Minimizing Your Exposure to Anti Competitive Behavior

With fines for anti-competitive behaviour in China breaking records three times in 2013, it’s clear that China is actively stepping up its enforcement activities. While these three record cases covered LCD panels, Chinese liquor and infant formula, various Chinese agencies that oversee anti-monopoly enforcement are targeting a wider range of industries across both local and multinational corporations. Hong Kong is also catching up – with the Competition Ordinance due to take effect in the latter half of 2015.

What should companies do now?

It is important for companies operating in Hong Kong and China to understand the impact of these pieces of legislation and their possible exposure under the new regulations. A good starting point is to implement a thorough self-assessment program that includes, at a minimum, the following steps and procedures

1. Talk With Management and Key Internal and External Stakeholders
   Obtain a detailed understanding of the compliance risks faced by the company covering the following areas:
   • Applicability of the antitrust laws to the business and any exemptions therefrom
   • Details of any existing program, policies or procedures to comply with the antitrust laws
   • Awareness and culture of compliance within the organisation
   • Any involvement in industry or trade associations that may have an influence on purchase or selling prices
2. Gather Business Intelligence
   Through information gathered from the public domain, media review and human source enquiries, a better understanding can be gained in relation to:
   • Cartel activities between competitors
   • Anti-competitive agreements
   • Antitrust litigation or disputes in other jurisdictions
   • Exclusionary conduct by companies with a significant or dominant position in the market
3. Review Your Current Commercial Agreements and Contracts
   Identify potential non-compliance that needs to be assessed in consideration of the legislation. These include terms of distribution agreements and commercial arrangements that may give rise to compliance concerns, such as agreements with competitors, contractual restrictions relating to resale prices, etc.
4. Perform Customer, Costing and Margin Analysis by Utilising Data Analytics
   After obtaining an understanding of current business practices through discussions and contract reviews, companies should then further analyse their historical financial records to identify any red flags that warrant further investigation.For example:
   • Any abnormal changes in customer profiles or levels of activity with specific customers or types of customers, or increases in gross profit margins that could indicate price-fixing
   • Any submitted bids for government or commercial contracts containing prices that are significantly uncompetitive or which deviate from internal pricing policies could suggest the existence of bid rigging

   Data analytic tools and properly targeted data analysis tests can be especially helpful when significant volumes of transactional data require analysis. Adopting a risk-based approach incorporating all relevant information and factors can further increase the efficiency and cost-effectiveness of the analysis, and provide real insights compared with conventional sampling techniques.

5. Discovery
   The self-assessment should also include scrutinising email correspondence of all relevant personnel involved in price-setting to spot anomalies.
   
   A thorough self-assessment exercise enables companies to understand their current exposure to antitrust violations and facilitates the development of a robust antitrust compliance program. Such a program should include appropriate policies and procedures, training, and establishing, monitoring and testing of suitable controls, in order to offer protection against compliance breaches, and mitigate chances of regulatory breaches in the future.