By Susan Ning, Ji Kailun and Hazel Yin
On 30 December 2011, the Ministry of Commerce ("MOFCOM") promulgated the Interim Measures on Investigation and Punishment of Failure to Duly Notify Concentrations of Undertakings (《未依法申报经营者集中调查处理暂行办法》, "Interim Measures"), effective from February 1, 2012.1 The Interim Measures set down the procedures for MOFCOM to investigate and penalize companies for failure to notify a notifiable transaction in violation of the Anti-Monopoly Law ("AML").
According to the Interim Measures, MOFCOM shall initiate an investigation ("case acceptance") if there is prima facie evidence, either presented by any third party or it obtains through other channels, indicating that a company fails to notify a notifiable transaction.
There are two phases to such an investigation. In the initial investigation stage ("Phase 1"), the company under investigation shall, within 30 days from case acceptance, submit materials regarding whether the transaction is a "business concentration" under the AML, whether the filing thresholds have been met, and the status for implementation of the transaction. MOFCOM then has 60 days to decide (i) to start an in-depth investigation ("Phase 2"), if it finds that the transaction is a notifiable transaction under the AML; or (ii) otherwise to close the case.
In Phase 2, the company shall submit a complete package of materials for MOFCOM to review the competitive effect of the transaction. MOFCOM has 180 days to complete the substantive evaluation, same as the maximum time limit in a normal merger control notification.
Penalties for failure of notifying a concentration may include a fine of no more than RMB500,000, and an order for the company to take actions to rewind the transaction, such as ceasing implementation of the concentration, disposal of shares or assets, and transfer of business.
Compared to the normal merger review process, the investigation process has various serious implications on the companies who fail to honor the mandatory notification obligation under the AML. The investigation process may last longer than a normal review: the two phases can take 10 months or even more. Once Phase 2 starts, the company shall suspend implementation of the transaction no matter what. Besides, since this is an investigation procedure, MOFCOM is entitled to take various measures provided under Article 39 of the AML, including entering the company’s business premises for inspection, interviewing the relevant personnel from the company, reviewing and making copies of the company’s accounting books, business letters and electronic data, seizing the relevant evidence, and checking the bank accounts of the company under investigation. MOFCOM is also entitled to authorize its provincial counterparts to assist with investigation of cases within their jurisdictions.
At a recent MOFCOM press release, Mr. Shang Ming, Director General of MOFCOM’s Anti-monopoly Bureau ("AMB") and Chairman of the General Office of the State Council’s Anti- monopoly Commission, said that enforcement against failure of notifying a notifiable transaction is one of the top priorities for AMB in 2012.2 Mr. Shang mentioned that MOFCOM has been educating Chinese companies, both state-owned and private, of the AML. He said that promulgation of the Interim Measures intends to work as a reminder to the companies that merger control notification is a mandatory requirement under the AML. It is reasonable to expect that we will see MOFCOM enforcing the Interim Measures soon.
Set forth below is the flowchart of MOFCOM’s investigation procedures.
MOFCOM Investigation Procedures Regarding Failure to Notify a Concentration
1A copy (in Chinese) of the Interim Measures (MOFCOM Decree  No. 6) is available at: http://www.mofcom.gov.cn/aarticle/b/c/201201/20120107914884.html?test.
2The complete text of the press release is available at: http://www.mofcom.gov.cn/aarticle/ae/slfw/201112/20111207901483.html (in Chinese).