Tag：compliance and regulatory-antitrust and anti unfair competition
Introduction
In recent years, antitrust compliance has been a topic of common concern for both regulators and enterprises. Focusing on the establishment of antitrust compliance system and related compliance work, more than 30 antitrust compliance guidelines have been promulgated at national and local levels. For example, the Antitrust Committee of the State Council of the People’s Republic of China publishes the Antitrust Compliance Guide for Undertakings; the Shanghai Municipal Administration for Market Regulation publishes the Antitrust Compliance Guide for Business Operators in Shanghai, the Competition Compliance Guide for Business Operators (Shanghai standards), the Guide for the Competition Compliance Assessment of Internet Platform Enterprises (Guide for the Competition Compliance Assessment of Platforms), etc., all of which guide and support business operators to establish and improve their antitrust compliance management systems.
On March 21, 2024, the State Administration for Market Regulation (“SAMR”) of the People’s Republic of China issued the “Draft Guide for Enterprise Antitrust Compliance (For Comment)” (the “Draft for Comment”). The Draft for Comment integrates existing antitrust compliance guidelines, elaborates key points and requirements for the construction of an antitrust compliance management system, and proposes a more universal antitrust compliance incentive system.
This article in the form of Q&A aims to facilitate a comprehensive understanding for enterprises regarding the underlying principles contained in the Draft for Comment.
1. Under what circumstances can an enterprise obtain compliance incentives? What are the compliance incentives?
The Draft for Comment is not the first antitrust compliance guideline where compliance incentives have been mentioned. For example, Article 32 of the Anti-monopoly Compliance Guidelines for mergers promulgated by SAMR in September 2023 stipulates that “in order to encourage undertakings to actively carry out antitrust compliance for mergers, SAMR may consider the construction and implementation of the antitrust compliance management system when investigating and punishing illegal merger activities.” Furthermore, the Guide for the Competition Compliance Assessment of Platforms issued by the Shanghai Municipal Administration for Market Regulation in October 2023 states that it aims to use compliance commitment, consultation, administrative guidance and other flexible methods in order to optimize the regulatory monitoring, reduce the costs of enterprise compliance operation, and promote the sound development of various industries.
The Draft for Comment has expanded the use of compliance incentives, making it applicable to different industries and different types of monopolistic practices. Meanwhile, the Draft for Comment divides the compliance incentives into the following specific scenarios based on the enforcement procedures:
Apart from each of the above scenarios, the enterprises may have questions as to whether establishing or improving the antitrust compliance management system will help them obtain compliance incentives after the initiation of an investigation.
Firstly, the compliance incentive is compatible with the flexible enforcement approach promoted in recent years. In recent years, antitrust law enforcement authorities have been emphasizing integrating strict enforcement with flexible approaches in order to streamline enforcement across the entire spectrum and timeline of events, particularly focusing on strengthening preemptive supervision. With the introduction and application of mechanisms such as consultation, “Three Letters and One Correspondence”, etc., enforcement authorities have grown increasingly focused on communication and cooperation with enterprises, endeavoring to support enterprises in voluntarily abiding by antitrust regulations via guidance, assistance, and compliance incentives. Based on this understanding, it is evident that, in practice, antitrust enforcement agencies would prudently assess throughout the entire investigative process whether an enterprise has put in place an antitrust compliance management system, and correspondingly take such efforts into account when exercising discretionary powers in considering appropriate compliance incentives. An illustration of this is found in a penalty decision handed down by the Beijing Municipal Market Supervision and Administration Bureau in 2022 concerning a case involving vertical monopoly agreements, wherein it was stated that “Considering the respondent's... active remediation, eradication of detrimental impacts, revision of distribution agreements and assessment frameworks, enhancement of its corporate antitrust compliance system, and spontaneous price reductions, the circumstances meets the criteria for a lighter punishment in accordance with the law.”
Secondly, after the investigation commences, if an antitrust compliance management system is established or improved, the impact of the antitrust investigation on enterprises may be mitigated as a result. Upon receiving clues of potential violations, antitrust enforcement agencies will verify or investigate whether the involved enterprises are engaged in monopolistic activities. During this period, enterprises can, on the one hand, conduct thorough self-examinations to identify compliance risk points and promptly implement corrective measures to mitigate the harmful consequences of suspected illegal acts. On the other hand, enterprises can proactively establish or enhance their antitrust compliance management systems. This can, to a certain extent, cushion the impact of antitrust investigations on the enterprises and help the enterprises secure a more favorable resolution.
Based on the above, the early establishment of an effective antitrust compliance management system can significantly benefit enterprises in preventing or mitigating risks associated with antitrust investigations. We strongly recommend that enterprises establish a practical and effective antitrust compliance management system as early as possible. Concurrently, for any suspected monopolistic behaviors identified during internal compliance audits, timely and thorough rectifications should be made, along with maintaining written evidence and records of such corrective actions. By doing so, antitrust compliance risks can be potentially nipped in the bud.
2. The necessary components within an effective antitrust compliance management system
Chapters Two, Three and Four of the Draft for Comment elaborate on the necessary components of the antitrust compliance management, which includes the organization, operation and maintenance of compliance management systems as follows:
The specific requirements of the antitrust compliance management system set out in the Draft for Comments can be understood as “best practices” references. Enterprises still need to customize their antitrust compliance management systems based on their own practical situations. For example:
（1）Establishment of the antitrust compliance management agency
Chapter Two of the Draft for Comment, titled “Compliance Management Organization”, provides guidance for establishing internal corporate institutions for compliance management. As per the Draft, an antitrust compliance management organization generally consists of a compliance governance body, a compliance management leader, and a leading department for compliance management. Under conditions where ample resources are available, a company may set up a dedicated antitrust compliance management body. Alternatively, when the responsibilities and division of labor for antitrust compliance management are clearly defined, such functions can also be carried out concurrently within an existing structure. Furthermore, the Draft for Comment explicitly outlines the compliance management responsibilities of business departments and encourages enterprises to appoint full-time or part-time compliance officers within these departments. These compliance officers should receive operational guidance and training from the leading compliance management department, thus continually enhancing the professional level of compliance management.
In summary, the Draft for Comment serves as a template and benchmark for enterprises to establish multi-tiered compliance management organizations. It is understood that, in practice, depending on factors such as the size of the company's operations and its current compliance organizational structure, enterprises with sufficient capacity can refer to the Draft for Comment to construct a well-defined, hierarchical system of multi-level antitrust compliance management, setting up dedicated teams specifically for antitrust compliance. On the other hand, enterprises that do not currently possess such conditions can adopt a relatively flexible approach, leveraging their existing governance structures to assume the responsibilities of the antitrust compliance management function, dividing roles and responsibilities appropriately across decision-making, management, and implementation levels. This ensures that even without a standalone unit, the principles of effective antitrust compliance are integrated into the organization's day-to-day operations and strategic planning.
（2）Risk Identification and Assessment of Antitrust Compliance
For risk identification and assessment in Article 13 of the Draft for Comment, a reference case is provided as follows:
Article 34 of the Draft for Comment.
Article 35 of the Draft for Comment.
Article 36 of the Draft for Comment.
Article 37 of the Draft for Comment.
A Reference Case
Upon conducting risk identification, Company A identified substantial risks associated with potential involvement in vertical monopoly agreements. Therefore, Company A resolved to establish a comprehensive antitrust risk assessment system that spans the entire process, encompassing pre-operation, in-operation, and post-operation phases. Regarding business collaboration with downstream distributors, prior to commencing any new business, the business departments would initially assess the level of antitrust risk involved in the intended business activities. Subsequently, the leading compliance management department would undertake a review of this assessment, ensuring that risk evaluation is prioritized at the outset. During the operation phase, the leading compliance management department constantly monitors compliance risk matters and promptly provides risk alerts as needed. Following completion of the business activities, the compliance management lead department evaluates the execution status of compliance standards. They assess how effectively the antitrust compliance regulations have been implemented and utilize this feedback to improve and refine the company's antitrust compliance management system. This end-to-end approach ensures a systematic and continuous cycle of risk assessment and improvement for Company A's compliance practices.
Identifying and assessing antitrust compliance risks requires enterprises to integrate their specific business processes and, based on recurrent or critical antitrust compliance concerns in their operations, implement appropriate risk identification and assessment mechanisms throughout the pre-event, in-event, and post-event stages. For instance, in the case of an enterprise that emphasizes distributor management, it should consider embedding relevant assessment steps for antitrust-related vertical restraint agreement risks into its existing business processes. Similarly, for enterprises with frequent merger and acquisition activities, the notification obligations pertaining to concentrations of undertakings (antitrust filings) constitute a critical area of focus. Such companies may incorporate a pre-deal assessment into their transaction approval process that addresses whether an antitrust filing is required. Upon determining the necessity of a filing, the enterprise should promptly submit the filing in compliance with regulations and consistently monitor the transaction’s progression, ensuring that no concentration occurs before obtaining approval from the antitrust authority.
(3) Overseas antitrust compliance risk
Article 21 of Draft for Comment, states that when operators conduct business overseas, they should understand and comply with the relevant antitrust laws and regulations of the country or region where the business is situated. They are encouraged to seek advice from professional antitrust institutions. In the event of significant antitrust risks arising abroad, the antitrust compliance management body shall promptly report to the company's decision-making level and senior management team, organize internal investigations, present risk assessment opinions, and propose risk mitigation measures. Concurrently, enterprises can utilize channels such as overseas enterprise liaison platforms for foreign investment to report such incidents to relevant government departments and diplomatic missions abroad.
Many domestic enterprises engage in overseas operations, which include establishing joint ventures with foreign entities, setting up subsidiaries, branches, or factories abroad. In such circumstances, we recommend that enterprises prudently evaluate potential antitrust compliance risks in foreign jurisdictions, including, for instance, whether the enterprise is involved in cross-border merger and acquisition transactions that might trigger the obligation to notify concentrations of undertakings under the antitrust laws of other jurisdictions; whether the enterprise engages in horizontal or vertical monopoly agreements outside China; the size of the enterprise's market share in overseas markets; and whether there exist commercial arrangements or behaviors such as excessive pricing or exclusive cooperation agreements that could raise antitrust concerns.
3. Does the implementation of antitrust compliance work extend to the individual level?
The effective functioning of an antitrust compliance management system relies heavily on the support from top executives and relevant business personnel. Within business operations, a company can carry out periodic risk assessments and reminders tailored to the varying levels of compliance risks associated with different job positions, thereby enhancing the specificity and effectiveness of risk control measures. Article 14 of the Draft for Comments specifies the scope of individuals considered high-risk in terms of antitrust compliance:
- Personnel who may come into contact with competitors, including senior executives, management personnel in business departments, sales department personnel, and personnel who are aware of competitively sensitive information;
- Personnel who may come into contact with upstream and downstream enterprises, including personnel in the procurement department, commercial department, and marketing department;
- Personnel who are responsible for pricing decisions, external investment decisions, and the specific implementation of these decisions.
We understand that the high-risk individuals listed in the Draft for Comments largely correspond to the “principal responsible persons and directly responsible individuals” stipulated in Article 56 of the Anti-Monopoly Law (2022), who would be held personally liable for monopolistic agreements. We recommend that enterprises identify these high-risk personnel as the primary targets for antitrust compliance efforts. Conducting specialized antitrust training sessions on a regular basis can help ensure these high-risk individuals have a clear understanding of the boundaries between compliant and non-compliant behavior. It is advisable to maintain records of the training content and attendance rates accordingly. Moreover, companies can contemplate requiring high-risk personnel, including senior management, to commit to complying with all provisions of the antitrust law through written compliance commitment letters. This measure supports the establishment of an internal antitrust compliance framework within the organization by making explicit the personal responsibility of these key players to uphold the principles of fair competition and adherence to antitrust regulations.
4. How to apply for antitrust compliance incentives?
According to Paragraph 1 of Article 38 of the Draft for Comment, the application for compliance incentives by the undertakings shall pass a substantive review. The antitrust enforcement agencies will conduct a substantive review of the undertaking’s antitrust compliance management system in terms of its completeness, authenticity, and effectiveness. The key points of the substantive review include:
- Whether the undertaking’s antitrust compliance management system contains a systematic management system, an independent compliance management organization, a commensurate compliance risk management mechanism, and a stable compliance guarantee mechanism, etc.;
- Whether the undertaking has truly fulfilled its antitrust compliance commitments, invested necessary resources in establishing the compliance management system, and strictly implemented the compliance management system;
- Whether the undertaking has established a sound and comprehensive investigation mechanism for violations, whether the undertaking can promptly detect violations, whether the operator can effectively control the implementation of violations and the expansion of risk, whether the operator is able to pursue accountability for violations, and whether the operator has an after-the-event remedial mechanism to eliminate or mitigate the consequences of violations.
Merely superficial compliance management practices are insufficient to meet the rigorous demands of substantive reviews. A robust and practical antitrust compliance management system is essential for a company to successfully pass such examinations and potentially gain corresponding compliance incentives. We suggest that enterprises, during the course of their antitrust compliance management process, formally document the specific setup and responsibilities of their compliance management bodies. Furthermore, they should ensure the effective operation of their antitrust compliance management systems through various means, such as identifying and assessing compliance risks, conducting thorough reviews of business practices, providing accessible consultation services, reporting significant compliance issues to senior management, and implementing comprehensive training programs to educate employees on antitrust regulations and best compliance practices. These actions not only demonstrate a genuine commitment to compliance but also actively prevent and mitigate potential antitrust violations both domestically and internationally.
5. How to understand the compliance scrutiny period?
Continuing with the substantive review mentioned above, Paragraph 2 of Article 38 of the Draft for Comment specifies that the antitrust law enforcement agencies shall set up a necessary compliance scrutiny period before conducting substantive reviews.
The specific time for initiating the compliance scrutiny period and requirements regarding its duration remain subject to further elaboration by the enforcement authorities. In the context of non-prosecution for corporate compliance in criminal cases, prosecutors can initiate a compliance review of the implicated enterprise during the trial phase. Drawing upon this approach and combining it with the provisions concerning compliance incentives in the Draft for Comments, it is understood that when a company encounters an antitrust investigation, it generally has the opportunity to apply for compliance incentives prior to the imposition of administrative penalties. The specific duration of the scrutiny period would likely need to be assessed on a case-by-case basis and determined by the antitrust enforcement agency.
Regardless, enterprises must first establish an antitrust compliance management system before they can apply for compliance incentives. Moreover, after applying for such incentives, companies are not guaranteed perpetual immunity; rather, they must continuously ensure their ongoing compliance with antitrust regulations. The process does not end with a one-time effort but requires sustained commitment and improvement over time.
6. What are the foreign references for enterprise antitrust compliance incentive systems?
In several overseas jurisdictions, antitrust compliance incentive systems have been established. Below we outline the consideration given by enforcement agencies in major jurisdictions to a company's compliance system during their enforcement processes. From international practices, it is clear that antitrust compliance cannot merely be a “paper exercise”; merely establishing relevant compliance mechanisms does not automatically guarantee benefits such as reduced fines. The actual and effective operation of antitrust compliance mechanisms serves as a prerequisite for obtaining compliance incentives.
Conclusion
The issuance of the Draft for Comments once again echoes the recently promoted regulatory approach of “flexible enforcement”. While providing enterprises with more extensive rule-based guidance, the antitrust enforcement agencies are introducing a comprehensive compliance incentive mechanism, thereby offering enterprises more options and infusing significant impetus into their antitrust compliance efforts.
Although the Draft for Public Comment has not yet been officially enacted, its contents are essentially complete and presented in a highly practical manner through the integration of case examples. Enterprises can utilize it as a ready reference guide to establish or refine their antitrust compliance management systems. Simultaneously, businesses must continue to closely monitor legislative and enforcement developments in antitrust law, dynamically assessing the antitrust compliance risks inherent in their business operations.
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