1. Significance of Case and Criminal Leniency Program
Recently, the Fair Trade Investigation Division of the Seoul Central District Public Prosecutors’ Office (hereby referred to as the “PO”) indicted eight companies and several individuals for their involvement in a bid-rigging scheme.
This case marks the first time ever in which the PO launched a criminal antitrust investigation through the use of its cartel reduction/exemption system (the “Criminal Leniency Program”) without an initial criminal referral by the Korea Fair Trade Commission (the “KFTC”). In the lead-up to the indictments, the PO and the KFTC reportedly held a series of meetings to share information, discuss the scope of the PO’s request for criminal referrals, and ensure consistency between the Criminal Leniency Program and the KFTC’s leniency program. This case represents a potentially meaningful milestone as it signals earlier involvement by the PO in antitrust cases and closer cooperation between the two agencies in criminal antitrust matters.
The PO has long made efforts to identify and prosecute collusion as a serious crime. However, it faced practical and procedural limits in moving swiftly to investigate potential antitrust crimes as it needed to receive leniency information from the KFTC. To remedy this issue, in December 2020, the PO established its Criminal Leniency Program in the form of Supreme Prosecutors’ Office (the “SPO”) guidelines. The Criminal Leniency Program allows the PO to grant a penalty exemption or reduction to a person or entity who self-reports cartel activity and cooperates with the PO’s investigation.
While the Criminal Leniency Program shares similarities with the KFTC’s leniency program in terms of the requirements and criteria for recognition, it has the following differences: (i) the Criminal Leniency Program ranks leniency applicants based on the order of applications received by the SPO, regardless of the KFTC’s leniency ranking; (ii) the Criminal Leniency Program covers only hardcore cartels, while the KFTC’s leniency program covers softcore cartels as well; (iii) in case of the Criminal Leniency Program, individuals as well as businesses are eligible to apply, while only businesses are eligible to apply for the KFTC’s leniency program; and (iv) only the first-in-line leniency applicant is exempt from prosecution under the Criminal Leniency Program, while the first and second-in-line applicants are exempt from criminal referral under the KFTC’s leniency program.
Once a criminal leniency application is received, the SPO decides whether to transfer the application materials to the KFTC or to the PO. Until this case, the SPO transferred all such applications to the KFTC for initial investigation.
This is the first case, however, in which the SPO transferred the criminal leniency application materials to the PO instead of the KFTC. Despite the fact that the KFTC had an ongoing probe into the same issue, the PO swiftly launched its own investigation, conducting extensive searches and seizures of the involved furniture manufacturers and related persons. The PO also identified top decision makers within each entity that participated in the collusion, requested the KFTC to make criminal referrals for those individuals, and subsequently indicted them upon the KFTC’s criminal referral.
2. Response to Criminal Leniency Program
(1) Need for an Accurate Understanding of the Criminal Leniency Program
It is expected that the PO’s interest and involvement in antitrust cases will remain elevated. Recent antitrust cases have demonstrated the PO’s commitment to investigating individuals with the highest decision-making authority and actively using compulsory processes such as search and seizure. The PO’s use of the Criminal Leniency Program is expected to expand even further in the aftermath of this case, and the PO will continue to accumulate more information about cartels and experience in prosecuting cartels.
Parties facing potential investigation may find the Criminal Leniency Program an appealing option. The program grants leniency applicants exemptions from facing compulsory investigative procedures such as search and seizure and undergoing investigations regarding unrelated issues.
However, the PO has shown a tendency to reject granting leniency status in cases where there is suspicion of abuse of the Criminal Leniency Program. Such abuse may include applying for leniency only after the KFTC’s investigation has reached an advanced stage or when a criminal referral seems likely. Therefore, we recommend that potential leniency applicants seek advice from a legal expert before deciding whether or when to apply for criminal leniency.
(2) Enhanced Cooperation Between the PO and the KFTC
Significant efforts have been made to establish a close and cooperative working relationship between the PO and the KFTC. These efforts portend a greater involvement by the PO in antitrust matters in the future. If the PO has open access to information gained through both the KFTC’s leniency program and the Criminal Leniency Program, the PO may be able to bring criminal charges at an earlier stage, even during an ongoing KFTC investigation. In the past, parties under investigation for alleged antitrust crimes could respond to the KFTC’s investigation process first and then to the PO’s investigation if charges were later filed. Now, however, the parties may need to respond to both the KFTC’s and PO’s investigations simultaneously.
In particular, as the PO intensifies its focus on investigating culpable individuals with the highest decision-making authority and employs compulsory measures to gather evidence, it will be important to have a multifaceted strategy for responding to antitrust allegations and to plan and prepare for potential involvement by the PO from the initial stages of an antitrust case. In light of those circumstances, companies will benefit from observing how cooperative efforts, such as information sharing and coordination of law enforcement activities, between the PO and the KFTC materialize.