12 May 2016

Emphasis on Preparation of Material Evidence for Leniency Applications

By Susan Ning(partner), Kate Peng(partner), Xin Wang(associate)

In recent years, against the backdrop that China’s antitrust enforcement authorities paid more attentions to regulate horizontal monopoly agreements, there has been an increase in corporate applications for leniency on their own initiative. To encourage and provide undertakings with more guidance, as well as to improve the efficiency of discovering and investigating a monopoly agreement by the enforcement agencies, the Antimonopoly Commission of the State Council delegated the Price Supervision and Antimonopoly Bureau of the National Development and Reform Commission (“NDRC”) drafts the guidelines for leniency applications in 2015. On February 2nd, 2016, NDRC published the Guidelines for leniency applications for horizontal monopolistic agreements (consultation draft) (“Consultation Draft”) on its official website and solicited public opinions. 

As many may be aware of, the higher a company applying for leniency ranks in the queue, the more reduction of fines it can obtain. Nevertheless, it is rarely known that the ranking of application for leniency not only relates to the timing of blowing the whistles, but also relates to the material evidence provided by the applicant, which is an important element for the ranking. In the Anti-monopoly Law (“AML”), the provision concerning leniency policy (the second paragraph of Article 46) provides “report to the authority for enforcement of the AML about the monopoly agreement reached” and “provide material evidence” as two prerequisites for exemption or mitigation of punishment. 

For example, in the investigation of horizontal monopoly agreements among 8 international shipping companies, NDRC applied strict standard when evaluating the probative value of material evidence. In its punishment decision, NDRC listed the categories of material evidence submitted by the shipping company that was finally exempted from punishment.  Except for the detailed report about its own illegal conducts, the company submitted different categories of evidence, including direct evidence, original evidence, and corroborative evidence, on its own initiative. For instance, the company submitted email exchanges among companies extracted from personal computers, conference records, financial information, and testimonies of witnesses. It is exemplified in this case that in practice the enforcement agencies paid close attention on material evidence. 

While the AML and the existing relevant rules do not mention in detail about what material evidence is and how to meet the authority’s requirements, the Consultation Draft provides detailed and practical instructions on this issue mainly from the following three perspectives. 

1. Categories and requirements for material evidence depending on the submission time

Article 6 of the Consultation Draft divides material evidence into two categories:

  • Evidence that is sufficient enough for the enforcement agencies to initiate investigation proceedings in accordance with Article 39 of the AML, when the enforcement agencies have not yet obtained any clue of cases or evidence. This is the requirement of evidence provided by the first so-called “whistle blower.” In other words, the first whistle blower should provide sufficient evidence to convince the enforcement agencies that horizontal monopolistic agreements exist and investigation proceedings shall be initiated. 
  • Evidence that has an evident impact on and adds value to the ultimate identification of monopolistic agreements. For undertakings who surrender later than others, they are required to submit evidence of a higher standard. Such evidence should have an impact on and add value to the evidence already acquired by the enforcement agencies. According to the Consultation Draft, “having an evident impact on and added value” mainly includes: a) evidence that carries more weights or acts as supplementary proof in respect of how monopolistic agreements are concluded and implemented, or b) evidence that serves as valuable supplementary proof with regard to the contents of the monopolistic agreements, the dates when these agreements are concluded and implemented, the involved products or services, and the participants, etc.

With the above instructions, undertakings have a much clearer and more specific standard for the evidence to be submitted in different phases of investigation. 

2. The Timing for Submitting Evidence under the Mechanism of Marker

Learning from experiences and enforcement practices of other jurisdictions, the Consultation Draft establishes a mechanism called “Marker”.  Article 7 provides that undertakings may submit a preliminary report regarding the monopolistic agreements to the enforcement agencies (which means to get a marker). If the undertaking can submit supplemental materials, including material evidence and other documents, within no more than 30 days (this period can be extended up to 60 days under special circumstances), the enforcement agencies will deem the time when they have received the preliminary reports as the time when the undertaking successfully made leniency applications and rank the applicant accordingly. If the undertaking fails to submit the required supplemental materials within the above-mentioned prescribed period, the enforcement agencies will deem that the undertaking has not made any application for leniency. 

In practice, a 30-day period is quite intensive, especially in circumstances that the illegal conduct occurred a long time ago, and it is difficult to uncover material evidence in such cases. Interviewing staff, reviewing documents, searching for emails and other supplemental evidence, and making summary of all the information after reviewing the documents (sometimes translation is needed) are normally quite time-consuming. To accomplish such heavy loads of work under a tight prescribed deadline, undertakings need an efficient and experienced team, which may be composed of in-house counsels, external lawyers, and third party institutions to provide data processing service. 

3. Standard of probative force of evidence

Article 6 of the Consultation Draft provides that when evaluating the probative value of evidence, a) the probative value of original evidence, which is derived from the process of the conclusion and implementation of monopolistic agreement, is stronger than that of hearsay evidence, b) the probative value of direct evidence is stronger than that of indirect evidence, and c) multiple pieces of evidence, which belong to different categories but are consistent in terms of content, have more probative value than a single piece of isolated evidence. For instance, in the investigation of shipping companies, the enforcement agencies held that original evidence, such as emails, conference records, and handwriting notes, etc., have a stronger probative value than hearsay evidence, such as testimony of witness. And the evidence that can be corroborated by the evidence submitted by other applicants has a stronger probative value than the isolated evidence held by only one company. 

In practice, while several undertakings apply for leniency almost at the same time, the quality of evidence might have a substantial effect on their final ranking. Furthermore, during the leniency application, undertakings have the obligation to cooperate with the enforcement agencies in a continuous and comprehensive manner, and the submission of material evidence is the most important aspect of the cooperation duty. As China’s AML becomes increasingly prevalent, instead of reaching a monopoly agreement in writing, AML infringements usually occurred in a disguised manner, making the collection of material evidence more challenging. At such, the undertakings concerned and the external attorneys have to make joint efforts to uncover evidence with more probative value, identify connection, and put them into a chain of evidence, thereby strengthening or even improving the undertakings’ rankings in their leniency application. 

In summary, under the leniency program for horizontal monopoly agreements, both the application timing and the quality of evidence submitted are very important and require more attention from the undertakings concerned. If an undertaking decides to apply for leniency, it is better to prepare at an early stage and to obtain approval from its senior managers to make sure that relevant operating departments would cooperate positively with its in-house counsels. In the meantime, the undertaking shall take professional advice from the specialized lawyers, set out thorough internal self-examination, collect evidence, and prepare documents necessary for the proposed application. These efforts will not only improve efficiency and quality of the preparation work products before submitting the leniency application, but also contribute to the post-application cooperation with the enforcement agencies. As a result, a company could eventually receive a more desirable result and reduce the cost for its regulatory compliance. 

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