Introduction

Different from other types of anti-competitive conduct, cartel conduct (which refer to agreements and/or concerted practices between competitors to fix prices, share markets, restrict output or rig bids) are not only economically harmful but usually organised and secretly implemented, which is more difficult to be detected. Competition authorities globally tend to take a leniency approach to combats cartels and to encourage termination of participation in cartel conduct. In April 2019, the Competition Commission in Hong Kong (the “Commission”) published the Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct (the “Cooperation Policy”), which is formulated as a supplement to the Leniency Policy for Undertakings Engaged in Cartel Conduct (the “Leniency Policy”) published in November 2015 and to enhance the Commission’s ability to conduct effective and efficient investigations into cartel conduct.

The Leniency Policy and its limitations

The Leniency Policy provides incentives to a cartel member to terminate its involvement in cartel conduct and to provide continuing cooperation to the Commission, including in proceedings against other undertakings / persons that engage in cartel conduct. In exchange for the cartel member’s cooperation, the Commission undertakes not to commence proceedings for a pecuniary penalty against the cartel member who enters into a leniency agreement with the Commission and not to bring any other proceedings before the competition tribunal or other courts other than proceedings for an order under the Competition Ordinance (Cap. 619 of the laws of Hong Kong) (“CO”) declaring that the said cartel member has contravened the First Conduct Rule of the CO.

However, the Leniency Policy is only available for the first cartel member who reports the cartel conduct to the Commission and who can fulfil all the conditions for the granting of leniency. In the event that a member of the cartel has already benefited from the Leniency Policy, there was insufficient incentive under the then regime (i.e. before the introduction of the Cooperation Policy) for other members of the cartel to cooperate with the Commission.

The Cooperation Policy

Overview

The Cooperation Policy aims to provide extended scope of leniency to cartel members in furtherance of the Leniency Policy, by encouraging cartel members to which leniency in relation to the cartel conduct is not available to cooperate with the Commission. Obligations of the cartel member who undertakes to cooperate with the Commission generally include, but are not limited to, the following:

• providing and continuing to provide full and truthful disclosure to the Commission;
• taking prompt and effective action to terminate one’s participation in the cartel conduct;
• providing continuing full and truthful cooperation to the Commission at one’s own costs, including in enforcement proceedings against other members of the cartel; and
• making joint submissions with the Commission to the Competition Tribunal that one contravened or was involved in the contravention of the First Conduct Rule.

Procedures

The procedures for cooperation are as follows:

• The cartel member subject to investigation indicates its willingness to cooperate with the Commission under the Cooperation Policy by contacting the case manager concerned, on its own initiative or upon invitation by the Commission.
• The cartel member provides documents and information to the Commission, including detailed description of the cartel conduct and its functioning, on a “without prejudice basis”. The cartel member also provides access to evidence, such as by procuring its employees, officers, partners and agents to be interviewed by the Commission.
• The cartel member and the Commission then reach an understanding in principle on a draft agreed factual summary and a draft cooperation agreement. The Commission indicates to the cartel member the maximum recommended pecuniary penalty it would be willing to recommend to the Competition Tribunal, which includes the discount on the pecuniary penalty provided in light of the cooperation. If the cartel member is agreeable to the above, the cartel member and the Commission proceed to enter into the cooperation agreement which contains the agreed factual summary. The cartel member subsequently makes a joint application with the Commission for a consent order that the cartel member has contravened or been involved in the contravention of the First Conduct Rule and applies for the discounted pecuniary penalty.
• The cartel member’s obligation to ensure compliance with the terms of the cooperation agreement continues until the Commission issues a final letter confirming that all conditions under the cooperation have been fulfilled, which usually takes place when the proceedings against the cartel member and other participants of the cartel conduct have been concluded.

Cooperation benefits

The utmost incentive to the cartel member in exchange for its cooperation with the Commission is the discount from pecuniary penalty the Commission would have otherwise recommended to be imposed. The level of recommended discount is categorised into three bands:

The applicable bands of discount depend on the order in which the cartel members express their interests to the Commission to cooperate. In determining the level of discount within the applicable band, the Commission takes into account the timing, nature, value and extent of cooperation provided by the cartel member.

On the other hand, the Commission may further agree not to bring any proceedings against any existing or former officers, employees, partners and agents of the cartel member to encourage the individuals to provide complete, truthful and continuous cooperation with the Commission to facilitate its investigation and enforcement.

Conclusion

The Cooperation Policy strives to further enhance the Commission’s effectiveness and efficiency in investigations of cartel conduct, which, together with the Leniency Policy, provide a framework with clear incentives for undertakings to cooperate with the Commission. It is ultimately a balancing exercise for the cartel member in considering whether the “leniency” is sufficiently attractive, weighing the benefit of discounted pecuniary penalty against the drawback, costs and risks of cooperation under the regime, including the late notice of discount level (after disclosing the evidence and information relating to the cartel conduct) and risks of non-fulfilment of the cooperation conditions. Nonetheless, the Leniency Policy and the Cooperation Policy for cartel conduct serves as a starting point to provide certainties to undertakings to encourage settlement with the Commission and it remains to be seen whether such policies will be extended to other anti-competitive conduct.