• Interim Measures for the Investigation and Handling of Failing to Declare the Concentration of Business Operators as Required by Law
  • June 13, 2012 | Author: Omar Puertas
  • Law Firm: Cuatrecasas, Gonçalves Pereira - Shanghai Office
  • Since China’s Anti-Monopoly Law (AML) was implemented three and a half years ago, on August 1, 2008, a series of anti-monopoly legislation has been promulgated and implemented, signaling Chinese authorities’ intention to enforce the AML more aggressively. The Interim Measures of 2011 are MOFCOM’s most recent effort relating to such legislation. The Interim Measures aim to provide MOFCOM with clear powers to investigate cases where a declaration of concentration is mandatory but is not complied with.


    Concentrations may be caused by mergers, acquisitions, joint ventures, contractual arrangements, etc. Business operators’ reporting obligations can be triggered when a concentration reaches thresholds set by the law, regardless of whether the concentration takes place inside or outside China. Article 3 of the Provisions of the State Council on the Thresholds for Declaring Concentration of Business Operators (the “Provisions”) establishes the declaration thresholds as follows:


    • The global turnover realized by all the participating business operators in the concentration during the previous accounting year exceeds RMB 10 billion, with at least two business operators each achieving a turnover of more than RMB 400 million in China during the previous accounting year;


    • The turnover in China realized by all participating business operators in the concentration during the previous accounting year exceeds RMB 2 billion, with at least two business operators each achieving a turnover of more than RMB 400 million in China during the previous accounting year. Article 2 of the Interim Measures defines failing to declare the concentration of business operators (“undeclared concentration”), as required by law, as follows:


    • Business operators achieve concentrations that reach the declaration thresholds prescribed by the Provisions without declaring this to MOFCOM in accordance with the AML When an undeclared concentration is suspected, MOFCOM’s investigation can be initiated in the following two ways:


    • Any entity or individual can report it to MOFCOM in writing, providing basic information on the informant and the business operators being reported, and preliminary facts and evidence relating to the concentration


    • MOFCOM can take its own initiative based on information acquired through other



    In the first situation, MOFCOM must take actions to verify the report. This sometimes leads to abuse by business competitors using it as a strategy to disturb the other’s transactions. In the second situation, MOFCOM may take actions to verify the report if the information is acquired via other channels.


     If the preliminary facts and evidence are enough, MOFCOM will initiate the investigation and notify the business operators under investigation. The Interim Measures establish the detailed procedural rules. MOFCOM’s investigation mainly includes the preliminary investigation and, if it determines a transaction to be an undeclared concentration, it will carry out a further (in-depth) investigation. Business operators under investigation have the right to make statements and submit evidence and other relevant documents. If a case is found to be an undeclared concentration, MOFCOM can impose monetary and other sanctions.


    A monetary sanction is a fine, capped at RMB 500,000. As the maximum fine is RMB 500,000, which is often considered a relatively small amount when compared to the transaction value, MOFCOM needs more drastic sanctions to provide sufficient deterrence, including ordering the business operators under investigation to take the following measures to unwind the transaction and restore the pre-concentration status: 1) stop the concentration; 2) dispose of shares or assets within a specified deadline; 3) transfer business operations within a specified deadline; and/or 4) take other necessary measures. Article 15 of the Interim Measures also allow MOFCOM to publicize its decisions on the handling of undeclared transactions, which could affect the public image of companies, especially listed companies and well-known companies.


     If business operators under investigation are not satisfied with MOFCOM’s decision, they can file for an administrative reconsideration and, if they are still not satisfied with the result of the administrative reconsideration, they can file with the court for administrative litigation.


     The Interim Measures are considered long-awaited legislation, giving MOFCOM clearer powers to investigate and sanction undeclared concentrations. However, they still contain ambiguous wording; for example, they state that, when deciding on sanctions, MOFCOM will consider the nature, severity and duration of failing to declare a concentration and the results of assessing the competitive effects, but they do not specify these, so it is not clear whether MOFCOM will only order unwinding of transactions if they are considered anti-competitive. Also, it is not clear whether the sanctions will be suspended during administrative reconsideration and administrative litigation, and whether penalties only apply to the business operators being investigated or whether they also apply to uncooperative interested parties or other relevant interested parties. Business operators are advised to be prudent, and to consult MOFCOM about whether a proposed transaction should be declared in advance, and to check, using various channels, how MOFCOM interprets and applies the AML and other relevant anti-monopoly rules.