September 2, 2014

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September 02, 2014

Energy Sector A Target - China's Antitrust Enforcement Agencies to Take Action Against International Cartels

In the last six months, China's antitrust enforcement agencies have signed five Memorandums of Cooperation with antitrust authorities in the United States, European Union, South Korea, Australia and Brazil. During this same period, Chinese antitrust enforcement agencies have substantially increased their personnel resources.  So far, in 2012 more than 10 cartel investigations have been opened by China’s antitrust enforcement agencies, resulting in fines of millions of dollars in four cases in the last four months alone.  (In the previous three years there had been only three cartel cases with total reported fines of less than US$1 million).

Why all of this activity?  The implications seem clear, and it is not just a matter of reading the tea leaves (so to speak): the Chinese antitrust enforcement agencies are clearly gearing up to implement an even more aggressive enforcement agenda that will now include international cartels that affect China. As a Director of China's antitrust enforcement agency - the National Development and Reform Commission (NDRC) - stated in a speech on November 2, 2012: "We will increase our anti-price monopoly enforcement capability and strive to investigate and penalize a number of large cases that are influential domestically and internationally". Senior Chinese antitrust officials have privately confirmed that they were planning to execute on this agenda as soon as the new Politburo was in place.  Now that this has occurred, we can expect to see a significant uptick in the number of cartel investigations and prosecutions in China, which can subject offenders to fines of up to 10 percent of their annual revenues and confiscation of illegal gains. The "priority" industries reportedly targeted for scrutiny include energy, insurance, motor vehicles, travel and the internet.

The risks associated with the enforcement agencies more aggressive enforcement agenda are compounded by the fact that companies will now be subjected to heightened risk of follow-on private class actions in China.  In particular, the Court rules now make it easier for private plaintiffs to commence class actions in Chinese courts and the Supreme People's Court recently held that once a cartel agreement has been found to exist, the burden of proof shifts to the defendant to prove that the agreement did not result in any restriction of competition.

These developments demonstrate that corporations active in China need to ramp up their antitrust compliance efforts without delay to reduce the risk of being targeted for investigation and serious financial exposure. As a first step, conducting an antitrust compliance audit is advisable to assess potential risk areas and, where appropriate, to position the company to take advantage of the Chinese enforcement agencies' leniency application procedures.  

© 2014 McDermott Will & Emery

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Frank Schoneveld is a partner in the Brussels office of the international law firm of McDermott Will & Emery and a senior consultant at MWE China Law in Shanghai.  He has advised clients for over 20 years on EU competition law, EU regulatory law, international trade law and more recently China's new Anti-Monopoly Law.

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