On February 16, 2023, the Korea Fair Trade Commission (“KFTC”) announced its Enforcement System Reform Plan (“Enforcement Plan”) to enhance predictability in the KFTC’s investigation, ensure target subjects’ rights, and improve case management through amending its Investigation Procedure Rules and the Case Management Procedure Rules during the first half of 2023.
The Enforcement Plan comes as a result of efforts by the KFTC’s Task Force on Enforcement Innovation and Organizational Reform in response to public complaints that the KFTC’s scope of investigation and authority were overly broad, in particular during dawn raids.
We provide further details regarding the Enforcement Plan below.
I. Major Reform Proposals
A. Providing clearer guidelines when conducting dawn raids
The proposed changes will require the KFTC include the specific charges for the alleged conduct, types, and areas of the transactions, and the target period subject to the investigation, when issuing a written notice to the target of the investigation. In particular, if the investigation target is engaged in multiple businesses, the notice will need to specifically state the area of business that is being investigated. Furthermore, if an extension of the dawn raid period as stated in the initial notice is required, the KFTC will need to issue an additional written notice including the extended investigation period as well as the reason for such an extension.
B. Establishing procedures for investigation targets to file an objection regarding the KFTC’s investigation
The KFTC will establish new procedures to allow investigation targets to file an objection against the KFTC’s investigation, in line with the practices of other jurisdictions. For example, if materials collected during the dawn raid exceed the scope as stated in the KFTC’s written notice, the investigation target would be able to officially demand the return of such materials. If the materials were provisionally submitted during the dawn raid, investigation target would be able to officially request the return or destruction of such materials if they are found to be outside the scope upon reexamination. There is also an effort to create a review committee within the KFTC (separate from the investigation team) to determine whether an investigation or dawn raids are reasonable. Such committee would also have the authority to allow the return or destruction of any materials collected during the dawn raid if it deems reasonable.
C. Establishing the investigation standards for compliance/legal teams
In response to the criticisms that the compliance and legal departments of businesses were the primary targets of the KFTC’s dawn raids, the new changes in principle would prohibit the investigation of compliance or legal departments, unless such departments are suspected of being directly involved in the violation or engaged in other unlawful behaviors such as destruction of evidence.
Unlike the United States, Korea does not recognize attorney-client privilege. As such, the KFTC in the past have requested legal departments of investigation targets to submit attorney work products in relation to any compliance efforts, to utilize such materials as evidence in support of alleged wrongdoing. Such practice led to the criticism that it prohibited companies from duly receiving legal advice from outside counsels and actually led to less compliance efforts by companies for the fear that such information can be used against them.
II. Reforms to Investigation and Review Procedures
A. Establishing ‘state of play’ meetings
The KFTC will establish a formal ‘state of play’ meeting process during the investigation stage, which is modeled after the EU’s system, which would be held only if the investigation target requests such a meeting. These meetings are intended to allow the parties to express their opinions regarding the investigation at a relatively early stage, and clarify the basic facts and the contested issues if they are complex. These changes would allow the investigation targets to better defend their rights and the investigation to proceed more efficiently.
B. Increasing the number of formal hearings
The KFTC plans to allow formal hearings to be held more than once for complex cases. A hearing before the KFTC commissioners is scheduled upon the conclusion of an investigation and the issuance of an Examiner’s Report, which is the Statement of Objection equivalent in the EU. Currently most hearings end in a single day, with the arguments having to close without robust discussion or the background not giving due explanations.
Allowing multiple hearings should better protect the investigation target, by allowing more time to present evidence and arguments. Such change will be especially more useful for cases, involving complex facts or legal issues, with significant amount of fine at stake. Specific standards to determine whether to allow multiple hearings will be based on the scale and the nature of the case, and details of the applicable guidelines will be released soon.
C. Revamping the infrastructure for case searches
The KFTC plans to improve its existing infrastructure for searching cases, including by way of revamping the KFTC’s online search engine system, so that companies may easily find their own case-related materials and check the relevant facts (e.g., the name of the case handler, current status in the process, and other important information).
III. Structural Reforms
A. Focused management of cases depending on expected duration
To increase efficiency in the case review process, the KFTC aims to separately manage cases depending on the progress. The status of the long-term cases as well as time-sensitive cases would be reported to the KFTC’s senior officers on a monthly basis, and the officers would be incentivized to ensure that the cases are being handled in an efficient manner by having the level of case management efficiency impact their performance reviews.
B. Alternate dispute resolution
The KFTC plans to introduce alternative dispute resolution methods to resolve cases more quickly, and such resolution methods will likely apply to cases where there is an urgent need for immediate relief for the victims of the conduct.
C. Strengthening case management capabilities for stricter law enforcement
In order to enhance case management efficiency, the KFTC plans to require chiefs of various divisions to directly inspect and approve the record-keeping practices. Further, the KFTC would expand its electronic recordkeeping capabilities and create systems to better manage information and documents relating to investigations. The changes are expected to reduce case duration as well as minimize delays caused by case officer changes, since it will become easier to internally manage case related information.
D. Organizational reform
In response to the criticisms that the KFTC lacks independence in its investigation and judgment process, despite the fact that the KFTC’s decision carries the weight of a court of first instance (and thereby appealable directly to the High Court), the KFTC intends to separately operate its investigation divisions and the policy divisions. Such separation is expected to enhance the responsibility and expertise of each division, as well as strengthening the fairness and independence of the KFTC’s investigation and the judgment process.
IV. Conclusion
In efforts to address longstanding criticisms, the KFTC has firmly expressed its plan to enhance fairness in its enforcement system by introducing measures to guarantee procedural rights in the KFTC’s investigation and review process. It is also going through a notable structural reorganization process to that end. Given such commitment, it is anticipated that the procedural rights of investigation targets will be bolstered and case handling will become more efficient and transparent in the near future.
In particular, this is good news for foreign businesses that conduct business activities in Korea, who may have found the KFTC’s process overbearing and overly expansive. Companies should carefully follow the actual changes to the KFTC’s procedures in the coming months, including to the Investigation Procedure Rules and Case Management Procedure Rules, to ensure that their rights can be properly protected in case of an investigation.
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