What is illegal cartel conduct?
Illegal cartel conduct refers to the acts that unfairly restrict competition by agreeing to fix prices, allocate markets, adjust shipments in collusion with other business entities in order to avoid competition (as prescribed in Article 19 (1) of the Monopoly Regulation and Fair Trade Act).
Why should cartels be regulated?
Cartels are referred to as a “cancer to the market economy” since they bring about serious harm to the economy without enhancing any efficiency. Cartels discourage businesses from developing new products and technologies, while forcing consumers to buy poor quality products at higher prices without any other choice. In addition, cartels adversely affect the national economy as they stifle technological innovation and hinder potential production capacity growth. * Leading competition authorities (including the OECD) estimate that cartels cause a price increase of at least 10% in the market.
Types of violation
Determination, maintenance, and change of prices
Where business entities agree either directly or indirectly to raise, lower, or maintain prices (e.g. detergent manufacturers fix ex-factory prices in collusion through an agreement)
Determination of terms and conditions for the transactions of goods or services, or for payments thereof
Where business entities collude on terms and conditions for the transactions of goods or services, or for payments thereof (e.g. fast food restaurants jointly discontinue free soft drink refilling service at once through an agreement)
Limitations on production, delivery, transportation, transaction of goods; or transaction of services
Where business entities jointly agree to impose limitations on the terms and conditions for production, delivery, transportation, transaction of goods, or transaction of services (e.g. flour mills agree on the total volume of supply and allocate the volume among themselves based on a sales (or production) quota system)
Limitations on trading area or transaction partners
Where business entities agree on limitations on trading area or on transaction partners (e.g. frozen confectionery wholesalers agree to refrain from poaching each other's existing customer base)
Limitations on construction or extension of facilities, or installation of equipment
Where business entities agree on the construction of facilities for manufacturing or distribution, or agree to hinder or impose limitations on the construction or extension of facilities.
Limitations on kinds of, and standards for goods or services
Where business entities agree to impose limitations on the kinds of, and standards for goods or services for production or trade (e.g. soju (distilled spirits) producers jointly agree to discontinue production of soju in paper cartons)
Joint management of major business activities
Where business entities jointly conduct and manage major business activities or jointly establish a company, etc. to jointly conduct and manage such substantial business activities (e.g. septic tank manufacturers establish a joint distribution company to integrate distribution channels and place limitations on competition at the stages of manufacturing and distribution)
Where business entities agree on a successful bidder, successful auctioneer, bidding price, successful tender or bid price in a bidding or auction (e.g. oil refineries agree to designate a successful bidder and let other bidders participate as cover bidders in the bidding for fuels supplied to military forces)
Leniency and Amnesty Plus programs
Leniency and Amnesty Plus programs are both designed to mitigate or revoke corrective measures or sanctions(e.g. penalty surcharges), if a company participating in illegal cartel conduct voluntarily reports the conduct or cooperates in the KFTC's investigations. The first applicant who voluntarily reports illegal cartel conduct may be fully exempted from the relevant penalty surcharges and corrective measures, while the second applicant may be partially exempted from the relevant penalty surcharges (50%) and corrective measures. Meanwhile, Amnesty Plus program is to mitigate or revoke sanctions against a cartelist currently under investigation. If the cartelist provides evidence relating to another cartel as the first applicant, in the course of investigation into the pending cartel case, the cartelist may be exempted from the relevant penalty surcharges and corrective measures.. ※ For further details, please refer to the “Public Notification on Mitigation or Revocation of Corrective Measures against Persons Voluntarily Reporting Unfair Cartels”.
How to Apply for Mitigation or Revocation of Corrective Measures for Voluntary Reporting
A person who desires to have relevant corrective measures or penalty surcharges mitigated or revoked with regard to illegal cartel conduct, he/she shall fill out an application form for mitigation or revocation of corrective measures (Form 1 attached to the “Public Notification on Mitigation or Revocation of Corrective Measures for Voluntary Reporting”) and submit it to the Cartel Policy Division of the KFTC by mail, e-mail, or facsimile.
- Mail : Cartel Policy Division, Korea Fair Trade Commission, Sejong Government Office Complex, 95 Dasom 3-ro, Sejong City
- E-mail : Leniency@korea.kr
- Fax. : 044-200-4444
- Tel. : 044-200-4535 Cartel Policy Division
Exemption from cartel charges
Approval for cartels
Although illegal cartel conduct is prohibited in principle, it is permitted if it is done for the purposes subject to prior-approval of the KFTC, such as industrial rationalization, research and technical development, recovery from economic recession, industrial restructuring, rationalization of terms and conditions of transactions, or improvement of competitiveness of small and medium enterprises (Article 19 (2) of the Monopoly Regulation and Fair Trade Act).
Illegal cartel conduct involving administrative guidance
What is administrative guidance?
Administrative guidance means an administrative action, such as guidance, recommendation, advice by an administrative agency to encourage or discourage a person to either engage in or not to engage in certain acts within the scope of its duties or affairs under the jurisdiction in order to achieve its administrative goals (Article 2 of the Administrative Procedures Act).
The KFTC and the courts' view on illegal cartel conduct involving administrative guidance
The KFTC and the courts have consistently deemed illegal cartel conduct involving administrative guidance illegal under the Monopoly Regulation and Fair Trade Act, in case where, even if the relevant conduct is committed as a result of administrative guidance provided by an administrative agency, a separate agreement is reached by the cartelists. The KFTC has established a guideline for examination of the relevant acts, thereby clarifying the principles for the enforcement of law. (Guidelines for Examination of Unfair Collaborative Acts involving Administrative Guidance, established rule of the Fair Trade Commission No. 235. Oct. 23, 2015.)
Sanctions against violations
Administrative sanctions (corrective measures and penalty surcharges)
The KFTC may order a violator to stop the violation, to publish the fact that it is ordered to take corrective measures, or to take other measures necessary to correct such violation. The KFTC may impose upon the violator a penalty surcharge not exceeding ten percent of the relevant sales of goods or services reported during the violation period. Provided, That the KFTC may impose a penalty surcharge not exceeding two billion won in the event that no sales have been made or it is impracticable to calculate the sales.
If the KFTC files a criminal charge against a violator, the violator may be prosecuted, and punished by imprisonment for not more than three years or by a fine not exceeding 200 million won. If a violator fails to comply with a corrective measure or cease-and-desist order, the violator, whether it is a corporation or an individual, shall be punished by imprisonment for not more than two years or by a fine not exceeding 150 million won.