2022.12.30 CHEN, Xiaohua (Sara)、Xiaoyao Yao
On October 23, 2021, the Standing Committee of the National People's Congress (NPCSC) released the draft Amendment of the Anti-Monopoly Law for public consultation and held the first deliberation on November 9, 2021. The second deliberation was held from June 21 to 24, 2022. The NPCSC announced the adoption of the Amendment of the Anti-Monopoly Law (the New AML) on June 24, 2022, and it came into force on August 1, 2022.
Article 58 of the New AML amends the legal liabilities for the illegal implementation of a concentration without making notifications subject to the law (so-called gun jumping) in Article 48 of the Anti-Monopoly Law (2008) (the Old AML). It significantly increases the penalties for gun jumping and categorizes the penalties and the maximum fines according to the nature of such gun jumping. In addition, the New AML adds Article 63, which outlines the illegal activities (including gun jumping) that are subject to aggravated punishment.
Since late 2020, antitrust enforcement agencies have shown increasingly strict attitudes towards gun jumping, accompanied with an increase in awareness of antitrust compliance. The amendments in the New AML further strengthen the deterrent effect of legal liability of antitrust violations, which encourages undertakings to improve their internal antitrust compliance systems and reduce the legal risks of gun jumping.
I. Gun Jumping Actions and Legal Liabilities
The legal liabilities for gun-jumping were stipulated in Article 48 of the Old AML, while the New AML amends it to Article 58 and adds Article 63 which provides the scenarios for aggravated punishment.
Compared with the Old AML, the New AML categorizes the penalties for different types of gun jumping actions and significantly increases the overall penalties. The New AML categorizes the penalties according to the impact that the concentration may have on the relevant market. The New AML also significantly increases the maximum fines and expressly provides that the relevant violations will be recorded in the enterprise credit record and be publicized. The specific amendments are as follows:
Table: Comparison of the New AML and the Old AML regarding Gun Jumping Liabilities
The Old AML | The New AML | |
Fine amount | Not more than RMB 500,000 | If the concentration does not have the effect of excluding or restricting competition: not more than RMB 5,000,000. If the concentration has or may have the effect of excluding or restricting competition: not more than 10% of the sales turnover of the previous year. If serious violations have major impacts and consequences, antitrust enforcement agencies can determine the specific amount of fines from more than two times but not more than five times the amount of the fine originally determined. |
Other penalties | Cease the implementation of the concentration, dispose of the shares or assets, transfer the undertaking within a certain time frame, or take other necessary measures to restore to the status before the concentration | If the concentration does not have the effect of excluding or restricting competition: none. If the concentration has or may have the effect of excluding or restricting competition: cease the implementation of the concentration, dispose of the shares or assets, transfer the undertaking within a certain time frame, or take other necessary measures to restore to the status before the concentration. |
No explicit provisions The penalty decision will be publicized on the official website of the Anti-Monopoly Bureau | Where undertakings are subject to administrative penalties due to violations of the New AML, the violations shall be recorded in the credit record according to relevant regulations and made public. |
The New AML adds the scenarios of aggravated punishment for violations including gun jumping actions, i.e., if violations occur that have serious impacts and consequences, antitrust enforcement agencies can determine the specific amount of fines from more than two times but not more than five times the amount of the fines originally determined.
II. The Impact of the New AML’s Amendment of the Legal Liabilities of Gun Jumping
The New AML categorizes the penalties for gun jumping and significantly increases the penalties, which increases the undertakings’ cost for violations. Such amendments reflect the principle of proportionality of penalties and help to strengthen the deterrent effect of the antitrust law and prompts undertakings to complete legal and compliant merger filing. The expansion of the penalty range gives antitrust enforcement agencies broader discretionary power. There are some issues in the New AML that need further clarification, including the penalties applied to historical gun jumping cases and the application of aggravated punishment. We expect that these issues will be clarified in the future enforcement.
1. The New AML reflects the principle of proportionality of penalties and strengthens the deterrent effect of legal liabilities for gun jumping
According to the Old AML, regardless of whether the illegally implemented concentration impacted the relevant market or not, the antitrust enforcement agencies could order the undertaking be restored to the status before the concentration and impose fines of not more than RMB 500,000, which is a small amount compared to the size of most undertakings meeting the notification thresholds. To a certain extent, in the Old AML, legal liabilities such as restoring the status before concentration were not applicable to most of the cases and thus existed in name only, while the limited amount of the fines did not have a sufficient deterrent effect.
After the implementation of the New AML, depending on the actual impact that the specific transaction may have on the relevant market, gun jumping of different transactions will lead to different legal liabilities. Transactions which have or may have the effect of excluding or restricting competition on the relevant market will face more severe penalties. The maximum fine imposed by antitrust enforcement agencies for gun jumping is significantly increased. For undertakings, the fines will constitute a substantial economic loss, and may even have a substantial impact on their daily business activities. The New AML also specifies that penalties will be recorded in the enterprise’s credit record and be made public, which may have an impact on the enterprise’s reputation. For violations including gun jumping, the New AML stipulates the provision of aggravated punishments, which may further increase the maximum amount of fines. Therefore, the legal liabilities in the New AML will have a stronger deterrent effect on undertakings and will prompt undertakings to raise antitrust compliance awareness and complete merger filing in accordance with the law.
2. The New AML expands the discretionary power of antitrust enforcement agencies
The substantially increased maximum fines give antitrust enforcement agencies broader discretionary power. The New AML provides that the nature, extent, duration and elimination of the consequences of the violation should be considered in determining the amount of the fines. Apart from that, the New AML does not provide clear criteria. Therefore, for antitrust enforcement agencies, the above provision lacks further guidance on the penalty standards and the specific penalties depend more on the actual situation of specific cases, which may give agencies overly broad discretionary powers. For undertakings, it may raise further difficulties to expect and assess the legal liabilities.
Secondly, the New AML does not clarify whether the penalties in the New AML or the Old AML should be applied in the investigation of historical gun jumping cases. However, according to the Provisions on the Review of Concentration of Undertakings (Draft for Comments) (the Draft Review Provisions), if undertakings take the initiative to report violations or eliminate or mitigate harmful consequences, the antitrust enforcement agencies shall impose lighter or mitigated penalties at their discretion in accordance with the Administrative Penalty Law. If the above provision is retained in the effective version of the Review Provisions, the principle will be clarified to a certain extent and the Old AML may be applied to the gun jumping transactions which were implemented before the New AML comes into effect and the control status continues after the New AML comes into effect. This principle will help undertakings to notify of historical transactions and to take the initiative to report and seek leniency.
Thirdly, Article 63 of the New AML stipulates aggravated punishment for serious violations. However, the New AML does not provide further guidance or standards for specific scenarios of violations that may apply to aggravated punishment, which may cause difficulty for antitrust enforcement agencies in applying Article 63 to specific cases. Considering that aggravating scenarios or results of gun jumping are relatively low compared to other violations, it is still doubtful in practice whether such aggravated punishment can be applied.
III. Conclusion
The Amendment of the Anti-Monopoly Law significantly increases the legal liabilities for the illegal implementation of a concentration without notification, which reflects China's growing emphasis on antitrust compliance. It provides a clearer basis and guidelines for antitrust agencies’ future enforcements and helps promote undertakings to comply with antitrust rules, conduct notifications and engage in investment and merger transactions in a lawful manner. Currently, the Amendment of the Anti-Monopoly Law is in effect, and the amendments to the subordinate regulations, such as the Provisions on the Review of Concentration of Undertakings, are in progress and are also expected to come into effect soon in conjunction with the Amendment of the Anti-Monopoly Law. They will provide better guidelines for the application of legal liabilities for the illegal implementation of a concentration without legal notification as well as other rules.
