2016 27 April

Vietnam – Severe potential penalties for anti-competitive agreements

#AntiCompetitiveAgreements #CompetitionLaw #Vietnam #VietnamLaw


Vietnam’s National Assembly approved Penal Code No. 100/2015/QH13 dated 27 November 2015, (“Penal Code”) which is to take effect on July 1, 2016. Among the new elements introduced in the Penal Code are offences in relation to competition which will significantly affect the risks of engaging in anti-competitive agreements by creating potential criminal penalties for individuals and enterprises including fines and imprisonment. While it is not clear how these new offences will be interpreted nor their full implications in respect of Vietnam’s competition regime, we have outlined the basic information in this update.
Previously, agreements in restraint of competition were addressed administratively under the Law on Competition (No. 27-2004-QH11) dated 3 December 2004 (“Competition Law”). Such agreements are defined in Article 8 of the Competition Law to be agreements related to:

  1. Price fixing;
  2. Allocating consumer markets or supplies;
  3. Restraining or controlling quantities of goods and services;
  4. Restraining technology or investments;
  5. Imposing conditions or obligations not directly related to the subject matter of contracts;
  6. Preventing participation or development of other businesses in a market;
  7. Excluding non-parties from a market; or
  8. Bid-rigging.

Article 9 prohibits on a per se basis, agreements that fall under items 6-8 noted above; whereas agreements falling under items 1-5 above are only prohibited where the combined market shares of the parties to the agreement is at least 30%. Potential exemptions are provided in Article 10 for the latter types of agreements.

Article 118 of the Competition Law provides for a fine of up to 10% of the previous year’s turnover for an individual or enterprise that breaches Article 9. These fines are elaborated on in Decree 71 on Implementing the Law on Competition on Dealing with Breaches in the Competition Sector dated 21 July 2014 which limits, where possible, the basis for calculation of the applicable fine to turnover in the relevant market.

As noted above, the Penal Code will drastically alter the regime for regulation of anti-competitive agreements. Article 217 of the Penal Code will penalize parties that directly participate in or carry out certain acts in violation of the regulations on competition where such conduct results in illicit profits of 500 million (approximately USD 22,300) to VND 3 billion (approximately USD 133,800) or losses to others of VND 1 billion (approximately USD 44,600) to VND 5 billion (approximately USD 223,000). The prohibited subject matters for these agreements are:

  • 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 least30%:
  •  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.    

Potential penalties for engaging in such criminal conduct include fines from VND 200 million to 1 billion (approximately USD 8,900 to 44,600), non-custodial reform for up to 2 years or imprisonment from 3 months to 2 years. The range of fines is increased to VND 1 billion to 3 billion (approximately USD 44,600 to 133,800) and imprisonment is increased to a period of 1 to 5 years where any of the following aggravating circumstances are applicable:    

  • The offense has been committed on multiple occasions;
  • Sophisticated deceptions are used;
  • An abuse of dominance or monopoly is involved;
  • Illicit profits of at least VND 5 billion (approximately USD 223,000); or
  • Harm to others of at least VND 3,000,000,000 (approximately USD 133,800) is caused;

Sanctioned individuals may also be prohibited from holding certain positions or practicing certain occupations from 1 to 5 years. Penalized companies, in addition to potential fines, may be forced to suspend operations from 6 months to 2 years where there has been a breach involving the aggravating circumstances noted above and certain business activities and raising capital can be prohibited from 1 to 3 years.

Given the potentially severe penalties, it is hoped that there will be clarification on when conduct will be subject to administrative penalties under the Competition Law as opposed to criminal prosecution under the Penal Code in cases where either may be potentially applicable and how various aspects of the relevant provisions of the Penal Code will be interpreted (in particularly the potential scope of activity that may bring on liability for individuals “carrying out” the prohibited agreement).

Bid-rigging is addressed in Article 222 of the Penal Code which, based on the circumstances, can lead to prison terms of up to 20 years, being prohibited from certain occupations for up to 5 years and confiscation of property. This Article appears to be focused solely on individual, as opposed to corporate, offenders and there does not appear to be any criminal liability imposed for companies for bid-rigging under the Penal Code.

In summary, while some clarification is required, the Penal Code greatly increases the stakes of cartel behaviour and companies should consider carefully reviewing their business practices to ensure that they will not fall under the scope of these new provisions. Of course, given potential penalties, such as imprisonment, individuals will also now have to consider their potential liability for engaging in prohibited criminal conduct.
DFDL contacts:
David Fruitman
Regional Competition Counsel
Hoang Phong Anh
Partner, Vietnam; Lawyer
Le Anh Cuong
Legal Adviser

*The information is provided for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.