Vietnam: Competition Law Violations Can Be A Crime – Two-Year Operation-Suspension For Company's Competition Crime

Under Vietnamese jurisdiction, competition sector is generally governed by Law on Competition No. 27/2004/QH11 issued by National Assembly dated 3 December 2004 ("Competition Law").

Nevertheless, Penal Code No. 100/2015/QH13 dated 27 November 2015, as amended and supplemented in 2017 ("Penal Code") which has just come into effect on 1 July 2017 is also to cover competition-related crimes by creating potentially severe penalties for both individuals and institutions including monetary fines and imprisonment.

At the time of this alert, it is not purely clear when to apply administrative sanction under Competition Law and when the violation is serious enough to be deemed as a crime under Penal Code. Another query would be how to determine if a crime is conducted by an individual or by a company, given that such individual is working for the company in question. In other words, whether the penalty will impose on the individual offender or on the company for which he/she is working is still arguable.

While awaiting further guidance on how these new offences will be interpreted as well as their full implications in light of the competition scheme in Vietnam, we have outlined the basic information in this legal alert, mainly focusing on the penalties applicable to a violating company.

On the one hand, agreements in restraint of competition are addressed under Article 8 of the Competition Law as below:

  1. Agreements either directly or indirectly fixing the price of goods and services;
    (ii) Agreements to share consumer markets or sources of supply of goods and services;
  2. Agreements to restrain or control the quantity or volume of goods and services produced purchased or sold;
  3. Agreements to restrain technical or technological developments or to restrain investment;
  4. Agreements to impose on other enterprise conditions for signing contracts for the purchase and sale of goods and services or to force other enterprise to accept obligations which are not directly related to the subject matter of the contract;
  5. Agreements which prevent, impede or do not allow other enterprises to participate in the market or to develop business;
  6. Agreements which exclude from the market other enterprises which are not parties to the agreement; or
  7. Conclusion in order for one or more parties to win a tender for supply of good and services (bid-rigging).

Following to this, Article 9 of Competition Law prohibits all agreements that fall under foresaid items (vi), (vii) and (viii); whereas agreements falling under items from (i) to (v) are only prohibited where the combined market shares of the parties to the agreement is at least thirty per cent (30%), subject to certain potential exemptions under Article 10 of Competition Law.

More specifically, Article 118 of the Competition Law provides a fine of up to ten per cent (10%) of the previous year's turnover of the offender in case of breaches under Article 9.

On the other hand, the new Penal Code now drastically alter the regime for regulations on anti-competitive agreements, especially for a legal entity being a company.

Pursuant to Article 217 of the Penal Code, a monetary fine of up to VND 3 billion (equivalent to US$ 132,000) will apply for the company that directly participate in or carry out certain acts in violation of the regulations on competition where (a) such conduct results in illegal profits of up to VND 3 billion (equivalent to US$ 132,000) or (b) losses to others of up to VND 5 billion (equivalent to US$ 220,000). The prohibited subject matters for these agreements would comprise:

  • Preventing participation or development of other businesses in a market;
  • Removing a non-party from a market; and
  • Where the parties to the agreement have a combined market share of at least 30%:
  • Price fixing, directly or indirectly;
  • Allocating markets or supplies;
  • Limiting or controlling volumes;
  • Limiting technology development or investment; and

Imposing obligations not directly related to the subject matter of the contract.

Putting that aside, we note that the sanction for a company may increase to VND 5 billion (equivalent to US$ 220,000) or the operation suspension of up to 2 years once any of the statutory aggravating circumstances appears. Further, penalized companies, in addition to potential fines, may be prohibited to carry out certain business activities as well as to raise capital for the up-to 3-year duration.

As addressed at the very beginning, it is being expected form the law-making team that there would be clarifications on (i) whether conduct will be subject to administrative penalties under the Competition Law or to criminal prosecution under the Penal Code and (ii) the proposed scope of activity that may bring on liability for individuals conducting the prohibited agreement.

Bottom line, a company should consider thoroughly reviewing its business practices to ensure not to fall under the scope of sanctions from both Competition Law and Penal Code perspectives.

Also important, there exists a legal risk where the conduct of company's employees is somehow attributed to the company. With a view to minimizing such risk, it is strongly recommended that the company, in its internal policies, including without limitation to the Internal Labor Regulations ("ILR"), should expressly addressed its employee's independent and separate obligations, i.e. not in connection with those of the company in light of competition violations, assuming that such employee's breaches are not employment-related assignments. On this basis, Company would very unlikely to bear the penal liability for what its employee does outside the contractual job description.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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