Our Competition Commission is pushing this one, very bad, idea

‘If the commission fishes for big fish all we will get is huge legal bills and multiyear delays in negligible outcomes as our regulators are stalled by obstructionist corporate lawyers. Is it really worth it?’

PUBLISHED : Monday, 06 November, 2017, 9:33pm
UPDATED : Monday, 06 November, 2017, 11:06pm

Hong Kong’s competition watchdog should seek jail sentences against offenders whenever possible, according to the new chief executive of the anti-trust regulator.

- SCMP, November 6

Let me tell you how this relationship of regulator and prison sentence works in the United States, from where our new Competition Commission boss, Brent Snyder hails.

I call it a form of blackmail. Any regulator in the US, be it in competition, securities, or banking, frequently finds it difficult to put together a case that will stand up in court against a corporation. Hard evidence is required and mostly the regulator does not have it.

Thus he instead tells the directors and executives of the corporation he targets that the government will institute personal criminal action against them and ask for prison sentences.

There is a way out of this fate of course. If only these directors and executives will agree to have the company make a large payment “in compensation” for their alleged misdeeds, then the regulator will “ring-fence” them out of any personal criminal action and they need not trouble themselves.

Invariably the victims of this blackmail agree. Leave alone the possibility of spending years in prison, and justice in the US can be a very uncertain thing, they take the view that it is not worth impoverishing themselves through legal fees, which they will certainly do if they refuse.

The ransom (you can see it as kidnap, too) is invariably big. This is a necessary element of the scheme. If the regulator takes only US$100,000, the public will say, “Is that all? Were they really guilty then?”

But if he takes US$100 million, the public will say, “Wow, that’s big. They must have been guilty then or they wouldn’t have paid it.”

There is one further important element to the regulator’s deal. The victims may never talk about in public and may certainly never divulge it to the media. All must be kept dark and hidden or the “ring-fence” will be withdrawn and personal criminal action will again be on the cards.

Then, when all is arranged, the regulator brandishes the scalp he has taken and, without fear of contradiction, loudly proclaims to a press conference he has called: “Look, I got me another one. Don’t you love me for upholding justice? Remember me when I run for governor next year.”

Law agencies drool over prison sentences in the US, where about 2.3 million people are at present behind bars, almost 1 per cent of the population, the highest incarceration rate in the world.

Our own judges in Hong Kong may also be fond of jailing people but they are not in the same league as their colleagues in the US and, fortunately, we are not at risk of US style regulator blackmail. Our competition commission can fine but it cannot jail.

Let’s keep it that way.

Of course, the best guarantee of keeping it that way would be to make government agencies subject to the competition commission. Bureaucrats would never tolerate the risk of jail sentences.

Unfortunately, every arm of our government has been ring-fenced out of competition law. Government agencies can do no wrong, you see, and consequently there is no need to include them in provisions against wrongdoers.

Thus, aside from dabbling in taxi licence ownership and Korean bonds, the monetary authority’s mortgage corporation, for instance, can lean on the government’s balance sheet to drive private competitors out of mortgage insurance. But that’s not an anti-competitive practice, no, not at all.

I personally think this commission’s catch is unlikely to run much bigger than stall keepers in street markets where collusion is an established practice predating the Ten Commandments.

Everyone instead has property developers in mind, of course, but what can the commission really do at land auctions? Joint bids are not illegal. All corporate enterprise is a form of collusion among shareholders. Where do you draw the line?

And if the commission fishes for big fish all we will get is huge legal bills and multiyear delays in negligible outcomes as our regulators are stalled by obstructionist corporate lawyers. Is it really worth it?

But let’s hear no more talk of prison from you, Mr Snyder. If that’s your line, then go back home.