Faizah Jamaludin explains the impact of this impending legislation
To many of us lunch between partners of the big 4 accounting firms or bank CEOs where price is discussed are innocuous affairs. But no longer so once the Malaysian Competition Act 2010 is enforced.
Parliament passed the Competition Bill 2010 on 6 May 2010, barely a month after it was first tabled at the Dewan Rakyat. The speed at which it was passed by both houses of Parliament surprised many since it took the Bill 17 long years to reach Parliament, but reflects the growing concern of government to give more protection to consumers.
The Minister of Domestic Trade, Co-operatives and Consumerism, Datuk Ismail Sabri Yaakob, was reported in the press as saying “Before, there was no control over monopolies and cartels, but now there are laws for such things”. He went on further to say that the government is serious in creating a healthy business environment and that the Act would be implemented by mid 2011.
The implementation of the Competition Act 2010 will bring Malaysia in line with over 100 jurisdictions worldwide, including its ASEAN neighbours Indonesia, Singapore, Thailand and Vietnam.
The idea for a Malaysian competition law was first mooted in 1993. It started life as a fair trade practices law before evolving into a full blown competition law. The Eighth Malaysia Plan provided the mandate for the formulation of a fair trade practices/competition policy and law and under the Ninth Malaysia Plan “efforts were intensified to create a more conducive environment for healthy competition and fair trade practices, especially within the context of increasing competition and globalisation”. A Fair Trade Practices Policy was approved by Cabinet in October 2005.
The Competition Act seeks to promote and protect the process of competition by changing the behaviour of businesses. It will regulate not just monopolies and cartels but all types of businesses from multinationals to the SMEs and “mom and pop” shops. Hypermarkets, airlines, newspapers, banks, insurance companies, private hospitals, accounting, engineering and legal firms, to name a few, will all be governed by the Act. Government-linked companies (GLCs) are not exempted and are similarly subject to the provisions of the Act.
The Act prohibits anti-competitive agreements between enterprises and abuse by dominant players. Any entity that carries on commercial activities relating to goods or services is caught by the Act. Agreements between enterprises are prohibited if they have the object or effect of significantly preventing, restricting or distorting competition in any market.
Enterprises which are in a dominant position are prohibited from engaging, either alone or with others, in conduct which amounts to abuse of that dominant position. No longer can businesses form informal pacts to agree on price or trading terms, share markets, agree on quotes for tenders or any other “anti-competitive agreements”.
Businesses in a dominant position can no longer engage in predatory behaviour, control or limit production, supply or market access in order to damage or force its competitors out of the market. In 2009 for example, a U.S. company, which has about 80% of the world’s computer microprocessor market, was fined by the European Union competition regulators a record €1.06 billion for using its dominant position to seriously damage its one main rival. The EU said that the company gave rebates to computer manufacturers for buying almost its entire computer processing units from the company and paid them to stop the launch of computers based on its rival’s chips.
Malaysian companies with international operations have long been subjected to the competition laws of the countries in which they operate. A Malaysian cargo company and its listed holding company are facing legal proceedings in Australia brought by the Australian Competition and Consumer Commission (ACCC) for alleged price fixing in the air cargo industry.
The ACCC alleged that between 2001 and 2006, the company allegedly colluded with other international carriers to effectively fix the price of a fuel surcharge and a security surcharge applied to air cargo and that arrangements were made in Indonesia and Hong Kong for fuel surcharges applied to cargo originating in those countries, and similar understandings were agreed on security surcharges. It is reported in the ACCC official website that the Malaysian company is one of several international air carriers accused of alleged fuel surcharge price-fixing and that concluded proceedings against other airlines have resulted in penalties totalling A$41 million.
The Act affects businesses extraterritorially. Commercial activities transacted outside Malaysia will be caught by the Act if they have an effect on competition in Malaysia - just like the Malaysian company’s action was caught by the Australian Competition Act for alleged price fixing arrangements made in Indonesia and Hong Kong.
Enterprises which are found to have infringed any of the prohibitions may be liable to a financial penalty of up to 10% of their worldwide turnover for the period during which the infringement occurred. The Act considers a parent company and its subsidiaries as a single enterprise where, despite their separate legal entity, they form a single economic unit within which subsidiaries do not enjoy real autonomy in determining their actions on the market. In the United Kingdom, the maximum fine for infringement is 30% of a company’s annual turnover and in Singapore it is 10% of a company’s Singapore turnover for a period of up to 3 years.
The Act will be enforced in Malaysia by the Malaysian Competition Commission (MCC). The MCC is given considerable powers of investigation and enforcement – it may enter and search premises (commonly referred to as “dawn-raids”) and require the production of all documents and information including computerised data. Such dawn-raids may even be conducted without warrant where the MCC’s officer believes that the delay in obtaining a warrant would jeopardise the investigation.
Interference with the MCC’s powers and investigation is an offence which carries a fine of up to RM5 million for the first offence and RM10 million for the second and subsequent offences. Directors, CEOs, COOs and managers will be personally liable for their company’s offences unless they prove that the offence was committed without their knowledge, consent or connivance and that they had taken all reasonable precautions and exercised due diligence to prevent the commission of such offence. They will also be liable for the offences of their employees, agents and agent’s employees committed in the course of employment. Upon conviction, directors, CEOs, COOs and managers may be liable to a fine of up to RM1 million for the first offence and RM2 million for the second and subsequent offence plus imprisonment term of up to 5 years or both.
Enterprises are also exposed to civil liability as members of the public who suffered loss or damage as a result of an infringement have a right of private action for relief in court against the infringing enterprise.
Once the Act is implemented, Malaysian enterprises will have no choice but to change or be changed in the way they conduct their business. Although the Act does not have any merger control provisions, when contemplating mergers, businesses have to take appropriate steps to ensure that post-merger they will not breach the prohibitions. If the merger results in the company achieving a dominant position, the merged company may be caught by the Act even if its business practices remain unchanged.
There are provisions for individual and block exemptions and a leniency regime to encourage whistle blowing among enterprises and employees. Threat and reprisals against whistle blowers are prohibited and is an offence under the Act. How these exemptions and leniency will be granted will depend very much on the yet-to-be established MCC.
Malaysian enterprises have to bring home the message to their management and employees that it will no longer be business as usual. Non-compliance with the Competition Act will affect not only enterprises but their directors, management and employees too. It can result in possible criminal prosecution, government investigation, heavy fines, imprisonment and civil liability. Once the Act is implemented, there will be no turning back for Malaysian enterprises. Directors and CEOs have to change their companies’ processes, procedures and behaviour to ensure compliance with the Act and to prove that they have taken all reasonable precautions and exercised due diligence to prevent the commission any offence under the Act.
How can Malaysian companies manage this risk of non-compliance? As a start, they can look to the U.S. and European multinationals for guidance. These multinationals have been subjected to stringent competition regimes for many years and have adopted practices and processes to ensure compliance with the competition laws of their countries and the countries in which they do business. Their management and employees risk disciplinary action up to and including dismissal for non-compliance of these rules and processes.
Like these multinationals, Malaysian companies can institute similar internal rules, guidelines and processes, which include educating and providing regular training on competition law for directors, management and employees; implementing requirements that all proposals for agreements with competitors are to be vetted and cleared by their lawyers; and drawing up guidelines for trade association meetings and administrative protocols for use in the event of a dawn-raid by the MCC.
To conclude, this Act is a long time coming but we are left in no doubt that it will have significant consequences on Malaysian businesses. So they would have to either change or be changed.
FAIZAH JAMALUDIN (
This article was first published in the EDGE Business and Investment Weekly (17-23 May 2010)
Editor's Note: The Competition Act 2010 received Royal Assent on 2 June 2010 and will come into operation on 1st January 2012, as appointed by the Minister of Domestic Trade, Co-operatives and Consumerism by notification in the Gazette.