China Releases Draft Discretion Benchmarks for Administrative Punishments for Antitrust Concentration Cases
Published 4 September 204
Xia Yu
On 16 August 2024, the State Administration for Market Regulation published a draft Discretion Benchmarks of Administrative Punishments for Illegal Implementation of Concentration in Violation of the Anti-monopoly Law of the People’s Republic of China (“Draft Discretion Benchmarks”), and solicited public opinions until 14 September 2024. The Draft Discretion Benchmarks, consisting of 19 articles, clarify the purpose, basis, procedures, and factors for determining the amounts of preliminary and final fines for cases of illegal implementation of the concentration in violation of the Anti-Monopoly Law.
The Anti-Monopoly Law revised on 24 June 2022 has significantly increased the fines for illegal implementation of concentration. In order to improve the quality of law enforcement of administrative penalties, as well as to standardize and supervise the setting and implementation of administrative fines, the Draft Discretion Benchmarks is formulated in accordance with related laws and regulations, including the Anti-Monopoly Law, Law of The People’s Republic Of China on Administrative Penalty, Provisions of the State Council on Notification Thresholds for Concentrations Between Undertakings, Provisions on the Examination of Concentrations of Undertakings, Opinions of the General Office of the State Council for Further Regulating the Development and Administration of Administrative Discretion Benchmarks, Guiding Opinions of the State Council on Further Regulating and Supervising the Creation and Imposition of Fines, and Notice by the State Administration for Market Regulation of Issuing the Guiding Opinions on Regulating the Discretion in Administrative Punishments in Market Regulation.
The Draft Discretion Benchmarks are applicable for the implementation of three kinds of concentrations, which are those that have not been declared in advance or not declared as required, that are disapproved after the declaration, and that are explicitly prohibited. The target of its punishment is the merger parties for mergers, or the undertakings who have obtained control or can apply decisive impacts in other concentrations. The determination of the penalty measures and the amount of fine shall follow the principles of legal, comparable punishment, fairness, openness, combining punishment and education, and comprehensive tailoring, and consider factors such as illegal facts, nature, plot, subjective fault of the parties, centralized implementation time, whether to eliminate or restrict competition and its duration and eliminate illegal consequences.
According to the Draft Discretion Benchmarks, for concentration without exclusion and restricting competition effect, the amount of preliminary fine shall first be determined based on its application of light punishment or heavy punishment. Then, the relevant ups and downgraded adjustment factors are determined by comprehensively considering the factors such as facts, nature, degree, degree, subjective fault of the parties, the degree of cooperation with the investigation, and compliance construction. After that, the final fine amount is determined. For illegal implementation of the concentration, the maximum fines shall not exceed RMB 5 million (equivalent to USD 0.7 million).
Generally, the preliminary fine is RMB 2.5 million (equivalent to USD 0.35 million) for illegal implementation of the concentration without exclusion and restricting competition effect. It can be reduced to RMB 1 million (equivalent to USD 0.14 million) when it applies to a light penalty. When it has one of the following situations, the preliminary fine may increase to RMB 4 million (equivalent to USD 0.56 million): 1. Express, coerce, and deceive others to illegally implement concentration.2. After being punished due to the illegal implementation of the concentration, it committed it again within one year.3. Obstacles or refusal to cooperate with law enforcement or revenge on administrative law enforcement officers.4. Forgery, concealment, and destruction of evidence.
The Draft Discretion Benchmarks further stipulates the relevant ups and downgraded adjustment factors to determine the final fine. Factors for reducing the fine include the situations where the relevant undertakings have not yet operated, started production, or exercised control after the concentration; first illegal implementation of the concentration; actively cooperating with the investigation; establishing or improving the antitrust compliance management system and implementing it; and the turnover of the undertaking involved in the concentration in China in the previous fiscal year did not meet the reporting standards. Each factor for reducing the fine can reduce the amount of the fine by 10% of the initial fine amount. It can be accumulated, but the minimum fine amount after accumulation shall not be less than 40% of the initial fine amount. Factors that increase fines include implementing a concentration that does not meet the reporting standards but is notified for reporting; providing misleading or false materials and information; and failing to cooperate with the investigation or provide evidence. For the factors of increase, the fine can be increased by 20% of the initial penalty amount due to the first factor, and by 10% due to the other factors. These factors can be accumulated also.
The discretion for the concentrations with the effect of eliminating or restricting competition is to require necessary measures and impose a fine of no more than 10% of the sales in the previous year. The necessary measures include ordering the cessation of the implementation, disposing of shares or assets within a time limit, transferring the business within a time limit, and restoring to the state before the concentration. The final amount of the fine shall be determined by referring to the above-mentioned steps for determining the fine for illegal implementation of the concentration without the effect of eliminating or restricting competition, and comprehensively considering factors such as the time of implementation, the duration and scope of the effect of eliminating or restricting competition, and the situation of eliminating the consequences of the illegal behavior. For illegal implementation of the concentration that has or may have the effect of eliminating or restricting competition, the maximum fine shall not exceed 10% of the sales revenue of the previous year, and the minimum fine shall not be less than RMB 5 million (equivalent to USD 0.7 million).
The Draft Discretion Benchmarks provide for direct penalties of 10% of the previous year’s sales for the implementation of a concentration without approval after being informed that the concentration has the effect of eliminating or restricting competition and that after receiving a decision prohibiting the concentration. In addition, it also clarifies the circumstances in which exemption from punishment is granted, including proactive reporting before the first illegal implementation is discovered and taking measures to restore to the state before the concentration, and having fulfilled the prudent obligation, the violation is caused by objective circumstances that cannot be foreseen, avoided or overcome.
The Draft Discretion Benchmarks details and clarifies the basis and standards for penalty discretion. This helps to ensure the uniformity and transparency of the enforcement standards for illegal implementation of concentration, to protect the legitimate rights and interests of undertakings, and to stabilize market expectations.
The Anti-Monopoly Law revised on 24 June 2022 has significantly increased the fines for illegal implementation of concentration. In order to improve the quality of law enforcement of administrative penalties, as well as to standardize and supervise the setting and implementation of administrative fines, the Draft Discretion Benchmarks is formulated in accordance with related laws and regulations, including the Anti-Monopoly Law, Law of The People’s Republic Of China on Administrative Penalty, Provisions of the State Council on Notification Thresholds for Concentrations Between Undertakings, Provisions on the Examination of Concentrations of Undertakings, Opinions of the General Office of the State Council for Further Regulating the Development and Administration of Administrative Discretion Benchmarks, Guiding Opinions of the State Council on Further Regulating and Supervising the Creation and Imposition of Fines, and Notice by the State Administration for Market Regulation of Issuing the Guiding Opinions on Regulating the Discretion in Administrative Punishments in Market Regulation.
The Draft Discretion Benchmarks are applicable for the implementation of three kinds of concentrations, which are those that have not been declared in advance or not declared as required, that are disapproved after the declaration, and that are explicitly prohibited. The target of its punishment is the merger parties for mergers, or the undertakings who have obtained control or can apply decisive impacts in other concentrations. The determination of the penalty measures and the amount of fine shall follow the principles of legal, comparable punishment, fairness, openness, combining punishment and education, and comprehensive tailoring, and consider factors such as illegal facts, nature, plot, subjective fault of the parties, centralized implementation time, whether to eliminate or restrict competition and its duration and eliminate illegal consequences.
According to the Draft Discretion Benchmarks, for concentration without exclusion and restricting competition effect, the amount of preliminary fine shall first be determined based on its application of light punishment or heavy punishment. Then, the relevant ups and downgraded adjustment factors are determined by comprehensively considering the factors such as facts, nature, degree, degree, subjective fault of the parties, the degree of cooperation with the investigation, and compliance construction. After that, the final fine amount is determined. For illegal implementation of the concentration, the maximum fines shall not exceed RMB 5 million (equivalent to USD 0.7 million).
Generally, the preliminary fine is RMB 2.5 million (equivalent to USD 0.35 million) for illegal implementation of the concentration without exclusion and restricting competition effect. It can be reduced to RMB 1 million (equivalent to USD 0.14 million) when it applies to a light penalty. When it has one of the following situations, the preliminary fine may increase to RMB 4 million (equivalent to USD 0.56 million): 1. Express, coerce, and deceive others to illegally implement concentration.2. After being punished due to the illegal implementation of the concentration, it committed it again within one year.3. Obstacles or refusal to cooperate with law enforcement or revenge on administrative law enforcement officers.4. Forgery, concealment, and destruction of evidence.
The Draft Discretion Benchmarks further stipulates the relevant ups and downgraded adjustment factors to determine the final fine. Factors for reducing the fine include the situations where the relevant undertakings have not yet operated, started production, or exercised control after the concentration; first illegal implementation of the concentration; actively cooperating with the investigation; establishing or improving the antitrust compliance management system and implementing it; and the turnover of the undertaking involved in the concentration in China in the previous fiscal year did not meet the reporting standards. Each factor for reducing the fine can reduce the amount of the fine by 10% of the initial fine amount. It can be accumulated, but the minimum fine amount after accumulation shall not be less than 40% of the initial fine amount. Factors that increase fines include implementing a concentration that does not meet the reporting standards but is notified for reporting; providing misleading or false materials and information; and failing to cooperate with the investigation or provide evidence. For the factors of increase, the fine can be increased by 20% of the initial penalty amount due to the first factor, and by 10% due to the other factors. These factors can be accumulated also.
The discretion for the concentrations with the effect of eliminating or restricting competition is to require necessary measures and impose a fine of no more than 10% of the sales in the previous year. The necessary measures include ordering the cessation of the implementation, disposing of shares or assets within a time limit, transferring the business within a time limit, and restoring to the state before the concentration. The final amount of the fine shall be determined by referring to the above-mentioned steps for determining the fine for illegal implementation of the concentration without the effect of eliminating or restricting competition, and comprehensively considering factors such as the time of implementation, the duration and scope of the effect of eliminating or restricting competition, and the situation of eliminating the consequences of the illegal behavior. For illegal implementation of the concentration that has or may have the effect of eliminating or restricting competition, the maximum fine shall not exceed 10% of the sales revenue of the previous year, and the minimum fine shall not be less than RMB 5 million (equivalent to USD 0.7 million).
The Draft Discretion Benchmarks provide for direct penalties of 10% of the previous year’s sales for the implementation of a concentration without approval after being informed that the concentration has the effect of eliminating or restricting competition and that after receiving a decision prohibiting the concentration. In addition, it also clarifies the circumstances in which exemption from punishment is granted, including proactive reporting before the first illegal implementation is discovered and taking measures to restore to the state before the concentration, and having fulfilled the prudent obligation, the violation is caused by objective circumstances that cannot be foreseen, avoided or overcome.
The Draft Discretion Benchmarks details and clarifies the basis and standards for penalty discretion. This helps to ensure the uniformity and transparency of the enforcement standards for illegal implementation of concentration, to protect the legitimate rights and interests of undertakings, and to stabilize market expectations.