China unveils AML draft amendments

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China is proposing sweeping changes to the Anti-Monopoly Law (AML) for the first time since the law went into effect in 2008. These include harsher penalties for violations (especially for failure to notify mergers), a mechanism to stop the clock in merger reviews, and more clarity on what will be considered anticompetitive, including hub-and-spoke cartels, abuse of dominance in the internet sector, and unfair discrimination.

China’s State Administration for Market Regulation (SAMR) launched a public consultation on a draft of the proposed amendments on 2 January 2020. The draft amendments are also subject to consultation and further review by the government and legislative agencies. There is no fixed timetable for their adoption.

Harsher penalties

Most notably, the draft amendments have reinforced the deterrent effects of the AML by proposing harsher penalties for violations. Most striking among these is the proposal to increase penalties for failure to file (or prematurely closing) notifiable mergers or other transactions – from RMB500,000 (US$71,400) to 10% of turnover. The SAMR has followed its predecessor, the Ministry of Commerce’s (MOFCOM) lead in regularly investigating parties for failure to notify, with 17 such cases handled in 2019 alone. This, combined with the potential for harsher penalties, is likely to have a significant deterrent effect, and to compel businesses that have not been filing notifiable transactions to give serious consideration to now doing so.

Violation Fines under the current rules Fines proposed in the amendment

Merger control violations:

  • Failure to notify;
  • Implementing pre-clearance (jumping the gun);
  • Breach of remedies in conditional approval decisions; or
  • Implementing a deal that was blocked

Up to RMB500,000

Up to 10% of the sales revenue in the past year.

Where the minimum penalty for monopoly agreements and abuse of dominance would be 1% of sales revenues in the past year, the draft is silent on the minimum penalty for merger control violations. Thus, at least theoretically, the minimum penalty for merger control violations could be lower than 1% of sales revenues. The SAMR would have broad discretion to decide the amount of penalty.

Violation by a trade association for organizing or facilitating a monopoly agreement.

Up to RMB500,000

Up to RMB5 million

Obstructing an investigation, refusing to provide required information, destroying evidence, providing false information, etc.

Fines for individuals: up to RMB100,000;

Fines for a company: RMB200,000 to RMB1 million

Fines for individuals: up to RMB 1 million;

Fines for a company: up to 1% of sales revenues in past year or up to RMB5 million if the company does not generate revenue in past year.

Monopoly agreements that have been entered into but not yet implemented.

Up to RMB500,000

Up to RMB50 million

Where the relevant undertaking does not generate turnover in the past year.

N/A

Up to RMB50 million

 

In addition, the draft amendments appear to open up, for the first time, the possibility for criminal liability for antitrust violations. Currently, antitrust violations in China are not criminal offences. Article 57 of the draft amendments adds a new provision saying that criminal liabilities will arise where the violation constitutes a crime.

This amendment would not, even if enacted, create any new criminal offences in itself, as this would require amendments to the PRC criminal code. But the SAMR appears to be inviting the legislature to consider such amendments in the future, and signalling its belief in the utility of criminal sanctions as a driver of deterrence.

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