The NDRC fines ocean freight cartel

The NDRC found both bilateral and multilateral coordination among the companies, with communications by phone, e-mail and live meetings. In particular, the NDRC found deliberate efforts to conceal the cartel, such as promptly deleting emails and using code words.

The NDRC determined that these practices had the actual anti-competitive effect of “excluding and restricting competition in the relevant market, raising international ocean freight rates for roll-on roll-off cargo and damaging the interests of relevant China's importers, exporters and end consumers.” Although the official decisions do not explicitly define the relevant market, context suggests that the NDRC treated “roll-on roll-off” cargo shipping services as a discrete product, and treated shipping routes from and to China such as North America-China, Europe-China, China-South America, China-Europe, China-North America, China to South-west Africa, and “China-Coastal” as separate geographic markets. The official decisions list each company's infractions route by route.

The NDRC concluded that this conduct violated the AML's rules against price-fixing and market allocation by competitors. Like the Qualcomm case, this decision illustrates the NDRC's exercise of jurisdiction over AML violations that are directly related to pricing plus other violations that less clearly tied to pricing that arise from the same course of conduct.

Penalties and leniency

The AML prescribes fines of 1% to 10% of a cartel member's turnover from the relevant market from the preceding year, so fines were based on the 2014 revenues from roll-on roll-off freight services to or from China.

The NDRC's leniency policy significantly impacted the penalties. Under Article 46 of the AML, companies that voluntarily report their involvement in antitrust violations and provide important evidence to investigators may qualify for reduced penalties. To incentivize prompt disclosure, NDRC rules provide that the first successful “leniency” candidate may receive a complete exemption from fines, the second may receive a 50% discount and subsequent applicants may receive lower reductions in fines. In this case, NYK Line was exempted from penalties, K-Line's fine was just 4% of its relevant revenue (Rmb23.98 million), while Mitsui OSK Lines was fined 7% at Rmb38.12 million. According to the China Reform News, these three companies all “turned themselves in” within the same week, with the first in the door providing significant documentation of phone communications, e-mails and travel expenses for cartel meetings in order to secure the full exemption from penalty. The wide range in penalties confirms the advantage of being the first successful leniency applicant; like other antitrust authorities worldwide, the NDRC is poised to benefit from a race among cartelists for leniency.

EUKOR was fined 9% of its relevant turnover (Rmb284 million), while WWL was fined 8% (Rmb45.06 million), reflecting the breadth, duration and seriousness of their misconduct. In contrast, CSAV, Eastern Car Liner, and CCNI were fined 6% (or Rmb3.08 million), 5% (or Rmb11.27 million) and 4% (or Rmb1.2 million), respectively, on grounds that their conduct “involved fewer brands, violations and shipping routes” and “only assisting and cooperating” in the cartel.

Due process

Industry associations, scholars and foreign governments have challenged the fairness and thoroughness of past NDRC investigations; the China Reform News article may be intended in part to preempt such criticism. It reports that the investigation lasted over a year, entailing five rounds of meetings with the respondents, the production of over 120,000 pages of documents and over two hundred communications with respondents. It further reports that the NDRC repeatedly notified them of the “main evidence and facts and listened to the respondents' feedback, and allowed the respondents' attorneys to participate throughout the whole process.” Moreover, it reports that a ninth company, Höegh Autoliners of Norway, was also investigated, but there was insufficient evidence of its involvement and thus it was not penalized. Concerns about the role of counsel, access to evidence and other aspects of the NDRC's investigative procedures persist, but the regulator's acknowledgment of these concerns coupled with the exoneration of a foreign target in an NDRC cartel probe are welcome developments.

New emphasis on compliance?

The NDRC announcement emphasized the companies' commitment to implement corrective measures aimed at preventing future violations. These include: “strengthening the building of anti-monopoly compliance systems,” such as through the appointment of chief compliance officers and implementation of compliance audit procedures; enhancing “anti-monopoly compliance education” through training and educational materials; and implementing information technology (IT) tools for antitrust compliance, such as “software to screen internally sensitive emails.”

The effectiveness of corporate compliance policies has long played a critical role in charging decisions and penalties in the U.S. and many other jurisdictions, and multinational companies invest substantially in antitrust, anti-corruption and other compliance both to deter, detect and prevent violations and mitigate enforcement risks in the event of an infraction. In contrast, Chinese regulators have not routinely highlighted corporate compliance efforts in past enforcement decisions. By spotlighting specific corporate governance, human resources and IT measures to reinforce antitrust compliance, the NDRC may be signaling a new willingness to consider bona fide compliance efforts in future charging and penalty decisions – or warning companies against failure to adopt sufficient antitrust safeguards.