’ participation). The exclusion of ringleaders appears to come from the US corporate leniency programme (by contrast, the European Commission’s Leniency Notice only carves out coercers). Whilst there is no definition of “ringleader”, the HKCC explains in a footnote that it will interpret this criterion narrowly, i.e. in favour of granting leniency.
The position of individuals
The HKCC has sought penalties against individuals (including pecuniary penalties and director disqualification orders) in each of the last three cases it has taken to the Tribunal. Comments by CEO Brent Snyder indicate that the HKCC views enforcement against individuals as a key to driving deterrence.
Under the Revised Corporate Leniency Policy, current and possibly former employees of a successful corporate leniency applicant are protected provided these individuals cooperate (as was the case previously).
The HKCC has now introduced a separate, parallel, leniency policy aimed at individuals. An individual may be granted leniency (for example a current or future employee) if the individual applies for leniency before a leniency marker is given to an undertaking. Once a marker has been given to an undertaking, leniency is no longer available for individuals. However, a successful leniency application for an individual does not necessarily bar an undertaking from applying: the Revised Corporate Leniency Policy states that it “may be appropriate to have an additional marker for the first undertaking to apply”. The use of the word “may” is unhelpful, implying a lack of certainty and the potential for enforcement discretion. There is a risk that HKCC may be disinclined to grant an undertaking leniency in circumstances where an individual has come forward, particularly if an individual leniency applicant is a key employee who can provide significant assistance.
Undertakings involved in investigations (and their advisors) will therefore want to avoid the risk that individual employees approach the HKCC independently. Stressing the protection afforded to current and former employees under the corporate leniency programme is one way of achieving this.
Both leniency policies are available here.