Sanctions against Cartel in Korea

Transcription

1 Company LOGO Sanctions against Cartel in Korea Joseph Seon Hur Secretary General, KFTC ICN Cartels Workshop 2005

2 Agenda Introduction Financial Sanction in in Korea Sanction other than Surcharge Conclusion

3 Introduction Cartel Regulation Environment in Korea Oligopoly of Main Industries Gov s Unofficial Intervention Business Associations Confucian paternalism High frequency of cartel High proportion of hard core cartels To Root out Cartels We must Raise cartel detection rate Optimize Sanction

4 Introduction Types of Sanction Surcharge Prosecution Corrective Order Order to Publish History Ceiling of Surcharge (% of related turnover) Ceiling of Criminal fines(million won) Ceiling of Imprisonment(years) - 2 3

5 Why & How much to Impose Financial Sanction why? Most effective measure to deter cartel is eliminating potential gains How much? It should be larger than the expected gains(economic gains * probability of not being detected) <Analyses of Harmful Effect of Cartel by OECD (2002) > Ill-gotten gains and the size of harmful effect Less than 5% 5 to 15% 20 to 30% 50 to 65% Percentage (%)

6 Points to be Considered in Calculating Financial Sanction Most Important Elements Anti-competitive effect /Amount of illegal gains Elements being Stressed on The U.S. : Degree of Cooperation with Investigation The EU : Nature and Seriousness of Violation Korea Content and Seriousness, Duration and frequency of violation Degree of Cooperation Capability of Company to Pay Surcharge

7 What is Surcharges? Administrative Penalty for Violation of Law Surcharge is different from criminal fines Subject: Imposed by administrative agency Purpose: Recovering illegal gains + Punishing a law violation Imposing both against a single violation is possible

8 Revision of Surcharge Imposing System Optimizing the Ceiling(2005) Why : Need for Stronger Deterrence Detection of Repeated Cartel between 1995 and 2004 No. of violations total No. of companies 1, ,517 How : From 5% of related turnover to 10% Sufficient Now? Economic Gain : More than 20% / Detection Rate : Less than 50%

9 Revision of Surcharge Imposing System Rebuilding of Imposing System(2004) Before : KFTC s Discretion Under the Ceiling After : Basic Surcharge Adjusted Surcharge Final Surcharge the the gravity gravity and and size size of of a violation violation reduction/increase reason reason Burden Burden of of violating companies etc etc

10 Impose Surcharge or Not Impose surcharge to cartel cases in principle exception : cartels which have little effect on restricting competition Basic Surcharge Standard : Extent of seriousness (Type of Cartel, Market Share of Participants, Affected territory etc.) Extent of seriousness Very serious violation Serious violation Minor violation Standard imposition rate 7.0 to 10.0% of related turnover 3.0 to 7.0% of related turnover 0.5 to 3.0% of related turnover

11 Obligatorily adjusted surcharges Adjusting by frequency of violations Three times or more corrective measures over the past 3 years 10% added per case (MAX 50%) Adjusting by ill-gotten gains The illegal gains > Surcharge adjusted by frequency of violation Illegal gains will be set as obligatorily adjusted surcharge.

12 Discretionarily adjusted surcharges Reasons for Surcharge Increase Leading or Instigating the Violation : up to 30% Not terminating or Correcting the Violation until Deliberation : up to 20% Retaliating against Other Companies : up to 20% Refusing/Obstructing, Avoiding an Investigation : up to 20% High Ranking Officers Directly Involved : up to 10% Similar Reasons : up to 10%

13 Discretionarily adjusted surcharges Reasons for Surcharge Reduction Not Implementing Cartel Agreements : up to 30%. Participating in Cartel by Force : up to 30% Actively Cooperating in the Investigation: up to 20%. Being Caused by Government Policy : up to 20%. Correcting Voluntarily : up to 20% Financial Ability not Sufficient : up to 50%. Being Occurred by a Mistake or Considerable Caution Taken : up to 10% Similar Reasons : up to 10%

14 Final surcharges Adjusted Surcharge Can Be Reduced up to 50% Again Considering Economic Situation Economic or Financial Profits Generated by the Companies Actual Capability to Pay Surcharge Adjusted Surcharge can be exempted if a violating company is deemed to be incapable of paying surcharges

15 Simulation(Hypothetical) A and B agreed to raise the price of a product Apr and A compelled C to follow their agreement. C had no choice but to follow because A had threatened that it would discontinue to deal with C. A was the biggest Customer of C on another product. A and B refused KFTC s investigation and denied their conduct after detection but C ate humble pie(but didn t apply leniency). Their market share, duration of violation, and related turnover are as follows. A B C Duration Until Dec Until Dec Until Nov Related Turnover 100 billion won 60 billion won 35 billion won Frequency of Violation 5 2 0

16 Simulation(Hypothetical) Basic Surcharge : 7.0 to 10% of Related Turnover(Very Serious Violation) Price fixing / Market Share 100% / Influent to all country Assuming the percentage to 7%, Basic Surcharges are as follows A B C Related Turnover 100 billion won 60 billion won 30 billion won Basic Surcharges 7 billion won 4.2 billion won 2.1 billion won Obligatory Adjusted Surcharge A : 9.1 billion Won(3 Violation*10%=30% Increased) B, C : Same as the Basic Surcharge

17 Simulation(Hypothetical) Discretionarily adjusted surcharges A : Increase up to 40% (Instigating cartel 20% + Refusing Investigation 20%) From 9.1 Up to 10 billion B : Increase up to 20% (Refusing Investigation) From 4.2 Up to 5.04 billion C : Reduce up to 50% (Participating by Force 30% + Active Cooperation 20%) From 1.05 to 2.1 billion Final Surcharge Final Surcharge Can t exceed the Discretionarily adjusted surcharge

18 Surcharges on Cartels 88~ Total Cases Amount(million won) 4,447 14,513 1,092 31,991 36, ,812 26,700 50, ,559 28, ,710 Amount (thousand ollars) 4,203 13,716 1,032 30,234 34, ,895 25,234 47, ,598 27, ,161 Biggest Surcharge The largest surcharge imposed : billion won (180 million dollars, the military fuel case, 2000) on 5 petroleum companies The largest amount imposed on a single company : 113 billion won(107 million dollars) on a price fixing cartel of local telephone call tariff(2005)

19 Sanctions Other Than Surcharges Corrective measures Cease and Desist order Order Prohibiting Possible Cartels Order to Publish the Fact of Receiving a Corrective Measure Preventing Possible Violations by using a Sense of Dishonor Other Measures Restriction on Participation in a Public Bid Order of Re-determination of Price

20 Sanctions Other Than Surcharges Criminal Punishment Imprisonment for not more than 3 Years Fine up to but not exceeding 200 Million Won(USD 191,000) Imprisonment and Fine can be Imposed Concurrently KFTC Began to Actively File Complaint Recently <Number of Prosecutions by the KFTC > Year Total Number

21 Sanctions Other Than Surcharges Criminal Punishment No Sentence of Imprisonment(only Fines) Until 2004 More active decision of the prosecution and the court needed

22 Sanctions Other Than Surcharges Facilitation of civil lawsuit Civil suits could be powerful tool for deterring KFTC is reviewing the introduction of public lawsuits Government Agency Files a Lawsuit on behalf of Victims Distributes Reparations to Victims

23 Conclusion The most effective sanction should redeem all illegal gains from cartels prevent recurrence by using all means punish cartel participants with surcharges, criminal prosecution and civil litigation With rapid integration of global markets, close cooperation among competition authorities is needed

24 Thank you