Alternative Means of Cartel Detection 16 th Oct 2013 Dae-young Kim Director, International Cartel Division Korea Fair Trade Commission - Introduction of Korea’s system for detecting cartels ICN Cartel Workshop Plenary I Cape Town, South Africa

 Cartel enforcement has been the one of the foremost priorities of law enforcement of the KFTC  Strong law enforcement regime against Cartels  KFTC: Administrative enforcement KRW trillion imposed since 1990 ($1.8 billion) 66.6% of total amount of surcharge imposed on competition law violation 95.8% of the cartel surcharges was imposed after  Prosecutor’s Office: Criminal enforcement  Private enforcement Ⅰ. Preface

 While cartel cases with Leniency are skyrocketing…  Up-to-date effective self-detection system still necessary for  Sending a signal for reinforcing deterrence of cartel  Sustainable success of Leniency programme  Overcoming limited resource problem Ⅰ. Preface

Cartels detection Ex officio detection Identification from report Bid Rigging Indicator Analysis System(BRIAS) Rewarding system for reporting of cartels Leniency Programme

Ⅱ. Bid Rigging Indicator Analysis System(BRIAS) Public institutions Bidding information BRIAS Figures ↑ The possibility of bid rigging ↑ Transfer Automatic/ Manual Analyze Quantify  Seriousness of Bid-Rigging in Public Sector  Waste of national budget  Scope of harm is far-reaching  Historically deep-rooted and hard to detect

Ⅱ -2. History of BRIAS  2006 : The KFTC developed BRIAS / Public Procurement Service’s bidding  2007 : Legal ground was formulated / four major public enterprises  “The head of a public institution must submit the information on bidding to the KFTC when the bidding notice is announced or the winning bidding price is determined.”  2008 : Central administrative bodies, local governments and state enterprises  2013 : automatically receive the information from PPS’s foreign procurement system ☞ 5,500 bids per year are analyzed

Ⅱ -3. Example of BRIAS Analysis Analysis 1Analysis 2Analysis 3Value point Rate of Bid(%) (A) Rate of the lowest level of Bid(%) (B) A / B (%) Number of participants Number of participants exceeding expected price Way of Competition Rate of the lowest level of Bid(%) (Participants) Total Points Convert to free contract No Increase the expected price Restrict on Record Apply

Ⅱ -4. System operation mechanism ① Forms of bidding : 7 points ② Number of bidders : 8 points ③ Number of failures in bidding : 9 points ④ Contents of bidding practice : 6 points X = ① Forms of bidding : 1.3 ② Number of bidders : 0.7 ③ Number of failures in bidding : 1.8 ④ Contents of bidding practice : 1.9 ① Forms of bidding : 9.1 points ② Number of bidders : 5.6 points ③ Number of failures in bidding : 16.2points ④ Contents of bidding practice : 11.4points <Score by types of information> <weight by types of information> Total score : 42.3 points

Ⅱ -5. Cases in use Construction of the Seoul subway No. 7 ⇒ quite high bid rigging indicator ⇒ surcharge of $26million Education offices’ Group insurances ⇒ quite high bid rigging indicator ⇒ surcharge of $1.7million

Ⅲ. Informant Reward System  Giving financial rewards to those who reported unlawful behaviors and submitted the evidence.  Increasing the possibility of detecting unlawful acts causing direct and extensive damages but hard to detect  There are about 50 similar reward systems in Korea. SubjectInstitution Illegal Financial BrokersSmall and medium Business Administration Distribution of illegal foodMinistry of Food and Drug Safety Traffic violationDistrict police station Tax evasionNational Tax service PoachingMinistry of Environment Draft dodgingMilitary Manpower Administration Violation of election lawNational Election Commission

Ⅲ -2. Comparison with Leniency Program Reward systemLeniency program Subjected behaviors 7 types* of violation of the Korea Competition Act including Cartel Cartels only Eligibility Any natural/legal person except for colluders/bid riggers and public officials investigating the case Enterpriser joining collusion only the first applicant rewardedUp to the second applicants EffectReward money Exemption or reduction of remedies, surcharges and accusations * Cartels, Prohibition of activities by trade ass’n, Discrimination for the benefit of affiliates, Unfair inducing customers, Sales by employee, Violation of Notification on large retail store, Violation of Notification on newspaper sales

Ⅲ -3. Ways of scoring reward amounts  Reward = first reward X Adjustment ratio $0 $0.45mil. $1.8mil. Surcharge 10% ⇒ $ 45 thousand 5% ⇒ $ 67.5 thousand 1% ⇒ A First reward Adjustment ratio Level of evidence Ratio Highest100% High80% Middle50% Low30% + +

Ⅲ -4. Rewards paid during the last 3 years Year Rewards for reporting of cartels(the number of cases) $42,480 (4) $12,910 (3) $52,110 (5) The average reward$10,620$4,303$5,022 Rewards for reporting of violations of the Korea Competition Act(the number of cases) $270,925 (274) $251,520 (137) $186,913 (198) The average reward$989$1,836$944

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