Sanctions for Cartel Conduct in Hong Kong: Past and Present

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Sandra Marco Colino, Sep 30, 2015

Before the end of 2015, Hong Kong’s first cross-sector competition law will at long last be fully operational. The Hong Kong Competition Ordinance was passed in June 2012, and its adoption put an end to what appeared to be an interminable discussion as to the pros and cons of introducing such legislation for the region’s economy.The government recently announced that all provisions of the Ordinance are to enter into force on December 14, 2015, three-and-a-half years to the day since the law was adopted.

During this seemingly long implementation period, things have begun to take shape, albeit slowly: The government has published the list of statutory bodies that will be exempt from the application of the law; the institutional framework has been set up, with the creation of the Competition Commission and the Competition Tribunal; the final version of the Competition Commission’s first six Guidelines is expected to see the light anytime now, following the publication of initial drafts in October 2014 and revised drafts in March 2015; and a draft leniency policy for cartels has just been announced, with a public consultation currently underway.

This article examines whether the new law is adequately equipped to tackle cartels in Hong Kong, and it does so by focusing on the penalties available under the Ordinance. Cartels are contrary to the First Conduct Rule, which prohibits joint conduct between companies with anticompetitive object or effect in Hong Kong. However, since such practices tend to be highly lucrative and difficult to detect, they are still terribly enticing for firms.

In order to successfully deter collusion, the Ordinance ought to remove the temptation by implementing penalties that are sufficiently frightening to encourage compliance, and that are high enough to eradicate the financial benefits of cartels. The need for robust punishment is even more notorious in Hong Kong, where even the most harmful collusive practices have traditionally been regarded as perfectly acceptable forms of business.

At first glance, the sanctions in the Ordinance certainly seem to have the ability to act as a potent deterrent for lucrative cartels. When a company is found to have breached the Ordinance, corporate remedies and pecuniary penalties may be imposed. In addition, individual sanctions are also available, and directors may be disqualified in certain cases. Harsher sanctions may be imposed on individuals who breach the procedural rules, including fines and even imprisonment.

However, the resilient skepticism towards competition legislation in Hong Kong did require making certain concessions in order to find sufficient support in the Legislative Council for the law to pass. With respect to fines, it was agreed that the turnover to be considered when calculating the amount of the fines would be local, rather than global. In addition, although the Ordinance does refer to damages for harm stemming from anticompetitive conduct, the exclusion of a stand-alone private right of action effectively reduces the possibility of obtaining compensation to those cases where there has been a finding of a breach of the law.

This article discusses the suitability of these penalties now available in Hong Kong. Part II examines punishment under the sector-specific competition rules in telecommunications and broadcasting, which were the only competition regulations in the region before the Ordinance was adopted. The penalties introduced by the Ordinance are assessed in Part III. Finally, conclusions are drawn.