A set of amendments proposed by the Korea Fair Trade Commission (the “KFTC”), which were intended to encourage companies to adopt a fair trade voluntary compliance program (“CP” or “CPs”) in accordance with the Monopoly Regulation and Fair Trade Act (the “MRFTA”),went into effect on June 21, 2024. The amended Enforcement Decree of the MRFTA (the “Enforcement Decree”) specifies the criteria and process for evaluating CPs as well as standards for reducing the level of corrective orders and/or administrative fines for companies with outstanding CPs. In addition, an amended Notification on Specific Criteria for Imposing Administrative Fines for MRFTA Violations (the “Administrative Fine Notification”), which includes criteria for reducing administrative fines for companies operating CPs in exemplary ways, went into effect on August 28, 2024.

The CP system, adopted in 2001, is designed to promote a culture of voluntary compliance with fair trade regulations. As of the end of 2022, approximately 730 major companies had adopted and implemented the CP system. The Korean Government has included the facilitation of the CP system as one of its National Governance Tasks amid the global demand for Environmental, Social and Governance (“ESG”) management.

Through the amended MRFTA and Enforcement Decree that went into effect on June 21, 2024, the KFTC established a legal basis for the CP system, including CP evaluation, incentives, as well as designation and cancellation of CP evaluation agencies. The KFTC also enacted a new set of rules – Rules for Operating and Evaluating Fair Trade CPs (the “CP Rules”), which contain detailed provisions pertaining to the CP evaluation process and related matters. The amended Administrative Fine Notification provides detailed criteria for reducing administrative fines for companies that have exemplary CPs, while strengthening the criteria for reducing such fines for cooperation with the KFTC.

The key details of the amended MRFTA, Enforcement Decree and Administrative Fine Notification, and the new CP Rules are as follows:

  1. CP Evaluation Criteria and Procedure
  • Requirements for requesting CP evaluation: A company that meets the requirements for CP implementation and has operated a CP for at least one year may request an evaluation. The KFTC evaluates the company’s performance in the immediately preceding year based on (i) criteria set forth in the CP Rules, including whether the company has met all requirements for CP implementation, and (ii) the CP’s operational status.

 

  • Criteria for additional points:
    • Consecutive requests for CP Evaluation: Companies that apply for consecutive annual CP evaluations can earn up to one additional point depending on the period.
    • Supporting other companies’ CP implementation: If the company’s partner implemented a CP with the company’s operational support and obtains a rating of B or higher, the company can earn points (0.7 points for each partner, up to a maximum of 4 points).
    • Performance of voluntary dispute resolution body: Companies may earn 0.2 points for participating in a CP event and submitting survey responses, 0.4 points for presenting a case study, 0.4 points for providing materials (e.g., CP operating materials), 0.7 points for establishing an internal voluntary dispute resolution body, and 0.3 points for receiving and processing dispute claims.
    • Rating withholding and adjustment: CP evaluation ratings may be withheld, adjusted, invalidated, or not granted if they were assigned based on inappropriate grounds.
  1. Requirements for Incentives Including Fine Reduction
    • Fine reduction: The fine may be reduced by a maximum of 20%. For a rigorous evaluation, companies rated AA or higher are subject to an in-depth interview – in addition to the existing document/on-site evaluations.
    • A one-time reduction of up to 10% (for AA rating) or 15% (for AAA rating) based on the fine after the second adjustment, is allowed once during the rating’s validity.
    • However, an additional fine reduction of up to 5% may be granted if the company proves that it detected a violation through an effective CP operation and ceased the violation prior to the commencement of the investigation.
    • A reduction of the fine is allowed only once during the rating’s validity (two years). In addition, a violation of law is not eligible for a fine reduction or mitigation of a corrective order, even when a company meets the evaluation criteria if (i) the violation occurred before adopting the CP, (ii) the violation involves certain types of hardcore cartels (e.g., bid rigging) that raise significant anti-competitive issues, or (iii) high-level officers of the company are directly involved in the violation.
    • Mitigation of corrective order: A one-time mitigation during the rating’s validity may apply to the level of required public disclosure of a violation of law.
    • Public disclosure by publication: The size and number of publications may be reduced by one level (for AA rating) or two levels (for AAA rating).
    • Public disclosure on the business premises or through electronic media: The period of disclosure may be reduced.
    • Not eligible for reduction or mitigation: Violations involving the following cases are not eligible for fine reduction or the mitigation of a corrective order, as they are contrary to the CP system’s purpose of preventing legal violations:
    • When the company’s employee in charge of the CP is involved in the violation;
    • When the violation occurred before the implementation of the CP;
    • If the violation involves certain types of hardcore cartels (e.g., price fixing, output restriction, bid rigging, market allocation, or collusion on transaction/payment terms); or
    • When high-level officers of the company (e.g., directors) are directly involved in the violation.
  1. Evaluation Costs and Designation of Evaluation Agency
    • Evaluation costs: Based on the principle of “payment by beneficiary” (i.e., the party benefiting from the relevant system should bear the costs), the company bears the cost of the CP evaluation (KRW 6.6 million for the initial evaluation and KRW 4.4 million for subsequent evaluations). However, the evaluation costs are reduced for medium-sized and small businesses as follows:
    • For medium-sized companies or institutions with annual sales of less than KRW 300 billion, the evaluation cost is reduced by 50% (i.e., KRW 3.3 million for the initial evaluation and KRW 2.2 million for subsequent evaluations).
    • Small businesses and companies with an AAA rating in the previous year’s CP evaluation are entirely exempt from the evaluation costs.
    • Designation of evaluation agency: The KFTC may designate the Korea Fair Trade Mediation Agency (which is currently conducting CP evaluations) or other institutions that have issued fair trade-related certifications and performed evaluations for at least two years, as evaluation agencies and provide notice thereof.

Going forward, the KFTC is expected to continue to promote CPs to ensure that CPs become an integral part of business management (as was mentioned in the KFTC’s Enforcement Plan for 2024). Various incentives, such as exemption from official investigations, adjustment of the level of public disclosure order, fine reduction, among others, are provided based on the results of CP evaluations. Accordingly, companies should strive to obtain a high rating in the CP evaluation through the implementation and operation of CP systems that align with the amended requirements.

https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=30465

 

 

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