For many companies, legal compliance is a priority, not least because of the adverse publicity, reputational damage and severe sanctions which can result from a contravention. But it appears that there are still some companies that are prepared to take these risks. 

For example, since the Competition Ordinance came into force in 2015, it has been reported that 13 of the 15 cases that the Competition Commission has brought before the Competition Tribunal have involved what the Ordinance calls “serious anti-competitive conduct” (otherwise known as cartels).¹ These types of conduct are likely to incur the highest sanctions, including fines of up to 10 per cent of the businesses’ Hong Kong turnover, and disqualification of directors for up to five years. 

Why are some businesses prepared to take these risks? It is theoretically conceivable that the businesses and individuals involved were unaware that the conduct constitutes a contravention of the Competition Ordinance, and a serious one. However, this seems unlikely. The Ordinance has been in force for over eight years, and there have already been several reported successful actions by the Commission against companies and individuals involving serious anti-competitive conduct, which resulted in severe sanctions being imposed. Moreover, the Commission has issued guidelines, and held many outreach activities, highlighting the importance of avoiding such conduct. 

It is also theoretically conceivable that the businesses and individuals involved knew that the conduct was illegal, but thought that the potential financial gains to be made from the conduct would outweigh the size of the sanctions that would be imposed if they were caught. However, this also seems unlikely. The Commission has made it clear that it will seek financial sanctions which will make it unprofitable to engage in such conduct,² and being disqualified from company directorships for up to five years is a heavy individual price to pay.

What is perhaps more likely is that the businesses, or the individuals involved, did not think they would be caught. However, this is a very risky assumption to make. First, the Commission has access to information and intelligence about suspected anti-competitive practices from a variety of sources, not just its own enquiries. Secondly, once it has received information or a “tip-off” about a suspected contravention of the Ordinance, it has strong investigation powers to uncover exactly what conduct has taken place, and the businesses and individuals involved. These two factors together mean that the prospect of detection is relatively high. We deal with each of these factors in turn.

The Commission’s Information Sources

Complaints from the public and businesses are a major source of information for the Commission. In its last financial year alone, the Commission reported that it received 261 complaints. The Commission’s extensive public engagement efforts, designed to increase awareness and understanding of the Competition Ordinance, can only be expected to increase the number of complaints. Unhappy customers, competitors, and disaffected current and ex-employees are among the many categories of people who may be motivated to make a complaint to the Commission. 

Media reports are also a valuable source of information for the Commission. Last year, for example, the Commission reported that it had opened an investigation, and subsequently commenced proceedings in the Competition Tribunal, after seeing media reports that four property agencies had instructed their agents, around the same time, to observe a minimum commission rate of 2% on sales of first-hand residential properties. The Commission suspected that collusion between competing agencies on commissions had taken place, in contravention of the Competition Ordinance. 

The Commission might also detect compliance issues from its own research, for example by browsing announcements on companies’ websites. Other sources that the Commission has mentioned that it uses are public enquiries, and referrals of suspected contraventions from other authorities and Government departments.

Finally, it is worth mentioning in this context the Commission’s leniency policy for companies and individuals involved in serious anti-competitive conduct. Under this policy, if you find that you are involved in such conduct, and are the first to come forward and report it to the Commission, you will be awarded protection from any financial penalties (subject to certain conditions). This policy (which is also practised in other jurisdictions such as the US and UK) has proved very effective in uncovering serious anti-competitive conduct.

The Commission’s Investigation Powers

If any information received from the above (or other) sources gives the Commission reasonable cause to suspect a contravention of the Ordinance, its investigation powers are triggered. These powers are extensive, and potentially very intrusive for the businesses concerned.

The Commission has the power to demand answers to questions, the supply of relevant information and documents, and attendance at interviews for questioning by the Commission. Failure to comply with such requests is a criminal offence. 

The Commission also has the power to conduct unannounced searches of business and domestic premises, and to seize materials, on production of a court warrant. For example, on 18 April this year, the Commission and ICAC announced that they had commenced an investigation into a syndicate alleged to be involved in bid-rigging for building maintenance projects. (ICAC was involved because bribery, as well as bid-rigging, was suspected).³ The two authorities’ joint operation involved (after obtaining court warrants) raiding and searching 40 premises within the space of two days. Amongst the items the officers seized were computers and mobile phones, as well as documents. The authorities announced that they had followed up this raid and search with another one in August, at around 20 premises, concerning the same syndicate.

Conclusion

Taking the Competition Ordinance as an example, this article shows how risky it is to assume that legal contraventions can be committed secretly, without coming to the attention of the relevant enforcement authorities. Combined with the risks of severe sanctions and reputational damage, the risk of detection is a strong reason for businesses to put in place effective legal compliance systems.

^Note:

1. https://globalcompetitionreview.com/insight/market-reviews/cartels-2024/article/hong-kong-cartels-remain-key-competition-commission-amid-growing-proactivity-in-case-selection.
2. https://www.compcomm.hk/en/legislation_guidance/policy_doc/files/Policy_on_Recommended_Pecuniary_Penalties_Eng.pdf2.
3. What is “bid-rigging”? It means that instead of putting forward competing tenders for projects, businesses collude with each other to manipulate the outcome of the tender process. The result is that purchasers of goods or services end up paying higher prices than they would otherwise have to pay.
   Bid-rigging is one of the four types of “serious anti-competitive conduct” listed in the Competition Ordinance (the others being price-fixing, market-sharing and output-restriction). Such conduct is likely to attract the most severe sanctions if detected, including financial penalties on the company and the individuals involved, and disqualification of company directors.