25 March, 2014
On 20 March 2014, China’s Ministry of Commerce (“MOFCOM“) issued a brief press release. The release said that, from May 1 onwards, the authority will make public on its website all decisions resulting in a finding that a company has failed to notify a merger in breach of the Anti-Monopoly Law (“AML“).
This press release is the most recent in a series of developments signalling an important policy shift.
China’s Merger Control Regime
The merger control regime in China has now been in force for over five years. Many of its key elements are relatively straight-forward: if a reportable transaction meets the relevant sales revenue thresholds, a notification must be filed with MOFCOM – and MOFCOM’s approval must be obtained – before the transaction can be implemented.
If a reportable transaction is closed without MOFCOM approval, then the “notifying party(ies)” of the transaction breach(es) the AML. If MOFCOM concludes that, indeed, a breach has occurred, it can impose sanctions on this(ese) party(ies). In particular, MOFCOM can impose a fine of up to RMB 500,000, and is empowered to order the transaction to be unwound.
Naming And Shaming
As we noted before, perhaps the biggest risk for companies which fail to meet their AML notification obligations is the threat of being publicly ‘named and shamed.’
Although MOFCOM has reportedly investigated – and sanctioned – several companies for failing to file reportable transactions, none of these decisions was made public.
The Honeymoon Is Over…
The press release last week appeared to be sending a clear signal: the ‘honeymoon period’ is over, and now MOFCOM plans to step up enforcement activities. Just to reinforce the point, MOFCOM included a dedicated fax number inviting whistle-blowers to report transactions that were not notified in breach of the law in the text of the press release.
These measures against failure to file represent the ‘stick’ part of the new policies.
In other jurisdictions, too, antitrust authorities have taken a strong stance against failure to file reportable transactions. In the United States, for example, there can be significant monetary penalties for failure to file, and the decisions by the authorities are all made public. For example, in mid-2013, the US Department of Justice filed a complaint against MacAndrews & Forbes Holdings Inc. charging the company with acquiring voting shares of Scientific Games Corporation without filing a merger notification.
Simpler, Faster…
A few weeks ago, MOFCOM issued a regulation that constitutes the first step in establishing a merger notification system for non-complex cases with a simplified procedure.
True, the Interim Regulation on the Standards Applicable to Simple Cases of Concentrations between Business Operators, effective since 12 February 2014, has a very limited scope – it only regulates which types of transactions qualify as “simple cases,” without any guidance on the consequences of that qualification. Yet, MOFCOM has been drafting further implementing rules, and indeed has circulated them informally for comment. Even if, based on our understanding of their content, the rules will likely still fall short of the high expectations of the international business community in this regard, they are expected to provide the possibility for merging parties to provide fewer documents and information when filing a merger notification. Hopefully, the procedure will become faster, too.
One way in which MOFCOM intends to reduce processing times is to publish some key details of transactions applying for “simple case” status on its website and invite third parties’ comments within a certain period of time. This system is similar to that of the European Commission, with its publication of transaction details in the Official Journal. If implemented, MOFCOM’s proposal would cut down on its lengthy process of consulting with third parties – namely, companies, industry associations and other government stakeholders – which typically accompanies a fully-fledged merger control case. This is the ‘carrot’ part of the new MOFCOM approach.
Conclusions
With over five years of enforcement experience behind it, MOFCOM seems to have gained in confidence and to be ready to set new priorities and enforcement goals. Looking back at the last few weeks, it seems that the priorities are shifting away from reviewing simple, boiler-plate type transactions to reviewing more complex transactions, and transactions that were not notified in breach of the law…
Once fully operational, the simplified system should make it easier for companies to notify and obtain clearance in a more timely manner. The changes are likely to put further pressure on foreign and domestic companies to comply with Chinese merger rules. In the past, the main complaint from businesses involved in transactions was that even the simplest of deals could lead to a procedural quagmire lasting several months, due to the extended timeline needed for MOFCOM to complete its processes. At the same time, MOFCOM’s increasingly clear focus on unreported transactions – and the threat of public ‘naming and shaming’ – will work as a further incentive for companies to file their transactions with MOFCOM.
For further information, please contact:
Adrian Emch, Partner, Hogan Lovells
Andrew McGinty, Partner, Hogan Lovells