SAIC's AML rules leave questions

The rules tackling abuse of administrative power are strongly geared towards the provincial level and the blocking of imports from one province to another. But with the rules addressing monopoly agreements and abuse of a dominant position, SAIC seems to be centralising its power.

Unlike in earlier drafts of the rules – which gave blanket authorisation to Provincial Administrations of Industry and Commerce (Provincial AICs) – the new rules provide for delegation to Provincial AICs only in certain circumstances and always under the supervision of SAIC.

“Influential, major cases should be reviewed by SAIC while other cases would be dealt with at provincial level,” said Renard. “But there is now a centralised approach that will ensure some sort of supervision, which is very positive.”

While Articles 3 and 9 of the rules addressing monopoly agreements and abuse of a dominant position focus on the allocation of power between SAIC and the provinces, Articles 5-7 focus on investigations and reporting.

Requirements made of those who submit complaints of suspected AML violations include making the complaint in writing, signing it, and providing information about themselves, the suspected violator, relevant facts and relevant evidence.

Renard said the burdensome nature of these requirements should avoid frivolous complaints. “Some people in China have no problem complaining to authorities – even on unfounded grounds.”

The rules provide a wide range of methods for SAIC or the Provincial AICs to investigate suspected anticompetitive conduct, “but there are not many details provided in the rules, which leaves lots of questions on how they will actually be conducted,” said Renard. For example, the rules do not specify the evidentiary burden to be met before SAIC commences an investigation.

And some of the methods cited appear to be quite intrusive, perhaps indicating that AML investigations in China will have powers as extensive as those found in the US, Europe and elsewhere.

For example, Article 12b states that where the target under investigation is a business operator, it will be required to provide information on, among other things, overseas investment for the previous three years.

“I'm a bit sceptical over that,” said Renard. “Is [overseas investment] systematically related to antitrust matters? It is not clear why this very specific information would need to be requested in each proceeding.”

Article 12 goes on to state that 'the AIC and its officials hold a duty of confidentiality in respect of any commercial secrets they learn of during the course of their law-enforcement activities'.

“That's great but there's no specific obligation in the public version of the decision itself, which is normal practice in other jurisdictions,” said Renard. “And let's hope that any commercial secrets AIC learns are not widely circulated among the other authorities involved in investigations, because this clause only applies to AIC and officials which is worrisome.”

A final area of concern is over the proposed leniency programme for parties that voluntarily report on and provide evidence of monopoly agreements. While the leniency mechanism appears to be modeled after those in the US and EU, Renard noted one important difference.

Article 20 states that the relevant AIC may exempt from punishment entirely or adopt a lesser punishment for those that report on and provide evidence of monopoly agreements.

“The problem comes from one word, which also appears in the AML but which would have benefitted from some clarification,” said Renard. “The relevant AIC may exempt from punishment … If you are the first one you should receive immunity.”

He added: “I can see why they want to have discretion, but if a company that is willing to fully cooperate is not certain to get immunity what's their incentive to self-report? Why would they risk being fined based on information they voluntarily report? We need a common understanding of what they mean by 'may exempt from punishment'.”

While SAIC's procedural rules were contained in a document that ran over six pages, equivalent rules in the US, the EU and elsewhere typically run over some 50 pages. And although the rules do not come into effect until July 1, SAIC is reviewing several cases already.

Publication of SAIC's rules come as the Ministry of Commerce (Mofcom) announced that the AML may apply to Rio Tinto's proposed joint venture with BHP Billiton.