The Malaysia Competition Commission (MyCC) recently shed light on how it calculates financial penalties in its Guidelines on Financial Penalties (issued on 14 October 2014). MyCC is empowered under the Competition Act 2010 (the Act) to impose a financial penalty of up to 10% of an enterprise’s worldwide turnover over the entire infringement period. This is and should be a massive deterrent.

• Up to 10% of a group’s worldwide turnover is at risk for an infringement.
• Even if the infringement has not come to light, the impending liability is akin to a ticking time bomb as MyCC takes into account the entire duration of the infringement, relating as far back as 1 January 2012, when the Act came into force. This is much higher than in Singapore and the UK, where only 10% of the worldwide turnover for the business year preceding the decision of infringement is at risk. Thus, all things being equal, an enterprise infringing for 3 years with an annual worldwide turnover of USD30 million has a maximum of USD9 million at risk in Malaysia (10% x USD30 million x 3 years) compared to USD3 million in Singapore and the UK (10% x USD30 million x 1 year).
• MyCC rounds up the duration of the infringement. The penalties for an infringement of 1 week can be calculated as if the infringement took place for 6 months. For infringements of more than 6 months but less than 1 year, MyCC will round up the period to 1 year.
• MyCC may reach into the pockets of the parent company regardless of whether the parent had knowledge of its subsidiary’s infringement.
• MyCC is actively and aggressively enforcing the Act. MyCC, which has imposed financial penalties of up to RM20 million, recently announced that it is investigating over 15 cases from the 47 complaints it has received. MyCC expects all businesses to be in full compliance with the Act. Even GLCs are not immune from investigations.

Key points

• MyCC’s aggressive enforcement. In 3 years, MyCC has completed at least 7 investigations with 15 more in the pipeline, probing both horizontal and vertical agreements as well as abuse of dominance.
• Ignorance is NOT bliss Calculation of penalties takes into account the entire duration of infringement. Even if undetected, this period counts towards the penalties.
• Establish effective compliance programmes reate awareness and curb infringement. It also mitigates the financial penalties.
• Carry out periodic checks to detect, prevent and stop any anti-competitive conduct

Clients are advised to quickly implement compliance programmes to detect possible
infringements in their operations, prevent potential anti-competitive conduct and take measures to cease any infringement. If compliance programmes are already in place, do conduct periodic reviews and awareness programmes to ensure on-going compliance.

Stiff financial penalties as deterrence

Here is how MyCC calculates the financial penalties:

Determine the Starting Point

MyCC will determine the starting point based on some or all of the following factors:

• Seriousness (gravity) of the infringement
• Turnover of the market involved
• Duration of the infringement
• Impact of the infringement
• Degree of fault (i.e. whether the enterprise was deliberate or negligent)
• Role of the enterprise in the infringement
• Repeated infringement (recidivism)
• Existence of a compliance programme
• Level of financial penalties imposed in similar cases

The Guidelines are silent on the percentage to be applied as a starting point. In the UK, a rate of up to 30% of an enterprise’s turnover is applied as the starting point. It appears that MyCC looks at the enterprise’s worldwide turnover in the relevant market as the starting point.

Adjustment

Aggravating Factors

These factors may increase the penalties:

• Being the instigator or leader or having engaged in coercive behaviour with others
• Obstruction or lack of co-operation in the investigation
• Repeated infringement (recidivism)
• Continuance of the infringement after the start of investigation
• Involvement of board members or senior management in the infringement

Mitigating Factors 

These factors may reduce the penalties:

• Low degree of fault
• Relatively minor role in the infringement, especially if involvement is secured by threats or coercion
• Co-operation in the investigation
• Having an appropriate corporate compliance programme
• Compensation made to victims
• A good corporate compliance programme is an important mitigating factor.

Maximum penalties: 10% of the worldwide turnover x Number of years of infringement

For further information, please contact:

Sharon Tan, Partner, ZICOlaw

[email protected]

Nadarashnaraj Sargunaraj, ZICOlaw

[email protected]

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